$24,210,000 STOCKTON PUBLIC FINANCING AUTHORITY REVENUE BONDS (ARCH ROAD EAST CFD NO ) SERIES 2018A

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1 NEW ISSUE-FULL BOOK ENTRY NO RATING In the opinion of Quint & Thimmig LLP, Larkspur, California, Bond Counsel, subject to compliance by the Stockton Public Financing Authority and the City of Stockton, California with certain covenants, interest on the Bonds (a) is excludable from gross income of the owners thereof for federal income tax purposes, and (b) is not included as an item of tax preference in computing the alternative minimum tax for individuals under the Internal Revenue Code of 1986, as amended. In the further opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. See LEGAL MATTERS Tax Matters. Dated: Date of Delivery $24,210,000 STOCKTON PUBLIC FINANCING AUTHORITY REVENUE BONDS (ARCH ROAD EAST CFD NO ) SERIES 2018A Due: September 1, as shown on inside cover Authority for Issuance. The above-captioned bonds (the Bonds ) are being issued by the Stockton Public Financing Authority (the Authority ), pursuant to Article 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the California Government Code, under an Indenture of Trust dated as of December 1, 2018 (the Indenture ), between the Authority and Wells Fargo Bank, National Association, as trustee (the Trustee ), and pursuant to a Resolution adopted by the Board of Directors of the Authority on November 6, See THE BONDS Authority for Issuance. Use of Proceeds. The Bonds are being issued to (i) acquire two series of special tax bonds to be issued by the City of Stockton, California (the City ) concurrently with the issuance of the Bonds (the CFD Bonds ), (ii) fund a debt service reserve fund for the Bonds, and (iii) pay costs of issuance of the Bonds and of the CFD Bonds. See FINANCING PLAN. Security and Sources of Payment for the Bonds. The Bonds are payable solely from Revenues pledged by the Authority under the Indenture, which consist primarily of amounts received from the payment of debt service on the CFD Bonds. See SECURITY FOR THE BONDS. Security for the CFD Bonds. The CFD Bonds are payable from special taxes levied by the City (the Special Taxes ) on certain parcels within the City of Stockton Arch Road East Community Facilities District No (the CFD ). See THE CFD and SECURITY FOR THE CFD BONDS. Bond Terms. The Bonds will be issued in denominations of $5,000 or any integral multiple of $5,000. Interest is payable semiannually on each March 1 and September 1, commencing March 1, 2019, to the Owners of record as of the Record Date. The Record Date for the Bonds is the 15th day of the calendar month preceding an Interest Payment Date, whether or not such day is a Business Day. The Bonds will be initially issued only in book-entry form and registered to Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository of the Bonds. Principal and interest (and premium, if any) on the Bonds is payable by the Trustee to DTC, which remits such payments to its Participants for subsequent distribution to the registered owners as shown on the Trustee s books. See THE BONDS - Bond Terms and Book-Entry Only System. Redemption. The Bonds are subject to optional redemption, mandatory sinking fund redemption and mandatory special redemption from the proceeds of any early redemption of CFD Bonds as a result of Special Tax prepayments. See THE BONDS Redemption. Risk Factors. Investment in the Bonds involves a significant degree of risk and is speculative in nature and may not be appropriate for some investors. See RISK FACTORS for a discussion of special risk factors that should be considered in addition to the other matters set forth herein in evaluating the investment quality of the Bonds. The Bonds are limited obligations of the Authority payable solely from and secured solely by the revenues and funds pledged therefor under the Indenture. The Bonds are not a debt or liability of the City or the State of California or any political subdivision thereof other than the Authority and then only to the limited extent set forth in the Indenture, and the faith and credit of the Authority, the City or the State or any of its political subdivisions are not pledged to the payment of principal of, premium, if any, or interest on the Bonds, and none of the Authority (except to the limited extent described herein), the City or the State or any of its political subdivisions is liable therefor. Neither the Bonds nor the CFD Bonds constitute an indebtedness of the Authority, the City or the State or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. The Authority has no taxing power. Maturity Schedule (see inside cover) The Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval as to their legality by Quint & Thimmig LLP, Larkspur, California, as Bond Counsel. Certain legal matters will be passed upon for the Authority and the City by the City Attorney, for the Authority by Quint & Thimmig LLP, serving as Disclosure Counsel to the Authority for the Bonds, and for the Underwriter by its counsel, Kutak Rock LLP, Irvine, California. It is anticipated that the Bonds in definitive form will be available for delivery to DTC on or about December 19, The date of this Official Statement is December 4, 2018.

2 MATURITY SCHEDULE $24,210,000 STOCKTON PUBLIC FINANCING AUTHORITY REVENUE BONDS (ARCH ROAD EAST CFD NO ) SERIES 2018A Maturity (September 1) Principal Amount $3,725,000 Serial Bonds (CUSIP Prefix : ) Interest Rate Yield Price CUSIP Suffix 2019 $615, % 2.250% HG , HH , HJ , HK , HL , HM , HN , HP9 $1,420, % Term Bond due September 1, 2028; Yield: 3.700%; Price: c; CUSIP : HR5 $5,100, % Term Bond due September 1, 2033; Yield: 3.990%; Price: cc; CUSIP : HS3 $6,120, % Term Bond due September 1, 20373; Yield: 4.210%; Price: cc; CUSIP : HT1 $7,845, % Term Bond due September 1, 2043; Yield: 4.370%; Price: cc; CUSIP : HU8 c Priced to the optional redemption date of September 1, 2025 at 103%. cc Priced to the optional redemption date of September 1, 2028 at par. Copyright, American Bankers Association. CUSIP data herein are provided by Standard & Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. None of the City, the Authority or the Underwriter assumes any responsibility for the accuracy of CUSIP data.

3 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other person has been authorized by the Authority, the City or the Underwriter to give any information or to make any representations with respect to the Bonds, or the CFD Bonds other than as contained in this Official Statement, and if given or made, such other information or representation must not be relied upon as having been authorized by the Authority, the City or the Underwriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the City, the CFD or any other parties described in this Official Statement, or in the condition of property within the CFD since the date of this Official Statement. Use of this Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract with the purchasers of the Bonds. Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Document References and Summaries. All references to and summaries of the Indenture or other documents contained in this Official Statement are subject to the provisions of those documents and do not purport to be complete statements of those documents. Stabilization of and Changes to Offering Prices. The Underwriter may overallot or take other steps that stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. If commenced, the Underwriter may discontinue such market stabilization at any time. The Underwriter may offer and sell the Bonds to certain dealers, dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside cover page of this Official Statement, and those public offering prices may be changed from time to time by the Underwriter. Bonds are Exempt from Securities Laws Registration. The issuance and sale of the Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exemptions for the issuance and sale of municipal securities. The Bonds have not been registered or qualified under the securities laws of any state. Estimates and Projections. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Authority and the City do not plan to issue any updates or revisions to those forward-looking statements if or when any expectations, or events, conditions or circumstances on which such statements are based occur. City Website. The City maintains an Internet website, but the information on the website is not incorporated in this Official Statement. -i-

4 STOCKTON PUBLIC FINANCING AUTHORITY and CITY OF STOCKTON, CALIFORNIA BOARD OF DIRECTORS OF THE AUTHORITY AND MEMBERS OF THE CITY COUNCIL Michael D. Tubbs, Chair and Mayor Elbert H. Holman, Jr., Vice Chair and Councilmember, District 1 Dan Wright, Member and Councilmember, District 2 Susan Lofthus, Member and Councilmember, District 3 Susan Lenz, Member and Councilmember, District 4 Christina Fugazi, Member and Vice Mayor, District 5 Jesús Andrade, Member and Councilmember, District 6 OFFICERS Kurt O. Wilson, City Manager Matt Paulin, Controller/Treasurer and Chief Financial Officer Kevin Beltz, Program Manager Christian Clegg, Interim City Clerk John M. Luebberke, City Attorney FINANCING SERVICES Municipal Advisor Del Rio Advisors, LLC Modesto, California Bond Counsel and Disclosure Counsel Quint & Thimmig LLP Larkspur, California Special Tax Administrator Willdan Financial Services Temecula, California Appraiser Integra Realty Resources San Francisco, California Trustee and Escrow Bank Wells Fargo Bank, National Association San Francisco, California Verification Agent Grant Thornton, LLP Minneapolis, Minnesota -ii-

5 TABLE OF CONTENTS INTRODUCTION...1 Authority for Issuance...1 Financing Purposes...1 Description of the Bonds...1 Redemption...2 Security and Sources of Payment for the Bonds...2 The CFD Bonds...2 Debt Service Reserve...3 Teeter Plan; Foreclosure Covenant...3 Limited Obligations; Risk Factors...3 Legal Matters...4 Professional Services...4 Continuing Disclosure...4 Other Information...5 FINANCING PLAN...5 Purpose of the Bonds...5 Purpose of the CFD Bonds...5 Estimated Sources and Uses of Funds...6 THE BONDS...7 Authority for Issuance...7 Bond Terms...7 Redemption...8 Book-Entry Only System...12 Registration, Transfer and Exchange of Bonds...12 Debt Service Schedule for the Bonds...13 Debt Service Coverage on the Bonds...14 SECURITY FOR THE BONDS...15 General...15 Revenues; Flow of Funds...15 Reserve Fund...17 Additional Bonds...17 SECURITY FOR THE CFD BONDS...17 General...17 Special Taxes; Gross Taxes; Net Taxes...18 Priority of Lien...18 Covenants of the City...19 Rate and Method...20 Parity CFD Bonds...22 THE CFD...24 Location and Description of the CFD...24 History of the CFD...25 The Improvements Historical Assessed Values Status of the Taxable Parcels The Landowners Value-to-Burden Ratios Rate and Method; Maximum Special Taxes Direct and Overlapping Indebtedness Delinquencies RISK FACTORS Limited Obligation to Pay Debt Service Concentration of Ownership Levy and Collection of the Special Taxes Assessed Valuations/Appraisal Property Values Other Possible Claims Upon the Property Values Enforcement of Special Taxes on Governmentally Owned Properties Depletion of Reserve Fund Failure to Complete Development Construction Risk Bankruptcy Delays Disclosure to Future Purchasers No Acceleration; Right to Pursue Remedies Loss of Tax Exemption Voter Initiatives Secondary Market for Bonds THE AUTHORITY LEGAL MATTERS Tax Matters Absence of Litigation Legal Opinion NO RATING VERIFICATION OF MATHEMATICAL ACCURACY MUNICIPAL ADVISOR UNDERWRITING CONTINUING DISCLOSURE The City CTR Partners LLC Remedies for Failures to Comply EXECUTION APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F APPENDIX G APPENDIX H AMENDED AND RESTATED RATE, METHOD OF APPORTIONMENT, AND MANNER OF COLLECTION OF SPECIAL TAX GENERAL INFORMATION REGARDING THE CITY OF STOCKTON AND THE COUNTY OF SAN JOAQUIN SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FORM OF BOND COUNSEL OPINION FORM OF CONTINUING DISCLOSURE CERTIFICATE OF THE CITY FORM OF CONTINUING DISCLOSURE CERTIFICATE LANDOWNERS DTC AND THE BOOK-ENTRY-ONLY SYSTEM THE APPRAISAL -iii-

6 REGIONAL LOCATION MAP -iv-

7 OFFICIAL STATEMENT $24,210,000 STOCKTON PUBLIC FINANCING AUTHORITY REVENUE BONDS (ARCH ROAD EAST CFD NO ) SERIES 2018A INTRODUCTION The purpose of this Official Statement, which includes the cover page and Appendices hereto (the Official Statement ), is to provide certain information concerning the sale and issuance of the above-captioned revenue bonds (the Bonds ) by the Stockton Public Financing Authority (the Authority ). This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used but not defined in this Official Statement have the meanings given to them in the Indenture (referred to below), or in the Fiscal Agent Agreement (referred to below). See APPENDIX C Summary of Principal Legal Documents. Authority for Issuance The Bonds are being issued by the Authority under Article 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the Act ), under an Indenture of Trust dated as of December 1, 2018 (the Indenture ), by and between the Authority and Wells Fargo Bank, National Association, as trustee (the Trustee ), and pursuant to a Resolution adopted by the Board of Directors of the Authority on November 6, 2018 (the Authority Resolution ). See THE BONDS Authority for Issuance. Financing Purposes The Bonds are being issued for the following purposes: (i) to acquire two series of special tax bonds (collectively, the CFD Bonds ) to be issued by the City of Stockton (the City ) concurrently with the issuance of the Bonds, (ii) to fund a debt service reserve fund for the Bonds, and (iii) to pay costs of issuance of the Bonds and the CFD Bonds. The CFD Bonds are being issued by the City for and on behalf of the City s Arch Road East Community Facilities District No (the CFD ) to (i) refund a series of special tax bonds issued by the City for the CFD in 2007, (ii) provide funds for certain public improvements, and (iii) pay interest on a portion of the CFD Bonds due on March 1, See INTRODUCTION The CFD Bonds. See also FINANCING PLAN for a further description of the uses of the proceeds of the Bonds and of the CFD Bonds. Description of the Bonds The Bonds will be issued in denominations of $5,000 or any integral multiple of $5,000. Interest is payable semiannually on each March 1 and September 1, commencing March 1, The Bonds will be initially issued only in book-entry form and registered to Cede & Co. as -1-

8 nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository of the Bonds. Principal and interest (and premium, if any) on the Bonds is payable by the Trustee to DTC, which remits such payments to its Participants for subsequent distribution to the registered owners as shown on the Trustee s books. See THE BONDS Book-Entry Only System and APPENDIX G DTC and The Book-Entry Only System. Redemption The Bonds are subject to optional redemption, mandatory sinking fund redemption, and mandatory special redemption from the proceeds of any early redemption of CFD Bonds as a result of Special Tax prepayments. See THE BONDS Redemption. Security and Sources of Payment for the Bonds The Bonds are payable from the Revenues, which consist primarily of debt service payments made by the City on the CFD Bonds, as further described below. The aggregate debt service on the CFD Bonds has been structured so that the Authority will receive sufficient funds, in both time and amount, to enable it to pay the scheduled debt service on the Bonds. A debt service reserve fund (the Reserve Fund ) has been established under the Indenture to provide additional security for the payment of the Bonds. See SECURITY FOR THE BONDS. The CFD Bonds The CFD Bonds consist of two series of special tax bonds being issued by the City under the Mello-Roos Community Facilities Act of 1982, as amended (the Mello-Roos Act ) for the CFD, including the City of Stockton Arch Road East Community Facilities District No Special Tax Refunding Bonds Series 2018A (the Series 2018A CFD Bonds ), and the City of Stockton Arch Road East Community Facilities District No Special Tax Bonds Series 2018B (the Series 2018B CFD Bonds ). Authority for Issuance. The CFD Bonds are being issued on a parity basis under the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California (the Mello-Roos Act ), and a Fiscal Agent Agreement, dated as of December 1, 2018 (the Fiscal Agent Agreement ), between the City, for and on behalf of the CFD, and Wells Fargo Bank, National Association, as fiscal agent (the Fiscal Agent ). Purposes. The Series 2018A CFD Bonds are being issued to refund a series of special tax bonds issued in 2007 by the City for the CFD (the Prior CFD Bonds ). The Series 2018B CFD Bonds are being issued to provide funds to finance public improvements authorized to be funded by the CFD, and to pay interest due on the Series 2018B CFD Bonds on March 1, See FINANCING PLAN. Security and Sources of Payment. The CFD Bonds are payable on a parity basis from Net Taxes resulting from the levy of Special Taxes on Taxable Parcels within the CFD, which are generally defined as gross proceeds of the Special Taxes levied on certain property in the CFD and received by the City, less amounts set aside to pay Administrative Expenses, and not including any penalties collected in connection with delinquent Special Taxes or any interest so collected in excess of the interest due on the CFD Bonds. See SECURITY FOR THE CFD BONDS and THE CFD. Value of Taxable Parcels. The Taxable Parcels in the CFD include eleven separate San Joaquin County Assessor s Parcels, six of which have been improved with structures -2-

9 consisting of warehouses/distribution centers and five of which are currently undeveloped. Two entities that are subsidiaries of Prologis, Inc., Prologis, a Maryland real estate investment trust and Prologis Exchange Stockton 10 and 11 LLC, a Delaware limited liability company, currently each own two of the developed parcels, and two entities, NorCal LandCo, LLC and DRI/CT Stockton Bldg 7, LLC own four of the undeveloped parcels. See THE CFD Status of the Taxable Parcels. The current aggregate County assessed value of the six developed parcels responsible for approximately 49% of the fiscal year annual Special Tax levy on the Taxable Parcels is $162,923,573. To determine the value of the five undeveloped parcels, the City commissioned an appraisal of those parcels (the Appraisal ). The Appraisal by Integra Realty Resources, San Francisco, California (the Appraiser ), dated November 13, 2018 and with a date of value of September 17, 2018, determined, subject to various assumptions and limiting conditions as well as a certain hypothetical condition, that the aggregate of the market value of one of those parcels, together with the market and bulk sale value of the other four such parcels, is $42,670,000. The five undeveloped parcels are responsible for approximately 51% of the fiscal year annual special tax levy on the Taxable Parcels. See THE CFD Value-to-Burden Ratios. Future Parity CFD Bonds. The Fiscal Agent Agreement allows for the issuance by the City of future special tax bonds for the CFD secured on a parity basis with the CFD Bonds ( Parity CFD Bonds ) to fund the remaining improvements authorized to be funded by the CFD and to refund outstanding bonds issued by the City for the CFD, subject to the conditions set forth in the Fiscal Agent Agreement. See SECURITY FOR THE CFD BONDS Parity CFD Bonds and THE CFD The Improvements. Debt Service Reserve The Bonds are further secured by a Reserve Fund, which will be held by the Trustee under the Indenture, and which will be maintained in an amount equal to the Reserve Requirement (as defined herein) for the Bonds. On the Closing Date, the Authority will deposit $2,226, of the proceeds of the Bonds in the Reserve Fund. See SECURITY FOR THE BONDS Reserve Fund. Teeter Plan; Foreclosure Covenant The City is located in San Joaquin County (the County ), which currently applies the Teeter Plan to ad valorem property taxes, special taxes and assessments and reassessments. Under the Teeter Plan, the County remits to the applicable taxing entities the full amounts owing of such taxes and assessments without regard to any delinquencies in such payments. The County may at any time discontinue application of the Teeter Plan with respect to any one or more parcels of real property subject to a Special Tax levy. See THE CFD Delinquencies. To provide additional security for the CFD Bonds, the City has agreed to a foreclosure covenant in the Fiscal Agent Agreement, as described under SECURITY FOR THE CFD BONDS Covenants of the City. Limited Obligations; Risk Factors The Bonds are limited obligations of the Authority payable solely from and secured solely by the Revenues and funds pledged therefor under the Indenture. The Bonds are not a debt or liability of the City or the State of California or any political subdivision thereof other than the Authority and then only to the limited extent set forth in the Indenture, and the faith and credit of the Authority, the City or the State or any of its political subdivisions are not -3-

10 pledged to the payment of principal of, premium, if any, or interest on the Bonds, and none of the Authority (except to the limited extent set forth in the Indenture), the City or the State or any of its political subdivisions is liable therefor, nor in any event will the Bonds or any interest or redemption premium thereon be payable out of any funds or properties other than those of the Authority pledged therefor in the Indenture. Neither the Bonds nor the CFD Bonds constitute an indebtedness of the Authority, the City or the State or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. The Authority has no taxing power. For a discussion of some of the risks associated with the purchase of the Bonds, see RISK FACTORS. Legal Matters The legal proceedings in connection with the issuance of the Bonds are subject to the approving opinion of Quint & Thimmig LLP, Larkspur, California, as Bond Counsel. Such opinion, and certain tax consequences incident to the ownership of the Bonds, including certain exemptions to the tax treatment of interest on the Bonds, are described more fully under the heading LEGAL MATTERS Tax Matters herein. Certain legal matters will be passed on for the Authority by Quint & Thimmig LLP, in its capacity as Disclosure Counsel to the Authority for the Bonds, and for the Authority and the City by the City Attorney. Certain legal matters will be passed on for the Underwriter by its counsel, Kutak Rock LLP, Irvine, California. Professional Services Wells Fargo Bank, National Association, will act as Trustee for the Bonds, as Escrow Bank under the Escrow Agreement described below and as Fiscal Agent for the CFD Bonds. Del Rio Advisors, LLC, Modesto, California (the Municipal Advisor ) advised the Authority as to the financial structure and certain other matters relating to the Bonds. Willdan Financial Services acts as Special Tax Administrator for the CFD, and is expected to assist the City as Dissemination Agent under the Continuing Disclosure Certificate referred to herein. Fees payable to Bond Counsel, Disclosure Counsel, Underwriter s Counsel, the Municipal Advisor and Wells Fargo Bank, National Association for its several roles are contingent upon the sale and delivery of the Bonds. Continuing Disclosure For purposes of complying with Rule 15c2-12(b)(5) promulgated under the Securities Exchange Act of 1934, as amended (the Rule ), the City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board (the MSRB ) certain annual financial information and other information. NorCal LandCo, LLC, as the owner of three parcels of the undeveloped land in the CFD, has agreed to provide, or cause to be provided, semiannually to the MSRB certain financial and other information regarding itself and the three parcels it owns. The City and NorCal LandCo, LLC each have further agreed to provide notice of certain enumerated events. NorCal LandCo, LLC s semiannual and enumerated event reporting obligations will terminate as to any specific parcel owned by NorCal LandCo, LLC, when the assessed valuation of the parcel includes structure value as evidenced by the ad valorem tax bill of San Joaquin County for the parcel, or otherwise if and when the parcels owned by NorCal LandCo, LLC, and any affiliates thereof, or successors thereto, are subject to less than ten -4-

11 percent (10%) of the annual Special Tax levy. See CONTINUING DISCLOSURE, and Appendices E and F for a description of the specific nature of the annual reports and notices of enumerated events, as well as the terms of the Continuing Disclosure Certificate of the City and the Continuing Disclosure Certificate of NorCal LandCo, LLC, respectively, pursuant to which such reports and notices are to be made. Other Information Copies of the Indenture, the Fiscal Agent Agreement and certain other documents referenced in this Official Statement are available for inspection at the office of, and (upon written request and payment to the City of a charge for copying, mailing and handling) are available prior to the issuance of the Bonds from the City, 425 North El Dorado Street, Stockton, California Attention: Chief Financial Officer; and thereafter from the Trustee, Wells Fargo Bank, National Association, 333 Market Street, 18th Floor, San Francisco, California Attention: Corporate Trust Department. Purpose of the Bonds FINANCING PLAN The Bonds are being issued (i) to acquire the two series of CFD Bonds, which will be issued by the City concurrently with the issuance of the Bonds, (ii) to fund a debt service reserve fund for the Bonds, and (iii) to pay costs of issuance of the Bonds and the CFD Bonds. The aggregate debt service on the CFD Bonds has been structured so that the Authority will receive sufficient funds, in both time and amount, to enable it to pay debt service on the Bonds. See THE BONDS Debt Service Coverage on the Bonds. Purpose of the CFD Bonds The CFD Bonds consist of two series of special tax bonds issued on a parity basis under the Fiscal Agent Agreement simultaneously with the issuance of the Bonds under the Indenture. The Series 2018A CFD Bonds are being issued to refund the outstanding Prior CFD Bonds, and the Series 2018B CFD Bonds are being issued to finance public improvements authorized to be funded by the CFD and to pay interest on the Series 2018B CFD Bonds due on March 1, Refunding of Prior CFD Bonds. The Prior CFD Bonds were issued in the original principal amount of $19,065,000 on September 6, 2007 (of which $17,760,000 will be outstanding as of the date of issuance of the Bonds (the Closing Date ) and will be redeemed with proceeds of the Series 2018A CFD Bonds) to refund bonds issued by the City for the CFD in 1999 and 2002, as well as to fund public improvements authorized to be funded by the CFD. Following the issuance of the CFD Bonds, the CFD Bonds will be the only outstanding bonds payable from the Special Taxes levied on property in the CFD; however, the Fiscal Agent Agreement allows for the issuance of future Parity CFD Bonds subject to the requirements of the Fiscal Agent Agreement. See SECURITY FOR THE CFD BONDS Parity CFD Bonds. On the Closing Date, the City and Wells Fargo Bank, National Association, as fiscal agent for the Prior CFD Bonds (the Escrow Bank, ) will enter into an Escrow Agreement (the Escrow Agreement ) with respect to the refunding and defeasance of the Prior CFD Bonds. The City will cause proceeds of the Series 2018A CFD Bonds and amounts held with respect to the Prior CFD Bonds to be transferred to the Escrow Bank for deposit into a refunding fund (the Escrow Fund ). The funds deposited to the Escrow Fund will be invested in certain federal securities or held in cash by the Escrow Bank, as provided in the Escrow Agreement. The -5-

12 amounts deposited to the Escrow Fund will be sufficient, without reinvestment, as verified by Grant Thornton, LLP, to provide for the redemption of the outstanding Prior CFD Bonds on March 1, 2019 at a redemption price of 101% of the principal of the Prior CFD Bonds to be redeemed together with accrued interest to the redemption date. Upon deposit of the aforementioned funds in the Escrow Fund on the Closing Date, the Prior CFD Bonds will be legally defeased, and the Prior CFD Bonds will no longer be payable from special tax levies on properties in the CFD. The amounts held by the Escrow Bank in the Escrow Fund are pledged solely to the payment of the Prior CFD Bonds. The funds deposited in the Escrow Fund will not be available for the payment of debt service on the CFD Bonds or the Bonds. Funding for Improvements. Proceeds of the Series 2018B CFD Bonds not used to pay interest on the Series 2018B CFD Bonds due on March 1, 2019 will be deposited to an Improvement Fund established and held by the Fiscal Agent under the Fiscal Agent Agreement. Amounts in the Improvement Fund will be used to fund certain public improvements authorized to be funded by the CFD, including the acquisition of land for and construction of a detention basin and the construction of a pump station (collectively, the Improvements ), both of which are required to be completed in order for the continued development of certain property in the CFD. See THE CFD The Improvements. Amounts in the Improvement Fund are not available for payment of the debt service on the CFD Bonds or the Bonds. The CFD is authorized to fund the remaining public improvement expected to be financed by the CFD or other improvements the CFD is authorized to finance, and the Fiscal Agent Agreement allows for the issuance of Parity CFD Bonds subject to certain conditions proceeds of which are expected to be used to finance any such improvements. See SECURITY FOR THE CFD BONDS Parity CFD Bonds and THE CFD The Improvements. Estimated Sources and Uses of Funds The Bonds. The anticipated sources and uses of funds relating to the Bonds are as follows: Sources: Principal Amount of the Bonds $24,210, Plus: Net Original Issue Premium 1,451, Less: Underwriter s Discount (242,100.00) Total Sources $25,418, Uses: Deposit to Purchase Fund(1) $22,788, Deposit to Reserve Fund(2) 2,226, Deposit to Costs of Issuance Fund(3) 403, Total Uses $25,418, (1) To be used to acquire the CFD Bonds on the Closing Date. See FINANCING PLAN Purpose of the Bonds. (2) See SECURITY FOR THE BONDS Reserve Fund. (3) To be used to pay the costs of issuing the Bonds and the CFD Bonds, including Trustee, Fiscal Agent and Escrow Bank fees, Bond Counsel and Disclosure Counsel fees, Municipal Advisor and Special Tax Consultant fees, and printing costs, among other costs. -6-

13 The CFD Bonds. The anticipated sources and uses of funds relating to the CFD Bonds are as follows: Sources: Purchase Price of CFD Bonds (1) $22,788, Amounts held with respect to Prior CFD Bonds 3,342, Total Sources $26,130, Uses: Refunding of Prior CFD Bonds (2) $18,371, Deposit to Improvement Fund (3) 7,484, Deposit to Interest Account (4) 274, Total Uses $26,130, (1) Net of Bond proceeds used to pay costs of issuance of the Bonds and the CFD Bonds, and to be deposited to the Reserve Fund. See FINANCING PLAN Sources and Uses of Funds - The Bonds. (2) See FINANCING PLAN Purpose of the CFD Bonds - Refunding of Prior CFD Bonds. (3) See FINANCING PLAN Purpose of the CFD Bonds-Funding for Improvements, and THE CFD The Improvements. (4) To be used to pay interest on the Series 2018B CFD Bonds due on March 1, 2019 and on September 1, THE BONDS This section provides a summary of certain of the provisions of the Indenture relating to the Bonds. See APPENDIX C Summary of Principal Legal Documents for a more complete summary of the Indenture. Capitalized terms used but not defined in this section have the meanings given in APPENDIX C. Authority for Issuance The Bonds are being issued under the Act, the Authority Resolution, which was adopted by the Board of Directors of the Authority on November 6, 2018, and the Indenture. Under the Authority Resolution, the Bonds may be issued in a principal amount not to exceed $27,500,000. Bond Terms General. The Bonds will be dated their date of delivery, and will be issued in the aggregate principal amounts set forth on the inside cover page hereof. The Bonds will bear interest from their dated date at the rates per annum set forth on the inside cover page hereof, payable semiannually on each March 1 and September 1, commencing March 1, 2019 (each, an Interest Payment Date ), and will mature in the amounts and on the dates set forth on the inside cover page hereof. The Bonds will be issued in fully registered form in denominations of $5,000 each or any integral multiple thereof. Payment of Interest and Principal. Interest on the Bonds will be payable on each Interest Payment Date to the person whose name appears on the Bond Register as the Owner of such Bond as of the applicable Record Date (the 15th day of the calendar month preceding an Interest Payment Date, whether or not such day is a Business Day), such interest to be paid by check of the Trustee mailed on such Interest Payment Date by first class mail, postage prepaid, to the Owner at the address of such Owner as it appears on the Bond Register or by wire transfer to an account in the United States of America made on such Interest Payment Date -7-

14 upon instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds of a Series provided to the Trustee in writing at least 5 Business Days before the Record Date for such Interest Payment Date. Principal of and premium (if any) on any Bond will be paid upon presentation and surrender of such Bond, at maturity or the prior redemption of such Bond, at the Trust Office of the Trustee. Calculation of Interest. Each Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it will bear interest from such Interest Payment Date; or (b) it is authenticated on or before February 15, 2019, in which event it will bear interest from the Closing Date; provided, however, that if, as of the date of authentication of any Bond, interest on such Bond is in default, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on such Bond, or from the Closing Date if no interest has been paid or made available for payment. Redemption Optional Redemption. The Bonds may be redeemed at the option of the Authority, from any source of available funds, prior to maturity on any date on or after September 1, 2025, as a whole, or in part from maturities corresponding proportionately to the maturities of the CFD Bonds simultaneously redeemed, if any redemption of CFD Bonds is being accomplished in conjunction with such optional redemption, and otherwise from such maturities as are selected by the Authority, and by lot within a maturity, at a redemption price (expressed as a percentage of the principal amount of the Bonds to be redeemed) as set forth below, plus accrued interest on the Bonds to the date of redemption: Redemption Period Redemption Prices September 1, 2025 through August 31, % September 1, 2026 through August 31, September 1, 2027 through August 31, September 1, 2028 and any date thereafter 100 The Authority will deliver to the Trustee a certificate of an Independent Accountant verifying that, following such optional redemption of the CFD Bonds and redemption of Bonds, the principal and interest generated from the remaining CFD Bonds is adequate to make the timely payment of principal and interest due on the Bonds that will remain Outstanding under the Indenture following such optional redemption. Special Mandatory Redemption. The Bonds are subject to special mandatory redemption on any Interest Payment Date from proceeds of early redemption of CFD Bonds from prepayment of Special Taxes, in whole or in part, from maturities corresponding proportionately to the maturities of the CFD Bonds simultaneously redeemed, at a redemption price (expressed as a percentage of the principal amount of the Bonds to be redeemed) as set forth below, plus accrued interest thereon to the date of redemption: -8-

15 Redemption Dates Redemption Prices any Interest Payment Date from March 1, 103% 2019 to and including March 1, 2026 September 1, 2026 and March 1, September 1, 2027 and March 1, September 1, 2028 and any Interest 100 Payment Date thereafter The Authority will deliver to the Trustee a certificate of an Independent Accountant verifying that, following such special mandatory redemption of the CFD Bonds and special mandatory redemption of Bonds, the principal and interest generated from the remaining CFD Bonds is adequate to make the timely payment of principal and interest due on the Bonds that will remain Outstanding under the Indenture following such redemption. Mandatory Sinking Fund Redemption. The Bonds maturing September 1, 2028 are subject to mandatory sinking payment redemption in part on September 1, 2027, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to 100% of their principal amount to be redeemed, without premium, in the aggregate respective principal amounts as set forth in the following table: 2028 Term Bonds Mandatory Redemption Date Sinking Fund (September 1) Payment 2027 $670, (maturity) 750,000 The Bonds maturing September 1, 2033 are subject to mandatory sinking payment redemption in part on September 1, 2029, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to 100% of their principal amount to be redeemed, without premium, in the aggregate respective principal amounts as set forth in the following table: 2033 Term Bonds Mandatory Redemption Date (September 1) Sinking Fund Payment 2029 $ 830, , ,015, ,115, (maturity) 1,220,000 The Bonds maturing September 1, 2037 are subject to mandatory sinking payment redemption in part on September 1, 2034, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to 100% of their principal amount to be redeemed, without premium, in the aggregate respective principal amounts as set forth in the following table: -9-

16 2037 Term Bonds Mandatory Redemption Date (September 1) Sinking Fund Payment 2034 $1,340, ,460, ,590, (maturity) 1,730,000 The Bonds maturing September 1, 2043 are subject to mandatory sinking payment redemption in part on September 1, 2038, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to 100% of their principal amount to be redeemed, without premium, in the aggregate respective principal amounts as set forth in the following table: 2043 Term Bonds Mandatory Redemption Date (September 1) Sinking Fund Payment 2038 $1,080, ,165, ,255, ,350, ,445, (maturity) 1,550,000 The amounts in the foregoing tables shall be reduced, as a result of any prior partial redemption of the 2028 Term Bonds, the 2033 Term Bonds, the 2037 Term Bonds or the 2043 Term Bonds, pursuant to the optional redemption or special mandatory redemption provisions of the Indenture described above, as specified by the Authority to the Trustee, such that the remaining scheduled payments of principal and interest on the CFD Bonds will be sufficient on a timely basis to pay debt service on the Bonds. The Trustee shall be entitled to rely upon a Certificate of the Authority as proof of such sufficiency. Purchase of Bonds in Lieu of Redemption. In lieu of redemption under the Indenture, amounts held by the Trustee in the Revenue Fund for such redemption shall, at the written request of the Authority received by the Trustee prior to the selection of Authority Bonds for redemption, be applied by the Trustee to the purchase of Bonds at public or private sale as and when and at such prices (including brokerage, accrued interest and other charges) as the Authority may in its discretion direct, but not to exceed the redemption price which would be payable if such Bonds were redeemed. The aggregate principal amount of Bonds of the same maturity purchased in lieu of redemption shall not exceed the aggregate principal amount of Bonds of such maturity which would otherwise be subject to such redemption. Any Bonds so purchased in lieu of redemption shall be treated as if such Bonds were redeemed, for all purposes of the Indenture. Notice of Redemption. The Trustee on behalf, and at the expense, of the Authority will mail (by first class mail, postage prepaid) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Bond Register, and to the Securities Depositories and to the Municipal Securities Rulemaking Board, at least 30 but not more than 60 days prior to the date fixed for redemption. -10-

17 Neither failure to receive any such notice so mailed nor any defect in such notice will affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest on such Bonds. Such notice will state the date of the notice, the redemption date, the redemption place and the redemption price and will designate the CUSIP numbers, the Bond numbers and the maturity or maturities (in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and will require that such Bonds be then surrendered at the Trust Office of the Trustee for redemption at the redemption price, giving notice also that further interest on such Bonds will not accrue after the redemption date. In addition to the foregoing notice, further notice will be given by the Trustee in said form by first class mail to any Bondowner whose Bond has been called for redemption but who has failed to submit his Bond for payment by the date which is 60 days after the redemption date, but no defect in said further notice nor any failure to give or receive all or any portion of such further notice will in any manner defeat the effectiveness of a call for redemption. Rescission of Redemption Notice. Any redemption notice may specify that redemption on the specified date will be subject to receipt by the Authority of moneys sufficient to cause such redemption (and will specify the proposed source of such moneys), and neither the Authority nor the Trustee will have any liability to the Owners or any other party as a result of its failure to redeem the Bonds as a result of insufficient moneys. The Authority has the right to rescind any redemption by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption will be cancelled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation will not constitute an Event of Default under the Indenture. The Trustee will mail notice of rescission of redemption in the same manner notice of redemption was originally provided. Selection of Bonds of a Maturity for Redemption. Unless otherwise provided under the Indenture, whenever provision is made in the Indenture or in the applicable Supplemental Indenture for the redemption of fewer than all of the Bonds of a maturity of the Bonds, the Trustee will select the Bonds to be redeemed from all Bonds of such maturity not previously called for redemption, by lot in any manner which the Trustee in its sole discretion will deem appropriate and fair. For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 authorized denominations, and such separate authorized denominations will be treated as separate Bonds which may be separately redeemed. Partial Redemption of Bonds. If only a portion of any Bond is called for redemption, then upon surrender of such Bond the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same maturity date, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond to be redeemed. Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption will have been duly provided, such Bonds so called will cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price, and no interest will accrue on such Bonds from and after the redemption date specified in such notice. -11-

18 Book-Entry Only System General. The Bonds will be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ), and will be available to actual purchasers of the Bonds (the Beneficial Owners ) in the denominations set forth above, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined in this Official Statement) as described in this Official Statement. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. See APPENDIX G DTC and the Book-Entry-Only System. If the book-entry-only system is no longer used with respect to the Bonds, the Bonds will be registered and transferred in accordance with the Indenture. See Registration, Transfer and Exchange of Bonds below. Payments Made to DTC. While the Bonds are subject to the book-entry system, the principal, interest and any redemption premium with respect to a Bond will be paid by the Trustee to DTC, which in turn is obligated to remit such payment to its DTC Participants for subsequent disbursement to Beneficial Owners of the Bonds, as described in APPENDIX G DTC and the Book-Entry-Only System. Registration, Transfer and Exchange of Bonds Bond Register. The Trustee will keep or cause to be kept at its Trust Office sufficient records for the registration and transfer of the Bonds, which will be the Bond Register and will at all times during regular business hours be open to inspection by the Authority upon reasonable notice; and, upon presentation for such purpose, the Trustee will, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said records, Bonds as provided under the Indenture. The following provisions regarding the transfer and exchange of the Bonds apply only during any period in which the Bonds are not subject to DTC s book-entry system. While the Bonds are subject to DTC s book-entry system, their exchange and transfer will be affected through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC. Transfer of Bonds. Any Bond may in accordance with its terms, be transferred, upon the Bond Register, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer in a form approved by the Trustee, duly executed. Whenever any Bond will be surrendered for transfer, the Authority will execute and the Trustee will thereupon authenticate and deliver to the transferee a new Bond or Bonds of like Series, tenor, maturity and aggregate principal amount. No Bonds selected for redemption will be subject to transfer, nor will any Bond be subject to transfer during the 15 days prior to the selection of Bonds for redemption. The cost of printing any Bonds and any services rendered or any expenses incurred by the Trustee in connection with any transfer or exchange will be paid by the Authority. However, the Owners of the Bonds will be required to pay any tax or other governmental charge required to be paid for any exchange or registration of transfer and the Owners of the Bonds will be required to pay the reasonable fees and expenses of the Trustee and Authority in connection with the replacement of any mutilated, lost or stolen Bonds. -12-

19 Exchange of Bonds. Bonds may be exchanged at the Trust Office of the Trustee for Bonds of the same Series, tenor and maturity and of other authorized denominations. No Bonds selected for redemption will be subject to exchange, nor will any Bond be subject to exchange during the 15 days prior to the selection of Bonds for redemption. The Owners of the Bonds will be required to pay any tax or other governmental charge required to be paid for any exchange and the Owners of the Bonds will be required to pay the reasonable fees and expenses of the Trustee and Authority in connection with the exchange of any Bonds. Debt Service Schedule for the Bonds The table below sets forth the scheduled annual debt service for the Bonds, assuming no optional or special mandatory redemptions of the Bonds prior to their respective maturities. The scheduled aggregate debt service on the Bonds is less than the aggregate of the scheduled debt service on the CFD Bonds. See THE BONDS Debt Service Coverage on the Bonds. Table 1 Stockton Public Financing Authority Annual Debt Service Schedule for the Bonds Year Ending September 1 Principal (1) Interest Total 2019 $ 615,000 $ 821,275 $ 1,436, ,000 1,148,650 1,438, ,000 1,137,050 1,472, ,000 1,123,650 1,508, ,000 1,108,250 1,543, ,000 1,090,850 1,585, ,000 1,071,050 1,626, ,000 1,048,850 1,663, ,000 1,024,250 1,694, , ,750 1,740, , ,250 1,783, , ,750 1,831, ,015, ,750 1,880, ,115, ,000 1,930, ,220, ,250 1,979, ,340, ,250 2,038, ,460, ,250 2,091, ,590, ,250 2,148, ,730, ,750 2,208, ,080, ,250 1,472, ,165, ,250 1,503, ,255, ,000 1,535, ,350, ,250 1,567, ,445, ,750 1,594, ,550,000 77,500 1,627,500 Totals $24,210,000 $18,691,125 $42,901,125 (1) Includes mandatory sinking fund payments. Source: RBC Capital Markets, LLC. -13-

20 Debt Service Coverage on the Bonds The following table sets forth the scheduled annual debt service on the CFD Bonds and the Bonds, and the percentage by which the scheduled annual debt service on the CFD Bonds exceeds the scheduled annual debt service on the Bonds. Year Ending (September 1) Table 2 Stockton Public Financing Authority Debt Service Coverage from CFD Bonds Bonds Debt Service (1) CFD Bonds Debt Service (1),(2) 2019 $1,161,700 $1,280, ,438,650 1,472,050 1,602,129 1,632, ,508,650 1,665, ,543,250 1,696, ,585,850 1,734, ,626,050 1,769, ,663,850 1,802, ,694,250 1,826, ,740,750 1,865, ,783,250 1,900, ,831,750 1,940, ,880,750 1,979, ,930,000 2,018, ,979,250 2,056, ,038,250 2,102, ,091,250 2,141, ,148,250 2,183, ,208,750 2,226, ,472,250 1,472, ,503,250 1,503, ,535,000 1,535, ,567,250 1,567, ,594,750 1,594, ,627,500 1,627, Coverage From CFD Bonds (3) (1) Debt Service is net of capitalized interest funded for a portion of the Bonds through March 1, 2019 and for the Series 2018B CFD Bonds through September 1, (2) Assumes no delinquencies in payment of Special Taxes levied on properties in the CFD, and thereby no failure by the City to timely pay the scheduled principal of and interest on the CFD Bonds. (3) Coverage from CFD Bonds is based on a 100 basis point interest rate spread between the CFD Bonds and the Bonds during the period from September 1, 2019 through September 1, 2037, which is the final maturity date of the Series 2018A CFD Bonds. Source: RBC Capital Markets, LLC. Under the Indenture, on September 1 of each year, after making transfers to the Interest Account and the Principal Account of the Revenue Fund to pay debt service then due on the Bonds, and after any necessary transfer to the Reserve Fund to increase the amount therein to the amount of the then Reserve Requirement, all amounts remaining in the Revenue Fund will be transferred by the Trustee to the Residual Fund, will no longer be subject to the lien of the Indenture, and may be used for any lawful purpose of the Authority. See SECURITY FOR THE BONDS Revenues; Flow of Funds Residual Fund. -14-

21 SECURITY FOR THE BONDS This section provides a summary of the security for the Bonds and certain provisions of the Indenture. See APPENDIX C Summary of Principal Legal Documents for a more complete summary of the Indenture. Capitalized terms used but not defined in this section have the meanings set forth in APPENDIX C. General Revenues. As described below, the Bonds are payable primarily from Revenues, consisting of amounts received by the Authority as the payment of debt service on the CFD Bonds. Debt service on the CFD Bonds is designed to be sufficient, in time and amount, to enable the Authority to pay debt service on the Bonds. The Indenture defines Revenues as follows: (a) all amounts received from the CFD Bonds; (b) any proceeds of the Bonds originally deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established under the Indenture (other than the Rebate Fund and the Residual Fund); and (c) investment income with respect to any moneys held by the Trustee in the funds and accounts established under the Indenture (other than investment income on moneys held in the Rebate Fund and the Residual Fund). Limited Obligations. The Bonds are limited obligations of the Authority payable solely from and secured solely by the Revenues, all of the right, title and interest of the Authority in the CFD Bonds, and amounts in the Reserve Fund, subject to the terms of the Indenture. The Bonds are not a debt or liability of the City, the State of California or any political subdivisions thereof other than the Authority and then only to the limited extent described in this Official Statement, and the faith and credit of the Authority, the City, the State or any of its political subdivisions are not pledged to the payment of principal of, premium, if any, or interest on the Bonds and none of the Authority (except to the extent set forth in the Indenture), the City, or the State or any of its political subdivisions is liable therefor, nor in any event will the Bonds or any interest or redemption premium thereunder be payable out of any funds or properties other than those of the Authority as set forth in the Indenture. Neither the Bonds nor the obligation to make payments on the CFD Bonds constitute an indebtedness of the Authority, the City (except to the limited extent described herein), the State nor any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. The Authority has no taxing power. Revenues; Flow of Funds Revenues. The Bonds are secured by a first lien on and pledge of all of the Revenues. So long as any of the Bonds are Outstanding, the Revenues will not be used for any purpose except as is expressly permitted by the Indenture. Collection by the Trustee. The Trustee will collect and receive all of the Revenues, and any Revenues collected or received by the Authority will be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and will forthwith be paid by the Authority to the Trustee. Subject to the provisions of the Indenture regarding the remedies and rights of the Bond Owners, the Trustee is also entitled to and will take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the City under the CFD Bonds. Deposit of Revenues. All Revenues derived from the CFD Bonds will be promptly deposited by the Trustee upon receipt thereof in the Revenue Fund. -15-

22 Application of Revenues. On each Interest Payment Date and date for redemption of the Bonds, the Trustee will transfer from the Revenue Fund, and deposit into the following respective accounts for the Bonds, the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: Interest Account. On each Interest Payment Date and redemption date, the Trustee will deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such Interest Payment Date on all Outstanding Bonds or to be paid on the Bonds being redeemed on such date. No deposit need be made into the Interest Account if the amount contained in such account is at least equal to the interest becoming due and payable upon all Outstanding Bonds on the next succeeding Interest Payment Date or redemption date, as applicable. All moneys in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it becomes due and payable (including accrued interest on any Bonds redeemed prior to maturity). In the event that the amounts on deposit in the Interest Account on any Interest Payment Date or redemption date, after any transfers from the Reserve Fund, are insufficient for any reason to pay the aggregate amount of interest then coming due and payable on the Outstanding Bonds, the Trustee will apply such amounts to the payment of interest on each of the Outstanding Bonds on a pro rata basis. Principal Account. On each Interest Payment Date and redemption date on which the principal of the Bonds is payable, the Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of, and premium (if any) on, the Bonds coming due and payable on such Interest Payment Date, or required to be redeemed on such date; provided, however, that no amount will be deposited to effect an optional redemption or a mandatory special redemption unless the Trustee has first received a certificate of an Independent Accountant certifying that such deposit to effect the redemption of the Bonds will not impair the ability of the Authority to make timely payment of the principal of and interest on the Bonds, assuming for such purposes that the City continues to make timely payments on the CFD Bonds not then in default. All moneys in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of (i) paying the principal of the Bonds at the maturity thereof or (ii) paying the principal of and premium (if any) on any Bonds upon the redemption thereof. In the event that the amounts on deposit in the Principal Account on any Interest Payment Date or redemption date, after any transfers from the Reserve Fund, are insufficient for any reason to pay the aggregate amount of principal then coming due and payable on the Outstanding Bonds, the Trustee will apply such amounts to the payment of principal on each of the Outstanding Bonds on a pro rata basis. Deficiencies. If on any Interest Payment Date or date for redemption the amount on deposit in the Revenue Fund is inadequate to make the transfers described above as a result of a payment default on the CFD Bonds, the Trustee will immediately notify the City of the amount needed to make the required deposits under Application of Revenues above. In the event that within 5 Business Days of delivering such notice the Trustee receives additional payments from the City to cure such shortfall, the Trustee will deposit such amounts to the account designated in writing by the City. -16-

23 Deposit into Rebate Fund. On each Interest Payment Date after making the transfers described above, upon receipt of a Request of the Authority to do so, the Trustee will transfer from the Revenue Fund to the Rebate Fund for deposit in the Rebate Fund the amount specified in such Request. Residual Fund. On September 1 of each year, after making the deposits described above to be made on such date, the Trustee will transfer all amounts remaining on deposit in the Revenue Fund to the Residual Fund. Any amounts transferred to the Residual Fund pursuant to the Indenture will no longer be considered Revenues and are not pledged to repay the Bonds. Reserve Fund The Indenture creates a Reserve Fund to be held by the Trustee, and provides that there shall be maintained in the Reserve Fund an amount equal to the Reserve Requirement. On the Closing Date, the Authority shall deposit $2,226, of the proceeds of the Bonds into the Reserve Fund. If the amounts in the Interest Account or the Principal Account are insufficient to pay the principal of or interest on the Bonds when due, the Trustee shall withdraw from the Reserve Fund for deposit in order of priority in the Interest Account and the Principal Account, as applicable, moneys necessary for such purposes. If on the day prior to any Interest Payment Date the amount in the Reserve Fund is in excess of the Reserve Requirement, the Trustee shall transfer the excess to the Revenue Fund. On the date on which there are no longer any Bonds Outstanding under this Indenture, all amounts in the Reserve Fund shall be transferred to the Residual Fund, or if such fund has theretofore been closed, to the Authority to be used for any lawful purpose. Additional Bonds The Authority has covenanted in the Indenture not to issue additional obligations secured by a pledge of the Revenues under the Indenture equally and ratably with Bonds, except that the Authority may issue bonds secured on parity with the Bonds to refund all or a portion of the Bonds. Notwithstanding the foregoing, the City may issue bonds in the future for the CFD secured on a parity with the CFD Bonds under the Fiscal Agent Agreement (referred to in this Official Statement as Parity CFD Bonds ), subject to the requirements of the Fiscal Agent Agreement. See SECURITY FOR THE CFD BONDS Parity CFD Bonds. SECURITY FOR THE CFD BONDS This section provides summaries of the security for the CFD Bonds and certain provisions of the Fiscal Agent Agreement. See APPENDIX C Summary of Principal Legal Documents for a more complete summary of the Fiscal Agent Agreement. Capitalized terms used but not defined in this section have the meanings given to them in APPENDIX C. General The CFD Bonds constitute limited obligations of the City that are secured by a first lien on and pledge of, and are payable solely from, Net Taxes (defined below) collected in the CFD and amounts deposited by the City in the Special Tax Fund for the related CFD. The City s obligation to pay the principal of, premium, if any, and interest on the CFD Bonds is limited to Net Taxes collected in the CFD and amounts in the Special Tax Fund for the CFD. -17-

24 The CFD Bonds do not constitute a legal or equitable pledge, charge, lien or encumbrance upon any of the City s property, or upon any of its income, receipts or revenues, except the Net Taxes collected in the CFD and amounts in the Special Tax Fund. Except for the Net Taxes for a CFD, neither the credit nor the taxing power of the City is pledged for the payment of any series of the CFD Bonds or related interest, and the Trustee may not compel the exercise of taxing power by the City or the forfeiture of any of its property. The principal of and interest on the CFD Bonds and premiums upon the redemption thereof, if any, are not a debt of the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory limitation or restriction. Special Taxes; Gross Taxes; Net Taxes The Special Taxes for the CFD are levied and collected according to the Amended and Restated Rate, Method of Apportionment and Manner of Collection of Special Tax (the Rate and Method ) approved by the qualified electors of the CFD in 2007 (see THE CFD History of the CFD ). The Net Taxes pledged by the City to the CFD Bonds is defined in the Fiscal Agent Agreement as Gross Taxes minus amounts set aside to pay Administrative Expenses. Gross Taxes is defined as the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments of, or interest on, such Special Taxes, 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 on such amount. Gross Taxes does not include (i) the portion of any prepayment by a landowner of Special Taxes to be deposited to the Improvement Fund or such other fund as may be directed by the City, and (ii) any penalties collected in connection with delinquent Special Taxes or any interest in excess of the interest due on the CFD Bonds. Except for the portions of any Prepayment of Special Taxes to be deposited to the Improvement Fund and the Redemption Account, or to such other fund as the City may determine, pursuant to the Fiscal Agent Agreement, the Fiscal Agent will, on each date on which the Special Taxes are received from the City, deposit the Special Taxes in the Special Tax Fund held by the Fiscal Agent under the Fiscal Agent Agreement. The Fiscal Agent will transfer the Special Taxes on deposit in the Special Tax Fund on the dates and in the amounts set forth in the Fiscal Agent Agreement, in the following order of priority, to: (i) the Interest Account of the Special Tax Fund; (ii) the Principal Account of the Special Tax Fund; (iii) the Redemption Account of the Special Tax Fund; and (iv) the Surplus Fund. Amounts in the Interest Account and the Principal Account are used to pay scheduled debt service on the CFD Bonds and any Parity CFD Bonds, amounts in the Redemption Fund are used to pay the redemption price of any CFD Bonds or any Parity CFD Bonds to be redeemed. Amounts in the Surplus Fund are not subject to the lien of the Fiscal Agent Agreement and may be used by the City for any lawful purpose under the Mello-Roos Act. See APPENDIX C Summary of Principal Legal Documents. Priority of Lien Each installment of the Special Taxes and any interest and penalties on the Special Taxes, constitutes a lien on the parcel of land on which it was imposed until the same is paid. Such lien is co-equal to and independent of the lien for general taxes, the lien of any other community facilities district special taxes and special assessment liens. See the description of direct and overlapping governmental obligations related to the property in the CFD under the heading THE CFD Direct and Overlapping Indebtedness. -18-

25 Covenants of the City The City has covenanted in the Fiscal Agent Agreement as follows, among other things: Punctual Payment. It will duly and punctually pay or cause to be paid the principal of and interest on the CFD Bonds issued under the Fiscal Agent Agreement, together with the premium, if any to the extent that Net Taxes and other amounts pledged under the Fiscal Agent Agreement are available for such payment. Against Encumbrance. It will not mortgage or otherwise encumber, pledge or place any charge upon any of the Net Taxes except as provided in the Fiscal Agent Agreement, and will not issue any obligation or security having a lien or charge upon the Net Taxes superior to or on a parity with the CFD Bonds, except as permitted by the Fiscal Agent Agreement. Nothing in the Fiscal Agent Agreement prevents the City from issuing or incurring indebtedness that is payable from a pledge of Net Taxes which is subordinate in all respects to the pledge of Net Taxes to repay the CFD Bonds. Levy of Special Tax. The City will comply with all requirements of the Mello-Roos Act so as to assure the timely collection of Gross Taxes, including without limitation, the enforcement of delinquent Special Taxes. (i) Levy. The Chief Financial Officer will effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance by each August 1 that the CFD 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 CFD for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the Chief Financial Officer will prepare or cause to be prepared, and will 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. (ii) Computation. The Chief Financial Officer will fix and levy the amount of Special Taxes within the CFD in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such purpose, to pay (A) the principal of and interest on the CFD Bonds when due, (B) the Administrative Expenses, including amounts necessary to discharge any rebate obligation, during such year, (C) any amounts required to replenish the Reserve Account to the Reserve Requirement, and (D) any amount needed to pay costs of facilities authorized to be financed by the CFD (the Special Tax Requirement ), taking into account the balances in such funds and in the Special Tax Fund. The Special Taxes so levied will not exceed the maximum authorized amounts as provided in the Rate and Method. (iii) Collection. The Special Taxes will be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same 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. Commence Foreclosure Proceedings. Under the Mello-Roos Act, the City has covenanted in the Fiscal Agent Agreement with and for the benefit of the Owners of the CFD Bonds that it will order, and cause to be commenced as hereinafter provided, and thereafter diligently prosecute to judgment (unless such delinquency is theretofore brought current), an action in the -19-

26 superior court to foreclose the lien of any Special Tax or installment thereof not paid when due as provided in the following paragraph. The City will cause to be determined, no later than October 1 of each Fiscal Year in which the Bonds are outstanding, whether or not any owners of the real property within the District are delinquent in the payment of Special Taxes. The City shall order and cause judicial foreclosure actions to be commenced in Superior Court no later than 60 days following such determination against: (i) each parcel for which there are delinquent Special Taxes of $5, or more for the prior Fiscal Year or Fiscal Years, and (ii) each parcel for which there are delinquent Special Taxes for the prior Fiscal Year or Fiscal Years if the City determines that the amount of delinquent Special Taxes for the prior Fiscal Year for the entire District, less the total delinquencies under (i) above, exceeds five percent (5%) of the total Special Taxes due and payable in the prior Fiscal Year. Reduction of Maximum Special Taxes. The City covenants that it will not initiate proceedings to reduce the maximum Special Tax rates for the CFD, unless, in connection therewith, (i) the City receives a certificate from one or more Independent Financial Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in the CFD as of the July 1 preceding the reduction, the maximum amount of the Special Tax which may be levied on then existing Developed Property (as defined in the Rate and Method then in effect for the CFD) in each Bond Year for any CFD Bonds Outstanding will equal at least 110% of the sum of the estimated Administrative Expenses and gross debt service in each Bond Year on all CFD Bonds to remain Outstanding after the reduction is approved, (ii) the City finds that any reduction made under such conditions will not adversely affect the interests of the Owners of the CFD Bonds, and (iii) the City is not delinquent in the payment of the principal of or interest on the CFD Bonds. For purposes of estimating Administrative Expenses for the foregoing calculation, the Independent Financial Consultants will compute the Administrative Expenses for the current Fiscal Year and escalate that amount by 2% in each subsequent Fiscal Year. Rate and Method A Special Tax applicable to each Taxable Parcel in the CFD will be levied and collected according to the tax liability determined by the City through the application of the Rate and Method, a copy of which is set forth in APPENDIX A. Interest and principal on the CFD Bonds is payable from the annual Special Taxes to be levied and collected on property within the CFD subject to the Special Tax, from amounts held in certain funds and accounts established under the Fiscal Agent Agreement and from the proceeds, if any, from the sale of such property for delinquency of such Special Taxes, and the City is not obligated to pay them except from such sources. Because each Special Tax levy is limited to the Maximum Annual Special Tax rates authorized by the qualified electors within the CFD as set forth in the Rate and Method, no assurance can be given that, in the event of Special Tax delinquencies, the foregoing amount will in fact be collected in any given year. See RISK FACTORS Levy and Collection of the of Special Taxes. The Special Tax is expected to be billed and collected by the County annually and remitted to the City, and except as otherwise provided in the Mello-Roos Act, shall be subject to the same penalties and the same collection procedure, sale and lien priority in case of delinquency as is provided for ad valorem property taxes of the County. -20-

27 The Rate and Method apportions the special tax authorized for the CFD among the Taxable Parcels of real property within the CFD according to the rate and methodology set forth in the Rate and Method. The Special Taxes are exempt from the property tax limitation of Article XIIIA of the California Constitution, pursuant to Section 4 thereof as a special tax authorized by a two-thirds vote of the qualified electors. The levy of the Special Taxes was authorized by the City pursuant to the Mello-Roos Act in an amount determined according to a methodology approved by the qualified electors. See Special Tax Methodology below. See also THE CFD History of the CFD and APPENDIX A Amended and Restated Rate, Method of Apportionment, and Manner of Collection of Special Tax. Special Tax Methodology. The Special Tax authorized under the Mello-Roos Act applicable to land within the CFD will be levied and collected according to the tax liability determined by the City through the application of the appropriate rate as described in the Rate and Method. The Rate and Method apportions the Special Tax each year among the Taxable Parcels of real property within the CFD. Capitalized terms set forth in this section and not otherwise defined herein have the meanings set forth in the Rate and Method. The amount of Special Taxes that the City may levy for the CFD in any fiscal year is limited by the maximum rates approved by the qualified electors within the CFD which are set forth as the Maximum Annual Special Tax in Section 5 of the Rate and Method. Under the Rate and Method, Special Taxes for the purpose of making payments on the CFD Bonds and any Parity CFD Bonds will be levied annually in an amount, not in excess of the Maximum Annual Special Tax, sufficient to fund the Annual Costs for the applicable fiscal year in accordance with the Rate and Method, which include: Debt Service to be paid from Special Taxes collected during such Fiscal Year, Administrative Expenses for the Fiscal Year, any amounts needed to replenish any reserve fund for CFD Bonds (although there is no such reserve fund for the CFD Bonds), an amount equal to Special Tax delinquencies in payments of Special Taxes levied in the previous fiscal year and/or anticipated for the current Fiscal Year and any amount needed to pay costs of facilities authorized to be financed by the CFD. This total shall be reduced by any credit from any other revenues accrued by the CFD as approved by the City. Setting the Annual Special Tax Levy for Taxable Parcels. The City shall calculate the Special Tax levy for each Taxable Parcel for each Fiscal Year by computing the Annual Costs; and calculating the Special Tax for each Taxable Parcel for each Fiscal Year as follows: (i) Calculate the revenue from taxing all Taxable Parcels at their Maximum Annual Special Tax and compare to Annual Costs; and (ii) if Annual Costs are less than revenue from taxing all Taxable Parcels at their maximum, decrease proportionately the Maximum Annual Special Tax levy for each Taxable Parcel until the Special Taxes equal the Annual Costs. Assignment of Maximum Annual Special Tax. In each Fiscal Year the Maximum Annual Special Tax for the CFD will be calculated according to the provisions of the Rate and Method. Classification of Parcels. Each Fiscal Year, the Administrator shall cause the following: (i) Each Parcel be classified as a Tax-Exempt Parcel or Taxable Parcel; and (ii) each Taxable Parcel be classified as an Original Parcel or a Successor Parcel. Assignment of the Maximum Annual Special Tax. The Maximum Annual Special Tax for Original Parcels in the Base Year is shown in Attachment 1 to the Rate and Method in APPENDIX A. In each fiscal year after the base year the Maximum Annual Special Tax is increased by the Tax Escalation Factor. -21-

28 Prepayment of Special Tax Obligation. Landowners may permanently satisfy the Special Tax Obligation by a cash settlement with the City as permitted under the Rate and Method. By exercising the right to Prepayment, a landowner can eliminate the future annual Special Tax Obligation for a Parcel. Prepayment is permitted only under the following conditions: (i) the Administrator determines that Prepayment does not jeopardize the ability to make timely payments of Debt Service on Outstanding CFD Bonds or repayment of the CFD Bonds; (ii) any landowner who wishes to exercise the right to Prepayment for a Parcel must pay any and all delinquent Special Taxes and penalties for the prepaying Parcel; and (iii) if Special Taxes have already been levied, but not collected, at the time the Prepayment is calculated, the owner of the Parcel(s) must pay the Special Taxes included on the property tax bill in addition to the Prepayment amount. Parity CFD Bonds The City may issue bonds secured under the Fiscal Agent Agreement on parity with the CFD Bonds pursuant to a Supplemental Agreement to the Fiscal Agent Agreement (i) to fund additional improvements authorized to be funded by the CFD, and that satisfy the parity bonds requirements in the Fiscal Agent Agreement, or (ii) to refund all or part of the related series of the CFD Bonds. Requirements for Parity CFD Bonds. The City may issue the Parity CFD Bonds subject to the following specific conditions precedent set forth in the Fiscal Agent Agreement: (a) The City shall be in compliance on the date of issuance of the Parity CFD 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 CFD Bonds shall provide that interest thereon shall be payable on March 1 and September 1, and principal thereof shall be payable on September 1 in any year in which principal is payable (provided that there shall be no requirement that any Parity Bonds pay interest on a current basis). (c) The Supplemental Agreement providing for the issuance of such Parity CFD Bonds may provide for the establishment of separate funds and accounts. (d) The District Value shall be at least five 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. -22-

29 (e) The City shall obtain a certificate of a Tax Consultant to the effect that 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 Chief Financial Officer), shall be at least one hundred ten percent (110%) of the total Annual Debt Service for each such Fiscal Year on the CFD Bonds and the proposed Parity CFD Bonds. (f) The City shall deliver to the Fiscal Agent a Certificate of an Authorized Representative certifying that the conditions precedent to the issuance of such Parity CFD Bonds described in (a), (b), (c), (d) and (e) above have been satisfied. In delivering such 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. As used in paragraph (d) above, 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 CFD 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 the proceeds of any proposed series of Parity CFD 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 CFD Bonds by an MAI appraiser selected by the City, 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 Chief Financial Officer. It is expressly acknowledged that, in determining the District Value, the City 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 CFD. Neither the City nor the Chief Financial Officer shall be liable to any person or entity in respect of any appraisal provided for purposes of the foregoing definition or by reason of any exercise of discretion made by any appraiser pursuant to such definition. Notwithstanding the foregoing, the City may issue Refunding Bonds as Parity Bonds without the need to satisfy the requirements described in (d) and (e) above, and without limitation on the number of series of such Refunding Bonds; and, in connection therewith, the certificate described in (f) above need not make reference to paragraphs (d) and (e). Refunding Bonds is defined in the Fiscal Agent Agreement as bonds issued by the City for the CFD 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 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. Limitation on Parity CFD Bonds. With respect to Parity CFD Bonds issued to fund additional improvements, the City Council noted in its Resolution authorizing the issuance of the CFD Bonds that, following the completion of the improvements to be funded with proceeds of the Series 2018B CFD Bonds, the only improvement that is expected to be funded by the CFD will be an extension of Newcastle Road in the CFD, and that the funding needed for such improvement will be such that no more than $9,000,000 of Parity CFD Bonds will be issued for such purpose; however, other improvements that the CFD is authorized to finance also could be funded. In that Resolution, the City Council determined that no more than $9,000,000 principal amount of Parity CFD Bonds, other than Parity CFD Bonds that are Refunding Bonds, would be -23-

30 issued for the CFD. See THE CFD The Improvement Fund. The timing of the issuance of any such Parity CFD Bonds cannot be determined at this time. Nothing in the Fiscal Agent Agreement, however, prohibits the City from issuing bonds or otherwise incurring debt secured by a pledge of Net Taxes subordinate to the pledge thereof for the benefit of the CFD Bonds under the Fiscal Agent Agreement. Location and Description of the CFD THE CFD The City of Stockton Arch Road East Community Facilities District No (referred to in this Official Statement as the CFD ) is located in the south-eastern portion of the City approximately two miles east of Highway 99, and is bordered on the south by Arch Road on the northwest by East Mariposa Road and on the northeast by the Burlington Northern and Santa Fe Railroad. The CFD is also just south of the Burlington Northern Santa Fe Railway, Stockton Intermodal Facility, which is a 423-acre railyard. Neighboring land to the CFD is composed mainly of industrial and agricultural uses. Following the prepayment of Special Taxes described in the paragraph following the map below (which prepayments are to occur prior to the issuance of the Bonds), the CFD will consist of Taxable Parcels totaling approximately 454 gross acres. The land within the CFD subject to the Special Tax currently encompasses 11 separate County of San Joaquin (the County ) assessor s parcels, each zoned Industrial Limited, which permits light industrial and other related uses. The following is a map showing the parcels in the CFD, their respective owners and their development status. -24-

31 Source: RBC Capital Markets, LLC. The Special Taxes on Parcel are being prepaid by the owner of the parcel on or before the date of issuance of the Bonds, and so it will no longer constitute a Taxable Parcel, even though the northern portion of such parcel may be developed in the future. The Special Taxes on the portion of Parcel indicated on the map designated Detention Basin will be prepaid by the owner of the Parcel on or before the date of issuance of the Bonds and that portion of the Parcel will then be acquired by the City after the issuance of the Bonds with proceeds of the Series 2018B CFD Bonds, so that portion of Parcel will no longer be subject to future Special Tax levies. See THE CFD The Improvements. History of the CFD On November 2, 1999, the City Council of the City adopted Resolution No (the Formation Resolution ), forming the CFD pursuant to the Mello-Roos Act. The CFD was initially established and authorized to incur bonded indebtedness in an aggregate principal amount not to exceed $15,000,000. On December 2, 1999, the City, for and on behalf of the CFD, issued $2,085,000 aggregate initial principal amount of its City of Stockton Arch Road East Community Facilities District No Special Tax Bonds Series 1999 (the 1999 Bonds ). On February 21, 2002, the City, for and on behalf of the District, issued $6,200,000 aggregate initial principal amount of its City of Stockton Arch Road East Community Facilities District No Special Tax Bonds, Series 2002 (the 2002 Bonds ). Net proceeds of the 1999 Bonds and of the 2002 Bonds were used to fund improvements authorized to be funded by the CFD. -25-

32 On July 10, 2007 the City Council adopted Resolution No (the Resolution of Consideration ) which was initiated based upon the City s receipt of a request from the then sole owner of the property in the CFD (i) to annex two San Joaquin County Assessor s parcels to the CFD, (ii) to consider the issuance of refunding bonds to defease and refund the 1999 Bonds and the 2002 Bonds, and to provide additional financing for improvements eligible to be funded by the CFD, and (iii) in connection with the foregoing, to consider the alteration of the Rate and Method then in effect for the CFD and an increase in the bonded indebtedness limit for the District from $15,000,000 to $60,000,000. On August 14, 2007 the City Council adopted Resolution No which called a special election regarding the items proposed in the Resolution of Consideration. On August 14, 2007 the City Council held the special election and adopted Resolution No , which announced the results of the special election determining that the alteration of the Rate and Method and Bonded Indebtedness limit of the CFD were lawfully authorized and directed the recording of an amended notice of special tax lien. On September 6, 2007, the City issued for the CFD the Prior CFD Bonds in an initial principal amount of $19,065,000, and used proceeds of the Prior CFD Bonds to refund the then outstanding 1999 Bonds and 2002 Bonds, and to finance improvements authorized to be funded by the CFD. In March of 2017, NorCal LandCo, LLC and DRI/CT Stockton Bldg 1, LLC, acquired 345 acres of the land in the CFD. Since the acquisition, significant development of the property has occurred, including the construction of buildings on several parcels and the subsequent sale of four of the developed parcels to subsidiaries of Prologis, Inc. See THE CFD Status of the Taxable Parcels and THE CFD The Landowners for a description of the status of development of the Taxable Parcels and their respective owners. No assurance can be given as to the continued development of the Taxable Parcels in the CFD. See RISK FACTORS Failure to Develop and RISK FACTORS Construction Risk. On November 6, 2018, the City Council adopted a Resolution pursuant to which it (a) authorized the issuance of the CFD Bonds and the refunding of the Prior CFD Bonds, (b) approved the Fiscal Agent Agreement, the Escrow Agreement, this Official Statement, a Continuing Disclosure Certificate for the Bonds (see APPENDIX E Form of Continuing Disclosure Certificate of the City ), and a Bond Purchase Agreement for the sale of the Bonds, (c) authorized the sale of the CFD Bonds to the Authority, (d) approved an acquisition agreement for construction of the improvements to be funded with proceeds of the Series 2018B CFD Bonds (see THE CFD The Improvements below), and (e) determined that no more than $9,000,000 of Parity CFD Bonds would be issued to fund an additional improvement for the CFD consisting of an extension of Newcastle Road or such other facilities as may be authorized by the City (see SECURITY FOR THE CFD BONDS Parity CFD Bonds Limitation on Parity CFD Bonds and THE CFD The Improvements ). The CFD Bonds are being issued pursuant to the Resolution, the Mello-Roos Act and the Fiscal Agent Agreement. The Improvements The CFD is authorized to fund transportation improvements including (a) roadways, street lights, landscaping and related improvements, (b) water system improvements, including sewer transmission lines and wastewater improvements, (c) water system improvements, and (d) drainage system improvements, including pump stations and detention basins, all within or in the vicinity of the CFD. All of the authorized improvements have been completed, except for the acquisition and development of a detention basin and construction of a pump station to be funded with proceeds of the Series 2018B CFD Bonds, and an extension of Newcastle Road or such other facilities as may be authorized by the City (the Future Improvements ) expected to -26-

33 be funded with proceeds of Parity CFD Bonds (see SECURITY FOR THE CFD BONDS Parity CFD Bonds ). The detention basin improvements, including the acquisition of approximately 8.83 acres of land, and the pump station improvements (collectively, the 2018 Improvements ) are expected to cost an aggregate of $7,569,748, which will be funded with proceeds of the Series 2018B CFD Bonds. In connection with the issuance of the CFD Bonds, the City and NorCal LandCo, LLC, an owner of property in the CFD, will enter into an Agreement to Construct and Acquire Public Facilities for the CFD (the Acquisition Agreement ) which provides that NorCal LandCo, LLC will construct (or cause to be constructed or funded) the 2018 Improvements and the City, upon completion of construction and acceptance by the City, will purchase the 2018 Improvements. Upon completion of the 2018 Improvements and acceptance by the City, proceeds of the Series 2018B CFD Bonds will be used to pay the purchase price of the 2018 Improvements pursuant to the terms of the Acquisition Agreement. The City may use Series 2018B CFD Bond proceeds to make progress payments to NorCal LandCo, LLC against costs incurred to acquire and construct the 2018 Improvements. NorCal LandCo, LLC expects to begin construction of the 2018 Improvements in April of 2019 and to complete the 2018 Improvements by November, The City is unable at this time to determine the expected construction schedule for the Future Improvements. The development agreement between the original developer of the property in the CFD and the City requires the completion of the 2018 Improvements and the Future Improvements as a condition to the full buildout of the property in the CFD. Historical Assessed Values Table 3 below shows annual changes in the assessed valuations of the Taxable Parcels in the CFD between fiscal years and Table 3 City of Stockton Community Facilities District No (Arch Road East) Historical Assessed Valuation Fiscal Year No. of Taxable Parcels Assessed Land Value Assessed Structure Value Total Assessed Value Annual AV Growth $55,002,000 - $ 55,002, ,743,780 $51,525, ,268, % ,672,695 64,489, ,162, ,077,265 66,200, ,277, ,038,619 67,022, ,060, ,759,098 69,791, ,550, ,984,879 70,138, ,123, ,103,111 87,401, ,504, ,973,598 87,733, ,707, ,132,993 90,507, ,640, (1) 12 31,468, ,218, ,686, (1) See discussion below for information regarding the change in the number of Taxable Parcels in the CFD and the decrease in Assessed Land Value for this Fiscal Year. Source: Assessed values from the San Joaquin County secured property roll, as compiled by Willdan Financial Services. -27-

34 As described under the heading THE CFD History of the CFD, NorCal LandCo, LLC and DRI/CT Stockton Bldg 1, LLC, acquired 345 acres of land in the CFD in March of The land was acquired for a price that was less than its then County assessed value, resulting in a decrease in the Assessed Land Value for the CFD from the fiscal year value to that shown for fiscal year Moreover, following the sale of the property, three of the parcels in the CFD were reconfigured, such that a portion of the property was no longer subject to the Special Tax levy and an additional two parcels were established among the Taxable Parcels. However, one of the reconfigured parcels is to be used for a detention basin and NorCal LandCo, LLC will prepay the Special Tax liability on that parcel prior to the delivery of the Bonds, so that for fiscal year there will be 11 Taxable Parcels in the CFD. See the map under the heading THE CFD Location and Description of the CFD and THE CFD History of the CFD. Status of the Taxable Parcels The following Table 4 shows the current ownership of the 11 Taxable Parcels within the CFD, as well as their acreages, their current development status, their value to lien ratios and their respective share of the principal of the CFD Bonds. A further description of each of the Taxable Parcels follows the Table. -28-

35 APN Property Owner(1) PROLOGIS, A MARYLAND REAL ESTATE INVESTMENT TRUST PROLOGIS EXCHANGE STOCKTON 10 AND 11 LLC PROLOGIS, A MARYLAND REAL ESTATE INVESTMENT TRUST PROLOGIS EXCHANGE STOCKTON 10 AND 11 LLC US CACTUS STOCKTON LLC (Joint Venture of USAA Real Estate & Arizona State Retirement System) Table 4 City of Stockton Community Facilities District No. No (Arch Road East) Status of Completion Size of Bonds(3) % of Taxable Acreage(1) Development Status(2) Land Use & Acquired(2) Date Completed / Building(2) Proposed Planned Development(2) Description of Completed/ Lease Status(2) VTL(3) Warehousing Active July, ,980 sq. ft Distribution center currently leased by General Mills Expires in January of Developed Industrial May ,944 sq. ft Warehouse/Distribution Center Vacant and available for lease Land Warehousing Active July, ,000 sq. ft Distribution center currently leased by Fox Head Inc. Expires in March of (aka Fox Racing) for their motorcycle and dirt bike apparel and accessories Warehousing Active May, ,180 sq. ft Warehouse/Distribution Center Vacant and available for lease Warehousing Active December, 2013 Building 1 Building 1: Distribution/Logistics Center with 60% (Complete): currently leased by KEHE Distributors, LLC and 40% 780,000 sq. ft. leased by Allen Distribution Building 2: New building Building 2 on the parcel expected to be completed by May of 2019 (Underway): 285,000 sq. ft. Building 1: KEHE Distributors, LLC - 5-Year lease Allen Distribution - Lease Expires September 2019 Building 2: TBD DRI/CT STOCKTON BLDG 1 LLC Warehousing Active March, ,122,341 sq. ft Warehouse building completed in May of 2018 that is currently leased to Golden State FC, LLC (for use by Amazon.com). Building permits are currently being obtained for interior work at the facility to allow for warehouse uses and an approximately 30,000 square foot office space. 10-Year lease (Expires August 2028) NORCAL LANDCO, LLC Vacant Industrial Land Undeveloped DRI/CT STOCKTON BLDG 7 LLC Vacant Industrial Land Undeveloped NORCAL LANDCO, LLC 71.77(4) Vacant Industrial - Undeveloped NORCAL LANDCO, LLC Vacant Industrial - Undeveloped WTPE REAL ESTATE HOLDINGS, LLC 8.48 Vacant Industrial - Undeveloped March, ,131,200 sq. ft Currently unimproved, and is intended for a warehouse/distribution center which is currently in the design phase. There is no definitive plan for the construction or use of the facility. March, ,800 sq. ft Currently unimproved, and is intended for a warehouse/distribution center. Working drawings have been submitted to the City for the building and expects to begin construction by the end of 2018 with completion anticipated in September of The expected cost to construct the facility is approximately $48,000,000. March, 2017 N/A Currently unimproved. A portion of this parcel is being sold by the landowner for the detention basin. March, 2017 N/A Currently undeveloped, with no definite plan by the owner as to when it will be improved. April, 2018 N/A Currently seeking development approvals from the City to construct a heavy duty truck dealership, including facilities for truck parts and services. The owner anticipates a buildout within a year to eighteen months N/A N/A N/A N/A N/A Total % (1) Information obtained from Willdan Financial Services, the Special Tax Administrator for the CFD. (2) Information obtained from the respective landowners. See information regarding the Taxable Parcels in the CFD following this Table 4, and information regarding the landowners under the heading THE CFD The Landowners. (3) See Table 5 under the heading THE CFD The Landowners. Subject to change. (4) This acreage is net of the proposed transfer of the detention basin to the City. See the paragraph following the map of the property in the CFD under the heading THE CFD Location and Description of the CFD. -29-

36 The following information was obtained from the various owners of the Taxable Parcels, and has not been verified by the Authority, the City or the Underwriter. The Special Taxes are secured by a lien on the Taxable Parcels, and are not personal obligations of the owners of the Taxable Parcels in the CFD. Parcel consisting of approximately acres subject to the Special Tax levy, was acquired by Prologis, a Maryland real estate investment trust, on July 29, It has been improved with an approximately 735,980 square foot building currently leased to General Mills, which uses the facility for a distribution center. The current lease of the facility expires in January of Parcel consisting of approximately acres subject to the Special Tax levy, was acquired by Prologis Exchange Stockton 10 and 11 LLC, a Delaware limited liability company, on May 18, The parcel has been improved with an approximately 186,944 square foot building intended for use as a warehouse/distribution center, and is currently vacant and available for lease. Parcel consisting of approximately acres subject to the Special Tax levy, was acquired by Prologis, a Maryland real estate investment trust, on July 29, It has been improved with an approximately 388,000 square foot building currently leased by Fox Head Inc. (aka Fox Racing), and is used as a distribution center for their motorcycle and dirt bike apparel and accessories. The current lease expires in March of This parcel is part of a pool of assets with a lien securing a portfolio loan with a current balance of $159,813,541 as of September 30, 2018, which loan matures on April 1, Parcel consisting of approximately acres subject to the Special Tax levy, was acquired by Prologis Exchange Stockton 10 and 11 LLC, a Delaware limited liability company, on May 18, The parcel has been improved with an approximately 388,180 square foot building intended for use as a warehouse/distribution center, and is currently vacant and available for lease. Parcel consisting of approximately acres subject to the Special Tax levy, was acquired in December of 2013 by US Cactus Stockton LLC, which is a joint venture of US AA Real Estate and the Arizona State Retirement System. The parcel currently includes an approximately 780,000 square foot building approximately 60% of which is being used by KEHE Distributors, LLC as a distribution center under a 5 year lease, and approximately 40% of which is used as a distribution/logistics center by Allen Distribution with a lease that expires in September of next year. The parcel owner recently broke ground on a new second building on the parcel to have a total of 285,000 square feet, and expects completion of the new building by May of The owner expects to obtain a construction loan to finance approximately fifty percent of the costs of the new building, in a principal amount of about $18,000,000. Parcel consisting of approximately acres subject to the Special Tax levy, was acquired by DRI/CT Stockton Bldg 1, LLC in March of The parcel has been improved with an approximately 1,122,341 square foot building completed in May of 2018 that is currently leased to Golden State FC, LLC (for use by Amazon.com) under a 10-year lease that commenced in August of Building permits are currently being obtained for interior work at the facility to allow for warehouse uses and an approximately 30,000 square foot office space. DRI/CT Stockton Bldg 1, LLC obtained a loan from Fifth Third Bank in an amount not to exceed $37,500,000 (the Fifth Third Loan ). The Fifth Third Loan matures on March 20, 2020, but is subject to two 1-year extensions. The Fifth Third Loan is secured by a deed of trust recorded against the parcel. -30-

37 Parcel consisting of approximately acres subject to the Special Tax levy, was acquired by NorCal LandCo, LLC in March of It is currently unimproved, and is intended to be improved by the owner with an approximately 1,131,200 square foot building to be used as a warehouse/distribution center and is currently in the design phase. There is no definitive plan for the construction or use of the facility. The owner expects to finance construction of the building and related improvements with proceeds of an equity contribution by a yet to be designated financial partner, and with proceeds of a commercial loan. Parcel consisting of approximately acres subject to the Special Tax levy, was acquired by NorCal LandCo, LLC in March of 2017, and was recently conveyed to DRI/CT Stockton Bldg 7, LLC, a Delaware limited liability company ( DRI/CT Bldg 7 ). The parcel is currently unimproved and is intended to be improved with an approximately 709,800 square foot warehouse/distribution center. The owner has submitted working drawings to the City for the building and expects to begin construction by the end of 2018 (weather permitting) with completion anticipated in September of A grading permit was received on November 7, The expected cost to construct the facility is approximately $48,000,000, including site improvements and other hard construction costs. The owner anticipates leasing the parcel upon completion of the improvements. On November 6, 2018, DRI/CT Bldg 7 obtained a loan with Zions Bancorporation, NA, dba California Bank & Trust, in an amount not to exceed $32,389,000 (the CBT Loan ). The CBT Loan matures on November 6, 2021, but is subject to two 1-year extensions. The CBT Loan is secured by a deed of trust recorded against the parcel. Parcel consisting of approximately acres subject to the Special Tax levy, was acquired by NorCal LandCo, LLC in March of The parcel is currently unimproved. A portion of this parcel is being sold by the landowner for the detention basin to be funded with proceeds of the Series 2018B CFD Bonds. See the map under the heading THE CFD Location and Description of the CFD and THE CFD The Improvements. The acreage of this parcel is net of the detention basin area to be conveyed to the City. Parcel consisting of approximately acres subject to the Special Tax levy, was acquired by NorCal LandCo, LLC in March of The parcel is currently undeveloped, with no definite plan by the owner as to when it will be improved. Parcel consisting of approximately 8.48 acres subject to the Special Tax levy, was acquired by WTPE Real Estate Holdings LLC, an entity affiliated with Western Truck Center. The parcel was acquired by its current owner on April 4, The parcel owner is currently seeking development approvals from the City to construct a heavy duty truck dealership, including facilities for truck parts and services. The owner anticipates a buildout within a year to eighteen months. No assurance can be given that any of the planned development, construction, leasing or sales of the Taxable Parcels mentioned above will occur as anticipated by the various landowners, or at all. There is a website, that contains various information regarding the parcels owned by NorCal LandCo, LLC in the CFD, including several drone videos, but the information on the website is not included in this Official Statement and the City has no responsibility for the website or the information included thereon or referenced therein. -31-

38 The Landowners The following information was obtained from the seven owners of the Taxable Parcels in the CFD, or from their websites on the internet, and has not been verified by the Authority, the City or the Underwriter. The Special Taxes are secured by a lien on the Taxable Parcels, and are not personal obligations of the owners of the Taxable Parcels in the CFD. Prologis Subsidiaries. Prologis, a Maryland real estate investment trust and Prologis Exchange Stockton 10 and 11 LLC, a Delaware limited liability company, are subsidiaries of Prologis, Inc., which is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. As of September 30, 2018, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 771 million square feet (72 million square meters) in 19 countries. Prologis, Inc. maintains a website at but the information on the website is not included in this Official Statement and the Authority, the City and the Underwriter have no responsibility for the information on the website. NorCal LandCo, LLC, DRI/CT Stockton Bldg 1 LLC and DRI/CT Stockton Bldg 7, LLC. NorCal LandCo, LLC is a limited liability company formed to acquire and hold land for future development. The members of the company are CTR Partners, LLC (the legal ownership entity of CT Realty ), which is the managing member, and numerous private investors with ownership interests varying from 0.5% to 10% and an average of 3.7% each. CTR Partners, LLC is the managing member of NorCal LandCo, LLC. CTR Partners, LLC has a profit participation after the investors receive return of their investment and a preferred return. DRI/CT Stockton Bldg 1, LLC is a limited liability company formed to acquire land and construct a building. The sole member of this entity is DRI/CT Stockton, LLC, a Delaware limited liability company ( Stockton, LLC ). The members of Stockton, LLC are Diamond Stockton LLC, a Delaware limited liability company, as to 97.5% interest, and CTR Partners, LLC, as to a 2.5% interest. CTR Partners, LLC is the managing member of Stockton, LLC. Diamond Stockton LLC is an investment entity formed by Diamond Realty Investments, Inc. which is a fully-owned, real estate investment entity of Mitsubishi Corporation. CTR Partners, LLC has a profit participation after the investors receive return of their investment and a preferred return. DRI/CT Stockton Bldg 7, LLC, the owner of Parcel , is a limited liability company formed to acquire land and construct a building. The sole member of this entity is DRI/CT Stockton 7, LLC, a Delaware limited liability company ( Stockton 7, LLC ). The members of Stockton 7, LLC are Diamond Stockton 7 LLC, a Delaware limited liability company, as to 95% interest, and CTR Partners, LLC, as to a 5% interest. CTR Partners, LLC is the managing member of Stockton 7, LLC. Diamond Stockton 7 LLC is an investment entity formed by Diamond Realty Investments, Inc. which is a fully-owned, real estate investment entity of Mitsubishi Corporation. CTR Partners, LLC has a profit participation after the investors receive return of their investment and a preferred return. CTR Partners, LLC is a fully integrated real estate investment, development and management company that has acquired, developed and repositioned in excess of 20 million square feet of industrial, office, multi-family, self-storage and retail properties across the Western United States Founded in 1994, the company is headquartered in Newport Beach, California and reports that it currently focuses its activities exclusively on industrial properties. Since 2010, CTR Partners, LLC and affiliates have acquired over 1,600 acres of industrial land in Tier 1 markets across the United States with more than 12 million square feet of buildings under active development. -32-

39 The following is a listing of recent portfolio executions for CTR Partners, LLC: Project Southport Logistics Park - Phase 1 Dallas, TX NorCal Logistics Center - Phase 1 Stockton, CA Palmetto Logistics Park - Phase 1 Atlanta, GA CT/Prudential Programatic Venture Southern California CT/Private Investor Build-to-Suits Southern California CT/Atlantic SoCal Portfolio (JV 1) Southern California CT/Atlantic SoCal Portfolio (JV 2) Southern California CT/NY Common Portfolio (MACH I) Southern California CT/NY Common Portfolio (MACH II) Phoenix, AZ Year Completed Bldg. SF Total Capitalization Description ,470,359 $83,903,092 Leased 395k SF building to Amazon. Seeking tenant for 1.1m SF building ,697,468 $105,867,000 Sold 2 buildings totaling ~575k SF to Prologis. Leased 1.1m SF building to Amazon ,054,500 $51,226,000 Leased 1.05m SF building to Drive Medical ,022 $95,614,000 Build for sale program including 4 projects across SoCal. Pre-sold 7 of 13 buildings to users/investors prior to construction completion. Sold all 13 buildings as of Q1 ' ,710 $61,800,000 CT served as development manager for two build-to-suit buildings for a private investor and their import/export business ,699,064 $172,247, building portfolio, 8 single building acquisitions and 1 two building development ,058 $38,330,544 Acquisition of single building in San Diego market. Refurbished building and sold to owner/user ,147 $25,022,785 Acquisition of two buildings in Southern California ,600 $30,300,000 Single building acquisition in Tolleson, AZ. Leased investment with upside potential. Owner still holding and CT managing property. CT Realty maintains a website at and Diamond Realty Investments maintain a website at but the information on these websites is not included in this Official Statement and the Authority, the City and the Underwriter have no responsibility for the information on the websites. US Cactus Stockton LLC. US Cactus Stockton LLC is a joint venture between USAA Real Estate and the Arizona State Retirement system. USAA Real Estate was founded in 1982 as the real estate investment arm of USAA. The company advises that it has more than $21 billion in assets under management. The company provides co-investment asset management services to U.S. pension funds, as well as to foreign and domestic institutional investors. USAA Real Estate also provides capital to partners for development. Its portfolio consists of office, medical office, industrial, multi-family, retail and hotel properties as well as investments in real estate operating companies. USAA maintains a website at but the information on the website is not included in this Official Statement and the Authority, the City and the Underwriter have no responsibility for the information on the website. WTPE Real Estate Holdings, LLC. WTPE Real Estate Holdings, LLC is affiliated with Western Truck Center. Western Truck Center is a truck dealership with multiple locations around Alaska, California, Oregon and Washington. It sells new and preowned Peterbilt, Volvo and Hino trucks. Western Truck Center maintains a website at but the information on the website is not included in this Official Statement and the Authority, the City and the Underwriter have no responsibility for the information on the website. The following table shows the owners of the Taxable Parcels in the CFD, their respective parcels, the assessed or appraised value of the parcels, their projected fiscal year Special Tax, their share of the principal of the CFD Bonds and the resulting Value to Lien Ratio. -33-

40 Table 5 City of Stockton Community Facilities District No (Arch Road East) Value-to-Lien by Parcel Property Owner APN Taxable Acreage Assessed/ Appraised Value(1) FY Projected Maximum Special Tax Percent of Projected Special Tax Share of CFD Bonds(2),(3) Value to Lien Ratio(4) Developed Property Prologis, a Maryland real estate $35,355,388 $283, % $2,100, investment trust Prologis Exchange Stockton ,025,300 74, , and 11 LLC Prologis, a Maryland real estate ,852, , ,012, investment trust Prologis Exchange Stockton ,365, , ,019, and 11 LLC Subtotal Prologis Subsidiaries $76,598,986 $632, % $4,680, US Cactus Stockton LLC $51,174,827 $513, % $3,336, DRI/CT Stockton Bldg 1, LLC $35,149,760 $450, % $3,799, Total Developed Property $162,923,573 $1,597, % $11,816, Undeveloped Property NorCal LandCo, LLC $10,080,000 $399, % $2,957, NorCal LandCo, LLC ,040, , ,288, NorCal LandCo, LLC ,790, , ,825, Subtotal NorCal LandCo, LLC $32,910,000 $1,304, $9,070, DRI/CT Stockton Bldg 7, LLC ,800, , ,871, WTPE Real Estate Holdings LLC $2,030,000 $61, % $451, Total Undeveloped Property $42,740,000 $1,675, % $12,393, Totals $205,663,573 $3,272, % $24,210, (1) Assessed Value for parcels listed under Developed Property and Appraised Value for parcels listed under Undeveloped Property. (2) Based on Percentage of Projected Special Tax and the initial principal amount of the CFD Bonds. (3) The City is not aware of any land-secured debt, other than that of the CFD, that overlaps the Taxable Parcels in the CFD, including any debt issued under the Improvement Bond Act of 1915 or the Mello-Roos Act. See, however, THE CFD Direct and Overlapping Indebtedness for a description of certain other indebtedness applicable to the property in the CFD. (4) Share of CFD Bonds as a percentage of Assessed/Appraised Value. Source: Willdan Financial Services. Value-to-Burden Ratios No Appraisal of Developed Property in the CFD. The City has not commissioned an appraisal of the six Taxable Parcels in the CFD that have been developed. Therefore, the valuation of the Taxable Parcels in the CFD that have been developed has been estimated for the purposes of this Official Statement based on the County Assessor s values. The current market value of the parcels within the CFD may be less than the County Assessor s values shown in this Official Statement. Appraisal of Undeveloped Property in the CFD. The City has commissioned the Appraisal to determine the value of the five Taxable Parcels that have yet to be developed. The Appraisal, dated November 13, 2018 (with a date of value of September 17, 2018) determined the market value of parcel owned by WTPE Real Estate Holdings LLC and the -34-

41 market value-bulk value of parcels , and owned by NorCal LandCo, LLC, and of parcel owned by DRI/CT Stockton Bldg 7, LLC, which values are reflected in Table 5 above. The complete text of the Appraisal is included as Appendix H. The Appraisal is subject to various assumptions, limiting conditions and a hypothetical condition, and should be read in its entirety by prospective purchasers of the Bonds. General Information Regarding Value-to-Burden Ratios. In comparing the aggregate value of the real property within the CFD and the principal amount of the CFD Bonds, it should be noted that an individual parcel may only be foreclosed upon to pay delinquent installments of the Special Taxes attributable to that parcel. The principal amount of the CFD Bonds is not allocated pro-rata among the parcels within the CFD; rather, the total Special Taxes have been allocated among the parcels within the CFD according to the Rate and Method. The value-toburden lien measures the burden of Special Taxes borne by each property in the CFD relative to the burden borne by other properties in the CFD. The value-to-lien ratio on bonds secured by special taxes will generally vary over time as a result of changes in the value of the property that is security for the Special Taxes and the principal amount of the CFD Bonds. Economic and other factors beyond the property owners control, such as economic recession, deflation of land values, financial difficulty or bankruptcy by one or more property owners, or the complete or partial destruction of Taxable Parcels caused by, among other possible events, earthquake, flood, fire or other natural disaster, could cause a reduction in the assessed value within the CFD. See RISK FACTORS. The following Table 6 sets forth the estimated value-to-lien ratios for the 11 parcels in the CFD subject to the levy of Special Taxes. Table 6 City of Stockton Community Facilities District No (Arch Road East) Value-to-Lien Categories No. Taxable Parcels CFD Debt % of Total 2018/19 Assessed/ Appraised Value (1) % Total Assessed/ Appraised Value Value-to-Lien Category Greater than 20:1 0 $0 0.00% $0 0.00% N/A 15:1 to 19.9:1 3 4,132, ,573, :1 to 14.9:1 3 7,684, ,349, :1 to 9.9: N/A 3:1 to 4.99:1 5 12,393, ,740, Less than 3: N/A Totals 11 $24,210, % $205,663, % 8.49 (1) Assessed Value for the Developed Parcels, and Appraised Value for the Undeveloped Parcels. Source: Willdan Financial Services. Rate and Method; Maximum Special Taxes Average Value to Lien The Rate and Method by which the annual Special Tax levy on Taxable Parcels in the CFD is determined provides for annual two percent increases in the Maximum Special Tax rates for the parcels in the CFD, and provides that no Special Tax shall be levied in the CFD after Fiscal Year

42 The following table shows the total expected levy and total expected maximum tax on Taxable Parcels within the CFD through the final maturity of the CFD Bonds. Year Ending (Sept. 1) Table 7 City of Stockton Community Facilities District No (Arch Road East) CFD Bonds Debt Service and Special Tax Coverage (Fiscal Years 2019 to 2043) Estimated CFD Admin Expense Maximum Special Tax Revenues CFD Bonds Debt Service Total Revenue Requirement 2019 $1,280,483 $10,000 $1,290,483 $3,208, ,602,129 10,200 1,612,329 3,272, ,632,600 10,404 1,643,004 3,337, ,665,817 10,612 1,676,429 3,404, ,696,528 10,824 1,707,352 3,472, ,734,735 11,041 1,745,775 3,541, ,769,935 11,262 1,781,197 3,612, ,802,130 11,487 1,813,616 3,685, ,826,318 11,717 1,838,035 3,758, ,865,850 11,951 1,877,801 3,833, ,900,550 12,190 1,912,740 3,910, ,940,418 12,434 1,952,852 3,988, ,979,850 12,682 1,992,532 4,068, ,018,544 12,936 2,031,480 4,149, ,056,198 13,195 2,069,393 4,232, ,102,510 13,459 2,115,969 4,317, ,141,440 13,728 2,155,168 4,403, ,183,110 14,002 2,197,112 4,492, ,226,915 14,282 2,241,197 4,581, ,472,250 14,568 1,486,818 4,673, ,503,250 14,859 1,518,109 4,767, ,535,000 15,157 1,550,157 4,862, ,567,250 15,460 1,582,710 4,959, ,594,750 15,769 1,610,519 5,058, ,627,500 16,084 1,643,584 5,159, Source: RBC Capital Markets, LLC. Direct and Overlapping Indebtedness Debt Service Coverage Table 8 presents a statement of direct and overlapping public bonded debt (the Overlapping Debt Report ) prepared by California Municipal Statistics, Inc. as of October 1, The Overlapping Debt Report includes only such information as has been reported to California Municipal Statistics, Inc. by the issuers of the debt described therein and by others. The Overlapping Debt Report is included for general informational purposes only. Neither the City nor the Authority makes any representation as to its completeness or accuracy. -36-

43 The first column in the table names each public agency which has outstanding bonded debt as of the date of the report and whose territory overlaps the CFD in whole or in part. The second column shows the assessed value of the area common to the CFD and the other public agency (overlapping territory), as a percentage of the total assessed value of the other public agency. This percentage, multiplied by the total outstanding bonded debt of each overlapping agency (which is not shown in the table) produces the amount shown in the third column, which is the apportionment of each overlapping agency s outstanding debt to property in the CFD subject to the Special Tax. Table 8 City of Stockton Community Facilities District No (Arch Road East) Estimated Annual Debt Service and Special Tax Coverage Direct and Overlapping Indebtedness Local Secured Assessed Valuation: $175,686,833 (Land and Improvements) DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable (1) Debt 10/1/18 San Joaquin Delta Community College District General Obligation Bonds 0.217% $ 430,535 Stockton Unified School District General Obligation Bonds ,738,621 City of Stockton Community Facilities District No ,760,000 (2) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $22,929,156 OVERLAPPING GENERAL FUND DEBT: San Joaquin County Certificates of Participation 0.237% $ 203,044 Stockton Unified School District Certificates of Participation ,526 City of Stockton Pension Obligation Bonds (3) ,055 TOTAL OVERLAPPING GENERAL FUND DEBT $1,101,625 COMBINED TOTAL DEBT $24,030,781 (4) (1) Calculated using total assessed valuation of $176,004,093 (land, improvements and personal property) (2) Excludes the CFD Bonds. (3) Represents an obligation pursuant to a settlement of various matters with Assured Guaranty Municipal Corp. (4) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt ($17,760,000) % Total Direct and Overlapping Tax and Assessment Debt % Combined total Debt % -37-

44 Delinquencies Historic Delinquencies. The following table sets forth the historic delinquencies in the payment of Special Taxes for the CFD. Table 9 City of Stockton Community Facilities District No (Arch Road East) Delinquency Information as of September 7, 2018 Fiscal Year Special Tax Levy Levied Parcels(1) Delinquent Parcels 2012/13 $1,210, /14 1,084, /15 1,107, /16 1,133, /17 1,309, /18 1,333, (1) See discussion following Table 3 under the heading THE CFD Historical Assessed Values for information regarding changes to the number of Taxable Parcels in the CFD that have occurred subsequent to fiscal year 2017/18. Source: San Joaquin County as compiled by Willdan Financial Services. Teeter Plan. In 1949, the California Legislature enacted an alternative method for the distribution of secured ad valorem property taxes to local agencies. This method, commonly known as the Teeter Plan, is set forth in Sections of Revenue and Taxation Code of the State. Upon adoption and implementation of the Teeter Plan by a county board of supervisors, local agencies for which the county acts as bank and certain other public agencies and taxing areas located in the county receive annually the full amount of their share of property taxes on the secured roll, including delinquent property taxes which have yet to be collected. While a county benefits from the penalties associated with these delinquent taxes when they are paid, the Teeter Plan provides participating local agencies with stable cash flow and the elimination of collection risk. The Board of Supervisors of the County adopted the Teeter Plan and has elected to include special taxes levied in certain community facilities districts, including the District, on the secured roll. Once adopted, a county s Teeter Plan will remain in effect in perpetuity unless the board of supervisors orders its discontinuance or unless prior to the commencement of a fiscal year a petition for discontinuance is received and joined in by resolutions of the governing bodies of not less than 2/3 of the participating agencies in the county. An electing county may, however, opt to discontinue the Teeter Plan with respect to any levying agency in the county if the board of supervisors, by action taken not later than July 15 of a fiscal year, elects to discontinue the procedure with respect to such levying agency and the rate of secured tax delinquencies in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll by that agency. The County has never discontinued the Teeter Plan with respect to any levying agency. Upon making a Teeter Plan election, a county must initially provide a participating local agency with 95% of the estimated amount of the then accumulated tax delinquencies (excluding penalties) for that agency. In the case of the initial year distribution of special taxes and assessments (if a county has elected to include assessments), 100% of the special tax delinquencies (excluding penalties) are to be apportioned to the participating local agency that levied the special tax. After the initial distribution, each participating local agency receives -38-

45 annually 100% of the secured property tax levies to which it is otherwise entitled, regardless of whether the county has actually collected the levies. If any tax or assessment which was distributed to a Teeter Plan participant is subsequently changed by correction, cancellation or refund, a pro rata adjustment for the amount of the change is made on the records of the treasurer and auditor of the county. Such adjustment for a decrease in the tax or assessment is treated by the County as an interest-free offset against future advances of tax levies under the Teeter Plan. To the extent that the County s Teeter Plan continues in existence and is carried out as adopted, the County s Teeter Plan may help protect the Owners of the Bonds from the risk of delinquencies in payment of the Special Tax, and thereby a delinquency in payment of the CFD Bonds. No assurance can be given that the County will continue to include special taxes levied within community facilities districts in the Teeter Plan, and the County could decide to discontinue the inclusion of such special taxes in the Teeter Plan at any time, or to discontinue the Teeter Plan in its entirety. RISK FACTORS The purchase of the Bonds described in this Official Statement involves a degree of risk that may not be appropriate for some investors. The following includes a discussion of some of the risks that should be considered before making an investment decision. Limited Obligation to Pay Debt Service The Bonds. The Bonds are limited obligations of the Authority payable solely from and secured solely by the Revenues and funds pledged therefor in the Indenture, consisting primarily of debt service on the CFD Bonds. See SECURITY FOR THE BONDS. The CFD Bonds. The City has no obligation to pay principal of or interest on the CFD Bonds if Special Tax collections in the CFD are delinquent or otherwise insufficient to pay the scheduled debt service on the CFD Bonds, other than from amounts, if any, derived from the foreclosure and sale of parcels with Special Tax delinquencies. The City is not obligated to advance its own funds to pay debt service on the CFD Bonds. Industrial Property; Concentration of Ownership All of the Taxable Parcels in the CFD are zoned Industrial Limited. See THE CFD Location and Description of the CFD and THE CFD Status of the Taxable Parcels for a description of the 11 Taxable Parcels in the CFD, their respective acreages, current owners and completed or planned development. Based upon the current development and the information provided by the landowners, the land use of the CFD is expected to remain zoned Industrial Limited. Industrial property is subject to general economic conditions, including these related to demand levels for warehousing space, and the elastic nature of commercial and industrial uses which may be vulnerable to prolonged adverse economic conditions. The concentration of property ownership in the CFD presents a risk to the owners of the Bonds in that the delinquency of one or two major landowners could result in a rapid depletion of the Reserve Fund and a default in the payment of the Bonds. -39-

46 There are currently seven different owners of the 11 Taxable Parcels in the CFD. Two subsidiaries of Prologis, Inc., Prologis, a Maryland real estate investment trust and Prologis Exchange Stockton 10 and 11 LLC, a Delaware limited liability company each own two Taxable Parcels responsible for a total of 19.33% of the expected fiscal year Special Tax levy, NorCal LandCo, LLC currently owns Taxable Parcels responsible for 39.88% of the expected fiscal year Special Tax levy, and two entities, DRI/CT Stockton Bldg 1, LLC and DRI/CT Stockton Bldg 7, LLC, each own a Taxable Parcel responsible for 13.78% and 9.45%, respectively, of the expected fiscal year Special Tax levy. See Table 5 under the heading THE CFD The Landowners. The timely receipt of the Special Taxes is dependent on the willingness and the ability of the seven current landowners, or any successor owners of the Taxable Parcels, to pay the Special Taxes when due. Failure of the current landowners, or any successor, to pay the annual Special Taxes when due could result in a default in payments of the principal of, and interest on, the CFD Bonds, and thereby on the Bonds, when due. See RISK FACTORS Failure to Complete Development. A concentration of ownership could exist even upon completion of the proposed development of the CFD, as the current two substantial landowners may not sell parcels they own and may lease or continue to lease them rather than sell them. In that case, the existing concentration of ownership would continue indefinitely. Levy and Collection of the Special Taxes General. The principal source of payment of principal of and interest on each series of the CFD Bonds is the proceeds of the annual levy and collection of the Special Tax against property within the CFD. Limitation on Special Tax Rate. The annual levy of the Special Tax on any parcel in the CFD is limited to the maximum Special Tax rate authorized in the Rate and Method. The levy cannot be made at a higher rate even if the failure to do so means that the estimated proceeds of the levy and collection of the Special Tax, together with other available funds, will not be sufficient to pay debt service on the CFD Bonds. No Relationship Between Property Value and Special Tax Levy. Because the allocation of the Special Taxes in the Rate and Method for the CFD is not based on property value, the levy of the Special Tax will rarely, if ever, result in a uniform relationship between the value of particular parcels of Taxable Parcels and the amount of the levy of the Special Tax against those parcels. Thus, there will rarely, if ever, be a uniform relationship between the value of the parcels of Taxable Parcels and their proportionate share of debt service on the CFD Bonds, and certainly not a direct relationship. Factors that Could Lead to Special Tax Deficiencies. The following are some of the factors that might cause the levy of the Special Tax on any particular parcel of Taxable Parcels to vary from the Special Tax that might otherwise be expected: Transfers to Governmental Entities. The number of parcels of Taxable Parcels could be reduced through the acquisition of Taxable Parcels by a governmental entity (by exercise of its rights as mortgage guarantor, or for other reasons) and failure of the government to pay the Special Tax based upon a claim of exemption or, in the case of the federal government or an agency thereof, immunity from taxation, thereby resulting in an increased tax burden on the remaining taxed parcels. Property Tax Delinquencies. Failure of the owners of Taxable Parcels to pay property taxes (and, consequently, the Special Tax), or delays in the collection of or -40-

47 inability to collect the Special Tax by tax sale or foreclosure and sale of the delinquent parcels, could result in a deficiency in the collection of Special Taxes. See Table 9 under the heading THE CFD Delinquencies for a table showing the Special Tax delinquency rates for the Taxable Parcels in the CFD. Delays Following Delinquencies and Foreclosure Sales. The Fiscal Agent Agreement provides that the Special Tax is to be collected in the same manner as ordinary ad valorem property taxes are collected and, except as provided in the special covenant for foreclosure described in SECURITY FOR THE CFD BONDS and in the Mello-Roos Act, is subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ordinary ad valorem property taxes. Under these procedures, if taxes are unpaid for a period of five years or more, the property is subject to sale by the County. No assurances can be given that any Taxable Parcel subject to a judicial foreclosure sale will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Mello-Roos Act does not require the City or the CFD to purchase or otherwise acquire any lot or parcel of property foreclosed upon if there is no other purchaser at such sale. Section of the Mello-Roos Act requires that property sold pursuant to foreclosure under the Mello-Roos Act be sold for not less than the amount of judgment in the foreclosure action, plus postjudgment interest and authorized costs, unless the consent of the owners of 75% of the outstanding CFD Bonds is obtained. However, the CFD, as judgment creditor, is entitled to purchase any property sold at foreclosure using a "credit bid," where the CFD could submit a bid crediting all or part of the amount required to satisfy the judgment for the delinquent amount of the Special Tax. If the CFD becomes the purchaser under a credit bid, the CFD must pay the amount of its credit bid, but this payment may be made up to 24 months after the date of the foreclosure sale. The City does not intend to have the CFD credit bid at any foreclosure sale. If sales or foreclosures of property are necessary, there could be a delay in payments to the Authority, as owner of the CFD Bonds, pending such sales or the prosecution of foreclosure proceedings and receipt by the City of the proceeds of sale. See SECURITY FOR THE CFD BONDS. Payment of Special Taxes is not a Personal Obligation of the Property Owners. Property Owners are not personally obligated to pay their Special Taxes. Rather, the Special Taxes are obligations only against the respective parcels against which they are levied. If, after a default in the payment of Special Taxes and a foreclosure sale, the resulting proceeds are insufficient, taking into account other obligations also constituting a lien against the parcel, the City has no personal recourse against the parcel owner. Potential Early Redemption of Bonds from Prepayments. Property owners within the CFD are permitted to prepay their Special Taxes at any time. Prepayments of Special Taxes could also be made from the proceeds of bonds issued by or on behalf of an over-lapping special assessment district or community facilities district. Such prepayments, either from property owners or bond proceeds, will result in a special mandatory redemption of the CFD Bonds, and consequently of the Bonds, on the Interest Payment Date for which timely notice may be given under the Indenture following the receipt of the prepayment. See THE BONDS Redemption. The -41-

48 resulting mandatory redemption of Bonds purchased at a price greater than par could reduce the otherwise expected yield on such Bonds. Assessed Valuations/Appraisal The City has not commissioned an appraisal of the five undeveloped parcels in the CFD in connection with the issuance of the Bonds. The estimated valuations of the six developed Taxable Parcels in the CFD set forth in this Official Statement are based on the County Assessor s values. The assessed value is not an indication of what a willing buyer might pay for a property. The assessed value is not evidence of future value because future facts and circumstances may differ significantly from the present. The Appraisal in APPENDIX H estimates the market value of the five undeveloped Taxable Parcels within the CFD subject to the Special Tax. This market value is merely the present opinion of the Appraiser, and is subject to the assumptions and limiting conditions stated in the Appraisal. The City has not sought the present opinion of any other appraiser of the value of the taxed parcels. A different present opinion of value might be rendered by a different appraiser. No assurance can be given that any of the Taxable Parcels in the CFD could be sold for the appraised value or assessed value, as applicable, if that property should become delinquent and subject to foreclosure proceedings. Property Values The value of Taxable Parcels within the CFD is a critical factor in determining the investment quality of the Bonds. If a parcel owner defaults in the payment of the Special Taxes, the City s only remedy is to foreclose on the delinquent property. The following is a discussion of specific risk factors that could affect the value of property in the CFD. Economic Downturn. In the past, land values in and around the City have been adversely affected by economic conditions. To the extent that the economic downturn is prolonged, property values could remain flat for an indefinite period. Declines in property values for Taxable Parcels in the CFD could also result in property owner unwillingness or inability to make payments on any debt secured by a lien on the respective parcel, as well as ad valorem property taxes and Special Taxes, when due. Under such circumstances, bankruptcies are likely to increase. Bankruptcy by property owners with delinquent Special Taxes would delay the commencement and completion of foreclosure proceedings. Natural Disasters. The value of the Taxable Parcels in the CFD can be adversely affected by a variety of natural occurrences, particularly those that may affect infrastructure and other public improvements, and private improvements and the continued habitability and enjoyment of such private improvements. Earthquake Risk. The areas in and surrounding the City, like those in much of California, may be subject to unpredictable seismic activity. Known active faults in the vicinity of the City include the San Andreas, Hayward, Calaveras and Green Valley- Concord faults to the west, the Midland fault zone to the north and the Bear Mountain and Melones fault zones to the east. -42-

49 Flood Risk. Taxable Parcels in the CFD lie within three different flood zones. The northeast corner of the CFD, which consists of Assessor s parcels and -36, a portion of the property lies within Zone X, where the area is determined to be outside of the 0.2% annual chance floodplain. Assessor s parcels and -36 also have a portion that lies within Zone X, which areas have a 0.2% annual chance of flood, 1% chance of annual flood with a depth of one foot, and areas protected by levees from 1% annual chance flood. A majority of the CFD lies within Zone AO, which has flood depths of one to three feet and is within the 100-year floodplain. Most of the property is in Zone AO-1, a flood zone designation with a 1% chance of 1 foot of water. The City requires buildings and equipment (transformers) to be built at 2 feet above the potential flood level. However, the three recently completed buildings on parcels in the CFD were constructed with finished floors at 3 feet above the flood elevation. The net proceeds of the Series 2018B CFD Bonds will be used to provide a detention basin and pump station intended to lessen the risk of flooding in the CFD. See page 34 in the Appraisal in Appendix H for a map indicating the various flood zones mentioned above. Other Disasters. Other natural disasters could include, without limitation, landslides, wildfires, droughts or tornadoes. One or more natural disasters could occur and could result in damage to improvements of varying seriousness. The damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost, or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances there could be significant delinquencies in the payment of Special Taxes, and the value of the parcels in the CFD may well depreciate or disappear. Hazardous Substances. One of the most serious risks in terms of the potential reduction in the property values is a claim with regard to a hazardous substance. In general, the owners and operators of property may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as CERCLA or the Superfund Act, is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Taxable Parcels in the CFD be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. Although the City is not aware that the owner or operator of any of the Taxable Parcels in the CFD has such a current liability, it is possible that such liabilities do currently exist. Further, it is possible that liabilities may arise in the future resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but that has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently on the parcel of a substance not presently classified as hazardous but that may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the property values that would otherwise be realized upon a delinquency. -43-

50 CFD. No information is available as to the existence of any hazardous substances within the Other Factors. Other factors that could adversely affect property values in the CFD include, among others, relocation of employers out of the area, shortages of water, electricity, natural gas or other utilities, and destruction of property caused by manmade disasters. Other Possible Claims Upon the Property Values While the Special Taxes are secured by the Taxable Parcels in the CFD, the security only extends to the value of such property that is not subject to priority and parity liens and similar claims. A table listing of the outstanding governmental obligations affecting the CFD is set forth under the headings THE CFD Direct and Overlapping Indebtedness. In addition, other governmental obligations may be authorized and undertaken or issued in the future, the tax, assessment or charge for which may become an obligation of one or more of the parcels within the CFD, and may be secured by a lien on a parity with the lien of the Special Tax securing the CFD Bonds. In general, the Special Taxes, and all other taxes, assessments and charges also collected on the tax roll, are on a parity, that is, are of equal priority. Questions of priority become significant when collection of one or more of the taxes, assessments or charges is sought by some other procedure, such as foreclosure and sale. If proceedings are brought to foreclose a delinquency, the Special Taxes will generally be on a parity with the other taxes, assessments and charges, and will share the proceeds of such foreclosure proceedings on a pro-rata basis. Enforcement of Special Taxes on Governmentally Owned Properties General. The ability of the City to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the Federal Deposit Insurance Corporation (the FDIC ), the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest. Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. The supremacy clause of the United States Constitution reads as follows: This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding. This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel that is subject to Special Taxes within the CFD, but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments. -44-

51 Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the City wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government s mortgage interest. In Rust v. Johnson (9th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association ( FNMA ) is a federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States. Neither the City nor the Authority has undertaken to determine whether any federal governmental entity currently has, or is likely to acquire, any interest (including a mortgage interest) in any of the parcels subject to the Special Taxes within the CFD. No assurance can be given as to the likelihood that the risks described above will materialize while the CFD Bonds are outstanding. FDIC. If any financial institution making any loan secured by real property within a CFD or a Reassessment District is taken over by the FDIC, and prior thereto or thereafter the loan (or loans) goes into default, resulting in ownership of the property by the FDIC, then the ability of the City to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be limited. The FDIC s policy statement regarding the payment of state and local real property taxes (the Policy Statement ) provides that property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property s value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution s affairs, unless abandonment of the FDIC s interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC-owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC s consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC s consent. The Policy Statement states that the FDIC generally will not pay non-ad valorem taxes, including special taxes and assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the Mello-Roos Act and a special tax formula, which determines the special tax due each year, are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC s federal immunity. The Ninth Circuit issued a ruling on August 28, 2001, in which it determined that the FDIC, as a federal agency, is exempt from Mello-Roos special taxes. The Authority and the City are unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of Special Taxes on a parcel -45-

52 within the CFD in which the FDIC has or obtains an interest, although prohibiting the lien of the Special Taxes to be foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a default in payment on the CFD Bonds. Exemptions Under the Rate and Method and the Mello-Roos Act. Certain properties are exempt from the Special Tax in accordance with the Rate and Method for the CFD and the Mello-Roos Act, which provides that properties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property within the CFD acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. In addition, although the Mello-Roos Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment, the constitutionality and operation of these provisions of the Mello-Roos Act have not been tested, meaning that such property could become exempt from the Special Tax. The Mello-Roos Act further provides that no other properties or entities are exempt from the Special Tax unless the properties or entities are expressly exempted in a resolution of consideration to levy a new special tax or to alter the rate or method of apportionment of an existing special tax. Depletion of Reserve Fund The Authority will establish and maintain a Reserve Fund for the Bonds under the Indenture that may be used to pay principal of and interest on the Bonds if insufficient funds are available from the proceeds of the debt service payments on the CFD Bonds. See SECURITY FOR THE BONDS Reserve Fund. If there is a draw on the Reserve Fund, the Reserve Fund can be replenished from the proceeds of future debt service payments on the CFD Bonds that are in excess of the amount required to pay all amounts otherwise then due and payable by the Authority under the Indenture. Failure to Complete Development Land development operations are subject to comprehensive federal, State of California and local regulations. Various governmental agencies have issued approvals within their jurisdictional authority required for the continued development of the property in the CFD, and additional approvals may be required for such development. Future governmental restrictions, including, but not limited to, governmental policies restricting or controlling development within the City, including within the CFD could be enacted, and future land use initiatives approved by the voters in the City could add more restrictions and requirements on development within the CFD. Moreover, there can be no assurance that the means and incentive to conduct land development operations within the CFD will not be adversely affected by a deterioration of the real estate market or economic conditions generally, future local, State and federal governmental policies relating to real estate development, the income tax treatment of real property ownership, acts of war or terrorism, or other factors. Certain Taxable Property in the CFD are presently undergoing active development. See THE CFD Status of the Taxable Parcels for a description of the current state of development of the Taxable Parcels in the CFD. Undeveloped property is less valuable per acre than developed property, and therefore provides less security to the owners of the Bonds should it be necessary for the City to foreclose due to the nonpayment of the Special Taxes levied on -46-

53 undeveloped property. Furthermore, a lack of sales of the land within the CFD results in slower rates of diversification of property ownership within the CFD. The timely payment of Special Tax levied on Property depends primarily upon the ability and willingness of owners of such property to pay such taxes when due. A slowdown in or cessation of the development of land within the CFD could reduce the ability and willingness of such owners to make Special Tax payments, and could greatly reduce the value of such property in the event it has to be foreclosed upon to collect delinquent Special Taxes. See RISK FACTORS Levy and Collection of the Special Taxes Factors that Could Lead to Special Tax Deficiencies Delays Following Delinquencies and Foreclosure Sales and RISK FACTORS Bankruptcy Delays herein for a discussion of certain limitations on the ability of the City to pursue judicial foreclosure proceedings with respect to landowners with delinquent Special Taxes. Construction Risk Development of property within the CFD is conditioned upon the construction of certain improvements, including the acquisition and development of a detention basin and construction of a pump station, and the extension of Newcastle Road. See THE CFD the Improvements. Such construction is subject to a number of risks, including, without limitation, inclement weather, shortages of or other supply problems relating to labor and materials, design or construction defects, delays in obtaining governmental or agency approvals and permits, compliance with existing permits and approvals and other risks. The realization of one or more of such risks could result in delays to or a failure to complete such required facilities, which could in turn result in delays to or a failure to develop the currently undeveloped land within the CFD. See RISK FACTORS Failure to Complete Development herein. Costs of the 2018 Improvements in excess of available proceeds of the Series 2018B CFD Bonds will be the responsibility of NorCal LandCo, LLC (see THE CFD The Improvements ), and while the Fiscal Agent Agreement allows for the issuance of Parity CFD Bonds proceeds of which would be used to pay costs of the remaining public improvement to be constructed in order to allow for the buildout of the undeveloped property in the CFD (see SECURITY FOR THE CFD BONDS Parity CFD Bonds ), no assurance can be given that any such Parity CFD Bonds will be issued. The ability to pay for any such cost overruns and, if Parity CFD Bonds are not issued, to pay for such remaining improvement, and in any event to complete the construction of the Future Improvements and any other improvements in the CFD is dependent on the availability of funding sources to the applicable landowners. No assurances can be given that the landowners will obtain any such funding in a manner timely enough to avoid delays to the development of the land within the CFD. Bankruptcy Delays The payment of the Special Taxes and the ability of the City to foreclose the lien of a delinquent unpaid Special Tax, may be limited by bankruptcy, insolvency or other laws generally affecting creditors rights or by State laws relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel s approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases. Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, bankruptcy of a property owner or any other person claiming an interest in the -47-

54 property could result in a delay in superior court foreclosure proceedings and could result in the possibility of Special Tax installments not being paid in part or in full. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the CFD Bonds. Disclosure to Future Purchasers The City has recorded, in the Office of the County Recorder, a notice of the Special Tax lien for the CFD. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider the obligations represented by the Special Taxes in the purchase of a parcel of land in the CFD, or the lending of money secured by property in the CFD. No Acceleration; Right to Pursue Remedies Neither the Bonds nor the CFD Bonds contain a provision allowing for acceleration of unpaid principal if a payment default or other default occurs under the Indenture or the Fiscal Agent Agreement. See APPENDIX C Summary of Principal Legal Documents. So long as the Bonds are in book-entry form, DTC will be the sole Bond Owner and will be entitled to exercise all rights and remedies of Bond Owners under the Bonds and the Indenture. Loss of Tax Exemption As discussed under the caption LEGAL MATTERS Tax Matters, interest on the Bonds might become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued as a result of future acts or omissions of the Authority in violation of its covenants in the Indenture, or of the City in violation of its covenants in the Fiscal Agent Agreement. The Indenture does not contain a special redemption feature triggered by the occurrence of an event of taxability. As a result, if interest on the Bonds were to be includable in gross income for purposes of federal income taxation, the Bonds would continue to remain outstanding until maturity unless earlier redeemed pursuant to optional or mandatory redemption. See THE BONDS Redemption. In addition, Congress has considered in the past, is currently considering and may consider in the future, legislative proposals, including some that carry retroactive effective dates, that, if enacted, would alter or eliminate the exclusion from gross income for federal income tax purposes of interest on municipal bonds, such as the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Voter Initiatives Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Since 1978, the voters have exercised this power through the adoption of Proposition 13 and similar measures, including Proposition 218, which was approved in the general election held on November 5, 1996, and Proposition 26, which was approved on November 2,

55 Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the City. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives, possibly to the extent of creating cash-flow problems in the payment of outstanding obligations such as the CFD Bonds. Proposition 218 Voter Approval for Local Government Taxes Limitation on Fees, Assessments, and Charges Initiative Constitutional Amendment, added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. On November 2, 2010, California voters approved Proposition 26, entitled the Supermajority Vote to Pass New Taxes and Fees Act. Section 1 of Proposition 26 declares that Proposition 26 is intended to limit the ability of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as fees. Proposition 26 amended Articles XIIIA and XIIIC of the State Constitution. The amendments to Article XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two-thirds vote of the Legislature. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes require a majority vote and taxes for specific purposes ( special taxes ) require a two-thirds vote. The Special Taxes and the CFD Bonds were each authorized by not less than a twothirds vote of the landowners within the CFD voting on the matter who constituted the qualified electors at the time of such voted authorization. The City believes, therefore, that issuance of the CFD Bonds does not require the conduct of further proceedings under the Mello-Roos Act, Proposition 218 or Proposition 26. Like their antecedents, Proposition 218 and Proposition 26 are likely to undergo both judicial and legislative scrutiny before the impact on the CFD or the Reassessment District can be determined. Certain provisions of Proposition 218 and Proposition 26 may be examined by the courts for their constitutionality under both State and federal constitutional law, the outcome of which cannot be predicted. Secondary Market for Bonds There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Prices of bond issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price. No assurance can be given that the market price for the Bonds will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Internal Revenue Code), or changes in interpretation of the Internal Revenue Code, or any action of the Internal Revenue Service, including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the Bonds for audit examination, or the course or result of any Internal Revenue Service audit or examination of the Bonds or obligations that present similar tax issues as the Bonds. THE AUTHORITY The Authority is a joint exercise of powers authority organized and existing under Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the -49-

56 Government Code of the State of California. The Authority was created by a Joint Exercise of Powers Agreement, dated as of June 18, 1990, between the City and the former Redevelopment Agency of the City of Stockton. The Authority is administered by a eight member Board of Directors who are the Mayor and members of the City Council. The Authority was created for the purpose, among others, of facilitating the financing and refinancing of public capital improvements in the City. Tax Matters LEGAL MATTERS Federal tax law contains a number of requirements and restrictions which apply to the Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of Bond proceeds and the facilities financed therewith, and certain other matters. The Authority and the City have covenanted to comply with all requirements that must be satisfied in order for the interest on the Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. Subject to compliance by the Authority and the City with the above-referenced covenants, under present law, in the opinion of Bond Counsel, interest on the Bonds (i) is excludable from gross income of the owners thereof for federal income tax purposes, and (ii) is not included as an item of tax preference in computing the federal alternative minimum tax for individuals under the Internal Revenue Code of 1986, as amended (the Code ). In rendering its opinion, Bond Counsel will rely upon certifications of the Authority and the City with respect to certain material facts within the Authority s and the City s knowledge. Bond Counsel s opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result. Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Bonds should consult their tax advisors as to the applicability of any such collateral consequences. The issue price (the Issue Price ) for the Bonds is the price at which a substantial amount of the Bonds is first sold to the public. The Issue Price of a maturity of the Bonds may be different from the price set forth, or the price corresponding to the yield set forth, on the inside cover page of this Official Statement. If the Issue Price of a maturity of the Bonds is less than the principal amount payable at maturity, the difference between the Issue Price of each such maturity, if any, of the Bonds (the OID Bonds ) and the principal amount payable at maturity is original issue discount. For an investor who purchases an OID Bond in the initial public offering at the Issue Price for such maturity and who holds such OID Bond to its stated maturity, subject to the condition that the Authority comply with the covenants discussed above, (a) the full amount of original issue discount with respect to such OID Bond constitutes interest which is excludable -50-

57 from the gross income of the owner thereof for federal income tax purposes; (b) such owner will not realize taxable capital gain or market discount upon payment of such OID Bond at its stated maturity; (c) such original issue discount is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Code, but is taken into account in computing an adjustment used in determining the alternative minimum tax for certain corporations under the Code, as described above; and (d) the accretion of original issue discount in each year may result in an alternative minimum tax liability for corporations or certain other collateral federal income tax consequences in each year even though a corresponding cash payment may not be received until a later year. Owners of OID Bonds should consult their own tax advisors with respect to the state and local tax consequences of original issue discount on such OID Bonds. Owners of Bonds who dispose of Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase Bonds in the initial public offering, but at a price different from the Issue Price or purchase Bonds subsequent to the initial public offering should consult their own tax advisors. If a Bond is purchased at any time for a price that is less than the Bond s stated redemption price at maturity or, in the case of an OID Bond, its Issue Price plus accreted original issue discount reduced by payments of interest included in the computation of original issue discount and previously paid (the Revised Issue Price ), the purchaser will be treated as having purchased a Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser s election, as it accrues. Such treatment would apply to any purchaser who purchases an OID Bond for a price that is less than its Revised Issue Price even if the purchase price exceeds par. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds. An investor may purchase a Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as bond premium and must be amortized by an investor on a constant yield basis over the remaining term of the Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax exempt bond. The amortized bond premium is treated as a reduction in the tax exempt interest received. As bond premium is amortized, it reduces the investor s basis in the Bonds. Investors who purchase a Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the Bond s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Bonds. There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Bonds. For example, legislation has been introduced in the current session of Congress which would, among other things and if enacted, change the income tax rates for individuals and corporations and repeal the federal alternative minimum tax. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. -51-

58 The IRS has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the IRS, interest on such tax-exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the IRS will commence an audit of the Bonds. If an audit is commenced, under current procedures the IRS may treat the Issuer as a taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome. Payments of interest on, and proceeds of the sale, redemption or maturity of, tax exempt obligations, including the Bonds, are in certain cases required to be reported to the IRS. Additionally, backup withholding may apply to any such payments to any Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Bond owner who is notified by the IRS of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes. In the further opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. Ownership of the Bonds may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should consult their tax advisors regarding the applicability of any such state and local taxes. The complete text of the final opinion that Bond Counsel expects to deliver upon issuance of the Bonds is set forth in APPENDIX D. Absence of Litigation The Authority and the City will certify at the time the Bonds are issued that no litigation is known to be pending or threatened concerning the validity of the Bonds or the CFD Bonds and that no action, suit or proceeding is known by the Authority or the City to be pending that would restrain or enjoin the delivery of the Bonds or the CFD Bonds, or contest or affect the validity of the Bonds or the CFD Bonds or any proceedings of the Authority or the City taken with respect to the Bonds or the CFD Bonds. Legal Opinion All proceedings in connection with the issuance of the Bonds are subject to the approval as to their legality of Quint & Thimmig LLP, Larkspur, California, Bond Counsel. The unqualified opinion of Bond Counsel approving the validity of the Bonds is attached as APPENDIX D. NO RATING The Authority has not made, and does not intend to make, any application to any rating agency for the assignment of a rating for the Bonds. -52-

59 VERIFICATION OF MATHEMATICAL ACCURACY Grant Thornton, LLP, independent accountants, upon delivery of the Bonds, will deliver a report on the mathematical accuracy of certain computations, contained in schedules provided to them which were prepared for the City, relating to the sufficiency of moneys and securities deposited into the Escrow Fund to pay, when due, the redemption prices of the Prior CFD Bonds. The report of Grant Thornton, LLP, will include the statement that the scope of its engagement is limited to verifying the mathematical accuracy of the computations contained in such schedules provided to it, and that it has no obligation to update its report because of events occurring, or data or information coming to its attention, subsequent to the date of its report. MUNICIPAL ADVISOR The Authority has retained Del Rio Advisors, LLC of Modesto, California, as municipal advisor (the Municipal Advisor ) in connection with the offering of the Bonds. All financial and other information presented in this Official Statement has been provided by the Authority and others from their records. Unless otherwise footnoted, the Municipal Advisor takes no responsibility for the accuracy or completeness of the data provided by the Authority or others and has not undertaken to make an independent verification or does not assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor has assisted the Authority with the structure, timing and terms for the sale of the Bonds. The Municipal Advisor provides municipal advisory services only and does not engage in the underwriting, marketing, or trading of municipal securities or other negotiable instruments. The fee of the Municipal Advisor is contingent upon the successful closing of the Bonds. UNDERWRITING RBC Capital Markets, LLC (the Underwriter ), has agreed to purchase the Bonds at a purchase price of $25,418, (being the aggregate principal amount of the Bonds ($24,210,000.00), less an underwriter s discount of $242,100.00, and plus an original issue premium of $1,451,032.50). The Underwriter may change the initial public offering prices of the Bonds from time to time. The agreement under which the Underwriter has agreed to purchase the Bonds provides that the Underwriter will purchase all the Bonds if any are purchased, and that the obligation to make such purchase is subject to certain terms and conditions set forth therein, including, among others, the approval of certain legal matters by counsel. The Underwriter and its affiliates are full-service financial institutions engaged in various activities that may include securities trading, commercial and investment banking, municipal advisory, brokerage, and asset management. In the ordinary course of business, the Underwriter and its affiliates may actively trade debt and, if applicable, equity securities (or related derivative securities) and provide financial instruments (which may include bank loans, credit support or interest rate swaps). The Underwriter and its affiliates may engage in transactions for their own accounts involving the securities and instruments made the subject of this securities offering or other offering of the Issuer. The Underwriter and its affiliates may make a market in credit default swaps with respect to municipal securities in the future. The Underwriter and its affiliates may also communicate independent investment recommendations, market color or trading ideas and publish independent research views in respect of this securities offering or other offerings of the Authority. -53-

60 CONTINUING DISCLOSURE The Authority has determined that no financial or operating data concerning the Authority is material to an evaluation of the offering of the Bonds or to any decision to purchase, hold or sell the Bonds and the Authority will not provide any such information. The City The City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the CFD (the Annual Report ) by not later than the March 31 following the end of the City s fiscal year, commencing March 31, 2019, with the report for the fiscal year ending June 30, 2018, and to provide notices of the occurrence of certain listed events ( Notice Events ). These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2-12(b)(5), as amended (the Rule ). The specific nature of the information to be contained in the Annual Report or the notices of listed events is set forth in APPENDIX E. The City and related governmental entities specifically those entities, like the Authority, for whom City staff is responsible for undertaking compliance with continuing disclosure undertakings have previously entered into numerous disclosure undertakings under the Rule in connection with the issuance of long-term obligations. The City hired Digital Assurance Certification ( DAC ) to do a detailed review of all of the City s postings on EMMA for the preceding five years. The audit was completed on or about June 30, Additionally, in August 2018, a group of underwriters (which included the Underwriter) for a different Authority bond issue engaged DAC to complete a compliance review. In the preceding five years, the City failed to timely comply in certain respects with its previous undertakings with regard to the Rule to provide annual reports, adopted budgets, or notices of Notice Events, and in some instances information was not associated with the correct CUSIP number. In addition, on several occasions during the last five years the City failed to provide its audited or unaudited financial statements in the time required by its continuing disclosure undertakings, including the audited financial statements for Fiscal Year , Fiscal Year and Fiscal Year audited financial statements with respect to certain bonds. The City s compliance with its previous undertakings for Fiscal Years and was complicated by the City s then bankruptcy proceedings, and while the City filed with EMMA detailed information as and when available with respect to the bankruptcy, the completion of its audited financial statements demanded more time in past years than expected and as was agreed to in its previous undertakings. The City has an ongoing contract with Willdan Financial Services as Dissemination Agent. The City believes it has established procedures in policies adopted by the City Council to ensure that the City will make all required continuing disclosure filings on a timely basis in the future. NorCal LandCo, LLC Although the Underwriter does not consider NorCal LandCo, LLC to be an obligated person for purposes of the Rule, NorCal LandCo, LLC, owner of three undeveloped parcels in the CFD, will agree for the benefit of the owners of the Bonds in a Continuing Disclosure Certificate to provide certain information on a semiannual basis, and notice of the occurrence of certain events with respect to itself and the property it owns in the CFD. The complete text of the Continuing Disclosure Certificate of NorCal LandCo, LLC is set forth in Appendix F. -54-

61 NorCal LandCo, LLC s obligation to provide continuing semiannual and event disclosure will terminate as to any specific parcel when the assessed valuation of the parcel includes structure value as evidenced by the ad valorem tax bill of San Joaquin County for the parcel, or otherwise if and when NorCal LandCo, LLC and any affiliate thereof, or successor thereto, owns parcels in the CFD that are subject to less than ten percent (10%) of the annual Special Tax levy. In connection with the acquisition of property in 2017, NorCal LandCo, LLC, among others, assumed the continuing disclosure obligations of the prior owner in connection with the Prior CFD Bonds, and NorCal LandCo, LLC has been in compliance with the undertaking since the assumption. Remedies for Failures to Comply A failure by the City or NorCal LandCo, LLC to comply with the provisions of its respective continuing disclosure obligation is not an event of default under the Indenture or the Fiscal Agent Agreement (although the holders and beneficial owners of the Bonds do have remedies at law and in equity). However, a failure by the City to comply with the provisions of its Continuing Disclosure Certificate must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds. Therefore, a failure by the City to comply with the provisions of its Continuing Disclosure Certificate may adversely affect the marketability of the Bonds on the secondary market. EXECUTION The execution and delivery of this Official Statement have been duly authorized by the Authority and the City. STOCKTON PUBLIC FINANCING AUTHORITY By: /s/ Matt Paulin Treasurer CITY OF STOCKTON By: /s/ Matt Paulin Director of Administrative Services/ Chief Financial Officer -55-

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63 APPENDIX A ARCH ROAD EAST COMMUNITY FACILITIES DISTRICT NO CITY OF STOCKTON, SAN JOAQUIN COUNTY, CALIFORNIA AMENDED AND RESTATED RATE, METHOD OF APPORTIONMENT, AND MANNER OF COLLECTION OF SPECIAL TAX 1. Basis of Special Tax Levy A Special Tax authorized under the Mello-Roos Community Facilities Act of 1982 (Act) applicable to the land in Arch Road East Community Facilities District No (CFD) of the City of Stockton (City) shall be levied and collected according to the tax liability determined by the City through the application of the appropriate amount or rate, as described below. 2. Definitions Act means the Mello-Roos Community Facilities Act of 1982, as amended, Sections and following of the California Government Code. Administrative Expenses means the following actual or estimated costs directly related to the administration of the CFD: the cost of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the City or designee thereof or both); the costs of collecting the Special Taxes (whether by the County or otherwise); the cost of remitting the Special Taxes to the Trustee; the cost of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Bond Indenture; the cost to the City, the CFD, or any designee thereof of complying with arbitrage rebate requirements; the cost to the City, the CFD, or any designee thereof of complying with City, CFD, or obligated persons disclosure requirements associated with applicable federal and State securities laws and of the Act; the costs associated with prepared Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the City, the CFD, or any designee thereof related to an appeal of the Special Tax; the costs associated with the release of funds from any escrow account; and the City s annual administration fees and third party expenses. Administrative Expenses also shall include amounts estimated or advanced by the City or the CFD for any other administrative purpose of the CFD, including attorney s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes. Administrator means an official of the City, or designee thereof, responsible for determining the Annual Costs and providing for the levy and collection of the Special Taxes. Annual Costs means the sum of the following amounts for a Fiscal Year; a. Debt Service to be paid from Special Taxes collected during such Fiscal Year; b. Administrative Expenses for such Fiscal Year; c. Any amounts needed to establish or replenish any reserve fund for Bonds to the level required under the Bond Indenture; d. An amount to pay for reasonably anticipated delinquencies in payments of Special Taxes, based on the delinquency rate for the Special Taxes A-1

64 levied in the previous Fiscal Year and/or as anticipated for the current Fiscal Year; e. An amount needed to pay costs of facilities authorized to be financing by the CFD; and f. Less any credit from interest earnings on any Bond reserve fund or any other revenues accrued to the CFD as provided in the Bond Indenture or as otherwise approved by the City. Assessor Parcel Map means an official map of the County Assessor that designates parcels by Assessor Parcel number. Base Year means the Fiscal Year beginning July 1, 2007, and ending on June 30, Base Year per Acre Tax Rate means the Maximum Annual Special Tax Rate in the Base Year, expressed on a per-acre basis as shown on Attachment 1. The Base Year per Acre Tax Rate is to be increased by Tax Escalation Factor each Fiscal Year. Benefit Share means the Maximum Annual Special Tax for a Parcel divided by the Maximum Annual Special Tax Revenue. Bond Indenture means the indenture, fiscal agent agreement, or other financing document pursuant to which the bonds are issued. Bond Share means share of Estimated Bonds for a Parcel as determined by multiplying the Benefit Share by the total amount of Estimated Bonds for the CFD. Bonds means any bond or other debt (as defined in Section 53317[d] of the Act), whether in one or more series, issued by the CFD under the Act. CFD means the Arch Road East Community Facilities District No , City of Stockton, San Joaquin County, California. City means the City of Stockton, California. Council means the City Council of Stockton acting as the legislative body for the CFD under the Act. County means the County of San Joaquin, California. County Assessor s Parcel means a lot or Parcel with an assigned Assessor s Parcel Number in the maps used by the County Assessor in the preparation of the tax roll. Debt Service means the total amount of principal, interest, and scheduled sinkingfund payments for any outstanding bonds for a given payment period. Estimated Bonds means the estimated amount of Bonds currently outstanding and/or Future Bond Proceeds that may be available through potential future Bond issues based on the Maximum Annual Special Tax Revenue that can be generated by the CFD, as determined by the Administrator. A-2

65 Final Map means a final map, or portion thereof, approved by the City pursuant to the Subdivision Map Act (California Government Code Section et seq.) that creates lots that do not need to be further subdivided before the issuance of a building permit for a structure. Fiscal Year means the period starting July 1 and ending the following June 30. Future Bond Proceeds means the net amount of Proceeds (after deducting all Bond issuance costs and anticipated Reserve Funds) that would be available to fund Authorized Facilities as determined by the total amount of Maximum Annual Special Tax Revenue available to fund additional Bond issuances. Maximum Annual Special Tax means the greatest amount of Special Tax that can be levied against a Taxable Parcel in any Fiscal Year as shown in Attachment 1 and calculated pursuant to Section 5. Maximum Annual Special Tax Revenue means the greatest amount of annual revenue that can be collected by levying the Maximum Annual Special Tax against all Taxable Parcels. Original Parcel means a Parcel as identified by Assessor s Parcel Number on Attachment 1. Outstanding Bonds means the total principal amount of Bonds issued by the City for the CFD and not retired or defeased. Parcel means any County Assessor s Parcel in the CFD, based on the equalized tax rolls of the County for the current Fiscal Year. Parcel Acre(age) means the land area of a Parcel as shown on an Assessor Parcel Map or, if the land area is not shown on an Assessor Parcel Map, the land area shown on the applicable Final Map or other parcel map recorded with the County. Partial Prepayment means a prepayment of a portion of a Parcel s Special Tax Obligation as set forth in Section 7. Partial Prepayment Factor means a factor by which the Maximum Annual Special Tax for a Partial Prepayment Parcel is multiplied to calculate an adjusted Maximum Annual Special Tax for such Parcel. Each Partial Prepayment Factor shall be calculated according to the steps described under Section 7. Public Parcel means any Parcel that is publicly owned by the State of California, the County, the City, or any local government or other public agency and that is normally exempt from the levy of general ad valorem property taxes under California law, including public streets; schools; parks; public drainageways and detention basins, public landscaping, wetlands, greenbelts, and public open space, provided that any property leased by a public agency to a private entity and subject to taxation under Section of the Act shall be taxed and classified according to its use. Reserve Fund(s) means the amount of CFD Bond Proceeds set aside by the City in a bond reserve account for the purpose of providing additional security to the bond holders for payment of principal and interest on the bonds, as specified in the bond resolution. Reserve Fund Share means the Benefit Share for a given Parcel that is multiplied by the Reserve Fund amount on all Outstanding Bonds. A-3

66 Special Tax(es) mean(s) any tax levy under the Act in the CFD. Subdivision means a division of a Parcel into two or more Successor Parcels. Successor Parcel means a Parcel created by Subdivision, lot line adjustment, or parcel map from an Original or Successor Parcel or Parcels. Tax Collection Schedule means the document prepared by the City for the County Auditor-Controller to use in levying and collecting the Special Taxes each Fiscal Year. Tax Escalation Factor means a factor of 2 percent that will be applied annually with compounding after the Base Year to increase the Maximum Annual Special Tax, as shown in Attachment 1. Taxable Parcel means any Parcel that is not a Tax-Exempt Parcel. Tax-Exempt Parcel means a Parcel not subject to the Special Tax. Tax-Exempt Parcels include (i) a Parcel that was a Public Parcel at the formation of the CFD, (ii) any Parcel that has prepaid its Special Taxes under Section 7 hereof, or (iii) any Parcel that is exempt from the Special Tax under the Act. Trustee means the trustee or fiscal agent under the Bond Indenture. 3. Determination of Parcels Subject to Special Tax The Administrator shall prepare a list of the Parcels subject to the Special Tax, using the records of the County Assessor and City records each Fiscal Year. The Administrator shall identify the Taxable Parcels from a list of all Parcels in the CFD by excluding all Tax-Exempt Parcels as of January 1 preceding the current Fiscal Year. 4. Termination of the Special Tax The Special Tax will be levied and collected for as long as needed to pay the principal and interest on debt and other costs incurred for the CFD and to pay Annual Costs. However, in no event shall the Special Tax be levied after Fiscal Year When Special Tax revenues are no longer needed to pay Annual Costs, the Special Tax shall cease to be levied. The Administrator shall direct the County Recorder to record a Notice of Cessation of Special Tax. Such notice will state that the obligation to pay the Special Tax has ceased and that the lien imposed by the Notice of Special Tax Lien is extinguished. The Notice of Cessation of Special Tax additionally shall identify the book and page of the Book of Maps of Assessment and Community Facilities Districts where the map of the boundaries of the CFD is recorded. 5. Assignment of Maximum Annual Special Tax In each Fiscal Year the Maximum Annual Special Tax for the CFD will be calculated using the procedures outlined below. A. Classification of Parcels. Each Fiscal Year, using the Definitions in Section 2 above, the Parcel records of the County Assessor s Secured Tax Roll, and other A-4

67 City development approval records, the Administrator shall cause the following events to occur: 1) Each Parcel to be classified as a Tax-Exempt Parcel, or a Taxable Parcel, 2 Each Taxable Parcel to be classified as Original Parcel or Successor Parcel. B. Assignment of the Maximum Annual Special Tax to Original Parcels. The Maximum Annual Special Tax for Original Parcels in the Base Year is shown in Attachment 1. In each Fiscal Year after the Base Year, the Maximum Annual Special Tax is increased by the Tax Escalation Factor. C. Assignment of the Maximum Annual Special Tax to Successor Parcels. The Maximum Annual Special Tax is assigned to Successor Parcels through the following steps. 1) When an Original or Successor Parcel is Subdivided, the Administrator shall classify the resulting Successor Parcels as Taxable Parcels or Tax- Exempt Parcels, using the definitions in Section 2. 2) If the Successor Parcel is a Taxable Parcel: a. Calculate the percentage of the taxable Successor Parcel s Parcel Acreage to the total Parcel Acreage for all taxable Successor Parcels of that Original or Successor Parcel being Subdivided. b. Multiply this percentage by the Maximum Annual Special Tax assigned to the subdivided Original Parcel or Successor Parcel as increased by the Tax Escalation Factor. The result of this calculation is the Maximum Annual Special Tax for the Successor Parcel in question. Under no circumstances shall the sum of the resulting Maximum Annual Special Taxes for all Successor Parcels be less than the Maximum Annual Special Tax for the subdivided Original Parcel or Successor Parcel. D. Assignment of Maximum Annual Special Tax Partial Prepayment Parcel. The Maximum Annual Special Tax for a Partial Prepayment Parcel is assigned by multiplying the Maximum Annual Special Tax from Attachment 1, or as otherwise calculated for a Taxable Parcel in Section 5.C above, by the Partial Prepayment Factor for the Parcel. E. Conversion of a Tax-Exempt Parcel to a Taxable Parcel. If a Tax-Exempt Parcel is converted to a Taxable Parcel, that Parcel shall become subject to the Special Tax. The Maximum Annual Special Tax for each such Parcel shall be based on the Parcel Acreage of the Parcel times the Base Year per Acre Tax Rate as increased by Tax Escalation Factor. F. Taxable Parcel Acquired by a Public Agency. A Taxable Parcel acquired by a public agency after the CFD is formed will remain subject to the applicable Special Tax unless the Special Tax Obligation is satisfied pursuant to Section of the Government Code. An exception to this circumstance may be made if a Public Parcel, such as a detention basin, is relocated to a Taxable Parcel, in which case the previously Tax-Exempt Parcel of comparable acreage becomes A-5

68 a Taxable Parcel and the Special Tax from the previously Taxable Parcel is transferred to the new Taxable Parcel. This trading of a Parcel from a Taxable Parcel to a Public Parcel will be permitted to the extent that there is no net loss in Maximum Annual Special Tax Revenue and that the transfer is agreed to by the owners of the Parcels involved in the transfer and the Administrator. G. Annexation of Parcels into the CFD. Parcels may be annexed into the CFD only as Taxable Parcels and will be assigned a Maximum Annual Special Tax consistent with the Maximum Annual Special Tax listed for Tax-Exempt Parcels converting to Taxable Parcels under Section 5.E above. 6. Setting the Annual Special Tax Rate for Taxable Parcels The City shall calculate the Special Tax levy for each Taxable Parcel for each Fiscal Year as follows: A. Compute the Annual Costs, using the definitions in Section 2. B. Calculate the Special Tax for each Parcel for each Fiscal Year as follows: Step 1: Step 2: Calculate the revenue from taxing all Taxable Parcels at their Maximum Annual Special Tax Rate and compare to Annual Costs. If Annual Costs are less than revenues from taxing all Taxable Parcels at their maximum, decrease proportionately the Maximum Annual Special Tax levy for each Taxable Parcel until the Special Taxes equal the Annual Costs. C. Prepare the Tax Collection Schedule listing the Special Tax levy for each Taxable Parcel and send it to the County Auditor, requesting it be placed on the general, secured property tax roll for the following Fiscal Year. As development and subdivision of the project occurs, the City will maintain a file of each current County Assessor s Parcel Number in the CFD, the Parcel s Maximum Annual Special Tax, and the Maximum Annual Special Tax Revenues for all Taxable Parcels available for public inspection. This record shall show the calculation of the assigned Maximum Annual Special Tax to each Original and each Successor Parcel and a brief description of the process of assigning the Special Tax each time a Successor Parcel was created. The Administrator shall maintain a record showing the calculation of the assigned Maximum Annual Special Tax to each Taxable Parcel and a brief description of the process of assigning the Special Tax each time a Taxable Parcel is Subdivided. 7. Prepayment of Special Tax Obligation Landowners may permanently satisfy the Special Tax obligation by a cash settlement with the City as permitted under Government Code Section By exercising the right to Prepayment, a landowner can eliminate future annual Special Tax Obligation for a Parcel. Prepayment is permitted only under the following conditions: The Administrator determines that Prepayment does not jeopardize the ability to make timely payments of Debt Service on Outstanding Bonds or repayment of the Bonds; A-6

69 Any landowner who wishes to exercise the right to Prepayment for a Parcel must pay any and all delinquent Special Taxes and penalties for the prepaying Parcel; and If Special Taxes have already been levied but not collected at the time the Prepayment is calculated, the owner of the Parcel(s) must pay the Special Taxes included on the property tax bill in addition to the Prepayment amount. The amount of the Special Tax prepayment shall be established as follows: Part A. Full Prepayment of Special Tax Obligation. Step A.1: Determine the Maximum Annual Special Tax for the prepaying Parcel by following the procedure on the assignment of the Maximum Annual Special Tax described in Section 5 above. Step A.2: Divide the Maximum Annual Special Tax for the prepaying Parcel from Step A.1 by the Maximum Annual Special Tax Revenue to determine the Benefit Share. Step A.3: Step A.4: Step A.5: Determine the Bond Share for the Parcel by multiplying the Benefit Share from Step A.2 by the Estimated Bonds. For purposes of this calculation, reduce the Estimated Bond balance by the amount of principal payment for which Special Taxes have been levied but not yet collected and by the amount of principal paid to date. Determine the Reserve Fund Share associated with the Bond Share determined in Step A.3 and reduce the Bond Share by the amount of the Reserve Fund Share. The Reserve Fund Share is equal to the Reserve Fund Requirement on all Estimated Bonds or the actual Reserve Fund, whichever is less, multiplied by the Benefit Share determined in Step A.2. Determine the Prepayment amount by subtracting the Reserve Fund Share (from Step A.4) from the sum of the Bond Share amount (from Step A.3). Add to this Prepayment amount any fees, call premiums, and expenses incurred by the City in connection with the Prepayment calculation or the application of the proceeds to the call of the Bonds. If Special Taxes already have been levied but not yet collected at the time the Prepayment is calculated, the owner of the Parcel must pay the Special Taxes included on the property tax bill in addition to the Prepayment amount. Part B. Partial Prepayment of Special Tax Obligation. If the Prepayment is a Partial Prepayment, then the property owner shall designate an amount that is less than the full Prepayment amount determined above for the Parcel (or group of such Parcels) for which the Special Tax is to be partially prepaid but that, based on a calculation provided by the Administrator, will provide sufficient funds for a Bond call in a whole-number multiple of $5,000. The Administrator shall determine the Partial Prepayment Factor used to decrease the Maximum Annual Special Tax for the Parcel by the following procedure: A-7

70 Step B.1 Step B.2 Step B.3 Calculate the full Prepayment amount from Step A.5. Subtract the amount of the Partial Prepayment, less any fees, call premiums, and expenses incurred by the City in connection with the Prepayment calculation or the application of the proceeds of the Prepayment to the call of Bonds, from the full Prepayment amount calculated in Step B.1. If a Partial Prepayment has been previously made for Partial Prepayment Parcel also subtract the amount of the previous Partial Prepayment, less any fees, call premiums, and expenses incurred by the City in connection with the Prepayment calculation or the application of the proceeds of the Prepayment to the call of Bonds for the previous Partial Prepayment. Divide the result of Step B.2 by the result of Step B.1 to determine the Partial Prepayment Factor. The Partial Prepayment Factor is used to decrease the Maximum Annual Special Tax for the Parcel for which the Special Tax is partially prepaid. 8. Appeals and Interpretation Any taxpayer who feels that the amount of the Special Tax assigned to a Parcel is in error may file a notice with the Administrator appealing the levy of the Special Tax. The Administrator will promptly review the appeal and, if necessary, meet with the applicant. If the Administrator verifies that the tax should be modified or changed, a recommendation at that time will be made to the City Council, and as appropriate, future Special Tax levies shall be adjusted. No refunds shall be granted. Interpretations of this Rate, Method of Apportionment, and Manner of Collection of Special Tax may be made by appropriate staff of the City or by Resolution of the City Council for purposes of reasonably clarifying any vagueness or ambiguity or supplying missing detail as it relates to the Special Tax rate, the method of apportionment, the allocation of Maximum Annual Special Taxes among Successor Parcels, the classification of properties, or any definition applicable to the CFD. 9. Manner of Collection The Special Tax will be collected in the same manner and at the same time as ad valorem property taxes provided, however, that the City or its designee may directly bill the Special Tax and may collect the Special Tax at a different time, such as on a monthly or other periodic basis, or in a different manner, if necessary to meet its financial obligation. A-8

71 Attachment 1 City of Stockton CFD No Arch Road East CFD Base Year Maximum Annual Special Tax [1] Parcels Acres Percent of Total Acreage Base Year Maximum Annual Special Tax Per Original Parcel [2] Original % $816, % $280, % $758, % $25, % $212, % $58, % $48,280 Annexed % $391, % $94,856 With Special Tax Prepaid N/A 0.0% Paid off in 01/ N/A 0.0% Paid off in 07/ N/A 0.0% Paid off in 12/ N/A 0.0% Paid off in 04/ N/A 0.0% Paid off in N/A 0.0% Paid off in 08/05 Totals % $2,686,640 Base Year per Acre Tax Rate $5,680 per Acre [1] The Maximum Annual Special Tax is increased each Fiscal Year after the Base Year by the Tax Escalation Factor. [2] The Maximum Annual Special Tax is assigned to Original Parcels at the formation of the CFD. As Original Parcels are Subdivided, the Maximum Annual Special Tax is allocated to Successor Parcels on a pro-rata basis, based on the percentage of Parcel Acreage of each Successor Parcel as compared to the Parcel Acreage for all Taxable Successor Parcels resulting from the Subdivision. A-9

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73 APPENDIX B GENERAL INFORMATION REGARDING THE CITY OF STOCKTON AND THE COUNTY OF SAN JOAQUIN The following information concerning the City of Stockton (the City ) and the County of San Joaquin (the County ) is included only for the purpose of supplying general information. The Bonds are not a debt of the City, the County, or the State of California (the State ) or any of its political subdivisions. The Bonds are payable solely from the revenues and funds pledged therefor under the Indenture, as described in the Official Statement. See SECURITY FOR THE BONDS. General The City is a municipal corporation and charter city incorporated in The City is the county seat of the County and is located in California s San Joaquin Valley, approximately 78 miles east of the San Francisco Bay Area, approximately 345 miles north of Los Angeles and approximately 45 miles south of Sacramento. The County covers approximately 1,400 square miles. The County is bounded by Sacramento County on the north, Stanislaus County on the south, Contra Costa County and Alameda County on the west and Amador County, Calaveras County and Stanislaus County on the east. The land area of the City is 61.7 square miles. Governing Body The City operates under a Council/Manager form of government, with a seven-member City Council (current members were elected by district voting) for staggered four-year terms. Under this form of government, policy making and legislative authority is entrusted to the City Council. The Mayor is elected by City-wide election, and the representatives of the City Council are elected from six districts for staggered four-year terms, with a two-term limit. Newly elected representatives are sworn in on the first Tuesday of January of each oddnumbered year. The City Manager is responsible for carrying out policies and ordinances of the City Council for appointing heads of departments and overseeing the operation of the City. The City Manager, the City Attorney, the City Auditor and the City Clerk are appointed by the City Council. The Mayor, current members of the City Council and key administrative personnel of the City are listed in Table B-1 and Table B-2, respectively. Table B-1 CITY OF STOCKTON Mayor and City Councilmembers Name Office Term Expires Occupation Michael Tubbs Mayor 12/31/21 Educator Elbert H. Holman, Jr. Vice Mayor, District 1 12/31/18 Retired law enforcement Christina Fugazi Councilmember, District 5 12/31/18 Educator Dan Wright Councilmember, District 2 12/31/19 Elementary School Principal Susan Lofthus Councilmember, District 3 12/31/18 Administrative Assistant Susan Lenz Councilmember, District 4 12/31/20 Business Owner Jesús Andrade Councilmember, District 6 12/31/20 Businessman B-1

74 Table B-2 CITY OF STOCKTON Key Administrative Personnel Name Kurt O. Wilson John M. Luebberke Matt Paulin Kevin Beltz Moss Adams LLP Christian Clegg Position City Manager City Attorney Chief Financial Officer Program Manager City Auditor Interim City Clerk The City provides a full range of municipal services. As provided in the City Charter, these services include public safety (police, fire, paramedics, water rescue and building inspection), sanitation (solid waste disposal, wastewater and stormwater utilities), water utility, community development, library, parks and recreation and general administrative services. Population Population information is set forth in Table B-3. Table B-3 CITY OF STOCKTON, COUNTY OF SAN JOAQUIN AND STATE OF CALIFORNIA Population (As of January 1) Year City of Stockton County of San Joaquin State of California , ,700 38,239, , ,850 38,567, , ,761 38,907, , ,677 39,189, , ,263 39,500, , ,744 39,809,693 Sources: California State Department of Finance, E-1 Population Estimates for Cities, Counties, and the State January 1, 2013 and 2014 through January 1, 2017 and 2018, released May 1, 2018; California State Department of Finance. Labor Force and Employment Table B-4 compares estimates of the labor force, civilian employment, and unemployment for City residents, County residents, State residents, and United States residents between 2013 and B-2

75 Table B-4 CITY OF STOCKTON, COUNTY OF SAN JOAQUIN STATE OF CALIFORNIA AND UNITED STATES Civilian Labor Force, Employment, and Unemployment 2013 through 2017 Year and Area Labor Force Employment Unemployment Unemployment Rate 2017 City 130, ,300 8, % County 324, ,600 18, State 19,312,000 18,393, , United States 160,320,000 15,337,000 6,982, City 129, ,100 11, County 319, ,500 25, State 19,312,000 18,393,100 1,044, United States 159,187, ,436, ,976, City 127, ,700 12, County 315, ,300 27, State 18,893,200 17,723,300 1,169, United States 157,130, ,834,000 8,296, City 127, ,000 14, County 312, ,700 32, State 18,755,000 17,348,600 1,406, United States 155,922, ,305,000 9,617, City 128, ,100 17, County 313, ,600 38, State 18,624,300 16,958,700 1,665, United States 155,389, ,929,000 11,460, Sources: California State Employment Development Department and U.S. Department of Labor, Bureau of Labor Statistics. Employment and Industry Approximately 3,000 acres in the City are zoned for light and heavy industry. Included in this acreage are 15 industrial parks with all on/site improvements. Six industrial parks are rail served. B-3

76 The principal employers in the City as of Fiscal Year are set forth in Table B-5. Table B-5 CITY OF STOCKTON Principal Employers Fiscal Year (As of August 2017) Company Product/Service Employees Percent of Total City Employers St. Joseph s Medical Center Health Care 4, % Stockton Unified School District Public Education 3, City of Stockton City Government 1, Dameron Hospital Health Care 1, Kaiser Permanente Health Care 1, San Joaquin Delta College Education University of the Public Education Lincoln Unified School District Education O Reilly Auto Parts Automotive World Class Distribution, Inc. Warehouse TOTAL 5.27% Source: City of Stockton Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, The Industry Employment and Labor Force for the Stockton-Lodi Metropolitan Statistical Area (MSA) are set forth in Table B-6. The principal city within the Stockton-Lodi MSA is the City. Table B-6 STOCKTON-LODI MSA Industry Employment and Labor Force By Annual Average March 2017 Benchmark Total All Industries 221, , , , ,900 Agriculture 16,100 15,700 16,700 16,600 16,600 Nonagriculture 205, , , , ,300 Goods Producing 26,800 27,500 28,800 30,000 30,800 Manufacturing 17,900 18,500 18,600 18,800 19,200 Wholesale Trade 11,100 11,100 11,400 11,700 12,100 Retail Trade 25,600 25,700 26,000 26,500 26,800 Transportation, Warehousing, Utilities 17,200 18,300 20,400 23,600 26,700 Information 2,100 2,100, 1,900 2,000 1,900 Financial Activities 7,600 7,500 7,400 7,500 7,800 Professional and Business Services 17,400 18,300 19,400 19,600 19,000 Education and Health Services 35,500 35,900 36,500 36,400 38,000 Leisure and Hospitality 18,200 19,100 19,700 20,500 21,400 Other Services 6,600 6,900 7,200 7,500 7,900 Government 37,100 38,600 39,600 40,800 42,000 Industry employment is by place of work; excludes business owners, self-employed people, unpaid volunteers or family workers and private household workers. Source: State of California Employment Development Department, Labor Market Information Division. B-4

77 Personal Income The United State Department of Commerce, Bureau of Economic Analysis (the BEA ) produces economic accounts statistics that enable government and business decision-makers, researchers, and the public to follow and understand the performance of the national economy. The BEA defines personal income as income received by persons from all sources, including income received from participation in production as well as from government and business transfer payments. Personal income represents the sum of compensation of employees (received), supplements to wages and salaries, proprietors income with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj), rental income of persons with CCAdj, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance. Per capita personal income is calculated as the personal income divided by the resident population based upon the Census Bureau s annual midyear population estimates. Table B-7 summarizes the total personal income and per capita income for the Stockton- Lodi Metropolitan Statistical Area (an MSA ), the State and the United States for the calendar years 2012 through 2016 (the most recent annual data available). The principal city within the Stockton MSA is the City. B-5

78 Table B-7 STOCKTON-LODI MSA, STATE OF CALIFORNIA AND UNITED STATES Personal Income Year and Area Personal Income (millions of dollars) Per Capita Personal Income (dollars) 2016 Stockton MSA $29,684 $40,458 State 2,212,691 56,374 United States 15,912,770 49, Stockton MSA 28,280 39,087 State 2,133,664 54,718 United States 15,547,661 48, Stockton MSA 26,272 36,836 State 1,986,026 51,344 United States 14,811,388 46, Stockton MSA 24,681 35,095 State 1,861,957 48,570 United States 14,068,960 44, Stockton MSA 23,811 33,986 State 1,838,567 48,369 United States 13,904,485 44,282 The most recent annual data available. Source: U.S. Department of Commerce, Bureau of Economic Analysis. Per capita personal income was computed using Census Bureau Midyear population estimates. Estimates reflect County population estimates available as of March Note: All dollars estimates are in current dollars no adjusted for inflation) Last updated: November 16, B-6

79 Construction Activity Building activity for the past five calendar years for which data is available in the City is shown in Table B-8. Table B-8 CITY OF STOCKTON Total Building Permit Valuations ($ in thousands) Permit Valuation New Single Family $24,633 $19,135 $32,955 $58,735 $65,566 New Multiple Family 7,265 1,011 29,605 14,797 13,037 Residential 75,506 62,938 Alterations/Additions 9,608 13,577 12,860 TOTAL RESIDENTIAL 41,507 33,724 75, , ,541 TOTAL NONRESIDENTIAL 92,300 87,732 78, , ,824 TOTAL $133,808 $121,456 $153,978 $270,013 $397,365 Net Dwelling Units Single Family Multiple Family TOTAL (1) Certain columns may not total due to rounding. (2) Most recent annual data available. Sources: Construction Industry Research Board: Building Permit Summary for years 2013 through Transportation The City is located on Interstate 5, the West Coast s major route from Canada to Mexico. The City s cross-town freeway connects Interstate 5 with State Route 99, the State s other principal north-south freeway, and State Route 99, California s other principal north-south highway. The City also benefits from direct highway connections to the San Francisco Bay Area via Interstate 580, and to the Reno-Lake Tahoe area via Interstate 80. Thirty-five major transcontinental truck lines and nearly 200 contract carriers serve the City and provide overnight delivery to Los Angeles, San Francisco and Reno. The City is also served by Greyhound and the San Joaquin Regional Transit District. The City is served by the rail services of Santa Fe, Southern Pacific, and Union Pacific systems in addition to three short line railroads: Central California Traction Company, Tidewater Southern, and Stockton Terminal and Eastern Railroad. Passenger service is provided by Amtrak. The Stockton Metropolitan Airport, located on 1,449 acres on the southern boundary of the City, is a general aviation facility offering both passenger and freight transport services. It has six air carrier gates adjoining a 44,355 square foot terminal building. The Port of Stockton is the largest inland deep water port in the State. It is located on the Stockton deepwater ship channel and encompasses a 2,000 acre operating area. The Port has berthing space for 17 vessels, 1.1 million square feet of dockside transit sheds and shipside rail trackage, and 7.7 million square feet of warehousing, and is 75 nautical miles east of the Golden Gate Bridge. B-7

80 Railroad service is provided to the City by Burlington Northern, Santa Fe and the Union Pacific railroads. Daily passenger service by Amtrak is available to San Francisco, Los Angeles and Sacramento. Education and Recreation Education. Within the City, there are five post-secondary institutions: San Joaquin Delta Community College, California State University Stanislaus-Stockton (extension), University of the Pacific, Humphrey s College and School of Law and National University (private). The majority of students living within City limits attend schools operated by one of four unified school districts providing kindergarten through grade 12 education: the Stockton Unified School District, the Lodi Unified School District, the Lincoln Unified School District and the Manteca Unified School District. The Escalon Unified School District, the Holt Union Elementary School District, the Linden Unified School District, the Tracy Unified School District and the County Office of Education also operate schools located within the City. There are also more than 20 private schools located within the City offering elementary and secondary education. There is also one central, five branch libraries and two mobile library units holding more than one million books in the collection. Recreation. The City is situated along the San Joaquin Delta waterway which connects to the San Francisco Bay and the Sacramento and San Joaquin Rivers and is also located in close proximity to Lake Tahoe and Yosemite National Park. There are approximately 619 acres of parkland located within the City. The Stockton Children s Museum is located in downtown Stockton and offers educational experiences based upon hands-on, play-based exhibits that enhance a child s understanding of how the world works. The Museum features more than a dozen different child-sized environments that recreate the ambience of a small city where merchants, bankers and doctors might mingle among the grocery shoppers, fast food customers and canning crew. The 5,000 seat Stockton Ballpark that opened in April 2005 is the home of the Stockton Ports single A minor league team for the Oakland Athletics features four luxury suites, lawn seating, a family recreation area and a barbeque area with umbrella seating behind the outfield. The City Centre Cinema Complex in downtown Stockton offers a 16-screen movie theater, restaurants and retail shopping. The 220,000 square foot, 10,000 seat Stockton Arena is home of the Stockton Heat Minor League Hockey Team and of the Stockton Kings, a professional basketball team. The 2,042-seat Bob Hope Theater is located in the historic former Fox Theater that was constructed in This performing arts center hosts national and local theatrical, musical, comedy and dance productions. The Gary & Janice Podesto IMPACT Teen Center, located in downtown Stockton, features four bowling lanes, a half-court basketball area, stage, meeting rooms, game rooms, classrooms, a computer lab, snack bar, and a climbing wall. The City also operates a Skate Park and Ice Arena and offers various other sports and recreational opportunities through the City Park and Recreation Department. B-8

81 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS INDENTURE OF TRUST RELATING TO THE BONDS The following is a summary of certain provisions of the Indenture of Trust relating to the Bonds not otherwise described in the text of this Official Statement. Such summary is not intended to be definitive, and reference is made to the full text of the Indenture of Trust for the complete terms thereof. Certain Definitions The following terms have the meanings ascribed to them below when used in this summary of the Indenture of Trust. Act means Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State, as it may hereafter be amended from time to time. Annual Debt Service means, for each Bond Year, the sum of (a) the interest payable on the Outstanding Bonds in such Bond Year, and (b) the principal amount of the Outstanding Bonds scheduled to be paid in such Bond Year. Authority Administrative Expenses means the fees and expenses of the Trustee, including legal fees and expenses (including fees and expenses of outside counsel and the allocated costs of internal attorneys) and the out of pocket expenses incurred by the Trustee, the City and the Authority in carrying out their duties hereunder including payment of amounts payable to the United States pursuant to the Indenture. Beneficial Owners means the actual purchasers of the Bonds whose ownership interests are recorded on the books of the DTC Participants. Bond Counsel means (i) Quint & Thimmig LLP, or (ii) any other attorney at law or firm of attorneys selected by the Authority, of nationally recognized standing in matters pertaining to the federal tax exemption of interest on bonds issued by states and political subdivisions, and duly admitted to practice law before the highest court of any state of the United States of America. Bond Law means the Marks Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Act (commencing with Section 6584), as it may hereafter be amended from time to time. Bond Register means the registration books for the Bonds maintained by the Trustee in accordance with the Indenture. Bond Year means each twelve month period extending from September 2 in one calendar year to September 2 of the succeeding calendar year, except in the case of the initial Bond Year which shall be the period from the Closing Date to September 1, 2019, both dates inclusive. Business Day means a day which is not a Saturday or Sunday or a day of the year on which the New York Stock Exchange or banks in New York, New York or Los Angeles, California, or where the Trust Office is located, are not required or authorized to remain closed. Certificate of the Authority means a certificate in writing signed by an Authorized Officer of the Authority. C-1

82 CFD Act means the Mello-Roos Community Facilities Act of 1982, constituting Chapter 2.5 (commencing with Section 53311), Article 1 of Division 2 of Title 5 of the Government Code of that State of California, as amended from time to time. CFD Bonds means, collectively, the (i) City of Stockton Community Facilities District No Special Tax Refunding Bonds Series 2018-A; and (ii) City of Stockton Community Facilities No Special Tax Bonds Series 2018-B. CFD Bonds Fiscal Agent means the entity serving as the fiscal agent under the CFD Fiscal Agent Agreement, being initially Wells Fargo Bank, National Association. CFD Bonds Purchase Contract means the CFD Bonds Purchase Agreement, dated the Closing Date, between the City and the Authority. CFD Fiscal Agent Agreement means the Fiscal Agent Agreement, dated as of December 1, 2018, by and between the City, for and on behalf of the CFD, and the CFD Bonds Fiscal Agent, pursuant to which the CFD Bonds are being issued. Closing Date means the date of issuance of the Bonds. Code means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except as otherwise referenced in the Indenture) as it may be amended to apply to obligations issued on the Closing Date, together with applicable temporary and final regulations promulgated, and applicable official guidance published, under the Code. Costs of Issuance means the costs and expenses incurred in connection with the issuance and sale of the Bonds and the CFD Bonds, and the acquisition of the CFD Bonds by the Authority, including the acceptance and initial annual fees and expenses (including legal fees and expenses) of the Trustee and the Fiscal Agent, legal fees and expenses, costs of printing the Bonds and the preliminary and final Official Statements, fees of municipal advisors, and other similar or related fees and expenses. Costs of Issuance Fund means the fund by that name established in the Indenture. DTC means The Depository Trust Company, New York, New York, and its successors and assigns. DTC Participants means securities brokers and dealers, banks, trust companies, clearing corporations and other organizations maintaining accounts with DTC. Escrow Agreement means the Escrow Agreement, dated as of December 1, 2018, by and among the City, the Authority and the Escrow Bank. Escrow Bank means Wells Fargo Bank, National Association. Event of Default means any of the events described as such in the Indenture. Fair Market Value means, with respect to any investment, the price at which a willing buyer would purchase such 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 described 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 C-2

83 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, or (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. 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 for funds held by the Trustee: (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 Year means any twelve month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve month period selected and designated by the Authority as its official fiscal year period. Indenture means the Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture pursuant to the provisions of the Indenture. Independent Accountant means any accountant or firm of such accountants appointed and paid by the Authority, and who, or each of whom (i) is in fact independent and not under domination of the Authority or the City; (ii) does not have any substantial interest, direct or indirect, in the Authority or the City; and (iii) is not an officer or employee of the Authority, or the City, but who may be regularly retained to make annual or other audits of the books of or reports to the Authority or the City. Interest Account means the account by that name established and held by the Trustee pursuant to the Indenture. Interest Payment Date means March 1 and September 1 in each year, beginning March 1, 2019, and continuing thereafter so long as any Bonds remain Outstanding. Maximum Annual Debt Service means, as of the date of any calculation, the largest Annual Debt Service on the Bonds during the current or any future Bond Year. Moody s means Moody s Investors Service, its successors and assigns. Original Purchaser means, with respect to the Bonds, RBC Capital Markets, LLC. Outstanding, when used as of any particular time with reference to Bonds, means (subject to the provisions of the Indenture) all Bonds theretofore executed and issued by the Authority and authenticated and delivered by the Trustee under the Indenture except (i) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation pursuant to the Indenture; (ii) Bonds paid or deemed to have been paid within the meaning of the Indenture or Bonds called for C-3

84 redemption for which funds have been provided as described in the Indenture; and (iii) Bonds in lieu of or in substitution for which other Bonds will have been executed, issued and delivered pursuant to the Indenture or any Supplemental Indenture. Owner or Bond Owner, when used with respect to any Bond, means the person in whose name the ownership of such Bond will be registered on the Bond Register. Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein, but only to the extent that the same are acquired at Fair Market Value: (a) Federal Securities; (b) interest-bearing demand or time deposits (including certificates of deposit) or deposit accounts in federal or state chartered savings and loan associations or in federal or State of California banks (including the Trustee and its affiliates), provided that (i) the unsecured short-term obligations of such commercial bank or savings and loan association will be rated in the highest short-term rating category by any Rating Agency or (ii) such demand or time deposits will be fully insured by the Federal Deposit Insurance Corporation; (c) commercial paper rated at the time of purchase in the highest short-term rating category by any Rating Agency, issued by corporations which are organized and operating within the United States of America, and which matures not more than 180 days following the date of investment therein; (d) bankers acceptances, consisting of bills of exchange or time drafts drawn on and accepted by a commercial bank whose short-term obligations are rated, at the time of purchase, in the highest short-term rating category by any Rating Agency or whose long-term obligations are rated A or better, at the time of purchase, by each such Rating Agency, which mature not more than 270 days following the date of investment therein; (e) obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code and which are either (i) rated A or better by any Rating Agency or (ii) fully secured as to the payment of principal and interest by Federal Securities; (f) obligations issued by any corporation organized and operating within the United States of America having assets in excess of Five Hundred Million Dollars ($500,000,000), which obligations are rated A or better by any Rating Agency; (g) money market funds (including money market funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services) which invest in Federal Securities or which are rated, at the time of purchase, in the highest rating category by any Rating Agency; (h) any investment agreement, repurchase agreement or other investment instrument which represents the general unsecured obligations of a bank, investment banking firm or other financial institution whose long-term obligations are rated at the time of delivery of the investment agreement, repurchase agreement or other investment instrument A or better by any Rating Agency; and (i) the Local Agency Investment Fund of the State, created pursuant to Section of the California Government Code. C-4

85 Principal Account means the account by that name established and held by the Trustee pursuant to the Indenture. Prior CFD Bonds means the City of Stockton Arch Road East Community Facilities District No Special Tax Bonds. Purchase Fund means the fund by that name established and held by the Trustee pursuant to the Indenture. Rating Agency means one or both of Moody s and Standard & Poor s, as the context requires. Rebate Fund means the fund by that name established pursuant to the Indenture. Record Date means, with respect to any Interest Payment Date, the fifteenth calendar day of the month preceding the month in which such Interest Payment Date occurs, whether or not such day is a Business Day. Representation Letter means the representation letter dated as of the Closing Date for the Bonds among the Authority, the Trustee and DTC. Request of the Authority means a written request executed by an Authorized Officer of the Authority. Request of the City means a written certificate or request executed by an Authorized Officer of the City. Reserve Fund means the fund by that name established in the Indenture. Reserve Requirement means, as of any date of calculation, an amount equal to the least of (a) ten percent (10%) of the initial principal amount of the Bonds, (b) the Maximum Annual Debt Service for the then Outstanding Bonds, and (c) one hundred twenty-five percent (125%) of the Annual Debt Service for the then Outstanding Bonds. Residual Fund means the fund by that name established pursuant to the Indenture. Responsible Officer means any officer, authorized signer or authorized representative of the Trustee assigned to administer the Trustee s duties under the Indenture. Revenue Fund means the fund by that name established and held by the Trustee pursuant to the Indenture Revenues means: (a) all amounts received from the CFD Bonds; (b) any proceeds of the Bonds originally deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established hereunder with respect to the Bonds (other than the Rebate Fund and the Residual Fund); and (c) investment income with respect to any moneys held by the Trustee in the funds and accounts established hereunder with respect to the Bonds (other than investment income on moneys held in the Rebate Fund and the Residual Fund). Securities Depositories means DTC, 55 Water Street, 50th Floor, New York, N.Y Attention: Call Notification Department, Fax (212) ; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other securities depositories as the Authority designates in written notice filed with the Trustee. Special Taxes means the taxes authorized to be levied by the CFD on parcels within the CFD which have been pledged to repay the CFD Bonds pursuant to the CFD Act. C-5

86 Standard & Poor s or S&P means S&P Global Ratings, its successors and assigns. State means the State of California. Supplemental Indenture means any indenture, agreement or other instrument hereafter duly executed by the Authority in accordance with the provisions of the Indenture. Trust Office means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located in San Francisco, California, or such other place as designated by the Trustee except that with respect to presentation of Bonds for payment or for registration of transfer and exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted. Trustee means Wells Fargo Bank, National Association, and its successors and assigns, and any other corporation or association which may at any time be substituted in its place as provided in the Indenture. Investments of Moneys in the Funds and Accounts All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture will be invested by the Trustee solely in Permitted Investments, as directed pursuant to the Request of the Authority filed with the Trustee at least two Business Days in advance of the making of such investments. The Trustee will be entitled to conclusively rely on any such Request of the Authority and will be fully protected in relying thereon. In the absence of any such Request of the Authority the Trustee will invest any such moneys in Permitted Investments described in clause (h) of the definition thereof; provided, however, that any such investment will be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee will have received a Request of the Authority specifying a specific money market fund and, if no such Request of the Authority is so received, the Trustee will hold such moneys uninvested. The Trustee will be entitled to rely upon any investment directions from the Authority as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State of California and qualify as Permitted Investments. Permitted Investments purchased as an investment of moneys in any fund or account established pursuant to the Indenture will be deemed to be part of such fund or account. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment made in accordance with the terms of the Indenture. All interest or gain derived from the investment of amounts in any of the funds or accounts established under the Indenture will be deposited in the fund or account from which such investment was made. Except as otherwise described in the next sentence, the Authority has covenanted in the Indenture that all investments of amounts deposited in any fund or account created by or pursuant to the Indenture, or otherwise containing gross proceeds of the Bonds (within the meaning of section 148 of the Code) shall be acquired, disposed of, and valued by the Authority (as of the date that valuation is required by the Indenture or the Code) at Fair Market Value. The Indenture provides that investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Code shall be valued by the Authority at their present value (within the meaning of section 148 of the Code). Certain Covenants of the Authority Punctual Payment. The Authority will punctually pay or cause to be paid the principal and interest and premium (if any) to become due in respect of all the Bonds, in strict conformity with the C-6

87 terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in the Indenture. Extension of Payment. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of the Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall have been so extended. Nothing in the prior sentence shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Against Encumbrances. The Authority will not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by the Indenture and except as otherwise permitted by the Indenture with respect to parity bonds. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Bond Law, and reserves the right to issue other obligations for such purposes. Accounting Records and Financial Statements. The Trustee will at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards in which complete and accurate entries will be made of transactions made by it relating to the proceeds of Bonds, the Revenues, the CFD Bonds and all funds and accounts established pursuant to the Indenture. Such books of record and account will be available for inspection by the Authority and the City upon reasonable prior notice during regular business hours and under reasonable circumstances, in each case as agreed to by the Trustee. Not later than 45 days following each Interest Payment Date, the Trustee will prepare and file with the Authority a report setting forth: (i) amounts withdrawn from and deposited into each fund and account maintained by the Trustee under the Indenture; (ii) the balance on deposit in each fund and account as of the date for which such report is prepared; and (iii) a brief description of all obligations held as investments in each fund and account. Copies of such reports may be mailed to any Owner upon the Owner s written request to the Trustee at the expense of such Owner at a cost not to exceed the Trustee s actual costs of duplication and mailing. No Additional Obligations. The Authority covenants not to issue additional obligations secured by a pledge of the Revenues equally and ratably with Bonds, except that the Authority may issue bonds secured on parity with the Bonds to refund a portion of the Bonds. CFD Bonds. Subject to the provisions of the Indenture, the Authority and the Trustee will use reasonable efforts to collect all amounts due from the City pursuant to the CFD Bonds and will diligently enforce, and take all steps, actions and proceedings which the Authority and Trustee determine to be reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations and covenants of the City in the CFD Fiscal Agent Agreement. The Authority will instruct the City to authenticate and deliver to the Trustee the CFD Bonds registered in the name of the Trustee. The Authority, the Trustee, and the City may at any time consent to, amend or modify any of the CFD Bonds or the CFD Fiscal Agent Agreement pursuant to the terms thereof (i) with the prior consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, or (ii) without the consent of any of the Owners, if such amendment or modification is for any one or more of the following purposes: C-7

88 (a) to add to the covenants and agreements of the City contained in the CFD Fiscal Agent Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the City; or (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the CFD Bonds or the CFD Fiscal Agent Agreement, or in any other respect whatsoever as the City may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds in the opinion of Bond Counsel filed with the Trustee; or (c) to amend any provision thereof to the extent necessary to comply with the Code, but only if and to the extent such amendment will not, in and of itself, adversely affect the exclusion from gross income of the interest on any of the Bonds under the Code, in the opinion of Bond Counsel filed with the Trustee. Sale of CFD Bonds. Notwithstanding anything in the Indenture to the contrary, the Authority may cause the Trustee to sell, from time to time, all or a portion of the CFD Bonds, provided that the Authority will deliver to the Trustee: (a) a certificate of an Independent Accountant certifying that, following the sale of such CFD Bonds, the Revenues to be paid to the Authority (assuming the timely payment of amounts due thereon), together with interest and principal due on any noncallable Federal Securities pledged to the repayment of the Bonds and the Revenues then on deposit in the funds and accounts established under the Indenture (valuing any Permitted Investments held under the Indenture at the then Fair Market Value thereof), will be sufficient to pay the principal of and interest on the Bonds when due; (b) if any Bonds are then rated by Moody s and/or Standard & Poor s, a notification from Moody s, if Moody s then rates such Bonds, and Standard & Poor s, if Standard & Poor s then rates such Bonds, to the effect that such rating will not be withdrawn or reduced as a result of such sale of CFD Bonds; and (c) an opinion of Bond Counsel that such sale of CFD Bonds is authorized under the provisions of the Indenture and will not adversely affect the exclusion of interest on the Bonds from gross income for purposes of federal income taxation. Upon compliance with the foregoing conditions by the Authority, the Trustee will sell such CFD Bonds in accordance with the Request of the Authority and disburse the proceeds of the sale of such CFD Bonds to the Authority or upon the receipt of a Request of the Authority will deposit such proceeds in the Revenue Fund. Continuing Disclosure. The Authority covenants that it will cause the City to comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default; however, the Participating Underwriter (as defined in the Continuing Disclosure Certificate) or any owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the City, including seeking mandate or specific performance by court order. Maintenance of Existence. In the event the existence of the Authority will be impaired by any termination of the existence of the Successor Agency of the Redevelopment Agency of the City of Stockton, as successor to the Redevelopment Agency of the City of Stockton in its capacity as a member of the Authority, the Authority will take or cause to be taken all actions reasonably necessary to continue its existence until such time as the Bonds have been paid in full. C-8

89 Tax Covenants. Private Activity Bond Limitation. The Authority will assure that the proceeds of the Bonds are not used so as to cause the 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. Federal Guarantee Prohibition. The Authority will not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be federally guaranteed within the meaning of Section 149(b) of the Code. No Arbitrage. The Authority will not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the Bond proceeds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date, would have caused the Bonds to be arbitrage bonds within the meaning of Section 148 of the Code. Rebate of Excess Investment Earnings to United States. The Authority will calculate or cause to be calculated excess investment earnings with respect to the Bonds which are required to be rebated to the United States of America pursuant to Section 148(f) of the Code, and will pay the full amount of such excess investment earnings to the United States of America in such amounts, at such times and in such manner as may be required pursuant to the Code. Such payments will be made by the Authority from any source of legally available funds of the Authority, including amounts deposited into the Rebate Fund, if any. The Authority will keep or cause to be kept, and retain or cause to be retained for a period of six (6) years following the final payment of the Bonds, records of the determinations made pursuant to this covenant. In order to provide for the administration of this covenant, the Authority may provide for the employment of independent attorneys, accountants and consultants compensated on such reasonable basis as the Authority may deem appropriate. Maintenance of Tax Exemption. The Authority will take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners thereof 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 Bonds. Certain Provisions Relating to the Trustee Qualifications of Trustee. The Authority agrees that it will maintain a Trustee which is a trust company, national banking association or bank of good standing located in or incorporated under the laws of the State, duly authorized to exercise trust powers, with a combined capital and surplus of at least $75,000,000, and subject to supervision or examination by federal or state authority, so long as any Bonds are Outstanding. Acceptance of Trusts. The Trustee s acceptance of the trusts imposed by the Indenture are subject to the following terms and conditions, among others: (a) The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Indenture. In case an Event of Default hereunder has occurred (which has not been cured or waived), the Trustee may exercise such of the rights and powers vested in it by the Indenture and shall use the same degree of care and skill and diligence in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) The Trustee may execute any of the trusts or powers of the Indenture and perform the duties required of it under the Indenture by or through attorneys, agents, or receivers, but shall not be responsible for the acts of any agents, attorneys or receivers C-9

90 appointed by it unless such appointment was the result of negligence or willful misconduct. The Trustee may consult with and act upon the advice of counsel (which may be counsel to the Authority) concerning all matters of trust and its duty under the Indenture and will be wholly protected in reliance upon the advice or opinion of such counsel in respect of any action taken or omitted by it in good faith and in accordance with the Indenture. (c) The Trustee shall not be responsible for any recital in the Indenture, or for any of the supplements thereto or instruments of further assurance, or for the validity, effectiveness or the sufficiency of the security for the Bonds issued under the Indenture or intended to be secured by the Indenture and the Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants, conditions or agreements on the part of the Authority under the Indenture. The Trustee shall have no responsibility, opinion, or liability with respect to any information, statement, or recital in any offering memorandum, official statement, or other disclosure material prepared or distributed with respect to the issuance of the Bonds. Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Bonds. (d) Except for following the instructions as provided in Section 3.2 and Article IV of the Indenture, the Trustee shall not be accountable for the use of any proceeds of sale of the Bonds delivered under the Indenture, or for the application of any property, or moneys released or paid out in accordance with the provisions of the Indenture. The Trustee may become the Owner of Bonds with the same rights which it would have if not the Trustee; may acquire and dispose of other bonds or evidences of indebtedness of the Authority with the same rights it would have if it were not the Trustee; and may act as a depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners of Bonds, whether or not such committee shall represent the Owners of the majority in aggregate principal amount of the Bonds then Outstanding. (e) The Trustee will be protected and will incur no liability in acting, or refraining from acting in good faith and without negligence, in reliance upon any notice, request, consent, certificate, order, affidavit, letter, telegram, facsimile transmission, electronic mail, or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken or omitted to be taken by the Trustee in good faith and without negligence pursuant to the Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the Owner of any Bond, will be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. The Trustee will not be bound to recognize any person as an Owner of any Bond or to take any action at such person s request unless the ownership of such Bond by such person will be reflected on the Bond Register. (f) As to the existence or non existence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a Certificate of the Authority as sufficient evidence of the facts therein contained and prior to the occurrence of an Event of Default under the Indenture of which the Trustee has been given notice or is deemed to have notice, shall also be at liberty to accept a Certificate of the Authority to the effect that any particular dealing, transaction or action is necessary or expedient, and shall be fully protected in relying thereon, but may at its discretion secure such further evidence deemed by it to be necessary or advisable, but shall in no case be bound to secure the same. (g) The permissive right of the Trustee to do things enumerated in the Indenture shall not be construed as a duty and notwithstanding any other provision of the Indenture, the Trustee shall not be answerable for other than its negligence or willful misconduct. The C-10

91 immunities and exceptions from liability of the Trustee shall extend to its officers, directors, employees and agents. (h) The Trustee will not be required to take notice or be deemed to have notice of any Event of Default under the Indenture except where a Responsible Officer has actual knowledge of such Event of Default and except for the failure by the Authority to make any of the payments to the Trustee required to be made by the Authority pursuant to the Indenture, including payments on the CFD Bonds, or failure by the Authority to file with the Trustee any document required by the Indenture to be so filed subsequent to the issuance of the Bonds, unless a Responsible Officer will be specifically notified in writing of such default by the Authority or by the Owners of at least 25% in aggregate principal amount of the Bonds then Outstanding and all notices or other instruments required by the Indenture to be delivered to the Trustee must, in order to be effective, be delivered to a Responsible Officer at the Trust Office of the Trustee, and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default under the Indenture except as aforesaid. Delivery of a notice to the officer and address for the Trustee set forth in the Indenture, as updated by the Trustee from time to time, will be deemed notice to a Responsible Officer. (i) Before taking certain action referred to in the remedies upon the occurrence of an Event of Default section of the Indenture, the Trustee may require that an indemnity bond satisfactory to it be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any such action. (j) The Trustee will not be considered in breach of or in default in its obligations under the Indenture or progress in respect thereto in the event of enforced delay ( unavoidable delay ) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources or energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. (k) The Trustee agrees to accept and act upon instructions or directions pursuant to the Indenture sent by unsecured , facsimile transmission or other similar unsecured electronic methods, provided, however, that, for purposes of the Indenture, an does not constitute a notice, request or other communication hereunder but rather the portable document format or similar attachment attached to such shall constitute a notice, request or other communication hereunder and the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the Authority elects to give the Trustee or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Authority agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation C-11

92 the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties. (l) Whenever in the administration of the trusts imposed upon it by the Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Indenture, such matter (unless other evidence in respect thereof be in the Indenture specifically prescribed) may be deemed to be conclusively proved and established by a certificate of the Authority, and such certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Fees, Charges and Expenses of Trustee. Upon the occurrence of an Event of Default under the Indenture, but only upon an Event of Default, the Trustee will have a first lien with right of payment prior to payment of any Bond upon the amounts held in the Funds and accounts under the Indenture for the foregoing fees, charges and expenses incurred by it respectively. The Trustee s right to payment of its fees and expenses will survive the discharge and payment or defeasance of the Bonds and termination of the Indenture, and the resignation or removal of the Trustee. Intervention by Trustee. In any judicial proceeding to which the Authority is a party which, in the opinion of the Trustee and its counsel, has a substantial bearing on the interests of Owners of any of the Bonds, the Trustee may intervene on behalf of such Bond Owners, and subject to provisions of the Indenture relating to indemnification, will do so if requested in writing by the Owners of at least 25% in aggregate principal amount of such Bonds then Outstanding. Removal of Trustee. The Owners of a majority in aggregate principal amount of the Outstanding Bonds may and the Authority may, so long as no Event of Default then exists, upon 30 days prior written notice to the Trustee, remove the Trustee initially appointed, and any successor thereto, by an instrument or concurrent instruments in writing delivered to the Trustee. Upon any such removal, the Authority will appoint a successor or successors thereto; provided that any such successor will meet the requirements set forth in the Indenture. Notwithstanding any other provision of the Indenture, no removal of the Trustee will be effective until a successor is appointed. Resignation by Trustee. The Trustee and any successor Trustee may at any time provide a 30 day written notice of its intention to resign as Trustee under the Indenture, such notice to be given to the Authority and the City by registered or certified mail. Upon receiving such notice of resignation, the Authority will promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon acceptance of appointment by the successor Trustee. Upon such acceptance, the Authority will cause notice thereof to be given by first class mail, postage prepaid, to the Bond Owners at their respective addresses set forth on the Bond Register. Appointment of Successor Trustee. In the event of the removal or resignation of the Trustee, the Authority will promptly appoint a successor Trustee. In the event the Authority will for any reason whatsoever fail to appoint a successor Trustee within 30 days, the Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. Any such successor Trustee appointed by such court will become the successor Trustee under the Indenture notwithstanding any action by the Authority purporting to appoint a successor Trustee following the expiration of such 30-day period. Amendment of the Indenture With Bondowner Consent. The Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Indenture which will become binding when the prior written consent of the Owners of a majority in C-12

93 aggregate principal amount of the Bonds then Outstanding are filed with the Trustee. No such modification or amendment will (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal, interest or redemption premiums at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without written consent of the Trustee, modify any of the rights or obligations of the Trustee. Without Bondowner Consent. The Indenture and the rights and obligations of the Authority and of the Owners may also be modified or amended at any time by a Supplemental Indenture which shall become binding upon adoption, without consent of any Bond Owners, to the extent permitted by law but only for any one or more of the following purposes (a) to add to the covenants and agreements of the Authority contained in the Indenture, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or powers in the Indenture reserved to or conferred upon the Authority so long as such addition, limitation or surrender of such rights or powers will not materially adversely affect the Owners of the Bonds; or (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Indenture, or in any other respect whatsoever as the Authority may deem necessary or desirable, provided under any circumstances that such modifications or amendments will not materially adversely affect the interests of the Owners of the Bonds; or (c) to amend any provision of the Indenture relating to the Code as may be necessary or appropriate to assure compliance with the Code and the exclusion from gross income of interest on the Bonds; or (d) to amend any provision of the Indenture to place any Additional Bonds on a parity with the Bonds for all purposes of the Indenture, including, but not limited to, for the purpose of exercising all rights and remedies under the Indenture; or (e) to amend the provisions of the Indenture relating to the Residual Fund. The Trustee may, as it deems appropriate in its sole discretion, obtain an opinion of Bond Counsel that any such Supplemental Indenture entered into by the Authority and the Trustee complies with the provisions of the Indenture and is enforceable against the Authority, and the Trustee may conclusively rely upon such opinion and shall be fully protected in relying thereon. The Trustee shall not be obligated to enter into any Supplemental Indenture that adversely impacts its rights. Amendment by Mutual Consent. Any Bond Owner may accept any amendment as to the particular Bond held by such Owner, provided that due notation thereof is made on such Bond. Events of Default and Remedial Action Events of Default. The following events are Events of Default under the Indenture. (a) Default in the due and punctual payment of the principal of any Bond when and as the same will become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise. (b) Default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment will become due and payable. C-13

94 (c) Default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default will have continued for a period of 60 days after written notice thereof, specifying such default and requiring the same to be remedied, will have been given to the Authority by the Trustee, or to the Authority and the Trustee by the Owners of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding; provided that such default (other than a default arising from nonpayment of the Trustee s fees and expenses, which must be cured within such 60 day period unless waived by the Trustee) will not constitute a Event of Default under the Indenture if the Authority will commence to cure such default within said 60-day period and thereafter diligently and in good faith will cure such default within a reasonable period of time; or (d) The filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction will approve a petition, filed with or without the consent of the Authority, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction will assume custody or control of the Authority or of the whole or any substantial part of its property. Remedies; Rights of Bond Owners. Upon the occurrence of an Event of Default, the Trustee may pursue any available remedy at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the Outstanding Bonds, and to enforce any rights of the Trustee under or with respect to the Indenture. In the event of a Event of Default arising out of a nonpayment of Trustee s fees and expenses, the Trustee may sue the Authority to seek recovery of its fees and expenses; provided, however, that such recovery may be made only from Revenues. If a Event of Default will have occurred and be continuing and if requested to do so by the Owners of at least 25% in aggregate principal amount of Outstanding Bonds, and, in each case, if indemnified as provided in the Indenture, the Trustee will be obligated to exercise such one or more of the rights and powers conferred by the Indenture and, as applicable, under the CFD Bonds, as the Trustee, being advised by counsel, will deem most expedient in the interests of the Bond Owners. No remedy by the terms of the Indenture conferred upon or reserved to the Trustee (or to the Bond Owners) is intended to be exclusive of any other remedy, but each and every such remedy will be cumulative and will be in addition to any other remedy given to the Trustee or to the Bond Owners under the Indenture or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any Event of Default will impair any such right or power or will be construed to be a waiver of any such Event of Default or acquiescence therein; such right or power may be exercised from time to time as often as may be deemed expedient. Application of Revenues and Other Funds After Event of Default. All amounts received by the Trustee with respect to the Bonds pursuant to any right given or action taken by the Trustee under the provisions of the Indenture relating to the Bonds will be applied by the Trustee in the following order upon presentation of the several Bonds, and the stamping thereon of the amount of the payment if only partially paid, or upon the surrender thereof if fully paid First, to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default and in carrying out the provisions of the Indenture, including reasonable compensation to its agents, attorneys and counsel (including outside counsel and the allocated costs of internal attorneys), and to the payment of all other outstanding fees and expenses of the Trustee; and C-14

95 Second, to the payment of the whole amount of interest on and principal of the Bonds then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the Outstanding Bonds; provided, however, that in the event such amounts will be insufficient to pay in full the full amount of such interest and principal, then such amounts will be applied in the following order of priority: (a) first, to the payment of all installments of interest on the Bonds then due and unpaid, (b) second, to the payment of all installments of principal of the Bonds then due and unpaid, and (c) third, to the payment of interest on overdue installments of principal and interest on Bonds. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of a Event of Default, will have taken any action, by judicial proceedings or otherwise, pursuant to its duties under the Indenture, whether upon its own discretion or upon the request of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, it may, in the exercise of its discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee will not, unless there no longer continues a Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if there has been filed with it a written request signed by the Owners of a majority in aggregate principal amount of the Outstanding Bonds under the Indenture opposing such discontinuance, withdrawal, compromise, settlement or other such litigation and provided further that the Trustee will have the right to decline to comply with such written request unless indemnification satisfactory to it has been provided. Any suit, action or proceeding which any Owner of Bonds will have the right to bring to enforce any right or remedy under the Indenture may be brought by the Trustee for the equal benefit and protection of all Owners of Bonds similarly situated and the Trustee is appointed in the Indenture (and the successive respective Owners of the Bonds issued under the Indenture, by taking and holding the same, will be conclusively deemed so to have appointed it) the true and lawful attorney in fact of the respective Owners of the Bonds for the purposes of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Bonds as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney in fact. Appointment of Receivers. Upon the occurrence of a Event of Default under the Indenture, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bond Owners under the Indenture, the Trustee will be entitled, as a matter of right, to the appointment of a receiver or receivers of the Revenues and other amounts pledged under the Indenture, pending such proceedings, with such powers as the court making such appointment will confer. Rights and Remedies of Bond Owners. No Owner of any Bond issued under the Indenture will have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture, unless (a) such Owner will have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of all the Bonds then Outstanding will have made written request upon the Trustee to exercise the powers in the Indenture before granted or to institute such action, suit or proceeding in its own name; (c) said Owners will have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee will have refused or omitted to comply with such request for a period of 60 days after such written request will have been received by, and said tender of indemnity will have been made to, the Trustee. C-15

96 Discharge of Indenture If the Authority pays and discharges any or all of the Outstanding Bonds in any one or more of the following ways: (a) by well and truly paying or causing to be paid the principal of and interest and premium (if any) on such Bonds, as and when the same become due and payable; (b) by irrevocably depositing with the Trustee, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established with the Trustee pursuant to the Indenture and available for such purpose, is fully sufficient to pay such Bonds, including all principal, interest and redemption premiums; or (c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Federal Securities in such amount as an Independent Accountant will determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the Trustee pursuant to the Indenture and available for such purpose, 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; then any such Outstanding Bond(s) will be deemed to have been paid and discharged; provided, that any such Outstanding Bond(s) will be deemed to have been paid and discharged under paragraph (c) above only if (i) in the case of Bonds to be redeemed prior to the maturity thereof, notice of such redemption will have been mailed pursuant to the Indenture or provision satisfactory to the Trustee will have been made for the mailing of such notice, (ii) a verification report of an Independent Accountant will be delivered to the Trustee, and (iii) an opinion of Bond Counsel will be delivered to the Trustee in the case of a defeasance of Bonds, to the effect that the requirements of the Indenture have been satisfied with respect to such discharge of Bonds. Upon a discharge of one or more Bonds as described above, and notwithstanding that any of such Bonds will not have been surrendered for payment, the pledge of the Revenues and other funds provided for in the Indenture with respect to such Bonds, and all other pecuniary obligations of the Authority under the Indenture with respect to such Bonds, as applicable, will cease and terminate, except only the obligation of the Authority to comply with the tax covenants and the indemnification provisions set forth in the Indenture, to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose, and to pay all expenses and costs of the Trustee. Any funds thereafter held by the Trustee, which are not required for said purposes, will be paid over to the Authority or upon a Request of the Authority to the City. Defeasance will be accomplished only with an irrevocable deposit in escrow of certain investments referred to in the Indenture. Further substitutions of securities in the escrow are not permitted. The deposit in the escrow must be sufficient, without reinvestment, to pay all principal and interest as scheduled on the Bonds to and including the date of redemption. Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the Bonds (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date). C-16

97 FISCAL AGENT AGREEMENT RELATING TO THE CFD BONDS The following is a summary of certain provisions of the CFD Fiscal Agent Agreement relating to the CFD Bonds not otherwise described in the text of this Official Statement. Such summary is not intended to be definitive, and reference is made to the full text of the CFD Fiscal Agent Agreement for the complete terms thereof. Certain Definitions The following terms have the meanings ascribed to them below when used in this summary of the CFD Fiscal Agent Agreement. Account means any account created pursuant to the Fiscal Agent Agreement. Acquisition Agreement means the Agreement to Construct and Acquire Facilities for Arch Road East Community Facilities District No , dated as of November 23, 2018, among the City, the CFD and NorCal LandCo, LLC, as originally executed by the parties thereto and as it may be amended from time in accordance with its terms. Act means the Mello-Roos Community Facilities Act of 1982, as amended, Sections et seq. of the California Government Code. Administrative Expenses means any or all of the following: (a) the expenses directly related to the administration of the CFD, including, but not limited to, the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the City or a designee thereof or both); the costs of collecting the Special Taxes (whether by the County, the City or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; the costs associated with preparing Special Tax disclosure statements and responding to the public inquiries regarding the Special Taxes; the costs of the City, the CFD or any designee thereof related to an appeal of the Special Tax; (b) the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties of the Fiscal Agent pertaining to the Bonds required under the Fiscal Agent Agreement and any Supplemental Agreement; (c) the costs of the City or any designee thereof of complying with the City, the CFD, the Authority or obligated person disclosure requirements associated with applicable federal or state securities laws of the Act pertaining to the bonds; (d) the Authority Administrative Expenses; (e) any amounts required to be rebated to the federal government with respect to the Authority Bonds; and (f) all other costs and expenses of the City (including, but not limited to, an allocable share of the salaries of the City staff directly related to the foregoing, a proportionate amount of City general administrative overhead related to the foregoing, and amounts advanced by the City for any administrative purpose of the CFD, including costs related to prepayments of Special Taxes, recordings related to such prepayments and satisfaction of Special Taxes, amounts advanced to ensure maintenance of tax exemption, and the costs of prosecuting foreclosure of delinquent Special Taxes, which amounts advanced are subject to reimbursement from other sources, including proceeds of foreclosure) and the Fiscal Agent C-17

98 incurred in connection with the discharge of their respective duties under and in any way related to the administration of the CFD and all actual costs and expenses incurred in connection with the administration of the Bonds. Annual Debt Service means the principal amount of any Outstanding CFD Bonds payable in a Bond Year either at maturity or pursuant to a Sinking Fund Payment and any interest payable on any Outstanding Bonds in such Bond Year, if the Bonds are retired as scheduled. Authority Indenture means that certain Indenture of Trust, dated as of December 1, 2018, by and between the Authority and the Authority Trustee, pursuant to which the Authority Bonds are issued. Authority Trustee means Wells Fargo Bank, National Association or any successor thereto appointed pursuant to the Authority Indenture. Authorized Investments means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein, but only to the extent that the same are acquired at Fair Market Value: (a) Federal Securities; (b) interest-bearing demand or time deposits (including certificates of deposit) or deposit accounts in federal or state chartered savings and loan associations or in federal or State of California banks (including the Fiscal Agent and its affiliates), provided that (i) the unsecured short-term obligations of such commercial bank or savings and loan association shall, at the time of purchase, be rated in the highest short-term rating category by any Rating Agency or (ii) such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation; (c) commercial paper rated at the time of purchase in the highest short-term rating category by any Rating Agency, issued by corporations which are organized and operating within the United States of America, and which matures not more than 180 days following the date of investment therein; (d) bankers acceptances, consisting of bills of exchange or time drafts drawn on and accepted by a commercial bank whose short-term obligations are rated at the time of purchase in the highest short-term rating category by any Rating Agency or whose longterm obligations are rated at the time of purchase or better by each such Rating Agency, which mature not more than 270 days following the date of investment therein; (e) obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code and which are either (a) rated at the time of purchase A or better by any Rating Agency or (b) fully secured as to the payment of principal and interest by Federal Securities; (f) obligations issued by any corporation organized and operating within the United States of America having assets in excess of Five Hundred Million Dollars ($500,000,000), which obligations are rated at the time of purchase A or better by any Rating Agency; (g) money market funds (including money market funds for which the Fiscal Agent, its affiliates or subsidiaries provide investment advisory or other management services) which invest in Federal Securities or which are rated in the highest rating category by any Rating Agency at the time of purchase; C-18

99 (h) any investment agreement, repurchase agreement or other investment instrument which represents the general unsecured obligations of a bank, investment banking firm or other financial institution whose long-term obligations are rated at the time of the delivery of the investment agreement, repurchase agreement or other investment instrument A or better by any Rating Agency; (i) the Local Agency Investment Fund of the State, created pursuant to Section of the California Government Code; and (j) any other lawful investment for City funds. Bond Counsel means (a) Quint & Thimmig LLP, or (b) any other attorney at law or firm of attorneys selected by the Authority, of nationally recognized standing in matters pertaining to the federal tax exemption of interest on bonds issued by states and political subdivisions, and duly admitted to practice law before the highest court of any state of the United States of America. Bond Register means the books which the Fiscal Agent will keep or cause to be kept on which the registration and transfer of the Bonds will be recorded. Bondowner or Owner means the person or persons in whose name or names any Bonds is registered. Bonds means the 2018 Bonds and any Parity Bonds at any time outstanding under the Fiscal Agent Agreement or any Supplemental Agreement. Bond Year means the twelve-month period beginning on September 3 in each year and ending on September 1 in the following year except that the first Bond Year shall begin on the Closing Date and end on the September 1, Business Day means a day which is not a Saturday or Sunday or a day of the year on which the New York Stock Exchange or banks in New York, New York or San Francisco, California, or where the Trust Office is located, are not required or authorized to remain closed. Certificate of an Authorized Representative means a written certificate or warrant request executed by an Authorized Representative. CFD means Arch Road East Community Facilities District No , City of Stockton, San Joaquin County, California, established pursuant to the Act and the Resolution of Formation. Chief Financial Officer means the official of the City, including an acting or interim official, or such official s designee, who acts in the capacity as the chief financial officer of the City, including the controller or other financial officer. Closing Date means the date of issuance of the 2018 Bonds. 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 Closing Date, together with applicable temporary and final regulations promulgated, and applicable official guidance published, under the Code. Continuing Disclosure Certificate means the Continuing Disclosure Certificate, executed by the City, dated the Delivery Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Costs of Issuance has the meaning given to such term in the Authority Indenture. C-19

100 Delivery Date means the date on which the Bonds were issued and delivered to the initial purchaser thereof. 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 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 City, 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 Chief Financial Officer. It is expressly acknowledged that, in determining the District Value, the City 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 City nor the Chief Financial Officer 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 the foregoing definition. Escrow Agreement means the Escrow Agreement, dated as of December 1, 2018, by and among the Authority, the City and the Escrow Bank by which the Escrow Fund is established and administered. Escrow Fund means the fund established pursuant to Section 2 of the Escrow Agreement. Escrow Bank means Wells Fargo Bank, National Association, acting as Escrow Bank under the Escrow Agreement. Fair Market Value means, with respect to any investment, the price at which a willing buyer would purchase such 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 described 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, or (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. 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 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 C-20

101 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 Wells Fargo Bank, National Association, a national banking association organized and existing under the laws of the United States of America, at its principal corporate trust office in San Francisco, California, and its successors or assigns, or any other bank or trust company which may at any time be substituted in its place as provided in the Fiscal Agent Agreement. Fiscal Agent Agreement means the Fiscal Agent Agreement, together with any Supplemental Agreement approved pursuant to Article VI of the Fiscal Agent Agreement. Fiscal Year means the period beginning on July 1 of each year and ending on the next following June 30. Fund means any fund created pursuant to the Fiscal Agent Agreement. Gross Taxes means the proceeds of the Special Taxes received by the City, 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. Gross Taxes does not include (i) the portion of any prepayment by a landowner of Special Taxes to be deposited to the Improvement Fund or such other fund as may be determined by the City, and (ii) any penalties collected in connection with delinquent Special Taxes or any interest in excess of the interest due on the CFD Bonds. Improvement Fund means the fund by that name created pursuant to the Fiscal Agent Agreement. Independent Financial Consultant means a financial consultant or firm of such consultants generally recognized to be well qualified in the financial consulting field, appointed and paid by the City, who, or each of whom: (a) is in fact independent and not under the domination of the City; (b) does not have any substantial interest, direct or indirect, in the City; and (c) is not connected with the City as a member, officer or employee of the City, but who may be regularly retained to make annual or other reports to the City. Interest Payment Date means each March 1 and September 1, commencing March 1, 2019; provided, however, that, if any such day is not a Business Day, interest up to the Interest Payment Date will be paid on the Business Day next preceding such date. Net Taxes means Gross Taxes minus amounts set aside to pay Administrative Expenses. Ordinance means any ordinance of the City levying the Special Taxes. Outstanding or Outstanding Bonds means all Bonds theretofore issued by the City, except: (a) Bonds theretofore cancelled or surrendered for cancellation in accordance with the Fiscal Agent Agreement; (b) Bonds for payment or redemption of which monies will have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption will have been given as provided in the Bonds Fiscal Agent Agreement; and (c) Bonds which have been surrendered to the Fiscal Agent for transfer or exchange pursuant to the Fiscal Agent Agreement or for which a replacement has been issued pursuant to the Fiscal Agent Agreement. C-21

102 Parity Bonds means bonds issued by the City for the District on a parity with any then Outstanding Bonds pursuant to the Fiscal Agent Agreement. Person means natural persons, firms, corporations, partnerships, associations, trusts, public bodies and other entities. Prepayments means any amounts paid by the City to the Fiscal Agent and designated by the City as a prepayment of Special Taxes for one or more parcels in the CFD made in accordance with the Rate and Method. Principal Office of the Fiscal Agent means the corporate trust office of the Fiscal Agent at such address as shall be specified in the Fiscal Agent Agreement except that with respect to presentation of Bonds for payment or for registration of transfer and exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted or such other office of the Fiscal Agent designated for payment, transfer or exchange of the Bonds. Prior Bonds means the City of Stockton Arch Road East Community Facilities District No Special Tax Bonds. Project means those items described as Facilities in the Resolution of Formation. Rate and Method means the Amended and Restated Rate, Method of Apportionment, and Manner of Collection of Special Tax for the CFD, as in effect from time to time. Rating Agency means, individually, either (a) Moody s Investors Service, Inc., its successors and assigns, or (b) S&P Global Ratings, its successors and assigns. Record Date means the fifteenth day of the month preceding an Interest Payment Date, regardless of whether such day is a Business Day. Refunding Bonds means bonds issued by the City for the CFD 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 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. Resolution of Formation means Resolution No , adopted by the City Council of the City on November 2, 1999 pursuant to which the City formed the CFD. Series 2018-A Bonds means the City of Stockton Arch Road East Community Facilities District No Special Tax Refunding Bonds Series 2018-A issued and outstanding under the Fiscal Agent Agreement. Series 2018-B Bonds means the City of Stockton Arch Road East Community Facilities District No Special Tax Bonds Series 2018-B issued and outstanding under the Fiscal Agent Agreement. Sinking Fund Payment means the annual payment to be deposited in the Redemption Account to redeem a portion of the Term Bonds in accordance with the schedule set forth in the Fiscal Agent Agreement. Special Tax Fund means the fund by that name created pursuant to the Fiscal Agent Agreement. C-22

103 Special Taxes means the taxes authorized to be levied by the City on property within the CFD in accordance with the Ordinance, the Resolution of Formation and the Act. Supplemental Agreement means any Supplemental Agreement amending or supplementing the Fiscal Agent Agreement. Surplus Fund means the fund by that name created pursuant to the Fiscal Agent Agreement. Tax Consultant means Economic and Planning Systems Inc. or another independent financial or tax consultant retained by the City for the purpose of computing the annual Special Tax levy on property in the CFD. Teeter Plan means the County of San Joaquin's program of distributing special taxes as described under the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds, as provided for in Sections 4701 through 4717, inclusive, of the Revenue and Taxation Code of the State of California. Term Bonds means the Series 2018-A Bonds which are subject to mandatory sinking fund redemption, and the Series 2018-B Bonds Bonds means, collectively, the Series 2018-A Bonds and the Series 2018-B Bonds. Improvement Fund Moneys in the Improvement Fund shall be disbursed for the payment or reimbursement of costs of the Project. Disbursements from the Improvement Fund shall be made by the Fiscal Agent upon receipt of a Certificate of an Authorized Representative which shall: (i) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made (which shall be for payment of costs of the Project pursuant to the Acquisition Agreement, or to reimburse expenditures of the City or any other party for such Project costs previously paid); that the disbursement is a proper expenditure from 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 certificate previously filed requesting a disbursement. Each such certificate submitted to the Fiscal Agent 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. Upon receipt by the Fiscal Agent of a Certificate of an Authorized Representative to the effect that all improvements to be funded from the Improvement Fund have been completed or that no further withdrawals will be made from the Improvement Fund, any amounts remaining on deposit in the Improvement Fund shall be transferred by the Fiscal Agent to the Special Tax Fund to be used for purposes of the Special Tax Fund, and when no amounts remain on deposit in an account within the Improvement Fund such Fund shall be closed. Security for the Bonds Pursuant to the Act and the Fiscal Agent Agreement, the Bonds will be equally payable from the Net Taxes and other amounts in the Special Tax Fund, without priority for number, date of the Bonds, date of sale, date of execution, or date of delivery, and the payment of the interest on and principal of the Bonds and premiums upon the redemption thereof, will be exclusively paid from the Net Taxes and other amounts in the Special Tax Fund, which are set aside by the Fiscal Agent Agreement for the payment of the Bonds. Amounts in the Special Tax Fund will constitute a trust fund held for the benefit of the Owners to be applied to the payment of the interest on and principal of the Bonds and so long as any of the Bonds or interest thereon remain Outstanding will not be used for any other purpose, C-23

104 except as permitted by the Fiscal Agent Agreement or any Supplemental Agreement. Notwithstanding any provision contained in the Fiscal Agent Agreement to the contrary, Net Taxes deposited in the Surplus Fund will no longer be considered to be pledged to the Bonds, and the Surplus Fund will not be construed as a trust fund held for the benefit of the Owners. Nothing in the Fiscal Agent Agreement or any Supplemental Agreement will preclude the redemption prior to maturity of any Bonds subject to call and redemption and payment of said Bonds from proceeds of refunding bonds issued under the Act as the same now exists or as hereafter amended, or under any other law of the State of California. Accounts under the Fiscal Agent Agreement Interest Account and Principal Account of the Special Tax Fund. The principal of and interest due on the Bonds until maturity, other than principal due upon redemption, will be paid by the Fiscal Agent from the Principal Account and the Interest Account of the Special Tax Fund, respectively. For the purpose of assuring that the payment of principal of and interest on the Bonds will be made when due, at least five Business Days prior to each March 1 and September 1, the Fiscal Agent will transfer from the Special Tax Fund, first to the Interest Account and then to the Principal Account, the amount required to pay interest on and principal of the Bonds on the immediately succeeding March 1 or September 1; provided, however, that to the extent that deposits have been made in the Interest Account or the Principal Account from the proceeds of the sale of an issue of the Bonds, or otherwise, the transfer from the Special Tax Fund shall take into account any such proceeds deposited to the Interest Account (including as described in the next paragraph). Notwithstanding the foregoing, the proceeds of the Series 2018-B Bonds to be deposited to the Interest Account shall be used, prior to the use of any other funds in the Interest Account (and transfers to the Interest Account otherwise required by this Fiscal Agent Agreement shall take such funds into account) to pay the interest due and payable on the Series 2018-B Bonds on March 1, 2019 and on September 1, Redemption Account of the Special Tax Fund. With respect to each September 1 on which a Sinking Fund Payment is due, after the deposits have been made to the Interest Account and the Principal Account of the Special Tax Fund, the Fiscal Agent will next transfer into the Redemption Account of the Special Tax Fund from the Special Tax Fund the amount needed to make the balance in the Redemption Account five Business Days prior to each September 1 equal to the Sinking Fund Payment due on any Outstanding Bonds on such September 1. Moneys so deposited in the Redemption Account will be used and applied by the Fiscal Agent to call and redeem Term Bonds in accordance with the Sinking Fund Payment schedule set forth in the Fiscal Agent Agreement. In addition to the foregoing, and with respect to any optional redemption of the Bonds, after making any required deposits to the Interest Account and the Principal Account of the Special Tax Fund as described in the third preceding paragraph above and to the Redemption Account for Sinking Fund Payments then due pursuant to the preceding paragraph, and in accordance with the City s election to call Bonds for optional redemption as set forth in the Fiscal Agent Agreement, or to call Parity Bonds for optional redemption as set forth in any Supplemental Agreement for Parity Bonds, the Fiscal Agent shall transfer from the Special Tax Fund and deposit in the Redemption Account moneys available for the purpose and sufficient to pay the principal and the premiums, if any, payable on the Bonds or Parity Bonds called for optional redemption. Prepayments of Special Taxes deposited to the Redemption Account shall be applied on the redemption date established pursuant to the Indenture for the use of such Prepayments to the payment of the principal of, premium, and interest on the Bonds to be redeemed with such Prepayments. Moneys set aside in the Redemption Account shall be used solely for the purpose of redeeming Bonds and shall be applied on or after the redemption date to the payment of principal of C-24

105 and premium, if any, on the Bonds to be redeemed upon presentation and surrender of such Bonds however, so long as the Authority is the sole Owner of the Bonds the redemption price shall be paid without presentation and surrender thereof and shall only be presented upon maturity and in the case of an optional redemption or an extraordinary redemption from Prepayments to pay the interest thereon; provided, however, that in lieu or partially in lieu of such call and redemption, moneys deposited in the Redemption Account, other than Prepayments, may be used to purchase Outstanding Bonds in the manner hereinafter provided. Purchases of Outstanding Bonds may be made by the City at public or private sale as and when and at such prices as the City may in its discretion determine but only at prices (including brokerage or other expenses) not more than par plus accrued interest, plus, in the case of moneys set aside for an optional redemption, the premium applicable at the next following call date according to the premium schedule established pursuant to the Fiscal Agent Agreement. Any accrued interest payable upon the purchase of Bonds may be paid from the amount reserved in the Interest Account of the Special Tax Fund for the payment of interest on the next following Interest Payment Date. Surplus Fund. After making the transfers described above, as soon as practicable after each September 1, and in any event prior to each October 1, the Fiscal Agent will transfer all remaining amounts in the Special Tax Fund to the Surplus Fund, unless on or prior to such date, it has received a Certificate of an Authorized Representative of the City directing that certain amounts be retained in the Special Tax Fund because the City has assumed such amounts would be available in the Special Tax Fund in calculating the amount of the levy of Special Taxes for such Fiscal Year. The amounts in the Surplus Fund are not pledged to the repayment of the CFD Bonds and may be used by the City for any lawful purpose. Investments Moneys held in any of the Funds, Accounts and Subaccounts under the Fiscal Agent Agreement will be invested at the written direction of the City in accordance with the limitations set forth below only in Authorized Investments which will be deemed at all times to be a part of such Funds and Accounts. Any loss resulting from such Authorized Investments will be credited or charged to the Fund or Account from which such investment was made, and any investment earnings on amounts deposited in the Special Tax Fund and the Surplus Fund, and each Account therein, will be deposited in those respective Funds and Accounts. Moneys in the Funds and Accounts held under the Fiscal Agent Agreement may be invested by the Fiscal Agent as directed in writing by the City, from time to time, in Authorized Investments subject to the following restrictions: (a) Moneys in the Interest Account, the Principal Account, and the Redemption Account of the Special Tax Fund will be invested only in Authorized Investments which will by their terms mature on such dates so as to ensure the payment of principal of, premium, if any, and interest on the Bonds as the same become due. (b) In the absence of written investment directions from the City, the Fiscal Agent will invest solely in Authorized Investments specified in clause (g) of the definition thereof; provided, however, that any such investment will be made by the Fiscal Agent only if, prior to the date on which such investment is to be made, the Fiscal Agent will have received written investment directions from the City specifying a specific money market fund and, if no such written investment directions from the City is so received, the Fiscal Agent will hold such moneys uninvested. The Fiscal Agent will be entitled to rely upon any investment directions from the Authority as conclusive certification to the Fiscal Agent that the investments described therein are so authorized under the laws of the State of California and qualify as Authorized Investments. The Fiscal Agent will sell, or present for redemption, any Authorized Investment whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer to such C-25

106 Funds and Accounts or from such Funds and Accounts. For the purpose of determining at any given time the balance in any such Funds and Accounts, any such investments constituting a part of such Funds and Accounts will be valued at their cost. In making any valuations under the Fiscal Agent Agreement, the Fiscal Agent may utilize such computerized securities pricing services as may be available to it, including, without limitation, those available through its regular accounting system, and conclusively rely thereon. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, the Fiscal Agent will not be responsible for any loss from investments, sales or transfers undertaken in accordance with the provisions of the Fiscal Agent Agreement. The Fiscal Agent may act as principal or agent in the making or disposing of any investment. The Fiscal Agent may sell, or present for redemption, any Authorized Investment so purchased 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 Authorized Investment is credited, and, subject to the liability of the Fiscal Agent provisions of the Fiscal Agent Agreement, the Fiscal Agent shall not be liable or responsible for any loss resulting from such investment. For investment purposes, the Fiscal Agent may commingle the funds and accounts established hereunder, but shall account for each separately. Certain Covenants of the City In addition to the covenants summarized in this Official Statement, the City has covenanted in the Fiscal Agent Agreement as follows: Tax Covenants. Private Activity Bond Limitation. The City will assure that the proceeds of the 2018 Bonds are not so used as to cause the Authority 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. Federal Guarantee Prohibition. The City will not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Authority Bonds to be federally guaranteed within the meaning of section 149(b) of the Code. Rebate Requirement. The City will 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 Authority Bonds. No Arbitrage. The City will not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the proceeds of the 2018 Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the 2018 Bonds would have caused the Authority Bonds to be arbitrage bonds within the meaning of section 148 of the Code. Maintenance of Tax-Exemption. The City will take all actions necessary to assure the exclusion of interest on the Authority Bonds from the gross income of the Owners of the Authority 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 Authority Bonds. Continuing Disclosure. The City covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Fiscal Agent Agreement, failure of the City to comply with the Continuing Disclosure Certificate will not be considered a default under the Fiscal Agent Agreement; however, the Original Purchaser of the Authority Bonds and any holder or beneficial owner of the Authority Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. C-26

107 Supplemental Agreements or Orders Not Requiring Bondowner Consent The City may from time to time, and at any time, without notice to or consent of any of the owners of the Bonds, adopt Supplemental Agreements for any of the following purposes: (a) to cure any ambiguity, to correct or supplement any provisions in the Fiscal Agent Agreement which may be inconsistent with any other provision in the Fiscal Agent Agreement, or to make any other provision with respect to matters or questions arising under the Fiscal Agent Agreement or in any additional resolution or order, provided that such action is not materially adverse to the interests of the owners of the Bonds; or (b) to add to the covenants and agreements of and the limitations and the restrictions upon the City contained in the Fiscal Agent Agreement, other covenants, agreements, limitations and restrictions to be observed by the City which are not contrary to or inconsistent with the Fiscal Agent Agreement as theretofore in effect or which further secure Bond payments; or (c) to modify, amend or supplement the Fiscal Agent Agreement in such manner as to permit the qualification of the Fiscal Agent Agreement under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which will not materially adversely affect the interests of the Owners of the Bonds then Outstanding; or (d) to modify, alter or amend the Rate and Method in any manner so long as such changes do not reduce the maximum Special Taxes that may be levied in each year on property within the CFD to an amount which is less than 110% of the principal and interest due in each corresponding future Bond Year with respect to the Bonds Outstanding as of the date of such amendment; or (e) in connection with the issuance of Parity Bonds; or (f) to modify, alter, amend or supplement the Fiscal Agent Agreement in any other respect which is not materially adverse to the owners of the Bonds as determined by an opinion of Bond Counsel; or (f) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Authority Bonds. Supplemental Agreements or Orders Requiring Bondowner Consent Exclusive of the Supplemental Agreements described above, the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding will have the right to consent to and approve the adoption by the City of such Supplemental Agreements as will be deemed necessary or desirable by the City for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Fiscal Agent Agreement; provided, however, that nothing in the Fiscal Agent Agreement will permit, or be construed as permitting, (a) an extension of the maturity date of the principal, or the payment date of interest on, any Bonds, (b) a reduction in the principal amount of, or redemption premium on, any Bonds or the rate of interest thereon, (c) a preference or priority of any Bonds over any other Bonds, or (d) a reduction in the aggregate principal amount of the Bonds the Owners of which are required to consent to such Supplemental Agreement, without the consent of the Owners of all Bonds then Outstanding. C-27

108 If at any time the City desires to adopt a Supplemental Agreement, which will require the consent of the owners of the Bonds, the City will so notify the Fiscal Agent and will deliver to the Fiscal Agent a copy of the proposed Supplemental Agreement. The Fiscal Agent will, at the expense of the City, cause notice of the proposed Supplemental Agreement to be mailed, by first class mail, postage prepaid, to all owners of the Bonds at their addresses as they appear in the Bond Register. Such notice will briefly set forth the nature of the proposed Supplemental Agreement and will state that a copy thereof is on file at the office of the Fiscal Agent for inspection by all owners of the Bonds. The failure of any owners of the Bonds to receive such notice will not affect the validity of such Supplemental Agreement when consented to and approved by the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding. Whenever at any time within one year after the date of the first mailing of such notice, the Fiscal Agent will receive an instrument or instruments purporting to be executed by the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding, which instrument or instruments will refer to the proposed Supplemental Agreement described in such notice, and will specifically consent to and approve the adoption thereof by the City substantially in the form of the copy referred to in such notice as on file with the Fiscal Agent, such proposed Supplemental Agreement, when duly adopted by the City, will thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of a majority of the aggregate principal amount of the Bonds have consented to the adoption of any Supplemental Agreement, Bonds which are owned by the City or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the City, will be disregarded and will be treated as though they were not Outstanding for the purpose of any such determination. Upon the adoption of any Supplemental Agreement and the receipt of consent to any such Supplemental Agreement from the Owners of not less than a majority in aggregate principal amount of the Outstanding Bonds in instances where such consent is required pursuant to the Fiscal Agent Agreement, the Fiscal Agent Agreement will be, and will be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Fiscal Agent Agreement of the City and all Owners of Outstanding Bonds will thereafter be determined, exercised and enforced under the Fiscal Agent Agreement, subject in all respects to such modifications and amendments. The Fiscal Agent is not obligated to enter into any Supplemental Agreement that adversely impacts its rights. Certain Provisions Relating to the Fiscal Agent Removal of Fiscal Agent. The City may at any time at its sole discretion remove the Fiscal Agent initially appointed, and any successor thereto, by delivering to the Fiscal Agent A written notice of its decision to remove the Fiscal Agent and may appoint a successor or successors thereto; provided that any such successor will be a bank, national banking association or trust company having a combined capital (exclusive of borrowed capital) and surplus of at least $75,000,000, and subject to supervision or examination by federal or state authority. Any removal will become effective only upon acceptance of appointment by the successor Fiscal Agent. If any bank, national banking association or trust company appointed as a successor 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 the combined capital and surplus of such bank, national banking association or trust company will be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Any removal of the Fiscal Agent and appointment of a successor Fiscal Agent will become effective only upon acceptance of appointment by the successor Fiscal Agent and notice being sent by the successor Fiscal Agent to the owners of the Bonds of the successor Fiscal Agent s identity and address. Resignation of Fiscal Agent. The Fiscal Agent may at any time resign by giving at least 45 days written notice to the City and by giving to the Owners notice of such resignation, which notice will be mailed to the Owners at their addresses appearing in the registration books in the office of the Fiscal Agent. Upon receiving such notice of resignation, the City will promptly appoint a successor Fiscal Agent satisfying the criteria in the Fiscal Agent Agreement by an instrument in C-28

109 writing. Any resignation or removal of the Fiscal Agent and appointment of a successor Fiscal Agent will become effective only upon acceptance of appointment by the successor Fiscal Agent. Liability of the Fiscal Agent. The Fiscal Agent will 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, but its liability will be limited to the proper accounting for such funds as it will actually receive. No provision in the Fiscal Agent Agreement will 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 under the Fiscal Agent Agreement, or in the exercise of its rights or powers. No Obligation to Act. The Fiscal Agent shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement at the request, order or direction of any of the Owners pursuant to the provisions of this Agreement unless such Owners shall have offered to the Fiscal Agent reasonable and satisfactory security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. Defeasance If the City pays or causes to be paid, or there will otherwise be paid, to the Owner of an Outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in the Fiscal Agent Agreement or any Supplemental Agreement, then the Owner of such Bond will cease to be entitled to the pledge of Net Taxes, and, other than as set forth below, all covenants, agreements and other obligations of the City to the Owner of such Bond under the Fiscal Agent Agreement will thereupon cease, terminate and become void and be discharged and satisfied. In the event of a defeasance of all Outstanding Bonds, the Fiscal Agent will execute and deliver to the City all such instruments as may be desirable to evidence such discharge and satisfaction, and the Fiscal Agent will pay over or deliver to the City s general fund all money or securities held by it pursuant to the Fiscal Agent Agreement which are not required for the payment of the principal of, premium, if any, and interest due on such Bonds. Any Outstanding Bonds will be deemed to have been paid within the meaning expressed in the preceding paragraph if such Bonds are paid in any one or more of the following ways: (a) by paying or causing to be paid the principal of, premium, if any, and interest on such Bonds, as and when the same become due and payable; (b) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the Special Tax Fund and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bonds, as and when the same will become due and payable; or (c) by depositing with the Fiscal Agent or another escrow bank appointed by the City, in trust, Federal Securities, in which the City may lawfully invest its money, in such amount as will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the Special Tax Fund and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bonds, as and when the same will become due and payable; then, at the election of the City, and notwithstanding that any Outstanding Bonds will not have been surrendered for payment, all obligations of the City under the Fiscal Agent Agreement and any Supplemental Agreement with respect to such Bond will cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon. Notice of such election will be filed with the Fiscal Agent not less than ten days prior to the proposed defeasance date, or such shorter period of time as may be acceptable to the Fiscal Agent. In connection with a defeasance under (b) or (c) above, there C-29

110 will be provided to the City and Fiscal Agent a verification report from an independent nationally recognized certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Fiscal Agent or the escrow bank to pay and discharge the principal of, premium, if any, and interest on all Outstanding Bonds to be defeased, as and when the same will become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased in accordance with the Fiscal Agent Agreement and any applicable Supplemental Agreement. Upon a defeasance, the Fiscal Agent, upon request of the City, will release the rights of the Owners of such Bonds which have been defeased under the Fiscal Agent Agreement and any Supplemental Agreement and execute and deliver to the City all such instruments as may be desirable to evidence such release, discharge and satisfaction. In the case of a defeasance under the Fiscal Agent Agreement of all Outstanding Bonds, the Fiscal Agent will pay over or deliver to the City any funds held by the Fiscal Agent at the time of a defeasance, which are not required for the purpose of paying and discharging the principal of or interest on the Bonds when due. The Fiscal Agent will, at the written direction of the City, mail, first class, postage prepaid, a notice to the owners whose Bonds have been defeased, in the form directed by the City, stating that the defeasance has occurred. Defeasance will be accomplished only with an irrevocable deposit in escrow of certain investments referred to in the Fiscal Agent Agreement. Further substitutions of securities in the escrow are not permitted. The deposit in the escrow must be sufficient, without reinvestment, to pay all principal and interest as scheduled on the Bonds to and including the date of redemption. Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date). C-30

111 APPENDIX D FORM OF BOND COUNSEL OPINION December 19, 2018 Stockton Public Financing Authority c/o City of Stockton 425 North El Dorado Street Stockton, California, OPINION: $24,210,000 Stockton Public Financing Authority Revenue Bonds (Arch Road East CFD No ) Series 2018A Members of the Authority: We have acted as bond counsel to the Stockton Public Financing Authority (the Authority ) in connection with the issuance by the Authority of the above-referenced bonds (the Bonds ), issued pursuant to the provisions of the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (commencing with Section 6584) of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the Bond Law ), and pursuant to an Indenture of Trust, dated as of December 1, 2018 (the Indenture ), between the Authority and Wells Fargo Bank, National Association, as trustee. The Bonds will be payable from Revenues, as such term is defined in the Indenture, consisting primarily of payments of debt service on two series of special tax bonds (collectively, the Special Tax Bonds ) issued by the City of Stockton (the City ) pursuant to a Fiscal Agent Agreement, dated as of December 1, 2018 (the Fiscal Agent Agreement ), by and between the City and Wells Fargo Bank, National Association, as fiscal agent. In connection with this opinion, we have examined the Bond Law, the Indenture, the Fiscal Agent Agreement and such certified proceedings and other papers 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 Indenture, of the City contained in the Fiscal Agent Agreement, and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based upon our examination we are of the opinion, under existing law, that: 1. The Authority is a joint exercise of powers authority duly organized and existing under the laws of the United States of America, with the power to enter into the Indenture, to perform the agreements on its part contained therein and to issue the Bonds. 2. The Indenture has been duly entered into by the Authority and constitutes a valid and binding obligation of the Authority enforceable upon the Authority. 3. Pursuant to the Bond Law, the Indenture creates a valid lien on the funds pledged by the Indenture for the security of the Bonds. D-1

112 4. The Bonds have been duly authorized, executed and delivered by the Authority and are valid and binding limited obligations of the Authority, payable solely from the sources provided therefor in the Indenture. 5. Subject to the Authority s and the City s compliance with certain covenants, interest on the Bonds (a) is excludable from gross income of the owners thereof for federal income tax purposes, and (b) is not included as an item of tax preference in computing the alternative minimum tax for individuals under the Internal Revenue Code of 1986, as amended. Failure by the Authority or the City to comply with certain of such covenants could cause interest on the Bonds to be includable in gross income for 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 Indenture, the Special Tax Bonds 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, the City 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, D-2

113 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE OF THE CITY This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the City of Stockton, California (the City ) in connection with the issuance of $24,210,000 Stockton Public Financing Authority Revenue Bonds (Arch Road East CFD No ) Series 2018A (the 2018 Bonds ). The 2018 Bonds were issued pursuant to an Indenture of Trust, dated as of December 1, 2018 (the Indenture ), between the Stockton Public Financing Authority and Wells Fargo Bank, National Association, as trustee (the Trustee ). The City covenants and agrees as follows: SECTION 1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Owners and Beneficial Owners of the 2018 Bonds and to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms have the following meanings when used in this Disclosure Certificate: Annual Report means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner means any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any 2018 Bond (including persons holding any 2018 Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any 2018 Bond for federal income tax purposes. Dissemination Agent means any entity designated in writing by the City to perform the duties specified in Section 3(c) of this Disclosure Certificate and which has filed with the City a written acceptance of such designation. EMMA means the MSRB s Electronic Municipal Market Access system. Fiscal Year means, with respect to the City, the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other annual accounting period thereafter by the City as its Fiscal Year with notice of such selection of change in fiscal year to be provided as set forth herein. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board. Official Statement means the Official Statement, dated December 4, 2018, with respect to the 2018 Bonds. E-1

114 Participating Underwriter means RBC Capital Markets, LLC as the original underwriter of the 2018 Bonds required to comply with the Rule in connection with offering of the 2018 Bonds. 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. SECTION 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than the March 31 following the end of the City s Fiscal Year (presently June 30), commencing with the report for the Fiscal Year, provide to the MSRB through EMMA, in an electronic format and accompanied by such identifying information as is prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements described in Section 4 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 the audited financial statements are not available by that date. If the City s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5. (b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If the City provides the Annual Report to the Dissemination Agent pursuant to the preceding sentence, the City shall provide written certification to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent) that such Annual Report constitutes the Annual Report required to be furnished pursuant to this Disclosure Certificate. The Dissemination Agent and the Trustee may conclusively rely upon such certification of the City and shall have no obligation to review such Annual Report. If the City is unable to provide an Annual Report to the MSRB through EMMA by the date required in subsection (a), the City shall send a notice in a timely manner to the MSRB through EMMA, in substantially the form attached as Exhibit A to this Disclosure Certificate. (c) If the Dissemination Agent is other than the City, the Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the applicable electronic format for filings through EMMA; (ii) file the Annual Report with the MSRB through EMMA by the date required therefor by Section 3(a) and file any notice of a Listed Event, if requested by the City, as soon as practicable following receipt from the City of such notice; and (iii) file a report with the City and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided. SECTION 4. Content of Annual Reports. It is acknowledged that the Closing Date for the 2018 Bonds occurred after the end of the fiscal year of the Authority. In light of the foregoing, submission of the Official Statement shall satisfy the Authority s obligation to file an Annual Report for fiscal year E-2

115 The Annual Report for each fiscal year commencing with the Annual Report for the fiscal year, shall contain or incorporate by reference the following: (a) Audited financial statements of the City for the most recently completed fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) The following additional information: (i) A maturity schedule for the outstanding 2018 Bonds, and a listing of 2018 Bonds, if any, redeemed prior to maturity during the prior Fiscal Year. (ii) Total deposits to the Revenue Fund for the prior Fiscal Year, together with a statement of the debt service requirement for the 2018 Bonds discharged by the Revenue Fund in the prior Fiscal Year. (iii) The balance in the Reserve Fund as of the end of the prior Fiscal Year, together with a statement as to the Reserve Requirement as of such Fiscal Year end. (iv) A table indicating the levy of Special Taxes, amount collected, delinquent amount and percent of Special Tax levy delinquent for the most recent Fiscal Year. (v) The aggregate assessed value of the properties in the Community Facilities District for the most recent Fiscal Year. (vi) Identification of each delinquent property owner in the Community Facilities District representing more than 5% of the levy of Special Taxes in the Community Facilities District, and the value-to-lien ratios of the corresponding property, together with the following information respecting each such parcel: (A) (B) (C) (D) (E) the amount delinquent (exclusive of late charges and monthly penalties for reinstatement) and the assessed value of such parcel; the date of the first delinquency; the status of any foreclosure action by the City; in the event a foreclosure complaint has been filed respecting such delinquent parcel and such complaint has not yet been dismissed, the date on which the complaint was filed in the California Superior Court; and in the event a foreclosure sale has occurred respecting such delinquent parcel, a summary of the results of such foreclosure sale. E-3

116 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 City or related public entities that are available to the public from the MSRB s internet website or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference; provided that, if any document incorporated by reference is a final official statement, it must be available from the MSRB. SECTION 5. Reporting of Listed Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2018 Bonds not later than ten (10) business days after the occurrence of the event: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 TEB) or other material notices or determinations with respect to the tax status of the 2018 Bonds or other material events adversely affecting the tax status of the 2018 Bonds; (6) modifications to rights of Owners, if material; (7) substitution of credit or liquidity providers, or their failure to perform; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution or sale of property securing repayment of the 2018 Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the City; (13) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional Trustee or the change of name of the Trustee, if material. For the purpose of the event identified in Section 5(a)(12), the event is considered to occur when any of the following occur: the appointment of a receiver, trustee or similar officer for the City in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City. E-4

117 (b) The Dissemination Agent (if other than the City) shall, promptly upon obtaining actual knowledge at its office as specified in Section 12 hereof of the occurrence of any of the Listed Events, contact the City, inform such person of the event, and request that the City promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f); provided that, failure by the Dissemination Agent to so notify the City and make such request shall not relieve the City of its duty to report Listed Events as required by this Section 5. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Dissemination Agent pursuant to subsection (b) or otherwise, the City shall determine as soon as possible if such event is required to be reported pursuant to this Section 5. (d) If the City has determined that the occurrence of a Listed Event is required to be reported pursuant to this Section 5, the City shall, within the time prescribed by this Section 5, file a notice of such occurrence with the MSRB through EMMA in an electronic format and accompanied by such identifying information as is prescribed by the MSRB or promptly notify the Dissemination Agent (if other than the City) in writing. Such notice to the Dissemination Agent shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the City determines that the Listed Event is not required to be reported pursuant to this Section 5, the City shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence. (f) If the Dissemination Agent has been instructed by the City to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB through EMMA in an electronic format and accompanied by such identifying information as is prescribed by the MSRB. (g) The Dissemination Agent may conclusively rely on an opinion of counsel that the City s instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule. SECTION 6. Termination of Reporting Obligation. The obligations under this Disclosure Certificate shall terminate (a) upon the legal defeasance, prior redemption or payment in full of all of the 2018 Bonds or (b) if, in the opinion of nationally recognized bond counsel, the City ceases to be an obligated person (within the meaning of the Rule) with respect to the 2018 Bonds or the 2018 Bonds otherwise cease to be subject to the requirements of the Rule. If such termination occurs prior to the final maturity of the 2018 Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5. SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Certificate. If at any time there is not any other designated Dissemination Agent, the City shall be the Dissemination Agent. Any Dissemination Agent designated by the City may resign by providing thirty (30) days written notice to the City. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with the schedule of fees agreed upon by the City, as amended E-5

118 from time to time, and all reasonable expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate and any provision of this Disclosure Certificate may be waived if the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the 2018 Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally-recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the 2018 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Owners in the same manner as provided in the Indenture for amendments to the Indenture 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. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(d), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City 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 Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the City or the Dissemination Agent to comply with any provision of this Disclosure Certificate, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City or the Dissemination Agent to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this E-6

119 Disclosure Certificate in the event of any failure of the City or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties under this Disclosure Certificate as are specifically set forth in this Disclosure Certificate, and the City, to the extent permitted by law, agrees to indemnify and save the Dissemination Agent and its officers, directors, employees and agents, harmless against any loss, expense and liabilities they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2018 Bonds. SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the 2018 Bonds, and shall create no rights in any other person or entity. Date: December 19, CITY OF STOCKTON, CALIFORNIA By Matt Paulin, Director of Administrative Services/ Chief Financial Officer E-7

120 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Obligated Person: Name of Issue: City of Stockton, California Stockton Public Financing Authority Revenue Bonds (Arch Road East CFD No ) Series 2018A Date of Issuance: December 19, 2018 NOTICE IS HEREBY GIVEN that the City of Stockton, California has not provided an Annual Report with respect to the above-named 2018 Bonds as required by the Continuing Disclosure Certificate, dated December 19, 2018, relating to the 2018 Bonds. [The City anticipates that the Annual Report will be filed by.] Date: CITY OF STOCKTON, CALIFORNIA By: Name: Title: E-8

121 APPENDIX F CONTINUING DISCLOSURE CERTIFICATE LANDOWNER This Continuing Disclosure Certificate Landowner (the Disclosure Certificate ) dated as of December 1, 2018, is by NorCal LandCo, LLC, a Delaware limited liability company (the Landowner ). RECITALS: WHEREAS, the Stockton Public Financing Authority (the Authority ) has issued its Stockton Public Financing Authority Revenue Bonds (Arch Road East CFD No ) Series 2018A (the Bonds ); and WHEREAS, the Bonds have been issued to acquire two series of special tax bonds issued by the City of Stockton, California (the City ) for the City s Arch Road East Community Facilities District No (the CFD ) pursuant to a Fiscal Agent Agreement, dated as of December 1, 2018 (the Fiscal Agent Agreement ), by and between Wells Fargo Bank, National Association, as fiscal agent (the Fiscal Agent ), and the City, for and on behalf of the CFD; and WHEREAS, the Landowner is the owner of the Property (as defined in Section 1 below). AGREEMENT: NOW, THEREFORE, for and in consideration of the premises and mutual covenants herein contained, and for other consideration the receipt and sufficiency of which is hereby acknowledged, the Landowner agrees as follows: Section 1. Definitions. In addition to the definitions of capitalized terms set forth in Section 1.1 of the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section or in the Recitals above, the following terms shall have the following meanings when used in this Disclosure Certificate: Affiliate means, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially or as an agent, guardian or other fiduciary, twenty-five percent (25%) or more of any class of Equity Securities of such Person, (b) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person or (c) each of such Person s executive officers, directors, joint venturers and general partners; provided, however, that in no case shall the Authority be deemed to be an Affiliate of the Landowner for purposes of this Disclosure Certificate. For the purpose of this definition, control of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. Beneficial Owner means any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond (including persons holding any Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bond for federal income tax purposes. F-1

122 Business Day means any day other than (i) a Saturday or a Sunday or (ii) a day which is a federal or State of California holiday. Dissemination Agent means the Landowner, or any successor Dissemination Agent designated in writing by the Landowner and which has filed with the Landowner, the City and the Authority a written acceptance of such designation. EMMA or Electronic Municipal Market Access means the centralized online repository for documents to be filed with the MSRB, such as official statements and disclosure information relating to municipal bonds, notes and other securities as issued by state and local governments. Equity Securities of any Person means (a) all common stock, preferred stock, participations, shares, general partnership interests or other equity interests in and of such person (regardless of how designated and whether or not voting or nonvoting) and (b) all warrants, options and other rights to acquire any of the foregoing. Fiscal Year means the period beginning on July 1 of each year and ending on the next succeeding June 30. Government Authority means any national, state or local government, any political subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. Landowner means NorCal LandCo, LLC, a Delaware limited liability company. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Official Statement means the Official Statement, dated December 4, 2018, relating to the Bonds. Participating Underwriter means RBC Capital Markets, LLC, the original underwriter of the Bonds. Person means any natural person, corporation, partnership, firm, association, Government Authority or any other Person whether acting in an individual fiduciary, or other capacity. Property means the land in the CFD identified as San Joaquin County Assessor s Parcel Numbers , and 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. F-2

123 Semiannual Report means any report to be provided by the Landowner on or prior to January 15 and July 15 of each year pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. State means the State of California. Section 2. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Landowner for the benefit of the owners and Beneficial Owners of the Bonds. Section 3. Provision of Semiannual Reports. (a) The Landowner shall, or shall cause the Dissemination Agent to, not later than January 15 and July 15 of each year, commencing July 15, 2019, provide to EMMA a Semiannual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. If, in any year, January 15 or July 15 does not fall on a Business Day, then such deadline shall be extended to the following Business Day. The Semiannual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate. (b) Not later than fifteen (15) calendar days prior to the date specified in subsection (a) for providing a Semiannual Report to EMMA, the Landowner shall provide the Semiannual Report to the Dissemination Agent (if the Dissemination Agent is other than the Landowner) or shall provide notification to the Dissemination Agent (if the Dissemination Agent is other than the Landowner) that the Landowner is preparing, or causing to be prepared, the Semiannual Report and the date which the Semiannual Report is expected to be available. If by such date, the Dissemination Agent (if the Dissemination Agent is other than the Landowner) has not received a copy of the Semiannual Report or notification as described in the preceding sentence, the Dissemination Agent shall notify the Landowner of such failure to receive the report. (c) If the Dissemination Agent is unable to provide a Semiannual Report to EMMA by the date required in subsection (a) or to verify that a Semiannual Report has been provided to EMMA by the date required in subsection (a), the Dissemination Agent shall send in a timely manner a notice to EMMA in a form that is accepted by EMMA. (d) The Landowner shall, or shall cause the Dissemination Agent to: (i) determine each year prior to the date for providing each Semiannual Report the name and address of EMMA; and (ii) promptly file a report with the Landowner, the Authority and the City certifying that the Semiannual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided to EMMA. (e) Notwithstanding any other provision of this Disclosure Certificate, any of the required filings hereunder shall be made in accordance with the MSRB s EMMA system or in another manner approved under the Rule. F-3

124 Section 4. Content of Semiannual Reports. (a) Each Semiannual Report shall contain or include by reference the information which is available as of the date selected in the Semiannual Report (which shall not be more than 45 days prior to the applicable January 15 or July 15) to include the following: 1. Any significant changes in the information about the Property or the Landowner and any Affiliates of the Landowner that own all or any part of the Property contained in the Official Statement under the headings: THE CFD Status of the Taxable Parcels (provided that the Landowner shall have no obligation to update the VTL or % of Bonds columns in Table 4) and THE CFD The Landowners (provided that the Landowner shall have no obligation to update Table 5). 2. A general description of the development status of the undeveloped Property within the CFD. 3. A general description of the status of the 2018 Improvements (as defined in the Official Statement) financed by the Bonds. 4. A summary of Property within the CFD sold by or leased by the Landowner and its Affiliates since the date of the Official Statement or the most recent Semiannual Report. 5. A description of any change in the legal structure of the Landowner and its Affiliates that own Property. 6. Any denial of credit, lines of credit, loans or loss of source of capital that could have a significant adverse impact on the Landowner s or its Affiliates ability to pay the Special Tax or other taxes or assessments on the Property or to continue development of the undeveloped Property. 7. Any failure by the Landowner or any of its Affiliates to pay prior to delinquency general property taxes, assessments or special taxes with respect to Property in the CFD. 8. Any previously undisclosed amendments to the land use entitlements or environmental conditions or other governmental conditions that are necessary to complete the development of the undeveloped Property. (b) In addition to any of the information expressly required to be provided under paragraph (a) above, the Landowner 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. (c) Any and all of the items listed above may be included by specific reference to other documents, including official statements of debt issues which have been submitted to EMMA or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Landowner shall clearly identify each such other document so included by reference. F-4

125 Section 5. Reporting of Certain Events. (a) Pursuant to the provisions of this Section 5, the Landowner shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material under clauses (b) and (c) in a timely manner within 10 Business Days after obtaining knowledge of the occurrence of any of the following events: 1. Failure to pay prior to delinquency any real property taxes, special taxes or assessments levied within the CFD on a parcel of Property owned by the Landowner or any Affiliate of the Landowner. 2. Damage to or destruction of any of the improvements on a parcel of Property owned by the Landowner or any of its Affiliates in the CFD which has a material adverse effect on the value of the parcel of the Property. 3. Material default by the Landowner or any Affiliate of the Landowner on any loan with respect to the construction or permanent financing of improvements to any parcel of the Property in the CFD owned by the Landowner or any Affiliate of the Landowner. 4. Material default by the Landowner or any Affiliate of the Landowner on any loan secured by the Property within the CFD owned by the Landowner or any Affiliate of the Landowner. 5. The filing of any proceedings with respect to the Landowner in which the Landowner may be adjudicated as bankrupt or discharged from any or all of their respective debts or obligations or granted an extension of time to pay debts or a reorganization or readjustment of debts. 6. The filing of any proceedings with respect to an Affiliate of the Landowner, in which such Affiliate of the Landowner may be adjudicated as bankrupt or discharged from any or all of its respective debts or obligations or granted an extension of time to pay debts or a reorganization or readjustment of debts if such adjudication could materially adversely affect the development of undeveloped Property owned by the Landowner or its Affiliates within the CFD (including the payment of special taxes on the Property in the CFD). 7. The filing of any lawsuit against the Landowner or any of its Affiliates (with service of process on the Landowner or its Affiliates having occurred) which, in the reasonable judgment of the Landowner, will materially adversely affect the completion of development of the undeveloped Property, or litigation which if decided against the Landowner, or any of its Affiliates, in the reasonable judgment of the Landowner, would materially adversely affect the financial condition of the Landowner or its Affiliates in a manner that would materially adversely affect the completion of the development of the undeveloped Property. 8. A sale or transfer of all or substantially all of the Landowner s assets or a sale of a majority of the partnership interests, membership interests or outstanding stock of the Landowner. (b) If a Significant Event occurs under Section 5(a), subsection (2), (3), (4), (6) or (7), the Landowner shall as soon as possible determine if such event would be material under F-5

126 applicable federal securities laws. The Dissemination Agent shall have no responsibility to determine the materiality of any of the Significant Events. (c) If an event described in Section 5(a), subsection (1), (5) or (8) occurs, or if the Landowner determines that knowledge of the occurrence of an event described in Section 5(a), subsection (2), (3), (4), (6) or (7) would be material under applicable federal securities laws, the Landowner shall file in a timely manner within 10 Business Days after obtaining knowledge of the occurrence of the respective event a notice of such occurrence with EMMA or with the Dissemination Agent which shall then immediately distribute such notice to EMMA, with a copy to the Authority and the City. The Landowner shall give notice of the occurrence of any event described in Section 5(a) in any event in a timely fashion by filing a notice thereof with EMMA or with the Dissemination Agent which shall then distribute such notice to EMMA, with a copy to the Authority and the City. Section 6. Format for Filings with MSRB. Any report or filing with the MSRB pursuant to this Disclosure Certificate must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The Landowner s obligations under this Disclosure Certificate shall terminate upon the following events: (a) the legal defeasance, prior redemption or payment in full of all of the Bonds, (b) as to any specific parcel of the Property, when the assessed value of the parcel includes structure value as evidenced by the ad valorem tax bill of San Joaquin County for the parcel, (c) if on any date the Property owned by the Landowner and its Affiliates in the aggregate is responsible for less than ten percent (10%) of the annual Special Tax levy on property in the CFD, or (d) upon the delivery by the Landowner to the City and the Authority of an opinion of nationally recognized bond counsel to the effect that the information required by this Disclosure Certificate is no longer required. Such opinion shall be based on information publicly provided by the Securities and Exchange Commission or a private letter ruling obtained by the Landowner or a private letter ruling obtained by a similar entity to the Landowner. If such termination occurs prior to the final maturity of the Bonds, the Landowner shall give notice of such termination in the same manner as for a Semiannual Report hereunder. Section 8. Dissemination Agent. (a) Appointment of Dissemination Agent. The Landowner may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate and may discharge any such agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the Landowner. Other than by means of the assumption of this Disclosure Certificate pursuant to Section 12 hereof, the Landowner shall advise the City and the Authority in writing upon any change in the identity of the Dissemination Agent. If the Dissemination Agent is not the Landowner, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Landowner F-6

127 pursuant to this Disclosure Certificate. It is understood and agreed that any information that the Dissemination Agent may be instructed to file with EMMA shall be prepared and provided to it by the Landowner. The Dissemination Agent has undertaken no responsibility with respect to the content of any reports, notices or disclosures provided to it under this Disclosure Certificate and has no liability to any person, including any Bond owner, with respect to any such reports, notices or disclosures. The fact that the Dissemination Agent or any affiliate thereof may have any fiduciary or banking relationship with the Landowner shall not be construed to mean that the Dissemination Agent has actual knowledge of any event or condition, except as may be provided by written notice from the Landowner. (b) Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the Landowner for its services provided hereunder as agreed to between the Dissemination Agent and the Landowner from time to time and all expenses, legal fees and expenses and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Landowner, the owners of the Bonds, the Beneficial Owners, or any other party. The Dissemination Agent may rely, and shall be protected in acting or refraining from acting, upon any written direction from the Landowner or a written opinion of nationally recognized bond counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the Landowner, with a copy to the Authority and the City. The Dissemination Agent shall not be liable hereunder except for its negligence or willful misconduct. (c) Responsibilities of Dissemination Agent. In addition of the filing obligations of the Dissemination Agent set forth in Sections 3 and 5, the Dissemination Agent shall be obligated, and hereby agrees, to provide a request to the Landowner to compile the information required for its Semiannual Report at least 30 days prior to the date such information is to be provided to the Dissemination Agent pursuant to subsection (c) of Section 3. The failure to provide or receive any such request shall not affect the obligations of the Landowner under Section 3. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Landowner may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The amendment or waiver either (i) is approved by the Bondowners in the same manner as provided in the Authority Indenture for amendments to the Authority Indenture with the consent of Bondowners, or (ii) does not, in the opinion of nationally recognized bond counsel addressed to the Authority and the City, materially impair the interests of the Bondowners or Beneficial Owners of the Bonds; and (c) The Landowner, or the Dissemination Agent, shall have delivered copies of the amendment and any opinions delivered under (b) above. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the Landowner shall describe such amendment in the next Semiannual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Landowner. F-7

128 Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Landowner from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Semiannual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Landowner chooses to include any information in any Semiannual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Landowner shall have no obligation under this Disclosure Certificate to update such information or include it in any future Semiannual Report or notice of occurrence of a Listed Event. The Landowner acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Landowner, and that under some circumstances compliance with this Disclosure Certificate, without additional disclosures or other action, may not fully discharge all duties and obligations of the Landowner under such laws. Section 11. Default. In the event of a failure of the Landowner to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any Bondowner or Beneficial Owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Landowner or the Dissemination Agent to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement or the Authority Indenture. There shall be no monetary damages for the failure of the Landowner to comply with this Disclosure Certificate, and the sole remedy under this Disclosure Certificate in the event of any failure of the Landowner to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Reporting Obligation of Landowners Transferees. In connection with any sale or transfer of ownership of all or any portion of the Property by the Landowner which will result in the transferee (which term shall include any successors and assigns of the Landowner) becoming responsible for the payment of more than ten percent (10%) of the Special Taxes levied on property within the CFD in the current Fiscal Year or the Fiscal Year following such transfer, the Landowner shall cause such transferee to enter into a disclosure certificate with terms substantially similar to the terms of this Disclosure Certificate, whereby such transferee agrees to provide the information of the type described in Sections 4 and 5 of this Disclosure Certificate with respect to the portion of the Property acquired by the transferee; provided that such transferee s obligations under such disclosure certificate shall terminate (a) as to any specific parcel, when the assessed value of the parcel includes structure value as evidenced by the ad valorem tax bill of San Joaquin County for the parcel, and (b) otherwise, when the land owned by the transferee is responsible for the payment of less than ten percent (10%) of the annual Special Taxes. The assignment to and assumption by the transferee shall not require the consent of the City, the Authority, the CFD, the Trustee, the Fiscal Agent, the Participating Underwriter, the Bondowners, or any other party. Section 13. Landowner as Independent Contractor. In performing under this Disclosure Certificate, it is understood that the Landowner is an independent contractor and not an agent of the City, the Authority or the CFD. F-8

129 Section 14. Notices. Notices should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing. Landowner and Dissemination Agent: Trustee and Fiscal Agent: Participating Underwriter: City, Authority or CFD: NorCal LandCo, LLC 4343 Von Karman Avenue, Suite 200 Newport Beach, CA Attention: Marc Belluomini, Executive Vice President Wells Fargo Bank, N.A. 333 Market Street, 18th Floor San Francisco, CA Attention: Corporate Trust Department RBC Capital Markets, LLC Two Embarcadero Center, Suite 1200 San Francisco, CA City of Stockton 425 N. El Dorado Street Stockton, CA Attention: Chief Financial Officer Section 15. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Landowner, the City, the Authority, the Dissemination Agent, the Trustee, the Participating Underwriter and Bondowners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Section 16. Assignability. The Landowner shall not assign this Disclosure Certificate or any right or obligation hereunder except to the extent permitted to do so under the provisions of Section 12 hereof. Section 17. 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 18. Governing Law. The validity, interpretation and performance of this Disclosure Certificate shall be governed by the laws of the State of California applicable to contracts made and performed in California. F-9

130 Section 19. Counterparts. This Disclosure Certificate 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. NorCal LandCo, LLC, a Delaware limited liability company By: CTR Partners, LLC, a Delaware limited liability company; its Managing Member By: CTR Partners Manager, LLC, a Delaware limited liability company; its Managing Member By: Name: Title: F-10

131 APPENDIX G DTC AND THE BOOK-ENTRY-ONLY SYSTEM The following description of the Depository Trust Company ( DTC ), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the issuer of the Bonds (the Issuer ) nor the trustee, fiscal agent or paying agent appointed with respect to the Bonds (the Agent ) take any responsibility for the information contained in this Appendix. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. 1. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the securities (the Securities ). The Securities 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 Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by G-1

132 the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC s records. The ownership interest of each actual purchaser of each Security ( 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 Securities 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 Securities, except in the event that use of the book-entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. 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 Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). G-2

133 8. Redemption proceeds, distributions, and dividend payments on the Securities 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 Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or 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. 9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. 10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof. G-3

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135 APPENDIX H THE APPRAISAL H-1

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137 Integra Realty Resources San Francisco Appraisal of Real Property City of Stockton CFD No Vacant Land Newcastle Rd. Stockton, San Joaquin County, California Prepared For: City of Stockton Effective Date of the Appraisal: September 17, 2018 Report Format: Appraisal Report Standard Format IRR San Francisco File Number:

138 City of Stockton CFD No Newcastle Rd. Stockton, California

139 Integra Realty Resources 315 Montgomery Street, 9th Floor T San Francisco F San Francisco, CA November 13, 2018 Mr. Matt Paulin Chief Financial Officer City of Stockton 425 North El Dorado St. Stockton, CA SUBJECT: Market Value Appraisal City of Stockton CFD No Newcastle Rd. Stockton, San Joaquin County, California IRR San Francisco File No Dear Mr. Paulin: Integra Realty Resources San Francisco is pleased to submit the accompanying appraisal of the referenced properties. The purpose of the appraisal is to develop an opinion of market value (fee simple interest) of the appraised properties, subject to the hypothetical condition Assessor s Parcel has been split to create a separate legal parcel for the detention basin, which will be tax exempt, as of the date of inspection (September 17, 2018). The client for the assignment is the City of Stockton, and the intended use is for aid in bond underwriting. The subject properties represent a portion of the City of Stockton Community Facilities District No (CFD No ), and represents vacant land containing acres. The subject is presently situated within the confines of five non contiguous Assessor s parcels identified as , 34, 36, , and The properties are zoned, IL, Industrial Limited, which permits light industrial and other related uses. The subject is located along the north line of Arch Road, at the northern terminus of Newcastle Road, and at the northern terminus of Logistics Drive, within the city of Stockton, San Joaquin County, California. Further, the subject properties are owned by two different owners, which will be detailed later in the report. A more detailed description of the subject properties is provided within the attached report.

140 Mr. Matt Paulin City of Stockton November 13, 2018 Page 2 The appraisal is intended to conform with the Uniform Standards of Professional Appraisal Practice (USPAP), the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, and applicable state appraisal regulations. The appraisal is also prepared in accordance with the Appraisal Standards for Land Secured Financing, published by the California Debt and Investment Advisory Commission (2004). Additionally, this valuation is offered in accordance with the limiting conditions and assumptions set forth in this report. To report the assignment results, we use the Appraisal Report option of Standards Rule 2 2(a) of USPAP. As USPAP gives appraisers the flexibility to vary the level of information in an Appraisal Report depending on the intended use and intended users of the appraisal, we adhere to the Integra Realty Resources internal standards for an Appraisal Report Standard Format. This format summarizes the information analyzed, the appraisal methods employed, and the reasoning that supports the analyses, opinions, and conclusions. Based on the valuation analysis in the accompanying report, and subject to the definitions, assumptions, and limiting conditions expressed in the report, our opinion of value, by parcel and in bulk, is as follows: Value Conclusions Parcel Interest Appraised Date of Value Value Conclusion Market Value Parcel * (WTPE Real Estate Holdings LLC) Fee Simple September 17, 2018 $2,030,000 Market Value Bulk Value* (Norcal Landco, LLC) Fee Simple September 17, 2018 $40,710,000 Parcel (Allocated) Fee Simple September 17, 2018 $10,080,000 Parcel (Allocated) Fee Simple September 17, 2018 $7,800,000 Parcel (Allocated) Fee Simple September 17, 2018 $13,040,000 Parcel (Allocated) Fee Simple September 17, 2018 $9,790,000 *Subject to a hypothetical condition Extraordinary Assumptions and Hypothetical Conditions The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be false as of the effective date of the appraisal, we reserve the right to modify our value conclusions. 1. The size of the parcels was provided by the City of Stockton. It is assumed the information provided is accurate; any deviation of the actual size from what has been represented could materially affect the conclusion(s) of value contained herein. The value conclusions are based on the following hypothetical conditions that may affect the assignment results. A hypothetical condition is a condition contrary to known fact on the effective date of the appraisal but is supposed for the purpose of analysis. 1. We have been requested to estimate the market value of the subject property assuming Assessor s Parcel has been split to create a separate legal parcel for the detention basin, which will be tax exempt, as of date of inspection (September 17, 2018). The value estimate is subject to a hypothetical condition, defined as a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.

141 Mr. Matt Paulin City of Stockton November 13, 2018 Page 3 If you have any questions or comments, please contact the undersigned. Thank you for the opportunity to be of service. Respectfully submitted, INTEGRA REALTY RESOURCES SAN FRANCISCO Eric Segal, MAI Certified General Real Estate Appraiser California Certificate # AG Telephone: , ext esegal@irr.com Kevin Ziegenmeyer, MAI Certified General Real Estate Appraiser California Certificate # AG Telephone: , ext kziegenmeyer@irr.com

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143 Table of Contents Summary of Salient Facts and Conclusions 1 General Information 2 Identification of Subject 2 Sale History 2 Pending Transactions 3 Purpose of the Appraisal 3 Definition of Market Value 3 Definition of Property Rights Appraised 4 Intended Use and User 4 Applicable Requirements 4 Report Format 4 Prior Services 4 Scope of Work 5 Economic Analysis 6 Area Analysis San Joaquin County 6 Surrounding Area Analysis 12 Industrial Market Analysis 16 Property Analysis 24 Land Description and Analysis 24 Real Estate Taxes 36 Highest and Best Use 37 Valuation 39 Valuation Methodology 39 Sales Comparison Approach 40 Larger Parcels (Average Acres; 2,435,766 SF) 40 Smaller Parcel (8.48 Acres; 369,389 SF) 47 Summary of Land Values by Parcel 54 Reconciliation and Conclusion of Value 62 Exposure Time 62 Marketing Period 62 Certification 64 Assumptions and Limiting Conditions 66 Addenda A. Appraiser Qualifications City of Stockton CFD No

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145 Summary of Salient Facts and Conclusions 1 Summary of Salient Facts and Conclusions Property Name Address Property Type Owner of Record Tax ID Land Area (Gross) Land Area (Usable) Zoning Designation Highest and Best Use Exposure Time; Marketing Period City of Stockton CFD No Newcastle Rd. Stockton, San Joaquin County, California Land Industrial Norcal Landco, LLC and WTPE Real Estate Holdings LLC , , and , acres; 10,514,077 SF acres; 10,129,442 SF IL, Industrial, Limited Industrial use 12 months; 12 months Date of the Report November 13, 2018 Value Conclusions Appraisal Premise Interest Appraised Date of Value Value Conclusion Market Value Parcel * (WTPE Real Estate Holdings LLC) Fee Simple September 17, 2018 $2,030,000 Market Value Bulk Value* (Norcal Landco, LLC) Fee Simple September 17, 2018 $40,710,000 Parcel (Allocated) Fee Simple September 17, 2018 $10,080,000 Parcel (Allocated) Fee Simple September 17, 2018 $7,800,000 Parcel (Allocated) Fee Simple September 17, 2018 $13,040,000 Parcel (Allocated) Fee Simple September 17, 2018 $9,790,000 *Subject to a hypothetical condition The values reported above are subject to the definitions, assumptions, and limiting conditions set forth in the accompanying report of which this summary is a part. No party other than City of Stockton may use or rely on the information, opinions, and conclusions contained in the report. It is assumed that the users of the report have read the entire report, including all of the definitions, assumptions, and limiting conditions contained therein. Extraordinary Assumptions and Hypothetical Conditions The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be false as of the effective date of the appraisal, we reserve the right to modify our value conclusions. 1. The size of the parcels was provided by the City of Stockton. It is assumed the information provided is accurate; any deviation of the actual size from what has been represented could materially affect the conclusion(s) of value contained herein. The value conclusions are based on the following hypothetical conditions that may affect the assignment results. A hypothetical condition is a condition contrary to known fact on the effective date of the appraisal but is supposed for the purpose of analysis. 1. We have been requested to estimate the market value of the subject property assuming Assessor s Parcel has been split to create a separate legal parcel for the detention basin, which will be tax exempt, as of date of inspection (September 17, 2018). The value estimate is subject to a hypothetical condition, defined as a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis. City of Stockton CFD No

146 General Information 2 General Information Identification of Subject The subject properties represent a portion of the City of Stockton Community Facilities District No (CFD No ), and represents vacant land containing acres. The subject is presently situated within the confines of six non contiguous Assessor s parcels identified as , 34, 36, 37, , and The properties are zoned, IL, Industrial Limited, which permits light industrial and other related uses. The subject is located along north line of Arch Road, at the northern terminus of Newcastle Road, and at the northern terminus of Logistics Drive, within the city of Stockton, San Joaquin County, California. A legal description of the properties was requested but not provided. Property Identification Property Name City of Stockton CFD No Address Newcastle Rd. Stockton, California Tax ID , , , , and Owner of Record Norcal Landco, LLC and WTPE Real Estate Holdings LLC As previously stated, the properties are owned by two different owners. The division of ownership of the parcels can be seen below. Property Owners by Parcel Assessor's Parcel Owner NorCal Landco LLC NorCal Landco LLC NorCal Landco LLC NorCal Landco LLC WTPE Real Estate Holdings LLC Sale History The subject properties were sold along with other properties in March of The total land that was sold was approximately 300 acres. The total land was purchased for $17,077,000, plus the assumption of the lien of the special tax securing the CFD No bonds, per our conversation with the property owner. The sale represents an arm s length transaction with no unusual contingencies or motivations. A portion of the subject that was previously owned by Norcal Landco, LLC, 4810 Fite Court, or Assessor s parcel , was sold to WTPE Real Estate Holdings LLC for $1,846,944 on April 4, The previous owner confirmed the sale. The owner stated the sale represents an arm s length transaction with no unusual contingencies or motivations, but the property has yet to be reflected on City of Stockton CFD No

147 General Information 3 public records. Based on the analysis contained herein, the previous sale of the subject is considered to be reasonably approximate of market value. To the best of our knowledge, no other sale or transfer of ownership has taken place within a threeyear period prior to the effective appraisal date. Pending Transactions According to the property owner, a majority (70.9 acres) of Assessor s parcel is under contract for $5,356,137.60, or $1.73 per square foot, to a user. The remainder of the parcel represents the detention basin. The low price reflects the significant cost obligation to complete off site improvements along Mariposa Road, estimated at approximately $9,000,000, or $2.91 per square foot. The sale is expected to close in late December To the best of our knowledge, the other properties are not subject to an agreement of sale or an option to buy, nor is it listed for sale, as of the effective appraisal date. Purpose of the Appraisal The purpose of the appraisal is to develop an opinion of market value (fee simple interest), by parcel and in bulk of a portion of CFD No , subject to the hypothetical condition that Assessor s Parcel has been split to create a separate legal parcel for the detention basin, which will be tax exempt, as of the date of inspection (September 17, 2018). The date of the report is November 13, The appraisal is valid only as of the stated effective date or dates. Definition of Market Value Market value is defined as: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: Buyer and seller are typically motivated; Both parties are well informed or well advised, and acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (Source: Code of Federal Regulations, Title 12, Chapter I, Part 34.42[g]; also Interagency Appraisal and Evaluation Guidelines, Federal Register, 75 FR 77449, December 10, 2010, page 77472) City of Stockton CFD No

148 General Information 4 Definition of Property Rights Appraised Fee simple estate is defined as, Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015) Intended Use and User The intended use of the appraisal is for aid in bond underwriting. The client and intended user is the City of Stockton. The appraisal is not intended for any other use or user. Integra Realty Resources San Francisco authorizes the reproduction of this appraisal report for inclusion in the Preliminary Official Statement (POS) and Official Statement (OS) for the express purpose of marketing the Bonds. Applicable Requirements This appraisal is intended to conform to the requirements of the following: Uniform Standards of Professional Appraisal Practice (USPAP); Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; Applicable state appraisal regulations; Appraisal Standards for Land Secured Financing, published by the California Debt and Investment Advisory Commission (2004). Report Format This report is prepared under the Appraisal Report option of Standards Rule 2 2(a) of USPAP. As USPAP gives appraisers the flexibility to vary the level of information in an Appraisal Report depending on the intended use and intended users of the appraisal, we adhere to the Integra Realty Resources internal standards for an Appraisal Report Standard Format. This format summarizes the information analyzed, the appraisal methods employed, and the reasoning that supports the analyses, opinions, and conclusions. Prior Services USPAP requires appraisers to disclose to the client any other services they have provided in connection with the subject properties in the prior three years, including valuation, consulting, property management, brokerage, or any other services. We have not performed any services, as an appraiser or in any other capacity, regarding the properties that is the subject of this report within the three year period immediately preceding acceptance of this assignment. City of Stockton CFD No

149 General Information 5 Scope of Work To determine the appropriate scope of work for the assignment, we considered the intended use of the appraisal, the needs of the user, the complexity of the properties, and other pertinent factors. Our concluded scope of work is described below. Valuation Methodology Appraisers usually consider the use of three approaches to value when developing a market value opinion for real property. These are the cost approach, sales comparison approach, and income capitalization approach. Use of the approaches in this assignment is summarized as follows: Approaches to Value Approach Applicability to Subject Use in Assignment Cost Approach Not Applicable Not Utilized Sales Comparison Approach Applicable Utilized Income Capitalization Approach Not Applicable Not Utilized The sales comparison approach is used to develop an opinion of market value for each subject parcel, subject to a hypothetical condition. This approach is applicable to the subject because there is an active market for similar properties, and sufficient sales data is available for analysis. Due to the number of parcels held by Norcal Landco, LLC, a discounted cash flow analysis is used to determine the market value, in bulk, of their land holdings, subject to a hypothetical condition. The cost approach is not applicable because there are no improvements that contribute value to the properties, and the income approach is not applicable because the subject is not likely to generate rental income in its current state. Research and Analysis The type and extent of our research and analysis is detailed in individual sections of the report. This includes the steps we took to verify comparable sales, which are disclosed in the comparable sale profile sheets in the addenda to the report. Although we make an effort to confirm the arms length nature of each sale with a party to the transaction, it is sometimes necessary to rely on secondary verification from sources deemed reliable. Inspection Eric Segal, MAI, conducted an on site inspection of the properties on September 17, Kevin Ziegenmeyer, MAI, conducted an on site inspection on September 17, Significant Appraisal Assistance It is acknowledged that Blake Fassler made a significant professional contribution to this appraisal, consisting of participating in the properties inspection, conducting research on the subject and transactions involving comparable properties, performing appraisal analyses, and assisting in report writing, under the supervision of the persons signing the report. City of Stockton CFD No

150 Area Analysis San Joaquin County 6 Economic Analysis Area Analysis San Joaquin County Introduction San Joaquin County is located in the north central part of the San Joaquin Valley, and is bordered by Sacramento County to the north, Stanislaus County to the south, Calaveras County to the east and Alameda County to the west. The Sierra Nevada Mountains line the county s eastern border, while the Pacific Coast Range and the Sacramento River Delta border the county on the west. The Stockton Metropolitan Statistical Area (MSA) includes all of San Joaquin County, and is made up of the communities of Stockton, Lodi, Manteca, Tracy, Ripon, Lathrop and Escalon. Stockton is the County Seat and is located on the San Joaquin River east of the Delta, a fertile agricultural area at the confluence of the San Joaquin and Sacramento Rivers, approximately 30 to 35 miles west. The county s 902,400 acres consists mainly of level, irrigated orchards and farmland with fertile soils. San Joaquin County has historically been an agricultural region, but recently more industry and technology related businesses have located in the area. Population The population of San Joaquin County is over 746,000 and has shown moderate to strong growth over the past five years, with an average growth rate of 1.4% per year. Stockton is by far the most populous city, with over 320,000 residents. Lathrop is the fastest growing area in the county. The following table illustrates recent population trends for areas within San Joaquin County. Population Trends City %/Yr Escalon 7,112 7,038 7,070 7,154 7,168 7, % Lathrop 19,074 19,571 20,082 20,709 22,174 23, % Lodi 62,678 62,747 62,922 63,143 63,396 64, % Manteca 69,502 70,659 71,705 72,739 74,222 76, % Ripon 14,461 14,486 14,597 14,685 14,767 15, % Stockton 298, , , , , , % Tracy 84,896 86,139 86,783 87,435 89,461 90, % Unincorporated 142, , , , , , % County Total 698, , , , , , % Source: California Department of Finance Transportation California s two main north south arterials, Interstate 5 and Highway 99, travel through San Joaquin County. Interstate 5 travels the length of California from its southern border with Mexico north to Canada. State Highway 99 parallels Interstate 5, connecting Stockton to Fresno and Bakersfield to the south and Sacramento to the north. The city of Tracy has good access to the San Francisco Bay Area. City of Stockton CFD No

151 Area Analysis San Joaquin County 7 Interstate 580/205 extends from Tracy westward to the cities of Livermore, Pleasanton, Oakland, San Francisco and San Jose. The region also has an extensive network of railways. Union Pacific, ACE Commuter Express and Amtrak all have stops in Stockton and connect with the rest of the nation. Burlington Northern Santa Fe (BNSF) operates an intermodal facility in southeastern Stockton, providing long haul transportation requirements. The Altamont Commuter Express (ACE) opened for commuter travel in June This train travels between Stockton, at its most eastern terminus, through Tracy to San Jose and the East Bay Area. This train provides alternate transportation for thousands of commuters who live in the valley but work in San Jose or the East Bay. Air transportation facilities throughout California s Central Valley provide access to international freight, shipments and commercial access to major western markets. The main airport in San Joaquin County is Stockton Metropolitan Airport. In 2003, Emery Forwarding began offering six times per week cargo service from Stockton to Dayton, Ohio. Between 2001 and 2003, America West Express provided twice daily passenger service to Phoenix but has since discontinued service in Stockton. In 2006, Allegiant Air began offering service from Stockton to Las Vegas five days a week. International airports are located in Sacramento, Oakland, San Francisco and San Jose. San Joaquin County has an excellent water transportation network. The city of Stockton is situated along the San Joaquin Delta, which connects to the San Francisco Bay and the Sacramento and San Joaquin Rivers. The Port of Stockton is the third largest landholder port in California and has a Foreign Trade Zone designation. The Port operates on 2,100 acres, with berthing space for 17 vessels and more than 1.1 million square feet of dockside transit sheds. There are an additional 7.7 million square feet of warehouses available for dry bulk, break bulk and other materials. Stockton s deep water channel has an average depth of 35 feet, which is deep enough to allow access to ships similar in size to those traveling through the Panama Canal. Employment & Economy The California Employment Development Department has reported the following employment data for San Joaquin County over the past several years. Employment Trends Labor Force 311, , , , , ,000 Employment 267, , , , , ,100 Job Growth 6,100 7,500 5,100 7,600 6,200 (4,400) Unemployment Rate 14.3% 12.3% 10.5% 8.9% 8.1% 9.1% Source: California Employment Development Department The unemployment rate in San Joaquin County was 9.1% in 2017, which compares to rates of 4.8% for California and 4.4% for the U.S. Most areas within the state and nation saw declining unemployment rates in 2004 through 2006, increases from 2007 to 2010, and declines during San Joaquin City of Stockton CFD No

152 Area Analysis San Joaquin County 8 County followed this trend with the exception of 2017, in which the county saw an increase of 1.0% in the unemployment rate. San Joaquin County has a diverse economy, with no one sector accounting for a majority of the employment in the region. The following chart indicates the percentage of total employment for each sector within the county. Trade/Transp/Util Government Educ/Health Services Leisure & Hospitality Manufacturing Prof/Business Services Agriculture Nat Res/Min/Constr Financial Activities Other Services Information Employment by Sector 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Source: California Employment Development Department As can be seen in the previous chart, the area s largest employment sectors are Trade, Transportation and Utilities (which includes retail and wholesale trade); Government; and Educational and Health Services. Agriculture was once a significant employment base but now represents a declining share of total employment. Despite the loss of numerous jobs in agriculture, San Joaquin ranks seventh statewide in total value of leading commodities, including milk, grapes, almonds, tomatoes and walnuts. San Joaquin County is one of the top crop producing counties in the United States. In recent years, San Joaquin County has been shifting toward an industrial based economy. Local chambers of commerce and other agencies are actively marketing the area as an industrial location. Several prominent national companies have relocated to San Joaquin County in recent years, such as Safeway, Oscar Meyer, Del Monte and Honda. Industrial growth is expected to continue in the future due to the availability of industrially zoned land, the relative affordability compared to the Bay Area, and the region s good transportation networks. The San Joaquin Partnership was established in 1989 to coordinate the creation of jobs within the county and to foster cooperation rather than competition among the cities of San Joaquin County. The participating governments have made a coordinated effort to market San Joaquin County to new City of Stockton CFD No

153 Area Analysis San Joaquin County 9 businesses. Since then the larger growth areas of Stockton and Tracy have established their own economic development departments to bring new business to the region. The Stockton area has become a viable employment center, with several major office and distribution centers located in the area. These include Kelloggs, Dollar Tree, Farmington Fresh, Dorfman Pacific, ACI Distribution, Duraflame, Pac West Telecommunications, Cost Plus and Marriott International Reservation Center. High technology firms in Stockton include Applied Aerospace Company, Sigma Circuits and Bay Area Circuits. Several manufacturing companies have also chosen Stockton for their operations. The following table lists the largest employers in the region. Largest Employers Employer Employees Industry San Joaquin County 6,500 Government State of California 4,200 Government Stockton Unified Schools 3,893 Education Lodi Unified Schools 3,313 Education St. Joseph's Medical Center 2,500 Health Care Manteca Unified School Dist. 2,146 Education M&R Company up to 2,000 Produce Packers San Joaquin General Hospital 1,780 Health Care Tracy Unified Schools 1,628 Education Safeway Distribution Center 1,500 Grocery Source: California Employment Development Department Household Income Median household income represents a broad statistical measure of well being or standard of living in a community. The median income level divides households into two equal segments with one half of households earning less than the median and the other half earning more. The median income is considered to be a better indicator than the average household income as it is not dramatically affected by unusually high or low values. In the year 2016 (most recent data available from the U.S. Census Bureau), San Joaquin County s median household income was $59,038, which was lower than the state of California s median income of $67,715. Recreation & Community Facilities San Joaquin County offers a variety of recreational activities. To the west, the San Joaquin River enters the maze of waterways and islands known as the Delta with approximately 1,000 miles of waterways, where boating and fishing activities are popular. The upper forks of the Stanislaus River offer some of the best whitewater rafting in the country. Regional parks are located throughout the valley in or near the larger cities. There are more than a dozen golf courses in the region, as well as numerous public tennis facilities, health clubs and sports fields. Stockton is home to a minor league baseball team, a City of Stockton CFD No

154 Area Analysis San Joaquin County 10 symphony, ballet and opera, and hosts the nationally recognized Asparagus Festival annually. In 2006 a new minor league hockey team, the Stockton Thunder, took up residence in the County Seat as well. There are over 120,000 students in grades K 12 in the 17 school districts within San Joaquin County. The county has 115 elementary schools, 15 middle and 15 high schools, plus 8 continuation high schools. Both private and public schools meet higher education needs. The two year San Joaquin Delta College in Stockton enrolls over 17,000 students, and the four year University of the Pacific, also located in Stockton, has over 4,000. California State University Stanislaus Stockton is enjoying rising enrollment and now offers an alternative to prospective college students in the county. Local private colleges include Humphreys College and School of Law, National University, Heald Business College, ITT Technical Institute, St. Mary s College of California and University of Phoenix. In terms of health care services, the county provides eight hospitals and dozens of skilled nursing facilities and convalescent hospitals. Conclusion San Joaquin County has a central location in the state of California and offers a good network of highway, water and rail transportation systems. Over the past decade the county has experienced moderate to strong population growth, largely due to the proximity to the San Francisco Bay Area and the relative affordability of housing compared to the Bay Area and other parts of California. Like most of the state and nation, the county experienced high unemployment and real estate market declines during the period of roughly Employment conditions have shown some improvement in the region and most real estate sectors are showing signs of recovery or expansion; however, the economic recovery period will likely be gradual. City of Stockton CFD No

155 Area Analysis San Joaquin County 11 Area Map City of Stockton CFD No

156 Surrounding Area Analysis 12 Surrounding Area Analysis Location The subject properties are located within the southern city limits of Stockton. Specifically, the neighborhood boundaries can generally be described as the French Camp Road to the south, Mariposa Road to the east, Farmington Road to the north, and South Airport Way to the west. Access and Linkages The subject properties are located at the northern terminus of Newcastle Road and along the north line of Arch Road, just east of State Highway 99. The city of Stockton is generally positioned between Interstate 5 and State Highway 99. Interstate 5 is a major north south freeway that travels to Sacramento, Redding and Yreka to the north, and continues on into Oregon, Washington and eventually Canada. To the south, Interstate 5 provides access to the metropolitan areas of Los Angeles and San Diego, before terminating at the Mexico border. State Highway 99 generally parallels Interstate 5, providing access to Sacramento, approximately 45 miles north, and south to Modesto, Merced, Turlock, Fresno and Bakersfield, before merging with Interstate 5 at the Grapevine. The subject properties are in proximity to South Airport Way, a four lane thoroughfare that connects Downtown Stockton with the southern boundaries of the city, before continuing on to Manteca. Demographics A demographic profile of the surrounding area, including population, households, and income data, is presented in the following table. As shown above, the current population within a 10 minute drive time of the subject is 50,486, and the average household size is 3.7. Population in the area has grown since the 2010 census, and this City of Stockton CFD No

157 Surrounding Area Analysis 13 trend is projected to continue over the next five years. Compared to San Joaquin County overall, the population within a 10 minute drive time is projected to grow at a faster rate. Median household income is $38,706, which is lower than the household income for San Joaquin County. Residents within a 10 minute drive time have a lower level of educational attainment to those of San Joaquin County, while median owner occupied home values are also lower. Land Use The subject s immediate area is primarily characterized by industrial development and vacant land. Immediately adjacent land uses to the subject are industrial development and vacant land to the north. One of the major land uses in the neighborhood is the Stockton Metropolitan Airport, located about three miles southwest of the subject properties. This airport has two runways, six air carrier gates and numerous fixed base and commercial operations to meet aircraft maintenance needs. The airport is surrounded by business parks and warehouse/distribution facilities. Downtown Stockton, located approximately six miles northwest of the subject, and the surrounding vicinity have undergone revitalization and rehabilitation of mature commercial and residential properties over the past several years. Specifically, the city of Stockton has significantly increased the amount of new retail development along the Stockton Deep Water Channel and has aggressively pursued renovation of many existing historical buildings. Further, the City of Stockton Planning Department has been revising ordinances and permit procedures to better facilitate redevelopment of the Downtown market area. Office properties in Downtown are primarily multi tenant in nature and most feature on site parking. Additionally, there are many governmental agencies, such as the DMV and San Joaquin County offices. Many of the buildings were constructed in the early to mid 1900s; however, most have been subsequently updated to better accommodate modern office users. Within the past several years, major renovations have been completed for numerous buildings in the subject neighborhood including, but not limited to, Cort Tower at 343 E. Main Street, Cal Main Building at 500 E. Main Street, and the Elks Building at 42 N. Sutter Street. There are limited recreational uses in proximity to the subject properties, including Brotherhood Park, LJC Park, the San Joaquin Sports Complex, Holmes Park, and Kennedy Memorial Park. The neighborhood is served by the Stockton Unified School District. New residential development is generally located in northern Stockton, with several master planned communities in the area. Builders in these developments are targeting the middle income homebuyers, with new homes ranging from 1,200 to 3,500 square feet. Outlook and Conclusions The subject s immediate area consists primarily of industrial uses, with commercial and residential development located nearby. The properties benefit from their location near Interstate 5, State Highway 99 and State Highway 4, as well as Stockton Metropolitan Airport. Overall, the subject s Stockton submarket is expected to be a viable industrial market over the long term, especially given the high levels of existing development and significant amount of vacant land for potential future City of Stockton CFD No

158 Surrounding Area Analysis 14 expansion. As stated above, improvement is beginning to show and continued decreases in the vacancy rate and increases in net absorption are expected for the general area. City of Stockton CFD No

159 Surrounding Area Analysis 15 Surrounding Area Map City of Stockton CFD No

160 Industrial Market Analysis 16 Industrial Market Analysis After years of slow to moderate improvement, the Sacramento industrial market has improved dramatically over the past two years, posting some of the strongest numbers in the nation. Large scale retailers looking for Class A distribution space for their e commerce operations continue to drive demand in the market. Likewise, there is a return to the market of small to mid sized users. Further, the City of Sacramento has begun issuing conditional use permits for cannabis growers and there is significant activity centered on this emerging industry. The year 2017 exhibited net absorption of over 4.3 million square feet, the highest recorded since the peak of the last economic cycle in Year to date, over 3.5 million square feet have been absorbed and the vacancy rate dropped to 4.3% as of the second quarter, continuing its declining trend over the past several years. The average asking rental rate has increased every quarter since second quarter 2016, with a slight $0.01 psf/month decrease this quarter over first quarter. New construction deliveries were limited this quarter, but the development pipeline includes significant activity which will significantly increase industrial product supply over the next two years. Vacancy & Absorption The following charts summarize recent vacancy and absorption trends in the Sacramento region. The figures in this overview are based on quarterly surveys published by brokerage CBRE for industrial buildings 4,000 square feet and larger. Steady demand in the region has resulted in declining average vacancy rates for the past several years, with small upticks in a few quarters. The average industrial vacancy rate in the Sacramento area was 4.3% in the second quarter of 2018, a decrease of 110 basis points from 5.4% in the previous quarter and a decrease of 210 basis points the previous year. City of Stockton CFD No

161 Industrial Market Analysis 17 With vacancy this low and little new speculative development delivered, the supply of quality space has been rapidly declining, making it increasingly difficult for tenants to find product to meet their leasing requirements. However, these favorable market conditions have prompted new development, with several large projects in early development phases. New product is expected to be leased quickly due to sustained demand and overall vacancy is anticipated to continue a gradual declining trend in the near term. The following illustrates net absorption of industrial product in the market over the past few years. Net absorption has been positive for 19 consecutive quarters, including the second quarter During this time, there have been eight quarters with net absorption over one million square feet. The past four years have been especially strong with approximately 4.1 million square feet of net absorption in 2014, 2.5 million square feet in 2015, 3.75 million square feet in 2016 and 4.3 million square feet in The first half of 2018 posted roughly 3.5 million square feet of positive net absorption. Specifically, the second quarter 2018 closed out with positive net absorption of 1,612,633 square feet, fueled in large by strong leasing activity in West Sacramento. The market is still attracting new tenants and leasing activity is expected to remain steady. In the near term, net absorption is forecast to remain strong, keeping pace with new construction deliveries. The following table summarizes recent vacancy and absorption data for Sacramento s submarkets. City of Stockton CFD No

162 Industrial Market Analysis 18 Sacramento Industrial Market Summary Submarket Total SF (millions) Vacancy 2Q 2018 Net Absorption 2Q 2018 Net Absorption YTD Northgate/Natomas % (152,592) (252,756) Richards Boulevard % 0 44,506 Downtown/Midtown/East Sac % (2,500) (2,500) West Sacramento % 1,169,191 1,918,479 South Sacramento % 7,170 81,478 Elk Grove/Laguna/Galt % 168, ,248 Power Inn % 81, ,183 Northeast Sacramento % 34,240 93,256 Rancho Cordova/Hwy % 12,331 28,968 Roseville/Rocklin % 25, ,149 I 80/Roseville Road % (33,201) (17,629) Lincoln % 121, ,216 Woodland/Davis % 318, ,552 Folsom/El Dorado Hills % (84,016) (5,600) McClellan Park % (54,608) 20,392 Auburn/Newcastle % 1,000 (3,470) Total % 1,612,633 3,525,472 Source: CBRE MarketView Reports As of the second quarter of 2018, the submarkets with the highest levels of net absorption were West Sacramento and Woodland/Davis. The West Sacramento submarket accounted for over 70% of the positive net absorption for the quarter. As a result, the vacancy rate in West Sacramento dropped from 10.2% to 4.9%, a significant decrease which contributed to a lower overall vacancy rate marketwide. Several additional submarkets experienced strong leasing activity, contributing to the high level of absorption overall. Some of the notable leases in the second quarter 2018 include: Rental Rates Aquafil 319,800 SF at 550 N Pioneer Ave., Woodland PRIDE Industries 267,312 SF at 3015 Venture Drive, Lincoln Quad Graphics 101,080 SF at 1630 Terminal St., West Sacramento Dept. of General Services 128,853 SF at 885 Riverside Pkwy., West Sacramento OnFulfillment 64,281 SF at 1430 Enterprise Blvd., West Sacramento Interline Brands (a HomeDepot Co.) 69,854 SF at 8670 Younger Creek Drive, Sacramento Best Buy 51,984 SF at 5350 Raley Blvd., West Sacramento This section discusses average asking rental rates. The reader should note these rates provide only a snapshot of activity at a specific point in time subject to space that is available. This snapshot is influenced by the quality and quantity of space available at the time and is not indicative of rental rate trends in any given quarter. According to CBRE surveys, as of the second quarter of 2018, the region s average asking rate for industrial space was $0.54 psf/month, triple net, which marks a $0.01 psf/month decrease from the previous quarter and an increase of $0.07 psf/month from a year earlier. The average rate hovered between $0.43 and $0.47 psf/month for approximately three years (2015 through most of 2017) and increased over the $0.50 mark in the last quarter of City of Stockton CFD No

163 Industrial Market Analysis 19 In terms of property classes, CBRE reported an average of $0.38 psf/month, triple net, for warehouse/distribution space in the second quarter, an average of $0.63 psf/month, triple net, for light industrial space, and an average of $0.82 psf/month, triple net, for flex/r&d space. Lease rates across the distribution product types remained relatively flat over the previous quarter, while light industrial space posted a decrease of $0.04 psf/month and Flex/R&D posted an increase of $0.06 psf/month. Asking rental rates are expected to continue rising as vacancy declines and demand remains strong through Brokers report that both leasing and sale activity are strong and that the market is experiencing a shift toward institutional ownership, a trend that is expected to continue in the coming years as the Sacramento market becomes increasingly attractive to investors. According to Colliers International, sales volume in the second quarter 2018 totaled $162.5 million, with an average warehouse sale price of $ per square foot, up 31% over the previous quarter and up 55.8% year over year. This does not include the $137 million purchase of Depot Park, which is primarily industrial, but also includes some office and land. The average capitalization rate was reported at 6.48%. User sales are likewise increasing, pushing overall values higher. Some notable sale transactions during the second quarter 2018 include the following: FedEx s distribution facility of 198,744 square feet at 8051 Foothills Blvd., Roseville sold for $31,880,000 ($ psf) 59,775 square feet at nd Street, Davis sold for $7,200,000 ($ per square foot) 85,910 square feet at 2424 Del Monte St., West Sacramento sold for $4.9 million ($57.04 psf) 120,880 square feet at 401 N 3 rd St., Sacramento sold for $4,835,000 ($40.00 per square foot) 37,040 square feet at Warehouse Way, Sacramento sold for $4.4 million ($ per square foot) New Construction While industrial development has increased in the region over the past three years, much of the space was pre leased or build to suit projects. According to CBRE, over 1.4 million square feet of new industrial space was completed in the year 2015, most of which was located in the Southport area of West Sacramento. During 2016, approximately 550,000 square feet of new construction was completed with projects located in the Power Inn submarket, McClellan Park and West Sacramento. Construction the first half of 2017 was very limited, with activity picking up the second half, closing out the year with 1.15 million square feet of new construction. Among this was an 855,000 square foot, Class A build to suit for Amazon located in the Natomas/Northgate market (in Metro Air Park) and a 240,255 square foot distribution center, approximately half of which was occupied by Mitsubishi Chemical Carbon Fiber and Composites. The first half of 2018 included delivery of two major build to suit projects: 387,420 square feet for Veritiv Operating Company at 3510 Carlin Drive in West Sacramento and a 316,100 square foot distribution center for McKesson Medical Surgical at 7701 Foothills Blvd. in Roseville. During the second quarter 2018, a new speculative building of 104,800 square feet was added to the Riverside Commerce Center in West Sacramento. City of Stockton CFD No

164 Industrial Market Analysis 20 The strong demand for industrial product in the region, coupled with low vacancy and increasingly scarce supply, has resulted in a significant volume of new projects in the development pipeline, many of which will likely begin construction before year end. Much of the new activity is concentrated in West Sacramento, with two large developments underway in the Southport Business Park. NorthPoint Development has purchased 60 acres with proposed speculative development of 1.3 million square feet; the first two buildings broke ground this quarter. Ridge Capital will build four buildings, totaling over 690,000 square feet; the first two buildings will break ground in the third quarter In total, 2.1 million square feet of new supply is expected in West Sacramento over the next two years. New projects currently under construction are summarized as follows: Sacramento Industrial Projects Under Construction Project Square Feet Submarket Estimated Delivery 3718 Happy Lane 51,156 Sunrise/Hwy 50 Q Ramos Drive / Northpoint 163,308 West Sacramento Q Ramos Drive / Northpoint 244,408 West Sacramento Q Riverside Pkwy / Riverside Commerce Center 65,300 West Sacramento Q Source: Colliers International Research and Forecast Report, Sacramento Industrial Q Industrial Submarket In order to analyze market conditions in the subject s immediate area, we have utilized survey data published by CB Richard Ellis and CoStar Property. According to the Central Valley Industrial Market survey (Q2 2018) published by CB Richard Ellis, the overall industrial vacancy rate in the Stockton submarket was approximately 7.3% as of the second quarter of During the same quarter, the submarket experienced positive absorption in the amount of 25,278 square feet. Additionally, the central valley market as a whole had an absorption that was positive 2,212,315 square feet as of the second quarter of Stockton submarket s vacancy rate is above the vacancy rate of the Central Valley, which is 4.7%. Pertaining to industrial properties more similar to the subject properties, we queried CoStar Property Analytics to determine the supply and vacancy of industrial buildings within a five mile radius and greater than 100,000 square feet. This search revealed 88 properties containing a total rentable area of 25,009,370 square feet, of which 2,016,068 square feet was vacant as of the second quarter of The implied vacancy rate was 8.1%, which is above the vacancy rate reported by CB Richard Ellis for the Stockton submarket. Absorption and average rental rates were also examined using CoStar Property Analytics with the same parameters discussed above. The following table details vacancy and absorption for the subject s immediate area over the past three years. City of Stockton CFD No

165 Industrial Market Analysis 21 CoStar Property Analytics Total Rentable Total Total Net Avg. Lease Period Area (SF) Vacancy Vacancy % Absorption (SF) Rate 2018 Q2 25,009,370 2,016, % 197,517 $ Q1 24,433,543 1,637, % 507,112 $ Q4 23,124, , % 414,035 $ Q3 23,124,258 1,249, % 109,000 $ Q2 22,672, , % (20,500) $ Q1 22,672, , % (436,134) $ Q4 22,672, , % 224,865 $ Q3 22,672, , % 179,515 $ Q2 22,672, , % 39,648 $ Q1 22,672, , % 214,610 $ Q4 22,672,647 1,109, % 158,103 $0.32 Note: The average lease rate shown is on triple net terms. As can be seen above, vacancy has fluctuated over the past several quarters due to the amount of new construction in the area, as you can see by the increase in the amount of rentable area over the past three quarters. The data analyzed began in the fourth quarter of 2015 when vacancy was 4.9%. The vacancy reached a three year low in the fourth quarter of 2016 of 2.0%. In addition, overall lease rates have been rising, with current asking rates at approximately $0.42 psf/month, triple net. The decreasing vacancy, increasing rents and amount of new construction indicate the market is improving. The following graph shows the average vacancy rate, absorption and deliveries over the past five years, as well as forecasted vacancy into 2020, as estimated by CoStar Property Analytics. City of Stockton CFD No

166 Industrial Market Analysis 22 CoStar forecasts positive absorption every quarter moving forward into 2020 as well as net deliveries in late 2018 and early The general consensus among brokers active in the subject s market area is that the market is expanding at a fast rate, and conditions are expected to continue to improve in coming periods. As reported by CBRE, there are currently more than 4.6 million square feet of new construction of which 2.8 million square feet is speculative construction. Within the central valley industrial market, there is a reported 8,550,660 square feet under construction and 4,585,722 square feet of completed construction in the second quarter of Some of the projects that are currently under construction within a five mile radius of the subject include the NorCal Logistics Center, which is located at 4601 Newcastle Road and will have 388,183 square feet of rentable area. Further, there is 506,844 square feet of rentable area that is going to be constructed in three separate buildings at the southwest corner of Arch Road and Newcastle Road. Additionally, a portion of the subject properties (Assessor s parcel ) has a proposed 709,839 square foot building that is expected to be completed in September of Another distribution facility that is currently under construction is located at Zephyr Street and B Street and will have 1,209,600 square feet of rentable area. Leasing within the central valley industrial market includes, Penske pre leased 840,000 sq. ft. at 3303 N Airport Way in Manteca and Tesla pre leased 613,232 sq. ft. at Murphy Parkway in Lathrop, both of which are currently under construction. Amazon will also open its second fulfillment center in City of Stockton CFD No

167 Industrial Market Analysis 23 the San Joaquin Valley with a one million square foot facility located at 4532 Newcastle Road in Stockton. Looking Ahead The Sacramento industrial market is in a growth stage and currently characterized by scarce availability of quality space in desirable submarkets. This scarcity is causing demand to filter down to secondary levels, both in terms of building quality and location. With current supply falling short of demand, speculative construction is on the rise as developers look to capture the increasing user demand and favorable market conditions. Underlying economic factors are in place for sustained growth in the regional market. The expansion of e commerce and favorable local government support of the cannabis industry will continue to drive demand for industrial product. The near term outlook is for stable growth, with positive net absorption, resulting in vacancy rates holding steady in the midsingle digits range and moderate rental growth, as new speculative projects are delivered. City of Stockton CFD No

168 Land Description and Analysis 24 Property Analysis Land Description and Analysis Land Description Land Area (Gross) Land Area (Usable) Source of Land Area Primary Street Frontage Secondary Street Frontage Shape Corner Rail Access Topography Drainage Environmental Hazards Ground Stability acres; 10,514,077 SF acres; 10,129,442 SF Public Records Newcastle Road Arch Road Irregular No No Generally level and at street grade No problems reported or observed None reported or observed No problems reported or observed Flood Area Panel Number 06077C 0490F Date October 16, 2009 Zone AO Description Within 100 year floodplain Insurance Required? Yes Zoning; Other Regulations Zoning Jurisdiction Zoning Designation Description Legally Conforming? Zoning Change Likely? Permitted Uses City of Stockton Planning Department IL Industrial, Limited N/Av No The IL zoning district is applied to areas appropriate for light manufacturing uses that may generate more nuisance impacts than acceptable in commercial zoning districts and whose operations are totally conducted indoors. Includes retail stores and ancillary office uses. The IL zoning district is consistent with the industrial land use designation of the General Plan. Minimum Lot Area None Minimum Setbacks (Feet) 10 Maximum Building Height 60 Maximum Floor Area Ratio 0.6 Parking Requirement 1/2,000 SF and 1/4,000 SF over 500,000 SF of building area, 1/250 SF of office space over 5,000 SF Other Land Use Regulations Utilities Service Water Sewer Electricity Natural Gas Local Phone None noted Provider City of Stockton City of Stockton PG&E PG&E Various City of Stockton CFD No

169 Land Description and Analysis 25 We are not experts in the interpretation of zoning ordinances. An appropriately qualified land use attorney should be engaged if a determination of compliance with zoning is required. As will be shown at the end of this section, the subject lies within three different flood zones. The northeast corner of the subject, which consists of Assessor s parcels and 36, a portion of the property lies within Zone X, where the area is determined to be outside of the 0.2% annual chance floodplain. Assessor s parcels and 36 also have a portion that lies within Zone X (shaded), which areas have a 0.2% annual chance of flood, 1% chance of annual flood with a depth of one foot, and areas protected by levees from 1% annual chance flood. A majority of the subject lies within Zone AO, which has flood depths of one to three feet and is within the 100 year floodplain. Most of the property is in Zone AO 1, a flood zone designation with a 1% chance of 1 foot of water. The City requires buildings and equipment (transformers) to be built at 2 feet above the potential flood level. Though, the three recently completed buildings were constructed with finished floors at 3 feet above the flood elevation. Consequently, the Zone AO designation does not appear to preclude development within the immediate area, which is evident by the substantial construction completed within the business park. Assessor s parcel has an 8.83± acre detention basin in the southwest corner of the parcel. As previously noted, the appraised properties are subject to the hypothetical condition Assessor s Parcel has been split to create a separate legal parcel for the 8.83± acre detention basin, which will be tax exempt, as of the date of inspection (September 17, 2018). The balance of Assessor s parcel has limited access from Newcastle Road due to Little John s Creek; consequently, the owner plans to provide access along Mariposa Road from the north. While there are power lines that run along the street frontage on the northeastern portion of the Assessor s parcel along Mariposa Road, the power lines do not appear to have any adverse influence. A table showing the usable and unusable square feet for the subject s parcels is as follows: Land Area Summary Tax ID SF Usable SF Unusable SF Acres Usable Acres Unusable Acres ,417,144 2,417, ,870,031 1,870, ,510,936 3,126, , ,346,577 2,346, , , Total 10,514,077 10,129, , Source: Public Records The subject will be analyzed on the land area following the parcelization of Assessor s parcel , excluding the land area of the detention basin. City of Stockton CFD No

170 Land Description and Analysis 26 Easements, Encroachments and Restrictions We were not provided a current title report to review. We are not aware of any easements, encroachments, or restrictions that would adversely affect value. Our valuation assumes no adverse impacts from easements, encroachments, or restrictions, and further assumes that the subject has clear and marketable title. Seismic Hazards According to the Seismic Safety Commission, the subject properties are located within Zone 3, which is considered to be the lowest risk zone in California. There are only two zones in California: Zone 4, which is assigned to areas near major faults; and Zone 3, which is assigned to all other areas of more moderate seismic activity. In addition, the subject is not located in a Fault Rupture Hazard Zone (formerly referred to as an Alquist Priolo Special Study Zone), as defined by Special Publication 42 (revised January 1994) of the California Department of Conservation, Division of Mines and Geology. Conclusion of Land Analysis Overall, the physical characteristics of the site and the availability of utilities result in functional utility suitable for a variety of uses including those permitted by zoning. We are not aware of any other particular restrictions on development. City of Stockton CFD No

171 Land Description and Analysis 27 Looking east across Assessor's parcel Looking west across Assessor's parcel and 36 Looking west across the detention basin Looking south across Assessor's parcel Looking north across Assessor's parcel Looking northeast across Assessor's parcel City of Stockton CFD No

172 Land Description and Analysis 28 Looking west across Assessor's parcel Looking west across Assessor's parcel Looking north along Logistics Drive Looking south along Logistics Drive Looking north along Newcastle Road Looking south along Newcastle Road City of Stockton CFD No

173 Land Description and Analysis 29 Looking east along Arch Road Looking west along Arch Road City of Stockton CFD No

174 Land Description and Analysis 30 Parcel Maps *Boundaries are approximate City of Stockton CFD No

175 Land Description and Analysis 31 *Boundaries are approximate City of Stockton CFD No

176 Land Description and Analysis 32 *Boundaries are approximate City of Stockton CFD No

177 Land Description and Analysis 33 Not a part of the subject *As previously stated, the detention basin totals 8.83± acres opposed to the 9.22± acres shown in the table above. City of Stockton CFD No

178 Land Description and Analysis 34 Flood Zone *Boundaries are approximate City of Stockton CFD No

179 Land Description and Analysis 35 Detention Basin *Boundaries are approximate; Detention basin (Red) City of Stockton CFD No

180 Real Estate Taxes 36 Real Estate Taxes The property tax system in California was amended in 1978 by Article XIII to the State Constitution commonly referred to as Proposition 13. It provides for a limitation on property taxes and for a procedure to establish the current taxable value of real property by reference to a base year value, which is then modified annually to reflect inflation (if any). Annual increases cannot exceed 2% per year. The base year was set at or any year thereafter in which the property is substantially improved or changes ownership. When either of these two conditions occurs, the property is to be reappraised at market value, which becomes the new base year assessed value. Proposition 13 also limits the maximum tax rate to 1% of the value of the property, exclusive of bonds and direct charges. Bonded indebtedness approved prior to 1978, and any bonds subsequently approved by a two thirds vote of the district in which the property is located, can be added to the 1% tax rate. Real estate taxes and direct assessments for the current tax year are shown in the following table: Taxes and Assessments Assessed Value Taxes and Assessments Ad Valorem Tax ID Land Improvements Total Tax Rate Taxes Direct Assessments Total $2,818,260 $2,818, % $35,702 $162,951 $198, $2,167,500 $2,167, % $27,458 $126,049 $153, $4,067,760 $4,067, % $51,530 $236,641 $288, $2,590,800 $2,590, % $32,820 $157,899 $190, $433,500 $433, % $5,492 $24,900 $30,392 $12,077,820 $0 $12,077,820 $153,002 $708,441 $861,443 Direct Assessment Detail Arch Road East SJC Flood Water SJ Area Flood Control OP & SJC Mosquito SJC Mosquito & Vector Tax ID CFD Control Z Investigation Main Abatement Control Total $158, $4, $0.74 $53.38 $17.66 $1.32 $162, $122, $3, $0.74 $43.96 $13.58 $1.32 $126, $229, $6, $0.74 $71.48 $25.50 $1.32 $236, $153, $4, $0.74 $16.24 $1.32 $157, $24, $ $0.74 $2.72 $1.32 $24,900 $687,851 $20,335 $4 $169 $76 $7 $708,441 According to the San Joaquin County Treasurer Tax Collector s Office, the subject properties are encumbered by six direct charges. The tax rate for the properties is % All of which represent annual charges that cannot be paid off. According to public records, the owners are current on property taxes. All of the appraised properties are encumbered by the Arch Road East Community Facilities District (CFD) No With respect to special taxes, we have relied upon information provided by the City s bond financing consultants. For purposes of our analysis the annual special tax for the appraised properties are projected at $3,567 per acre, or $0.08 per square foot, of land area. City of Stockton CFD No

181 Highest and Best Use 37 Highest and Best Use Process Before the properties can be valued, an opinion of highest and best use must be developed for the subject site, both as vacant, and as improved. By definition, the highest and best use must be: Physically possible. Legally permissible under the zoning regulations and other restrictions that apply to the site. Financially feasible. Maximally productive, i.e., capable of producing the highest value from among the permissible, possible, and financially feasible uses. As Vacant In accordance with the definition of highest and best use, it is appropriate to analyze the subject properties as though vacant as it relates to legal permissibility, physical possibility, financial feasibility and maximum productivity. Legal Permissibility The legal factors influencing the highest and best use of the subject properties are primarily government regulations, such as zoning and building codes. The subject properties are zoned Industrial Limited; allowable development includes a broad range of industrial uses including manufacturing, assembly, wholesale distribution, and warehousing. Physically Possibility The physical characteristics of a site that affect its possible use(s) include, but are not limited to, location, street frontage, visibility, access, size, shape, topography, availability of utilities, off site improvements, easements and soil and subsoil conditions. The physical characteristics are examined to see if they are suited for the legally permissible use. Locational considerations include the compatibility and position of the subject properties with respect to surrounding uses. Based on our physical inspection of the subject properties, we know of no reason why the properties would not support development. The size, shape and topography of the subject s parcels appear adequate for development. The properties are located within three flood zones with a majority of the subjects parcels located within the 100 year floodplain and flood insurance appears to be required. Assessor s parcels has a detention basin that cannot be developed. The properties, however, are not located within a Fault Rupture Hazard Zone. The subject parcels are located adjacent to industrial development and all utility services are available to the parcels, and evidence of development in the immediate area provides additional support for the possibility of development. Based on the physical characteristics of the subject properties, particularly its location surrounded by industrial properties, as well as the parcel sizes, industrial development is considered physically possible and most appropriate. City of Stockton CFD No

182 Highest and Best Use 38 Financial Feasibility Based on the legal and physical constraints previously discussed, the subject properties have potential for industrial development. The determination of financial feasibility is dependent primarily upon supply and demand influences. As referenced in the Industrial Market Overview, the general consensus is that the industrial market has been improving over the past few years. Vacancy rates have been declining and rental rates have shown signs of stabilization and even modest improvement. Further, all of the market participants we spoke with agreed that due to the limited supply and current demand dynamics, construction would be financially feasible under current market conditions, which is supported by the fact that there are several build to suit and speculative industrial projects in the subject s area either recently completed, proposed or under construction. Given the specifics of the subject parcels, particularly size, and demand for large distribution class industrial development, the most probable buyer is an owner user or industrial developer looking to construct a distribution facility. Maximum Productivity Conclusion Legal, physical and financial feasibility conditions have been analyzed to evaluate the highest and best use of the subject properties. The analysis is presented to evaluate the type of use(s) that will generate the greatest level of future benefits possible to the properties. Based on the factors previously discussed, industrial development of the subject properties is the maximally productive land use that is legally permissible, physically possible and financially feasible. The probable buyer of the subject as vacant would be a developer or an investor. Considering the subject s specific characteristics, the highest and best use of the subject properties as vacant is for industrial development of all the subject parcels. City of Stockton CFD No

183 Valuation Methodology 39 Valuation Valuation Methodology Appraisers usually consider three approaches to estimating the market value of real property. These are the cost approach, sales comparison approach and the income capitalization approach. The cost approach assumes that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility. This approach is particularly applicable when the improvements being appraised are relatively new and represent the highest and best use of the land or when the property has unique or specialized improvements for which there is little or no sales data from comparable properties. The sales comparison approach assumes that an informed purchaser would pay no more for a property than the cost of acquiring another existing property with the same utility. This approach is especially appropriate when an active market provides sufficient reliable data. The sales comparison approach is less reliable in an inactive market or when estimating the value of properties for which no directly comparable sales data is available. The sales comparison approach is often relied upon for owner user properties. The income capitalization approach reflects the market s perception of a relationship between a property s potential income and its market value. This approach converts the anticipated net income from ownership of a property into a value indication through capitalization. The primary methods are direct capitalization and discounted cash flow analysis, with one or both methods applied, as appropriate. This approach is widely used in appraising income producing properties. Reconciliation of the various indications into a conclusion of value is based on an evaluation of the quantity and quality of available data in each approach and the applicability of each approach to the property type. The methodology employed in this assignment is summarized as follows: Approaches to Value Approach Applicability to Subject Use in Assignment Cost Approach Not Applicable Not Utilized Sales Comparison Approach Applicable Utilized Income Capitalization Approach Not Applicable Not Utilized City of Stockton CFD No

184 Sales Comparison Approach 40 Sales Comparison Approach To develop an opinion of the subject s land value, we utilize the sales comparison approach. This approach develops an indication of value by researching, verifying, and analyzing sales of similar properties. As discussed previously, the subject has a total land area of ± acres, of which only ± acres can be developed due to the aforementioned detention basin. All of the parcels can be developed with industrial uses and will be analyzed on their net developable area. Assessor s parcel is smaller in size compared to the remaining parcels. Therefore, two sets of comparables will be analyzed for differing parcel sizes. The properties are divided for valuation purposes as follows: Land Parcels Total Usable Acres Name Tax ID Total SF Total Usable SF Total Acres Avg Acres / Avg SF Larger Parcels ,417,144 2,417, Total SF Smaller Parcel ,870,031 1,870, ,440, ,510,936 3,126, ,346,577 2,346, Unit of Comparison Smaller Parcel , , Total SF 369,389 Total 10,514,077 10,129, ,809,467 Larger Parcels (Average Acres; 2,440,013 SF) To apply the sales comparison approach to the Larger Parcels, we searched for sale transactions within the following parameters: Location: Stockton and surrounding areas Size: 15 to 100 acres Use: Industrial uses Transaction Date: 2016 or later For this analysis, we use price per square foot as the appropriate unit of comparison because market participants typically compare sale prices and property values on this basis. The most relevant sales are summarized in the following table. City of Stockton CFD No

185 Sales Comparison Approach 41 Summary of Comparable Land Sales Larger Parcels Sale Date; SF; $/SF No. Name/Address Status Sale Price Acres Zoning Land $/Acre 1 Southport Business Park Phase I Jun 18 $4,670,000 1,100,326 Business Park / $4.24 $184,877 Ramco Street and Mary Place Closed Public Open West Sacramento Yolo County CA Tax ID: Parcel 9 and Parcel 5 Space Comments: This is a sale of industrial land that is vacant and has minimal off site improvements. The property is proposed to be subdivided and developed for industrial uses Ramco St. Dec 17 $3,294, ,032 Heavy $3.41 $148,378 West Sacramento Closed Industrial Yolo County CA Tax ID: Comments: This comparable represents the sale of a parcel of land which is zoned for industrial use. 3 Ralph Avenue & Perlman Drive Nov 16 $2,794, ,313 General $3.00 $130,683 Ralph Ave. Closed Industrial Stockton San Joaquin County CA Tax ID: Comments: This acre vacant industrial site sold in November of 2016 at the price of $2,794,000, or $3.00/SF. Prior to sale, this site was vacant excess land attached to the seller's lumberyard operation to the adjacent east. The buyer reportedly intends to use this industrial zoned site as a rail car storage yard; there is an existing rail spur running along the north and west lines of the site. The site is located in a flood hazard area with a base flood elevation of 17'. The elevation of the site itself ranges from approximately 14 to 20 feet. Based on the cost to fill dirt and a land to building ratio of 4:1 for hypothetical vertical improvements, the cost to mitigate the flood hazard is estimated at approximately 5% of the sale price. 4 Metro AirPark Land Skyking Rd. Jul 16 $2,985, ,340 Special $3.50 $152,399 Skyking Rd. Closed Planning Area Sacramento Sacramento County CA Tax ID: Comments: Mid 2016 sale of a vacant rough graded industrial site located in the Metro Air Park development adjacent to the Sacramento International Airport. The property was purchased for development of a large industrial distribution building. It is noted that the buyer purchased an adjacent parcel in a separate transaction to accommodate the proposed development East Louise Jun 16 $4,300,000 1,406,988 Light industrial $3.06 $133, E. Louise Ave. Closed Lathrop San Joaquin County CA Tax ID: and 22 Comments: June 2016 sale of a 2 parcel industrial site located in Lathrop along E. Louise Ave. The property was mostly raw vacant land at the time of sale. There were a few older dilapidated structures on site that will be demolished (no contributory value and minimal demolition costs). The buyer is a regional industrial developer that plans to construct a large (estimated near 600,000 SF) speculative distribution facility on site. All necessary off sites are available to the site. 6 SEC Promenade Street and Southport Sep 18 $12,105,234 1,729,332 Business $7.00 $304,918 Parkway West Sacramento Listing Park/Industrial /Mixed Use Yolo County CA Tax ID: Comments: This is a current listing of raw level land that has split zoning. All of the off sites are complete, but the owners have to complete the remainder of Ramco Street. The property is zoned three different designations. The western portion of the property is zoned mixed use where retail, office and industrial uses are legally permissible. The remainder of the property is zoned business park and industrial where industrial uses are legally permissible. Subject 2,440,013 Industrial, City of Stockton CFD No Avg Limited Stockton, CA City of Stockton CFD No

186 Sales Comparison Approach 42 Comparable Land Sales Map Larger Parcels City of Stockton CFD No

187 Sales Comparison Approach 43 Sale 1 Southport Business Park Phase I Sale Ramco St. Sale 3 Ralph Avenue & Perlman Drive Sale 4 Metro AirPark Land Skyking Rd. Sale East Louise Sale 6 SEC Promenade Street and Southport Parkway City of Stockton CFD No

188 Sales Comparison Approach 44 Analysis and Adjustment of Sales The sales are compared to the subject and adjusted to account for material differences that affect value. Adjustments are considered for the following factors, in the sequence shown below. Adjustment Factor Accounts For Comments Effective Sale Price Real Property Rights Financing Terms Conditions of Sale Market Conditions Location Access/Exposure Size Atypical economics of a transaction, such as demolition cost or expenditures by buyer at time of purchase. Fee simple, leased fee, leasehold, partial interest, etc. Seller financing, or assumption of existing financing, at non market terms. Extraordinary motivation of buyer or seller, assemblage, forced sale. Changes in the economic environment over time that affect the appreciation and depreciation of real estate. Market or submarket area influences on sale price; surrounding land use influences. Convenience to transportation facilities; ease of site access; visibility; traffic counts. Inverse relationship that often exists between parcel size and unit value. No adjustments required. The comparables all represent fee simple transactions. Consequently, no adjustments are required for property rights conveyed. The comparable sales all represented cash to the seller transactions; therefore, none of the comparables require adjustments. Sale 6 is a current listing and is adjusted downward for typical buyer/seller negotiations. Market conditions have remained stable since all of the comparables dates of sale; therefore, no adjustments are required. No adjustments required. No adjustments required. Sales 1, 2, 3 and 4 are measurably smaller than the subject and would normally require a downward adjustment for economies of scale, but market demand for larger parcels balances this adjustment. Therefore, no adjustment is required. City of Stockton CFD No

189 Sales Comparison Approach 45 Adjustment Factor Accounts For Comments Shape and Topography Zoning Entitlements Off site Improvements On site Improvements Primary physical factors that affect the utility of a site for its highest and best use. Government regulations that affect the types and intensities of uses allowable on a site. The specific level of governmental approvals attained pertaining to development of a site. Gutters; streets; sidewalks; streetlights; public utilities etc. Development of a site prior to the construction of the property No adjustments required. Sales 1 and 6 have superior zoning and require a downward adjustment. The subject and Sale 3 are located within a flood zone which can limit development potential due to onsite mitigation; therefore, the remaining comparables require a downward adjustment. Sales 1, 4, 5 and 6 require additional off site improvements and merit an upward adjustment. No adjustments required. The following table summarizes the adjustments we make to each sale. City of Stockton CFD No

190 Sales Comparison Approach 46 Land Value Conclusion Larger Parcels The market data set consists of various sales that are considered reasonable indicators of market value for the larger parcels of the subject properties, subject to a hypothetical condition. After accounting for bonds, the data set reflects an unadjusted range of $3.06 to $8.10 per square foot. Based upon the analysis presented, a ranking analysis of the subject and the comparable sales is in the table below: Larger Land Sales Ranking Summary $/ SF Net Property Sale Date (Unadjusted) Adjustment Sale 6 Listing $8.10 Downward Sale 1 Jun 18 $5.35 Downward Sale 4 Jul 16 $4.95 Similar Subject $4.75 Sale 2 Dec 17 $3.41 Similar Sale 5 Jun 16 $3.06 Sl. Upward Sale 3 Nov 16 $3.00 Sl. Upward As shown, the larger parcels for the subject properties are estimated to be generally similar to Sales 2 and 4; though, additional weight is given to Sale 1, which is the most recent transaction in the data set. We arrive at an estimate of value for the larger parcels via the sales comparison approach, subject to a hypothetical condition, as follows: Land Value Conclusion Indicated Value per Square Foot $4.75 City of Stockton CFD No

191 Sales Comparison Approach 47 Smaller Parcel (8.48 Acres; 369,389 SF) To apply the sales comparison approach to the Smaller Parcel, we searched for sale transactions within the following parameters: Location: Stockton and surrounding areas Size: 4 to 15 acres Use: industrial uses Transaction Date: 2016 or later For this analysis, we use price per square foot as the appropriate unit of comparison. The most relevant sales are summarized in the following table. City of Stockton CFD No

192 Sales Comparison Approach 48 Summary of Comparable Land Sales Smaller Parcel No. Name/Address Sale Date; Status Effective Sale Price SF; Acres Zoning $/SF Land $/Acre Industrial Drive May 18 $514, ,854 Industrial General $2.91 $126, Industrial Dr. Closed 4.06 San Joaquin County Tax ID: Comments: This is sale of industrial land located in the southern portion of Stockton just north of the airport. The property has all of the off sites in place and has power lines that limit the development of the property Fite Court Apr 18 $2,515, ,389 Industrial Limited $6.81 $296, Fite Ct. Closed 8.48 Stockton San Joaquin County Tax ID: Comments: This is the sale of industrial land with all of the off site improvements in place. The seller confirmed the transaction E Dr. Martin Luther King Jr. Oct 17 $1,800, ,195 Industrial General $4.20 $183, E. Dr. Martin Luther King Jr. Blvd. Closed 9.83 Stockton San Joaquin County Tax ID: Comments: The property is vacant land that was a previously developed lot. The property was cleared to the foundation at the time of the sale Pony Express Court Jul 16 $979, ,854 Industrial General $5.54 $241, Pony Express Ct. Closed 4.06 Stockton San Joaquin County Tax ID: Comments: This is the sale of vacant land that has freeway visibility. The property has limited off site improvements in place N Star Way May 16 $1,825, ,415 Planned Development $4.49 $195,606 Modesto Closed 9.33 Stanislaus County Tax ID: Comments: The property was sold with all off sites excluding streetlights in place. The sale was an all cash transaction West Lane Sep 18 $2,078, ,205 Industrial General $3.95 $172, West Ln. Listing Stockton San Joaquin County Tax ID: Comments: This is a current listing of vacant raw industrial land that has limited off site improvements. Subject 369,389 Industrial, Limited City of Stockton CFD No Stockton, CA City of Stockton CFD No

193 Sales Comparison Approach 49 Comparable Land Sales Map Smaller Parcel City of Stockton CFD No

194 Sales Comparison Approach 50 Sale Industrial Drive Sale Fite Court Sale E Dr. Martin Luther King Jr. Sale Pony Express Court Sale N Star Way Sale West Lane City of Stockton CFD No

195 Sales Comparison Approach 51 Analysis and Adjustment of Sales The sales are compared to the subject and adjusted to account for material differences that affect value. Adjustments are considered for the following factors, in the sequence shown below. Adjustment Factor Accounts For Comments Effective Sale Price Real Property Rights Financing Terms Conditions of Sale Market Conditions Location Access/Exposure Size Shape and Topography Atypical economics of a transaction, such as demolition cost or expenditures by buyer at time of purchase. Fee simple, leased fee, leasehold, partial interest, etc. Seller financing, or assumption of existing financing, at non market terms. Extraordinary motivation of buyer or seller, assemblage, forced sale. Changes in the economic environment over time that affect the appreciation and depreciation of real estate. Market or submarket area influences on sale price; surrounding land use influences. Convenience to transportation facilities; ease of site access; visibility; traffic counts. Inverse relationship that often exists between parcel size and unit value. Primary physical factors that affect the utility of a site for its highest and best use. No adjustments required. The comparables all represent fee simple transactions. Consequently, no adjustments are required for property rights conveyed. The comparable sales all represented cash to the seller or all cash transactions; therefore, none of the comparables require adjustments. Sale 6 is a current listing and is adjusted downward for typical buyer/seller negotiations. Market conditions have remained stable since all of the comparables dates of sale; therefore, no adjustments are required. No adjustments required. Sale 4 has freeway visibility and merits a downward adjustment. No adjustments required. Sale 1 has power lines that run through the northern portion of the property, which limits the use and requires an upward adjustment. City of Stockton CFD No

196 Sales Comparison Approach 52 Adjustment Factor Accounts For Comments Zoning Entitlements Off site Improvements On site Improvements Government regulations that affect the types and intensities of uses allowable on a site. The specific level of governmental approvals attained pertaining to development of a site. Gutters; streets; sidewalks; streetlights; public utilities etc. Development of a site prior to the construction of the property The following table summarizes the adjustments we make to each sale. No adjustments required. The subject, Sales 1 and 2 are located within a flood zone which can limit development potential; therefore, the remaining comparables require a downward adjustment. Sale 4 has limited off site improvements in place and warrants an upward adjustment. Sale 2 was a previously developed lot and is entirely paved, therefore, a downward adjustment is warranted. City of Stockton CFD No

197 Sales Comparison Approach 53 Land Value Conclusion Smaller Parcel The market data set consists of various sales that are considered reasonable indicators of market value for the subject properties smaller parcel, subject to a hypothetical condition. After accounting for bonds, the data set reflects an unadjusted range of $2.91 to $6.81 per square foot. Based upon the analysis presented, a ranking analysis of the subject and the comparable sales is in the table below: Smaller Land Sales Ranking Summary $/ SF Net Property Sale Date (Unadjusted) Adjustment Sale 2 Apr 18 $5.73 Similar Sale 4 Jul 16 $5.54 Similar Subject $5.50 Sale 5 May 16 $4.49 Similar Sale 3 Oct 17 $4.20 Sl. Downward Sale 6 Listing $3.95 Similar Sale 1 May 18 $2.91 Upward As shown, the smaller parcel is estimated to be generally similar to Sales 2, 4 and 5; however, most emphasis is also placed on Sale 2, which is the most recent sale of the subject property. We arrive at an estimate of value for the smaller parcel via the sales comparison approach, subject to a hypothetical condition, as follows: Land Value Conclusion Indicated Value per Square Foot $5.50 City of Stockton CFD No

198 Sales Comparison Approach 54 Summary of Land Values by Parcel Based on this analysis, the individual values by parcel is as follows: Summary of Land Values Parcel Unit of Comparison Usuable SF Indicated SF Value Indicated Value Rounded Larger Parcels Total SF ,417,144 $4.75 $11,481,436 $11,480, ,870,031 $4.75 $8,882,646 $8,880, ,126,301 $4.75 $14,849,931 $14,850, ,346,577 $4.75 $11,146,242 $11,150,000 Smaller Parcel Total SF ,389 $5.50 $2,031,638 $2,030,000 City of Stockton CFD No

199 Sales Comparison Approach 55 Market Value by Ownership The preceding analysis derived estimates of market value, by parcel. In this section we will provide an estimate of market value by ownership. Due to the number of parcels held by Norcal Landco, LLC, a discounted cash flow analysis is used to determine the market value, in bulk, of their land holdings, subject to a hypothetical condition. The division of ownership of the parcels can be seen below. Property Owners by Parcel Assessor's Parcel Owner NorCal Landco LLC NorCal Landco LLC NorCal Landco LLC NorCal Landco LLC WTPE Real Estate Holdings LLC The estimate of market value for WTPE Real Estate Holdings LLC was determined in the valuation of the smaller parcel, which had an indicated value per square foot of $5.50. We arrive at an estimate of value for WTPE Real Estate Holdings LLC via the sales comparison approach, subject to a hypothetical condition, is $2,030,000. Bulk Market Valuation Norcal Landco, LLC Introduction In this section, the market value, in bulk, will be estimated. Due to the number of components, a discounted cash flow analysis is the most appropriate technique of arriving at the bulk market value for the subject. Discounted Cash Flow Analysis A discounted cash flow analysis is a procedure in which a discount rate is applied to a projected revenue stream generated from the sale of individual components of a project. In this method of valuation, the appraiser/analyst specifies the quantity, variability, timing and duration of the revenue streams and discounts each to its present value at a specified yield rate. The four main components of a discounted cash flow analysis are listed as follows: Revenue the total gross income derived from the disposition of the subject s land components; Absorption Analysis the time frame required to sell off the components. Of primary importance in this analysis is the allocation of the revenue over the absorption period including the estimation of an appreciation factor (if any); Expenses the expenses associated with the sell off of the components are calculated in this section including administration, marketing and commission costs and property taxes; Discount Rate the appropriate discount rate is derived by employing a variety of data. City of Stockton CFD No

200 Sales Comparison Approach 56 Discussions of these four concepts begin below, with the discounted cash flow analysis offered at the end of this section. Total Revenue The revenue portion of this analysis is based on the conclusions of market value for the subject s four parcels. For the reader s reference, a summary of the revenue component is as follows: Revenue Parcel Useable Value ,417,144 $11,480, ,870,031 $8,880, ,126,301 $14,850, ,346,577 $11,150,000 Total $46,360,000 Absorption Absorption rates are best measured by looking at historic absorption rates for similar properties in the region. In developing an appropriate absorption period for the disposition of the subject s components, we have considered historic absorption rates for similar properties and also attempted to consider the impacts of present market conditions, as well as the anticipated changes in the market. Real estate is cyclical in nature, and it is difficult to accurately forecast specific demand over a projected absorption period. Thus, when estimating absorption, it is important to give significant weight to the past experience of parties marketing similar projects for sale. The subject consists of four industrial parcels totaling ± acres of useable land. These sites are expected to receive adequate interest from the market due to the amount of interest in large industrial properties within the submarket. This can be seen in the Industrial Market Overview as there are numerous buildings under construction in the subject s immediate area. It is our opinion the industrial parcels will likely sell in 30 months of analysis. It unclear when the parcels will sell and in what order; therefore, we will average the total value of the parcels across the absorption period in which a parcel will be sold every six months. Market conditions in the area have been experiencing appreciation in some segments as discussed throughout this report. Consequently, it is appropriate to consider an appreciation rate for the industrial land during the absorption period. In light of current and past economic conditions, an appreciation rate of 3% per year, on a semi annual basis, will be applied to the revenue components in this analysis. Expenses Changes in Expenses (Expense Increases or Decreases) Market participants widely expect expenses to increase either from inflation or labor increases (as workers become less willing to accept lower pay as more sources of work become available). General and administrative and marketing and sale expenses are calculated in this section as a fixed City of Stockton CFD No

201 Sales Comparison Approach 57 percentage of revenue. Property tax expenses are trended upward, as will be discussed in a later section. General and Administrative Expenses General and administrative expenses would include management of project entitlements, as well as coordination with others. This expense category typically ranges from 2.0% to 4.0%, depending on length of the project and if all of the categories are included in a builder s budget. For purposes of this analysis, we have estimated this expense at 2.0% of revenue, which is spread evenly over the sell off period. Marketing and Sale Based on the total revenue, we have estimated an expense of 2.0% for sales, which is within market parameters. For the sell off of industrial parcels to a developer, marketing costs would be negligible, since owners often contact developers or investors directly and indicate parcels are available, rather than openly list properties and have marketing costs. Property Taxes and Assessments Ad valorem real estate taxes are estimated based on a % tax rate applied to the estimated market value, in bulk, conclusion, which is applied to the commercial acreages. As the land is sold, taxes are reduced on a pro rata basis in the analysis. Ad valorem tax estimates are appreciated at a rate of 2.0% per year. Additionally, the direct charges per acre excluding the bond are included within the first year taxes per acre. Finally, the subject is encumbered by Special Taxes associated with the Arch Road East Community Facilities District (CFD) No , which is take into consideration in this analysis, with a maximum annual special tax lien of $3,567 per acre for Special Taxes. Discount Rate (Internal Rate of Return) The project yield rate is the rate of return on the total un leveraged investment in a development, including both equity and debt. The leveraged yield rate is the rate of return to the base equity position when a portion of the development is financed. The base equity position represents the total equity contribution. The developer/builder may have funded all of the equity contribution, or a consortium of investors/builders as in a joint venture may fund it. Most surveys indicate that the threshold project yield requirement is about 20% to 30% for production home type projects. Instances in which project yields may be less than 20% often involve profit participation arrangements in master planned communities where the master developer limits the number of competing tracts. According to a leading publication within the appraisal industry, the PwC Real Estate Investor Survey[1], discount rates for land development projects ranged from 10.00% to 20.00%, with an average of 15.40% during the Second Quarter 2018, which is consistent with the Fourth Quarter 2017, the last time the survey was conducted. Without entitlements in place, certain investors will increase the discount rate between 100 and 800 basis points (the average increase is 394 basis points). These rates are free and clear of financing, are inclusive of developer s profit, and assume entitlements are in place. The surveyed investors have mixed opinions regarding value trends for the national development land market; their expectations range from negative 10.0% to positive 10.0% with an average expected value change of positive 1.2%. City of Stockton CFD No

202 Sales Comparison Approach 58 According to the data presented in the survey prepared by PwC, the majority of those respondents who use the discounted cash flow (DCF) method do so free and clear of financing. Additionally, the participants reflect a preference in including the developer s profit in the discount rate, versus a separate line item for this factor. As such, the range of rates presented above is inclusive of the developer s profit projection. The discount rates are based on a survey that includes residential, office, retail and industrial developments. Participants in the survey indicate the highest expected returns are on large scale, unapproved developments. The low end of the range was extracted from projects where certain development risks had been lessened or eliminated. Several respondents indicate they expect slightly lower returns when approvals/entitlements are already in place. Excerpts from recent PwC surveys are copied below. Compared to investors responses six months ago, a greater sense of caution is evident among our participants due to heightened uncertainty as it related to the current political environment, capital markets, and the industry s position in the real estate cycle the further path of interest rates and inflation, the longevity of the current cycle [are we near the peak?], and the high degree of uncertainty with regard to the overall stability of the decision makers in the federal government. (Second Quarter 2018) The largest increase over the past year occurs for the retail sector, where the rating rises from 2.42 to The retail sector s development rating took a big hit between 2016 and 2017 and it appears that developers are now becoming more comfortable with this sector s evolution. Ironically, the only two sectors to see their development ratings decline this year, albeit slightly, are apartments and industrial, where concerns of oversupply issues have been expressed Single family development also gets a nod, as well as senior housing, where favorable demographics, compelling returns, greater liquidity, rising transparency, and mounting understanding of the benefits for residents appeal to investors (Fourth Quarter 2017) This quarter, most surveyed investors note that the industrial sector presents the best opportunities for development land investing in the near term. Other top choices include restaurant and high end luxury residential Total spending on U.S. private construction was up 7.0% on a year over year basis in March 2017, according to the U.S. Census Bureau. When looking more closely, private residential spending was up 7.5% while private nonresidential spending was up 6.4% still positive, but below its year over year growth for March 2016 (9.3%). In the nonresidential sector, communication, office, and education reported the highest year over year gains in spending as of March In contrast, spending for health care, religious, and transportation construction declined year over year in March 2017 (Second Quarter 2017) Surveyed investors remain divided when asked which property sector presents the best opportunity for development land investing in the near term. While some believe that City of Stockton CFD No

203 Sales Comparison Approach 59 undeveloped residential land represents the best prospects for investing, a few others feel that land readied for retail development stands as the best opportunity for investors While investors may be divided when it comes to which land type to pursue, they unanimously see positive opportunities over the near term and are eager to partake Within the commercial real estate (CRE) industry, Reis reports that construction activity across all major property types continues to increase, fueled by the ongoing recovery in the economy and CRE fundamentals Total spending on U.S. private construction was up 8.5% on a year over year basis in March 2016, according to the U.S. Census Bureau. When looking at private spending, private residential construction was up 7.8%, while private non residential spending was up 9.3%...Over the next 12 months, all investor participants except one foresee development land values to increase (Second Quarter 2016) First, investors and developers are increasingly looking for development opportunities throughout the commercial real estate (CRE) industry in both established sectors, like apartments, as well as in niche sectors, like data centers housing. And second, rising construction and land costs will likely keep the development cycle in check, helping sustain the industry s recovery. Even though development ranks as the second preferred investment category/ strategy only three of the five main CRE property types reported development prospects ratings higher than last year s report retail, office and industrial. The apartment sector s score slipped slightly this year, while the hotel sector s rating decreased the most. Outside the traditional CRE property sectors respondents felt that development prospects in 2016 were best for 1) urban mixed use properties, 2) data centers, 3) master planned communities, 4) self storage, and 5) infrastructure. (Fourth Quarter 2015) Of the four main property types covered in our Survey, three of them are expected to positively move along the real estate cycle, shifting mainly into either expansion or recovery, which will provide development opportunities. The one exception is the national multifamily sector, where many metros are expected to move into contraction by year end 2015 Over the next 12 months, all investor participants expect one foresee development land values to increase. Appreciation ranges up to 15.0% and averages 5.2%. (Second Quarter 2015) Information for a developing in house database of project yield rates is presented in the following table. It is noted the preceding survey related to production home developments at the land stage. City of Stockton CFD No

204 Sales Comparison Approach 60 Project Yield Rate Survey Data Source Yield / IRR Expectations (Inclusive of Profit) PwC Real Estate Investor Survey Range of 10.0% to 20.0%, with an average of 15.4%, inclusive of profit and Second Quarter 2018 (updated semi annually) assuming entitlements in place, for land development (national average) National Builder 20% to 25% for entitled lots Regional Builder 18% to 25%. Longer term, higher risk projects on higher side of the range, shorter term, lower risk projects on the lower side of the range. Long term speculation properties (10 to 20 years out) often closer to 30%. National Builder 18% minimum, 20% target Developer Minimum IRR of 20 25%; for an 8 to 10 year cash flow, mid to upper 20% range Developer 25% IRR for land development is typical (no entitlements); slightly higher for properties with significant infrastructure costs Land Management Company 20% to 30% IRR for land development deals on an unleveraged basis Land Developer 35% for large land deals from raw unentitled to tentative map stage, unleveraged or leveraged. 25% to 30% from tentative map to pad sales to merchant builders, unleveraged Land Developer 18% to 22% for land with some entitlements, unleveraged. 30% for raw unentitled land Real Estate Consulting Firm Low 20% range yield rate required to attract capital to longer term land holdings Land Developer Merchant builder yield requirements in the 20% range for traditionally financed tract developments. Larger land holdings would require 25% to 30%. Environmentally challenged or politically risky development could well run in excess of 35%. Regional Builder 10% discount rate excluding profit for single family subdivisions National Builder 10% to 40% for single family residential subdivisions with 1 2 year development timelines Regional Builder 15% to 20% IRR Regional Builder No less than 20% IRR for land development, either entitled or unentitled Land Developer 20% to 30% for an unentitled property; the lower end of the range would reflect those properties close to tentative maps Regional Builder No less than 30% when typical entitlement risk exists There are several positive attributes associated with the subject properties that we consider in our selection of a discount rate, including (but not necessarily limited to): Location within an established industrial park proximate to major thoroughfares; Demand for large distribution/warehouse facilities on large industrial parcels; Vacancy has remained low despite the amount of growth within the market indicating a strong demand for industrial properties within the market. Even with the positive factors noted above, there is risk associated with estimating the timing for the disposition of the subject parcels, as well as risk associated with unforeseen factors such as broad economic declines and job losses as well as competition from other projects proximate to the subject. Considering these factors, and the positive and negative characteristics noted above, a discount rate of 12% is estimated. City of Stockton CFD No

205 Sales Comparison Approach 61 Conclusion The discounted cash flow analysis is presented below. Inputs Number of Industrial Lots 4 Ad Valorem Tax Table Industrial Acreage Annual Increase in Property Taxes 2% Total Industrial Revenue $46,360,000 First Year Annual Taxes per Acre $2,394 Total Industrial Revenue per Acre $206,909 Annual Revenue Appreciation 3% Special Assessments Max Escalation General & Administrative 2.0% Industrial Lots $3,567 /acre 2% Marketing and Commissions 2.0% Revenue, Expenses and Valuation Period (6 mos.) Total Industrial Revenue Sales (Acres) End of Period Inventory Total Period Inventory (acres) Industrial Revenue Unappreciated $ 9,272,000 $ 9,272,000 $ 9,272,000 $ 9,272,000 $ 9,272,000 $ 46,360,000 Industrial Revenue Appreciated $ 9,410,052 $ 9,550,160 $ 9,692,354 $ 9,836,665 $ 9,983,124 $ 48,472,355 Expenses All Categories General & Administrative $ (193,889) $ (193,889) $ (193,889) $ (193,889) $ (193,889) $ (969,447) Marketing/Commissions $ (188,201) $ (191,003) $ (193,847) $ (196,733) $ (199,662) $ (969,447) Ad Valorem Taxes $ (268,152) $ (214,522) $ (160,891) $ (107,261) $ (53,630) $ (804,456) Special Assessments $ (399,590) $ (319,672) $ (239,754) $ (159,836) $ (79,918) $ (1,198,769) Total Expenses $ (1,049,832) $ (919,086) $ (788,382) $ (657,719) $ (527,100) $ (3,942,119) Net Income $ 8,360,220 $ 8,631,074 $ 8,903,972 $ 9,178,945 $ 9,456,024 $ 44,530,236 Internal Rate of Return 12.00% Discounted Cash Flow $ 8,116,718 $ 8,135,615 $ 8,148,396 $ 8,155,374 $ 8,156,850 $ 40,712,953 Net Present Value $ 40,712,953 Conclusion of Value NorCal Land Co LLC $ 40,710,000 City of Stockton CFD No

206 Reconciliation and Conclusion of Value 62 Reconciliation and Conclusion of Value As discussed previously, we use only the sales comparison approach in developing an opinion of value for the subject. The cost and income approaches are not applicable and are not used. Based on the preceding valuation analysis, and subject to the hypothetical condition noted herein, our value opinion follows: Value Conclusions Parcel Interest Appraised Date of Value Value Conclusion Market Value Parcel * (WTPE Real Estate Holdings LLC) Fee Simple September 17, 2018 $2,030,000 Market Value Bulk Value* (Norcal Landco, LLC) Fee Simple September 17, 2018 $40,710,000 Parcel (Allocated) Fee Simple September 17, 2018 $10,080,000 Parcel (Allocated) Fee Simple September 17, 2018 $7,800,000 Parcel (Allocated) Fee Simple September 17, 2018 $13,040,000 Parcel (Allocated) Fee Simple September 17, 2018 $9,790,000 *Subject to a hypothetical condition Extraordinary Assumptions and Hypothetical Conditions The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be false as of the effective date of the appraisal, we reserve the right to modify our value conclusions. 1. The size of the parcels was provided by the City of Stockton. It is assumed the information provided is accurate; any deviation of the actual size from what has been represented could materially affect the conclusion(s) of value contained herein. The value conclusions are based on the following hypothetical conditions that may affect the assignment results. A hypothetical condition is a condition contrary to known fact on the effective date of the appraisal but is supposed for the purpose of analysis. 1. We have been requested to estimate the market value of the subject property assuming Assessor s Parcel has been split to create a separate legal parcel for the detention basin, which will be tax exempt, as of date of inspection (September 17, 2018). The value estimate is subject to a hypothetical condition, defined as a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis. Exposure Time Exposure time is the period a property interest would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. In attempting to estimate a reasonable exposure time for the subject properties, we looked at both the historical exposure times of a number of sales, as well as current and past economic conditions. Based on a survey of market participants, a transfer of industrial land in the region typically occurs within 12 months of exposure. It is estimated the exposure time for the subject properties, if appropriately priced, would have been within 12 months of initial exposure. Marketing Period Marketing time is an estimate of the time to sell a property interest in real estate at the estimated market value during the period immediately after the effective date of value. A reasonable marketing time is estimated by comparing the recent exposure time of similar properties, and then taking into City of Stockton CFD No

207 Reconciliation and Conclusion of Value 63 consideration current and future economic conditions and how they may impact marketing of the subject properties. The marketing time for the subject properties are not anticipated to vary significantly from the exposure time. Thus, the marketing time is estimated at 12 months or less. City of Stockton CFD No

208 Certification 64 Certification We certify that, to the best of our knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions. 3. We have no present or prospective interest in the properties that is the subject of this report and no personal interest with respect to the parties involved. 4. We have not performed any services, as an appraiser or in any other capacity, regarding the properties that is the subject of this report within the three year period immediately preceding acceptance of this assignment. 5. We have no bias with respect to the properties that is the subject of this report or to the parties involved with this assignment. 6. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. 7. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 8. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice as well as applicable state appraisal regulations. 9. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. 10. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 11. Eric Segal, MAI, made a personal inspection of the properties that is the subject of this report. Kevin Ziegenmeyer, MAI, has personally inspected the subject. 12. Significant real property appraisal assistance was provided by Blake Fassler who has not signed this certification. 13. We have experience in appraising properties similar to the subject and are in compliance with the Competency Rule of USPAP. 14. As of the date of this report, Eric Segal, MAI, and Kevin Ziegenmeyer, MAI, have completed the continuing education program for Designated Members of the Appraisal Institute. City of Stockton CFD No

209 Certification 65 Eric Segal, MAI Certified General Real Estate Appraiser California Certificate # AG Kevin Ziegenmeyer, MAI Certified General Real Estate Appraiser California Certificate # AG City of Stockton CFD No

210 Assumptions and Limiting Conditions 66 Assumptions and Limiting Conditions This appraisal and any other work product related to this engagement are limited by the following standard assumptions, except as otherwise noted in the report: 1. The title is marketable and free and clear of all liens, encumbrances, encroachments, easements and restrictions. The properties are under responsible ownership and competent management and is available for its highest and best use. 2. There are no existing judgments or pending or threatened litigation that could affect the value of the properties. 3. There are no hidden or undisclosed conditions of the land or of the improvements that would render the properties more or less valuable. Furthermore, there is no asbestos in the properties. 4. The revenue stamps placed on any deed referenced herein to indicate the sale price are in correct relation to the actual dollar amount of the transaction. 5. The properties are in compliance with all applicable building, environmental, zoning, and other federal, state and local laws, regulations and codes. 6. The information furnished by others is believed to be reliable, but no warranty is given for its accuracy. This appraisal and any other work product related to this engagement are subject to the following limiting conditions, except as otherwise noted in the report: 1. An appraisal is inherently subjective and represents our opinion as to the value of the properties appraised. 2. The conclusions stated in our appraisal apply only as of the effective date of the appraisal, and no representation is made as to the effect of subsequent events. 3. No changes in any federal, state or local laws, regulations or codes (including, without limitation, the Internal Revenue Code) are anticipated. 4. No environmental impact studies were either requested or made in conjunction with this appraisal, and we reserve the right to revise or rescind any of the value opinions based upon any subsequent environmental impact studies. If any environmental impact statement is required by law, the appraisal assumes that such statement will be favorable and will be approved by the appropriate regulatory bodies. 5. Unless otherwise agreed to in writing, we are not required to give testimony, respond to any subpoena or attend any court, governmental or other hearing with reference to the properties without compensation relative to such additional employment. 6. We have made no survey of the properties and assume no responsibility in connection with such matters. Any sketch or survey of the properties included in this report is for illustrative City of Stockton CFD No

211 Assumptions and Limiting Conditions 67 purposes only and should not be considered to be scaled accurately for size. The appraisal covers the properties as described in this report, and the areas and dimensions set forth are assumed to be correct. 7. No opinion is expressed as to the value of subsurface oil, gas or mineral rights, if any, and we have assumed that the properties is not subject to surface entry for the exploration or removal of such materials, unless otherwise noted in our appraisal. 8. We accept no responsibility for considerations requiring expertise in other fields. Such considerations include, but are not limited to, legal descriptions and other legal matters such as legal title, geologic considerations such as soils and seismic stability; and civil, mechanical, electrical, structural and other engineering and environmental matters. Such considerations may also include determinations of compliance with zoning and other federal, state, and local laws, regulations and codes. 9. The distribution of the total valuation in the report between land and improvements applies only under the reported highest and best use of the properties. The allocations of value for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. The appraisal report shall be considered only in its entirety. No part of the appraisal report shall be utilized separately or out of context. 10. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or any reference to the Appraisal Institute) shall be disseminated through advertising media, public relations media, news media or any other means of communication (including without limitation prospectuses, private offering memoranda and other offering material provided to prospective investors) without the prior written consent of the persons signing the report. 11. Information, estimates and opinions contained in the report and obtained from third party sources are assumed to be reliable and have not been independently verified. 12. Any income and expense estimates contained in the appraisal report are used only for the purpose of estimating value and do not constitute predictions of future operating results. 13. If the properties are subject to one or more leases, any estimate of residual value contained in the appraisal may be particularly affected by significant changes in the condition of the economy, of the real estate industry, or of the appraised properties at the time these leases expire or otherwise terminate. 14. Unless otherwise stated in the report, no consideration has been given to personal property located on the premises or to the cost of moving or relocating such personal property; only the real property has been considered. 15. The current purchasing power of the dollar is the basis for the values stated in the appraisal; we have assumed that no extreme fluctuations in economic cycles will occur. 16. The values found herein are subject to these and to any other assumptions or conditions set forth in the body of this report but which may have been omitted from this list of Assumptions and Limiting Conditions. City of Stockton CFD No

212 Assumptions and Limiting Conditions The analyses contained in the report necessarily incorporate numerous estimates and assumptions regarding the properties performance, general and local business and economic conditions, the absence of material changes in the competitive environment and other matters. Some estimates or assumptions, however, inevitably will not materialize, and unanticipated events and circumstances may occur; therefore, actual results achieved during the period covered by our analysis will vary from our estimates, and the variations may be material. 18. The Americans with Disabilities Act (ADA) became effective January 26, We have not made a specific survey or analysis of the properties to determine whether the physical aspects of the improvements meet the ADA accessibility guidelines. We claim no expertise in ADA issues, and render no opinion regarding compliance of the subject with ADA regulations. Inasmuch as compliance matches each owner s financial ability with the cost to cure the nonconforming physical characteristics of a property, a specific study of both the owner s financial ability and the cost to cure any deficiencies would be needed for the Department of Justice to determine compliance. 19. The appraisal report is prepared for the exclusive benefit of the Client, its subsidiaries and/or affiliates. It may not be used or relied upon by any other party. All parties who use or rely upon any information in the report without our written consent do so at their own risk. 20. No studies have been provided to us indicating the presence or absence of hazardous materials on the subject properties or in the improvements, and our valuation is predicated upon the assumption that the subject properties are free and clear of any environment hazards including, without limitation, hazardous wastes, toxic substances and mold. No representations or warranties are made regarding the environmental condition of the subject properties. Integra Realty Resources San Francisco, Integra Realty Resources, Inc., Integra Strategic Ventures, Inc. and/or any of their respective officers, owners, managers, directors, agents, subcontractors or employees (the Integra Parties ), shall not be responsible for any such environmental conditions that do exist or for any engineering or testing that might be required to discover whether such conditions exist. Because we are not experts in the field of environmental conditions, the appraisal report cannot be considered as an environmental assessment of the subject properties. 21. The persons signing the report may have reviewed available flood maps and may have noted in the appraisal report whether the subject properties are located in an identified Special Flood Hazard Area. We are not qualified to detect such areas and therefore do not guarantee such determinations. The presence of flood plain areas and/or wetlands may affect the value of the properties, and the value conclusion is predicated on the assumption that wetlands are non existent or minimal. 22. Integra Realty Resources San Francisco is not a building or environmental inspector. Integra San Francisco does not guarantee that the subject properties are free of defects or environmental problems. Mold may be present in the subject properties and a professional inspection is recommended. 23. The appraisal report and value conclusions for an appraisal assume the satisfactory completion of construction, repairs or alterations in a workmanlike manner. City of Stockton CFD No

213 Assumptions and Limiting Conditions It is expressly acknowledged that in any action which may be brought against any of the Integra Parties, arising out of, relating to, or in any way pertaining to this engagement, the appraisal reports, and/or any other related work product, the Integra Parties shall not be responsible or liable for any incidental or consequential damages or losses, unless the appraisal was fraudulent or prepared with intentional misconduct. It is further acknowledged that the collective liability of the Integra Parties in any such action shall not exceed the fees paid for the preparation of the appraisal report unless the appraisal was fraudulent or prepared with intentional misconduct. Finally, it is acknowledged that the fees charged herein are in reliance upon the foregoing limitations of liability. 25. Integra Realty Resources San Francisco, an independently owned and operated company, has prepared the appraisal for the specific intended use stated elsewhere in the report. The use of the appraisal report by anyone other than the Client is prohibited except as otherwise provided. Accordingly, the appraisal report is addressed to and shall be solely for the Client s use and benefit unless we provide our prior written consent. We expressly reserve the unrestricted right to withhold our consent to your disclosure of the appraisal report or any other work product related to the engagement (or any part thereof including, without limitation, conclusions of value and our identity), to any third parties. Stated again for clarification, unless our prior written consent is obtained, no third party may rely on the appraisal report (even if their reliance was foreseeable). 26. The conclusions of this report are estimates based on known current trends and reasonably foreseeable future occurrences. These estimates are based partly on properties information, data obtained in public records, interviews, existing trends, buyer seller decision criteria in the current market, and research conducted by third parties, and such data are not always completely reliable. The Integra Parties are not responsible for these and other future occurrences that could not have reasonably been foreseen on the effective date of this assignment. Furthermore, it is inevitable that some assumptions will not materialize and that unanticipated events may occur that will likely affect actual performance. While we are of the opinion that our findings are reasonable based on current market conditions, we do not represent that these estimates will actually be achieved, as they are subject to considerable risk and uncertainty. Moreover, we assume competent and effective management and marketing for the duration of the projected holding period of these properties. 27. All prospective value opinions presented in this report are estimates and forecasts which are prospective in nature and are subject to considerable risk and uncertainty. In addition to the contingencies noted in the preceding paragraph, several events may occur that could substantially alter the outcome of our estimates such as, but not limited to changes in the economy, interest rates, and capitalization rates, behavior of consumers, investors and lenders, fire and other physical destruction, changes in title or conveyances of easements and deed restrictions, etc. It is assumed that conditions reasonably foreseeable at the present time are consistent or similar with the future. 28. The appraisal is also subject to the following: City of Stockton CFD No

214 Assumptions and Limiting Conditions 70 Extraordinary Assumptions and Hypothetical Conditions The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be false as of the effective date of the appraisal, we reserve the right to modify our value conclusions. 1. The size of the parcels was provided by the City of Stockton. It is assumed the information provided is accurate; any deviation of the actual size from what has been represented could materially affect the conclusion(s) of value contained herein. The value conclusions are based on the following hypothetical conditions that may affect the assignment results. A hypothetical condition is a condition contrary to known fact on the effective date of the appraisal but is supposed for the purpose of analysis. 1. We have been requested to estimate the market value of the subject property assuming Assessor s Parcel has been split to create a separate legal parcel for the detention basin, which will be tax exempt, as of date of inspection (September 17, 2018). The value estimate is subject to a hypothetical condition, defined as a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis. City of Stockton CFD No

215 Addenda Addendum A Appraiser Qualifications City of Stockton CFD No

216 Eric Segal, MAI Experience Mr. Segal is a Certified General real estate appraiser and holds the Appraisal Institute's MAI designation. In 1998, Mr. Segal began his career in real estate as a research analyst/appraiser trainee for Richard Seevers and Associates. By 1999, he began writing narrative appraisal reports covering a variety of commercial properties, with an emphasis on residential master planned communities and subdivisions. Today, Mr. Segal is a partner in the firm and is involved in appraisal assignments covering a wide variety of properties including office, retail, industrial, multifamily housing, master planned communities, and specializes in the appraisal of Mello-Roos Community Facilities Districts and Assessment Districts for land-secured municipal financings, as well as multifamily developments under the U.S. Department of Housing and Urban Development s Multifamily Accelerated Processing (MAP) Guide. He has developed the experience and background necessary to deal with complex assignments covering an array of property types, with a particular focus on urban redevelopment in the cities of San Francisco, Monterey, Alameda and San Mateo. He has developed the experience and background necessary to deal with complex assignments covering an array of property types. Eric is currently Managing Director of the Integra-San Francisco office and Senior Managing Director of the Integra-Sacramento office. Integra Realty Resources Sacramento 3825 Atherton Rd # 500 Rocklin, CA T F irr.com Professional Activities & Affiliations Appraisal Institute, Member (MAI) Appraisal Institute, January 2016 Licenses California, Certified General, AG026558, Expires February 2019 Nevada, Certified General, A CG, Expires January 2019 Education Academic: Bachelor of Science in Business Administration (Concentrations in Finance and Real Estate & Land Use Affairs), California State University, Sacramento Appraisal and Real Estate Courses: Uniform Standards of Professional Appraisal Practice Appraisal Principles Basic Income Capitalization Highest & Best Use and Market Analysis Advanced Income Capitalization Report Writing and Valuation Analysis Self-Storage Economics and Appraisal Seminar Appraisal Litigation Practice and Courtroom Management Hotel Valuations: New Techniques for today s Uncertain Times Computer Enhanced Cash Flow Modeling Advanced Sales Comparison & Cost Approaches Advanced Applications Supervisor-Trainee Course for California esegal@irr.com x228

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218 Kevin Ziegenmeyer, MAI Experience Mr. Ziegenmeyer is a Certified General real estate appraiser and holds the Appraisal Institute's MAI designation. In 1989, Mr. Ziegenmeyer began his career in real estate as a controller for a commercial and residential real estate development corporation. In 1991 he began appraising and continued to be involved in appraisal assignments covering a wide variety of properties, including office, retail, industrial, residential income and subdivisions throughout the Central Valley area of California, Northern Nevada, and within the Sacramento Metropolitan Area. Over the past several years, Mr. Ziegenmeyer has handled many of the firm s master-planned property appraisals and has developed expertise in the valuation of Community Facilities Districts and Assessment Districts. In early 2015, Mr. Ziegenmeyer obtained the Appraisal Institute's MAI designation. Kevin is currently Senior Managing Director of the Integra-San Francisco office and Managing Director of the Integra-Sacramento office. Integra Realty Resources San Francisco San Francisco, CA T F irr.com Licenses California, Certified General Real Estate Appraiser, AG013567, Expires June 2019 Education Academic: Bachelor of Science in Accounting, Azusa Pacific University, California Appraisal and Real Estate Courses: Standards of Professional Practice, Parts A, B & C Basic Valuation Procedures Real Estate Appraisal Principles Capitalization Theory and Techniques, Part A Advanced Income Capitalization Report Writing and Valuation Analysis Advanced Applications IRS Valuation Summit I & II 2008, 2009, 2010 & 2011 Economic Forecast Business Practices and Ethics Contemporary Appraisal Issues with Small Business Administration Financing General Demonstration Appraisal Report Writing Seminar 7-Hour National USPAP Update Course Valuation of Easements and Other Partial Interests 2009 Summer Conference Uniform Appraisal Standards for Federal Land Acquisitions 2008 Economic Update Valuation of Conservation Easements Subdivision Valuation 2005 Annual Fall Conference General Comprehensive Exam Module I, II, III & IV Advanced Income Capitalization Advanced Sales Comparison & Cost Approaches 2004 Central CA Market Update Computer-Enhanced Cash Flow Modeling Forecast 2000, 2001, 2002, 2003 & 2004 Land Valuation Assignments kziegenmeyer@irr.com x224

219 Kevin Ziegenmeyer, MAI Education (Cont'd) Land Valuation Adjustment Procedures Highest & Best Use and Market Analysis Entitlements, Land Subdivision & Valuation Real Estate Value Cycles El Dorado Hills Housing Symposium Federal Land Exchanges M & S Computer Cost-Estimating, Nonresidential Integra Realty Resources San Francisco San Francisco, CA T F irr.com kziegenmeyer@irr.com x224

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221 About IRR Integra Realty Resources, Inc. (IRR) provides world class commercial real estate valuation, counseling, and advisory services. Routinely ranked among leading property valuation and consulting firms, we are now the largest independent firm in our industry in the United States, with local offices coast to coast and in the Caribbean. IRR offices are led by MAI designated Senior Managing Directors, industry leaders who have over 25 years, on average, of commercial real estate experience in their local markets. This experience, coupled with our understanding of how national trends affect the local markets, empowers our clients with the unique knowledge, access, and historical perspective they need to make the most informed decisions. Many of the nation's top financial institutions, developers, corporations, law firms, and government agencies rely on our professional real estate opinions to best understand the value, use, and feasibility of real estate in their market. Local Expertise...Nationally! irr.com

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224 STOCKTON PUBLIC FINANCING AUTHORITY REVENUE BONDS (ARCH ROAD EAST CFD NO ) SERIES 2018A