UBS Financial Services Inc.

Transcription

1 In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Group One Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended, and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Group One Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Group One Bonds. See TAX MATTERS herein. NEW ISSUE-FULL BOOK-ENTRY ONLY $18,670,000 COUNTY OF ORANGE, CALIFORNIA NEWPORT COAST PHASE IV ASSESSMENT DISTRICT NO LIMITED OBLIGATION IMPROVEMENT BONDS GROUP ONE NOT RATED Dated: Date of Delivery Due: September 2, as shown below The $18,670,000 aggregate principal amount of County of Orange, California Newport Coast Phase IV Assessment District No Limited Obligation Improvement Bonds, Group One (the Group One Bonds ) offered hereby are issued pursuant to provisions of the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (as amended, the 1913 Act ), the Improvement Bond Act of 1915 (Division 10 of the California Streets and Highways Code), as amended, and an Indenture, dated as of February 1, 2003, by and between the County of Orange, California (the County ) and U.S. Bank Trust National Association, as trustee (the Trustee ), as amended and supplemented by a First Supplemental Indenture, dated as of May 1, 2005, by and between the County and the Trustee (as so amended and supplemented, the Indenture ). The Group One Bonds are payable from unpaid assessments (the Group One Fixed Assessments ) levied on certain of the parcels within Newport Coast Phase IV Assessment District No Interest on the Group One Bonds will be payable on March 2 and September 2 of each year, commencing September 2, All Group One Bonds will bear interest from their date of delivery, as indicated above. Initially, the Group One Bonds will be delivered in fully registered form only and when delivered will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Group One Bonds. Except as described herein, ownership interests in the Group One Bonds may be purchased in denominations of $5,000 or any integral multiple thereof, in book-entry form only as described herein. Upon receipt of payments of principal of, premium, if any, and interest on the Group One Bonds, DTC will in turn remit such payments to the participants in DTC (as described herein) for subsequent disbursement to the beneficial owners of the Group One Bonds. See THE GROUP ONE BONDS Book-Entry System herein. The Group One Bonds are subject to optional and mandatory redemption prior to maturity as described herein. The obligations of the County under the Group One Bonds are not general obligations of the County, but are limited obligations, payable solely from the Group One Fixed Assessments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the County, or the State of California, or any political subdivision thereof, is pledged to the payment of the Group One Bonds. Notwithstanding any other provision of the Indenture, the County is not obligated to advance available funds from the County treasury to cure any deficiency in the Redemption Fund established under the Indenture. MATURITY SCHEDULE $7,090,000 Serial Bonds September 2 Principal Amount Interest Rate Yield CUSIP No. September 2 Principal Amount Interest Rate Yield CUSIP No $370, % 2.600% ME $475, % 4.300% MN , MF , MP , MG , MQ , MH , MR , MJ , MS , MK , MT , ML , MU , MM0 $6,240, % Term Bond Due September 2, Yield 5.055% CUSIP No MV0 $5,340, % Term Bond Due September 2, Yield 5.116% CUSIP No MW8 CUSIP numbers provided by Standard & Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The Group One Bonds are not rated. See RISK FACTORS herein for a discussion of the risk factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Group One Bonds. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT IN ORDER TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. The Group One Bonds are offered when, as and if issued, subject to approval as to their legality by Orrick, Herrington & Sutcliffe LLP, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed upon for the County by the Office of the County Counsel and for the Underwriter by McFarlin & Anderson LLP, Lake Forest, California. It is anticipated that the Group One Bonds will be available in book-entry form through the facilities of DTC in New York, New York on or about May 18, Dated: April 28, 2005 UBS Financial Services Inc.

2 No dealer, broker, salesperson or other person has been authorized by the County or the Underwriter to give any information or to make any representations with respect to the County or the Group One Bonds other than the information contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the County or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Group One Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Group One Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not be construed as a representation of facts. Certain of the information set forth herein has been obtained from sources which the County believes to be reliable, but such information is not guaranteed as to accuracy or completeness. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Group One Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Group One Bonds to certain dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the cover page hereof and such public offering prices may be changed from time to time by the Underwriter. All summaries of the Indenture or other documents are made subject to the provisions thereof and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the County for further information in connection therewith. This Official Statement is submitted in connection with the sale of the Group One Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

3 COUNTY OF ORANGE, CALIFORNIA BOARD OF SUPERVISORS Bill Campbell (Third District), Chair Thomas W. Wilson (Fifth District), Vice Chair Lou Correa (First District) James W. Silva (Second District) Chris Norby (Fourth District) COUNTY EXECUTIVE OFFICER Thomas G. Mauk COUNTY TREASURER-TAX COLLECTOR John M.W. Moorlach COUNTY AUDITOR-CONTROLLER David E. Sundstrom COUNTY COUNSEL Benjamin P. de Mayo SPECIAL SERVICES Bond Counsel Orrick, Herrington & Sutcliffe LLP San Francisco, California Financial Advisor to the County Fieldman, Rolapp & Associates Irvine, California Trustee U.S. Bank Trust National Association New York, New York Appraiser Gary L. Vogt and Associates San Juan Capistrano, California Appraisal Reviewer Harris Realty Appraisal Newport Beach, California

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5 TABLE OF CONTENTS Page INTRODUCTION... 1 PLAN OF FINANCING... 3 Purpose of the Group One Bonds... 4 THE GROUP ONE BONDS... 4 Authority for Issuance... 4 General... 4 Redemption of the Group One Bonds... 5 Transfers and Exchanges... 8 Book-Entry System... 8 DEBT SERVICE REQUIREMENTS... 9 SOURCES AND USES OF FUNDS SECURITY FOR THE GROUP ONE BONDS General Group One Fixed Assessment Installments Group One Reserve Account Covenant to Commence Superior Court Foreclosure Proceedings Priority of Lien Existing Liens Teeter Plan THE DISTRICT District Formation Validation Proceedings District Location Assessment Formula Improvements to Be Financed THE GROUP ONE DESIGNATED PARCELS Description Property Ownership and Development Property Tax and Assessment Payment Delinquency Status Appraisal and Appraisal Review Direct and Overlapping Debt i

6 TABLE OF CONTENTS (continued) Page Appraised Value-to-Bond Ratio RISK FACTORS General Delinquencies Risks of Real Estate Secured Investments Generally Foreclosure Shortfall Factors That May Affect Land Development and Value Future Indebtedness Concentration of Ownership Cumulative Burden of Parity Taxes and Special Assessments Bankruptcy State Budget Natural Disasters Endangered Species Hazardous Substances Payments by FDIC California Constitution Article XIIIC and Article XIIID No Acceleration Loss of Tax Exemption Limited Liquidity of the Group One Bonds Teeter Plan Termination Appraised Value; Land Value Limited Development Plan NO LITIGATION CONTINUING DISCLOSURE TAX MATTERS NO RATING LEGAL MATTERS FINANCIAL INTERESTS UNDERWRITING ADDITIONAL INFORMATION ii

7 TABLE OF CONTENTS (continued) Page APPENDIX A FORM OF BOND COUNSEL OPINION...A-1 APPENDIX B SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE... B-1 APPENDIX C APPRAISAL AND APPRAISAL REVIEW... C-1 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE...D-1 APPENDIX E BOOK-ENTRY SYSTEM... E-1 iii

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9 OFFICIAL STATEMENT $18,670,000 COUNTY OF ORANGE, CALIFORNIA NEWPORT COAST PHASE IV ASSESSMENT DISTRICT NO LIMITED OBLIGATION IMPROVEMENT BONDS GROUP ONE INTRODUCTION This Official Statement (which includes the cover page, the table of contents and the Appendices attached hereto) is furnished by the County of Orange, California (the County ) to provide information concerning the County of Orange, California Newport Coast Phase IV Assessment District No Limited Obligation Improvement Bonds, Group One, issued in the aggregate principal amount of $18,670,000 (the Group One Bonds ). The Group One Bonds are issued pursuant to provisions of the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (as amended, the 1913 Act ), the Improvement Bond Act of 1915 (Division 10 of the California Streets and Highways Code) (as amended, the 1915 Act and, together with the 1913 Act, the Act ) and an Indenture, dated as of February 1, 2003 (the Original Indenture ), by and between the County and U.S. Bank Trust National Association, as trustee (the Trustee ), as amended and supplemented by the First Supplemental Indenture, dated as of May 1, 2005 (the First Supplemental Indenture ), by and between the County and the Trustee. The Original Indenture, as amended and supplemented by the First Supplemental Indenture, is referred to as the Indenture. See THE GROUP ONE BONDS. Capitalized undefined terms used herein have the meanings ascribed thereto in the Indenture. On February 26, 2003, the County issued, pursuant to the Original Indenture, $30,000,000 aggregate principal amount of County of Orange, California Newport Coast Phase IV Assessment District No Limited Obligation Improvement Bonds, Adjustable Rate Series 2003 A (the Series 2003 A Adjustable Rate Bonds ). The Series 2003 A Adjustable Rate Bonds, the Group One Bonds and any additional bonds issued under and in accordance with the provisions of the Indenture are collectively referred to herein as the Bonds. Newport Coast Phase IV Assessment District No (the District ) consists of approximately 907 gross acres (constituting approximately 291 net developable acres) of land located in the central coastal portion of the County in an area that has recently been annexed to the City of Newport Beach. Assessments have been levied on all of the assessable parcels within the District. Upon the issuance of the Series 2003 A Adjustable Rate Bonds, the Series 2003 A Adjustable Rate Bonds were secured by the unpaid assessments levied on certain of the parcels within the District, together with interest thereon (the Assessments ). Upon the issuance of the Group One Bonds, certain Assessments (the Group One Fixed Assessments ) levied on certain of the parcels within the District (the Group One Designated Parcels ) will secure the Group One Bonds. The Group One Designated Parcels comprise approximately 89 net developable acres and consist of 240 parcels. The Group One Designated Parcels were initially owned by The Irvine 1

10 Company, a Delaware corporation or by the Irvine Community Development Company, a Delaware corporation, a wholly-owned subsidiary of The Irvine Company (collectively, The Irvine Company ). Of such 240 parcels, 215 are within The Irvine Company s Pacific Ridge planned community and are being developed as production homesites for sale to merchant builders. The remaining 25 parcels are within The Irvine Company s Crystal Cove planned community and are being developed as custom homesites for sale to individual buyers. As of January 7, 2005, 140 production homesite parcels have been conveyed or are under contract to be conveyed to Taylor Woodrow Homes ( Taylor Woodrow ), 38 production homesite parcels have been conveyed or are under contract to be conveyed to Lennar Homes ( Lennar ) and 37 production homesite parcels have been conveyed or are under contract to be conveyed to Shea Homes Limited Partnership ( Shea ). As of January 7, 2005, 14 of the custom homesite parcels had been conveyed to individual buyers and the remaining 11 were owned by The Irvine Company. See THE DISTRICT and THE GROUP ONE DESIGNATED PARCELS. The payment of the principal of, premium, if any, and interest on the Group One Bonds is secured by a pledge of the Group One Fixed Assessments, together with interest thereon at a fixed interest rate and any penalties received with respect thereto (but expressly excluding any payment on delinquent parcels, including interest and penalties thereon, so long as the County has paid the Group One Fixed Assessments levied for such delinquent parcels pursuant to the County s Teeter Plan), and any and all other amounts (including proceeds of the sale of the Group One Bonds) held in certain accounts established under the Indenture for the Group One Bonds. See SECURITY FOR THE GROUP ONE BONDS Teeter Plan. Said pledge constitutes a first lien on and security interest in such assets. The Group One Fixed Assessments, and any reassessments which may be issued thereon or in lieu thereof, together with interest thereon, constitute a trust fund for the redemption and payment of the Group One Bonds and the interest thereon. The Group One Bonds are payable solely from the Group One Fixed Assessments levied on the Group One Designated Parcels and the other assets pledged therefor under the Indenture; the Group One Bonds are not payable from assessments levied on any other parcels within the District. The Group One Fixed Assessments represent fixed liens on the Group One Designated Parcels. Installments of principal and interest sufficient to pay debt service on the Group One Bonds (the Group One Assessment Installments ) will be included on the regular County of Orange (the County ) tax bills sent to owners of the parcels within the Group One Designated Parcels against which there are unpaid Group One Fixed Assessments. All obligations of the County under the Group One Bonds are not general obligations of the County, but are limited obligations, payable solely from the Group One Fixed Assessments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the County or the State of California (the State ), or any political subdivision thereof, is pledged to the payment of the Group One Bonds. Notwithstanding any other provision of the Indenture, the County is not obligated to advance available funds from the County treasury to cure any deficiency in the Group One Redemption Account established pursuant to the Indenture. 2

11 There are certain risks associated with the purchase of the Group One Bonds. See RISK FACTORS. Brief descriptions of the Group One Bonds, the Indenture, the District, the security for the Group One Bonds and other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The descriptions herein of the Group One Bonds, the Indenture and other documents are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the Group One Bonds, the Indenture and other documents. Copies of such documents may be obtained from the office of the Clerk of the Board of Supervisors of the County of Orange, 10 Civic Center Plaza, Santa Ana, California, PLAN OF FINANCING On February 5, 2002, the Board of Supervisors of the County (the Board of Supervisors ) confirmed a total assessment lien in the amount of $78,720,000 on property within the District. The District consists of approximately 907 gross acres (constituting approximately 291 net developable acres). The Group One Designated Parcels consists of approximately 89 net developable acres and the assessment lien on the Group One Designated Parcels totals $26,287,184. The Group One Bonds are payable solely from the Group One Fixed Assessments levied on the Group One Designated Parcels and the other assets pledged therefor under the Indenture; the Group One Bonds are not payable from assessments levied on any other parcels within the District. The District was established, and assessments were levied on the property therein, in order to finance a portion of the costs of acquisition of certain infrastructure improvements specially benefiting the property within the District and to prepay and discharge the existing assessments levied within Irvine Coast Assessment District No (the A.D Assessments ) on parcels that are also within the District. On February 26, 2003, the County issued the Series 2003 A Adjustable Rate Bonds in order to (a) finance the acquisition by the County of a portion of such infrastructure improvements, (b) prepay and discharge the A.D Assessments levied on certain parcels within the District, (c) fund a reserve fund for the Series 2003 A Adjustable Rate Bonds, (d) pay the costs of issuance of the Series 2003 A Adjustable Rate Bonds, (e) pay capitalized interest on the Series 2003 A Adjustable Rate Bonds and costs of administration, remarketing fees and letter of credit fees for a period of time, and (f) fund a conversion costs account. On August 6, 2003, the County issued the County of Orange, California Newport Coast Phase IV Assessment District No Limited Obligation Improvement Bonds, Fixed Rate Series 2003 B (the Series 2003 B Fixed Rate Bonds ) in the aggregate principal amount of $6,675,000 in order to (a) finance the acquisition of certain infrastructure improvements constructed or to be constructed by The Irvine Company for the benefit of the District, (b) prepay and discharge the A.D Assessments levied on certain parcels within the District, (c) fund a reserve fund for the Series 2003 B Fixed Rate Bonds, (d) pay capitalized interest on the Series 2003 B Fixed Rate Bonds, and (e) pay the costs of issuance of the Series 2003 B Fixed Rate Bonds. The Series 2003 B Fixed Rate Bonds were not issued under the Indenture but, rather, were issued under a separate indenture; the Series 2003 Fixed Rate Bonds are payable solely from and secured solely by assessments levied on certain parcels within the District, which parcels do not include the parcels on which are levied the Assessments 3

12 from which the Series 2003 A Adjustable Rate Bonds are payable and which parcels do not include the Group One Designated Parcels. The County anticipates that it will issue one or more series of Additional Bonds under the Indenture in order to finance the costs of acquisition of the remainder of such infrastructure improvements. Any such Additional Bonds will not be payable from or secured by the Group One Fixed Assessments or the other assets pledged for the Group One Bonds under the Indenture. Purpose of the Group One Bonds Proceeds from the sale of the Group One Bonds will be used to purchase and cancel a portion of the Series 2003 A Adjustable Rate Bonds. Authority for Issuance THE GROUP ONE BONDS The Group One Bonds are issued pursuant to the provisions of the Act and the Indenture. The Series 2003 A Adjustable Rate Bonds were originally issued as adjustable rate bonds under the Indenture. In accordance with the provisions of the Original Indenture, all or a portion of the Adjustable Rate Bonds may be converted to Fixed Rate Converted Bonds. On the delivery date, $20,454,000 aggregate principal amount of the Series 2003 A Adjustable Rate Bonds are being converted to, and reissued as, the Group One Bonds. The Indenture provides that, upon the conversion of Adjustable Rate Bonds to Fixed Rate Converted Bonds, the County is to designate the parcels of real property within the District which shall be represented by such Fixed Rate Converted Bonds. Pursuant to the Indenture, on the delivery date of the Group One Bonds, the County will designate the Group One Bonds to represent the Group One Designated Parcels. In order to provide for the authentication and delivery of the Group One Bonds, and to establish and declare the terms and conditions upon which the Group One Bonds are issued and secured, the County and the Trustee are entering into the First Supplemental Indenture. General The Group One Bonds will be issued in fully registered form only, and when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Group One Bonds. Ownership interests in the Group One Bonds may be purchased in book-entry form only, in denominations of $5,000 or any integral multiple thereof within a single maturity. So long as DTC is acting as securities depository for the Group One Bonds, principal and interest payments with respect to the Group One Bonds will be made to DTC. See THE GROUP ONE BONDS Book-Entry System. The Group One Bonds will be dated the date of delivery and will bear interest at the rates per annum and will mature, subject to the redemption provisions set forth below, on the dates and in the principal amounts, all as set forth on the cover page hereof. 4

13 Interest on the Group One Bonds is payable semiannually on March 2 and September 2 of each year, commencing September 2, 2005 (each an Interest Payment Date ), to the persons in whose names ownership of the Group One Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date. Such interest will be paid by check mailed by the Trustee on such Interest Payment Date, by first class mail, postage prepaid, to such registered Owners at their respective addresses shown on the Registration Books as of the close of business on the immediately preceding Record Date, except that in the case of a registered Owner of $1,000,000 or more in aggregate principal amount of Group One Bonds, upon the written request of such Owner to the Trustee, received at least ten days prior to the Record Date, specifying the account or accounts to which such payment shall be made, payment shall be made by wire transfer of immediately available funds. Interest on the Group One Bonds will be calculated on the basis of a 360-day year consisting of twelve 30-day months. Principal of, and premium, if any, on the Group One Bonds will be payable upon presentation and surrender thereof upon maturity or earlier redemption at the principal corporate trust office (the Trust Office ) of the Trustee in New York, New York. Principal of and premium, if any, and interest on the Group One Bonds will be paid in lawful money of the United States of America. Redemption of the Group One Bonds Optional Redemption The Group One Bonds are subject to optional redemption in whole or in part, on any Interest Payment Date, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Group One Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 2, 2005 through March 2, % September 2, 2013 and March 2, September 2, 2014 and March 2, September 2, 2015 and thereafter 100 Mandatory Redemption from Group One Fixed Assessment Prepayments The Group One Bonds are subject to mandatory redemption, in whole or in part, on any Interest Payment Date, from and to the extent of any prepayment of Group One Fixed Assessments, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Group One Bonds to be redeemed), plus accrued interest thereon to the date of redemption: 5

14 Redemption Dates Redemption Price September 2, 2005 through March 2, % September 2, 2013 and March 2, September 2, 2014 and March 2, September 2, 2015 and thereafter 100 Mandatory Sinking Fund Redemption The Group One Bonds maturing on September 2, 2028 are subject to mandatory sinking fund redemption, in part, on September 2 in each year, commencing September 2, 2021, at a Redemption Price equal to the principal amount of the Group One Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (September 2) Principal Amount to be Redeemed 2021 $655, , , , , , , (maturity) 920,000 If some but not all of the Group One Bonds maturing on September 2, 2028 are redeemed pursuant to an optional redemption, the principal amount of Group One Bonds maturing on September 2, 2028 to be redeemed pursuant to mandatory sinking fund redemptions on any subsequent September 2 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the County; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Group One Bonds maturing on September 2, 2028 redeemed pursuant to an optional redemption. If some but not all of the Group One Bonds maturing on September 2, 2028 are redeemed pursuant to a mandatory redemption from prepaid Group One Fixed Assessments, the principal amount of Group One Bonds maturing on September 2, 2028 to be subsequently redeemed pursuant to mandatory sinking fund redemptions will be reduced by the aggregate principal amount of the Group One Bonds maturing on September 2, 2028 so redeemed pursuant to a mandatory redemption from prepaid Group One Assessments, such reduction to be allocated as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the County, notice of which determination will be given by the County, to the Trustee at least 45 days prior to such redemption date. The Group One Bonds maturing on September 2, 2033 are subject to mandatory sinking fund redemption, in part, on September 2 in each year, commencing September 2, 2029, at a 6

15 Redemption Price equal to the principal amount of the Group One Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (September 2) Principal Amount to be Redeemed 2029 $ 965, ,015, ,065, ,120, (maturity) 1,175,000 If some but not all of the Group One Bonds maturing on September 2, 2033 are redeemed pursuant to an optional redemption, the principal amount of Group One Bonds maturing on September 2, 2033 to be redeemed pursuant to mandatory sinking fund redemptions on any subsequent September 2 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the County; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Group One Bonds maturing on September 2, 2033 redeemed pursuant to an optional redemption. If some but not all of the Group One Bonds maturing on September 2, 2033 are redeemed pursuant to a mandatory redemption from prepaid Group One Fixed Assessments, the principal amount of Group One Bonds maturing on September 2, 2033 to be subsequently redeemed pursuant to mandatory sinking fund redemptions will be reduced by the aggregate principal amount of the Group One Bonds maturing on September 2, 2033 so redeemed pursuant to a mandatory redemption from prepaid Group One Assessments, such reduction to be allocated as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the County, notice of which determination will be given by the County, to the Trustee at least 45 days prior to such redemption date. Selection of Group One Bonds for Redemption Whenever provision is made in the Indenture for the redemption of less than all of the Group One Bonds, the Trustee will select the Group One Bonds to be redeemed from all Group One Bonds not previously called for redemption (a) with respect to any optional redemption, among maturities as directed by the County, and (b) with respect to any mandatory redemption from prepaid Group One Fixed Assessments, among maturities on a pro rata basis as nearly as practicable, and by lot among Group One Bonds with the same maturity in such manner as will be determined by the Trustee. For purposes of such selection each Group One Bond will be deemed to be comprised of separate $5,000 denominations, and such separate denominations will be treated as separate Group One Bonds which may be separately redeemed. Notice of Redemption The Trustee will mail (by registered or certified mail or by personal service) notice of any redemption to the respective Owners of any Group One Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to 7

16 one or more Information Services, at least 30 but not more than 60 days prior to the Redemption Date. Neither the failure to receive any notice so mailed, nor any defect in such notice, will affect the sufficiency of the proceedings for the redemption of the Group One Bonds or the cessation of accrual of interest thereon from and after the Redemption Date. If, on said Redemption Date, moneys for the redemption of all the Group One Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Group One Bonds will cease to accrue and become payable. Transfers and Exchanges So long as they are subject to the DTC book-entry system, the Group One Bonds may be transferred or exchanged only as described under Book-Entry System. However, should the Group One Bonds cease to be in book-entry form, then they may be transferred or exchanged as provided in the Indenture. Book-Entry System DTC in New York, New York, will act as securities depository for the Group One Bonds. The Group One Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate will be issued for each maturity of the Group One Bonds in the aggregate principal amount of such maturity, and will be deposited with DTC. See Appendix E BOOK-ENTRY SYSTEM. 8

17 DEBT SERVICE REQUIREMENTS The debt service requirements with respect to Group One Bonds are set forth on the following schedule: Year Ending September 2 Principal Interest Total 2005 $251, $ 251, $ 370, , ,239, , , ,235, , , ,234, , , ,238, , , ,234, , , ,235, , , ,235, , , ,238, , , ,235, , , ,234, , , ,237, , , ,239, , , ,238, , , ,237, , , ,239, , , ,239, , , ,236, , , ,237, , , ,236, , , ,238, , , ,238, , , ,237, , , ,238, , , ,237, ,015, , ,238, ,065, , ,236, ,120, , ,237, ,175,000 59, ,234, Totals $18,670,000 $16,221, $34,891,

18 SOURCES AND USES OF FUNDS The sources and uses of funds with respect to the Group One Bonds are set forth below: Sources of Funds Principal Amount of Group One Bonds $18,670, Less Underwriter s Discount 224, Less Original Issue Discount 83, Transfer from Adjustable Rate Bonds Reserve Account 2,084, Transfer from Capitalized Payments Account 918, Transfer from 2003 Conversion Costs Account 795, Total Sources $22,161, Uses of Funds Purchase of Series 2003 A Adjustable Rate Bonds $20,454, Group One Redemption Account (1) 251, Group One Reserve Account (2) 1,239, Costs of Issuance (3) 216, Total Uses $22,161, (1) To pay interest on the Group One Bonds through September 2, (2) Equals the Reserve Requirement for the Group One Bonds. (3) Includes amounts to reimburse the County for certain expenses, and to pay legal fees, financial advisory fees and other issuance costs. General SECURITY FOR THE GROUP ONE BONDS The payment of the principal of, premium, if any, and interest on the Group One Bonds is secured by a pledge of the Group One Fixed Assessments levied on the Group One Designated Parcels (including prepayments thereof), together with interest thereon and any penalties received with respect thereto (but expressly excluding any payment of Group One Assessment Installments on delinquent parcels, including interest and penalties thereon, so long as the County has paid the Group One Assessment Installments for such delinquent parcels pursuant to the County s Teeter Plan), and any and all other amounts (including proceeds of the sale of the Group One Bonds) held in certain accounts established under the Indenture for the Group One Bonds. See Teeter Plan for further information regarding the collection and distribution of delinquent Assessment Installments. Said pledge constitutes a first lien on and security interest in such assets. The Group One Fixed Assessments levied on the Group One Designated Parcels, and any reassessments which may be issued thereon or in lieu thereof, together with interest thereon, constitute a trust fund for the redemption and payment of the Group One Bonds and the interest thereon. 10

19 Pursuant to the Indenture, the Trustee will establish, maintain and hold in trust the Group One Redemption Account, the Group One Prepayment Subaccount, the Group One Reserve Account, the Group One Costs Account and the Group One Rebate Fund. The Group One Bonds are secured by the amounts held in such funds and accounts (other than the Group One Rebate Fund). Principal of and interest on the Group One Bonds are payable exclusively out of the Group One Redemption Account. The Group One Bonds are payable solely from the Group One Fixed Assessments levied on the Group One Designated Parcels and the other assets pledged therefor under the Indenture; the Group One Bonds are not payable from assessments levied on any other parcels within the District. All obligations of the County under the Group One Bonds are not general obligations of the County, but are limited obligations, payable solely from the Group One Fixed Assessments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the County or the State, or any political subdivision thereof, is pledged to the payment of the Group One Bonds. Notwithstanding any other provision of the Indenture, the County is not obligated to advance available funds from the County treasury to cure any deficiency in the Group One Redemption Account. Group One Fixed Assessment Installments Under the provisions of the Act, the Group One Fixed Assessment Installments sufficient to pay debt service on the Group One Bonds will be included on the regular County tax bills sent to owners of the Group One Designated Parcels against which there are unpaid Group One Fixed Assessments. Such Group One Fixed Assessment Installments are to be paid into the Group One Redemption Account for the payment of principal of, premium, if any, and interest on the Group One Bonds as they become due. Any Group One Fixed Assessment may be prepaid at any time, together with any applicable premium to the Group One Bonds redemption date, plus interest thereon, as the County may determine with respect to the portion of the prepayment which cannot be applied to the redemption of Group One Bonds on the first available redemption date. See Appendix B SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE. Group One Reserve Account Under the Indenture, the Trustee is required on the date of issuance of the Group One Bonds to deposit in the Group One Reserve Account an amount equal to the Reserve Requirement for the Group One Bonds, which is defined in the Indenture to mean, as of the date of any calculation, the least of (a) 10% of the original aggregate principal amount of the Group One Bonds, (b) maximum annual debt service on the Group One Bonds, and (c) 125% of average annual debt service on the Group One Bonds. Amounts on deposit in the Group One Reserve Account will be transferred into the Group One Redemption Account in the event of any deficiency at any time in the Group One Redemption Account of the amount then required for payment of the principal of, premium, if any, and interest on the Group One Bonds or, in 11

20 accordance with the provisions of the Indenture, for the purpose of redeeming Group One Bonds from the Group One Redemption Account. Proceeds from redemption or sale of parcels of real property with respect to which payment of delinquent Group One Fixed Assessments and interest thereon was made from the Group One Reserve Account will be credited to the Group One Reserve Account. The moneys in the Group One Reserve Account may be invested in any Permitted Investment. See Appendix B SUMMARY OF CERTAIN PROVISION OF THE INDENTURE Investment of Moneys. So long as no Event of Default shall have occurred and be continuing, any amount in the Group One Reserve Account in excess of the then applicable Reserve Requirement on September 15 of each year will be withdrawn from the Group One Reserve Account by the Trustee and deposited in the Group One Redemption Account. Whenever, after the issuance of the Group One Bonds, a Group One Fixed Assessment is prepaid, in whole or in part, as provided in the Act, the Trustee, pursuant to a written request of the County, will transfer from the Group One Reserve Account to the Group One Prepayment Subaccount an amount, specified in such written request, equal to the product of the ratio of the original amount of the Group One Fixed Assessment, or portion thereof, so prepaid to the original amount of all unpaid Group One Fixed Assessments, times the initial Reserve Requirement for the Group One Bonds. Whenever the balance in the Group One Reserve Account is sufficient to retire all Outstanding Group One Bonds, whether by advance retirement or otherwise, collection of the principal and interest on the Group One Fixed Assessments will be discontinued and the Group One Reserve Account will be liquidated by the Trustee in retirement of such Outstanding Group One Bonds, as directed by a written request of the County. Covenant to Commence Superior Court Foreclosure Proceedings The County is under no obligation to transfer any funds of the County to the Group One Redemption Account for payment of the principal of or interest on the Group One Bonds if a delinquency occurs in the payment of any Group One Fixed Assessment Installment or any interest thereon. However, the Act provides that in the event any Group One Fixed Assessment Installment or any interest thereon is not paid when due, the County may order the institution of a court action to foreclose the lien of the unpaid Group One Fixed Assessment. In such an action, the real property subject to the unpaid Group One Fixed Assessment may be sold at judicial foreclosure sale. The District is a participant in the County s Teeter Plan, which is an alternative method for the distribution of secured property taxes to local agencies. See Teeter Plan below. So long as the District remains a participant in the County s Teeter Plan and is paid under the Teeter Plan for all Group One Fixed Assessments levied, the proceeds of any foreclosure sale will be paid to the County s Teeter Plan. Such foreclosure sale proceedings are not mandatory. However, the County has covenanted in the Indenture that it will, not later than the first day of November following such delinquency, forthwith undertake and diligently prosecute foreclosure proceedings in the manner prescribed in the Act to collect such delinquent amounts; provided, however, that if the amount collected on account of installments (without regard to any amounts advanced by the County 12

21 pursuant to the County s Teeter Plan) is greater than 92.5% of the total amount of the installments posted to the tax roll for the given tax year on account of all unpaid Group One Fixed Assessments, the County shall not be required to undertake such foreclosure proceedings, unless it is determined that as of said first day of November any single property owner is delinquent in excess of $25,000 in the payment of such installments. Upon the redemption or sale of the parcels of real property responsible for such delinquencies, the County will apply the net proceeds thereof first to the Group One Reserve Account in the amount of any delinquency advanced therefrom pursuant to the Indenture and second, as set forth in the judgment of foreclosure or as required by law. The ability of the County to foreclose the lien of unpaid Group One Fixed Assessments may be limited in certain instances and may require prior consent of the obligee in the event the property is owned by or in receivership of the Federal Deposit Insurance Corporation. See RISK FACTORS Bankruptcy and Payments by FDIC. If the County s Teeter Plan is terminated and the Group One Reserve Account is depleted, there could be a default or a delay in payments to the Owners of the Group One Bonds pending prosecution of foreclosure proceedings against Group One Designated Parcels with delinquent Group One Fixed Assessments and receipt of foreclosure sale proceeds, if any. It is also possible that no bid for the purchase price of applicable property would be received at the foreclosure sale. See RISK FACTORS. Notwithstanding any other provision of the Indenture, the County is not obligated to advance available funds from the County treasury to secure any deficiency in the Group One Redemption Account. No assurances can be given that a judicial foreclosure action, once commenced, will be completed or that it will be completed in a timely manner. If a judgment of foreclosure and order of sale is obtained, the judgment creditor (the County) must cause a Notice of Levy to be issued. Under current law, a judgment debtor (property owner) has 120 days from the date of service of the Notice of Levy in which to redeem the property to be sold, which period may be shortened to 20 days for parcels other than those on which a dwelling unit for not more than four persons is located. If a judgment debtor fails to redeem and the property is sold, his only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action, a foreclosure sale is set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made (Section of the California Code of Civil Procedure). The constitutionality of the aforementioned legislation, which repeals the former one-year redemption period, has not been tested; and there can be no assurance that, if tested, such legislation will be upheld. The Group One Designated Parcels are presently owned by a limited number of entities. See RISK FACTORS General and Concentration of Ownership. The failure of any such owner to pay Group One Fixed Assessment Installments in a timely manner could result in the unavailability of money to pay the principal of or interest on the Group One Bonds. Priority of Lien The Group One Fixed Assessments (and any reassessments) and each Group One Fixed Assessment Installment, and any interest and penalties thereon, constitute a lien against the 13

22 Group One Designated Parcels until the same are paid. Such lien is subordinate to all special assessment liens previously imposed upon the same property, but has priority over all private liens and over all special assessment liens which may thereafter be created against the property. Such lien is co-equal to and independent of the lien for general taxes and the lien for any community facilities district special taxes. Existing Liens The Group One Designated Parcels being developed as production homesites are within the boundaries of Newport-Mesa Unified School District Community Facilities District No The liens for the special taxes of such community facilities district are co-equal to the lien for the Group One Fixed Assessments, the lien for ad valorem taxes to pay for general obligation bonds issued by the Irvine Ranch Water District, the Metropolitan Water District of Southern California and the Newport-Mesa Unified School District and the lien for general property taxes. The Group One Designated Parcels being developed as custom homesites are within the boundaries of Laguna Beach Unified School District Community Facilities District No (Crystal Cove). The liens for the special taxes of such community facilities district are co-equal to the lien for the Group One Fixed Assessments, the lien for ad valorem taxes to pay for general obligation bonds issued by the Irvine Ranch Water District, the Metropolitan Water District of Southern California and the Laguna Beach Unified School District and the lien for general property taxes. See THE GROUP ONE DESIGNATED PARCELS Direct and Overlapping Debt. The County is unaware of any present or contemplated additional assessment district or community facilities district that includes property within the Group One Designated Parcels. Teeter Plan In 1949, the California Legislature enacted an alternative method for the distribution of secured property taxes to local agencies. This method, known as the Teeter Plan, is now set forth in Sections of the California Revenue and Taxation Code. Upon adoption and implementation of this method by a county board of supervisors, local agencies for which the county acts as bank and certain other public agencies and taxing areas located in the county receive annually the full amount of their share of property taxes on the secured roll, including delinquent property taxes which have yet to be collected. While a county benefits from the penalties associated with these delinquent taxes when they are paid, the Teeter Plan provides participating local agencies with stable cash flow and the elimination of collection risk. To implement a Teeter Plan, the board of supervisors of a county generally must elect to do so by July 15 of the fiscal year in which it is to apply. The Board of Supervisors of the County (the Board of Supervisors ) adopted the Teeter Plan on June 29, 1993 and has elected to include in its Teeter Plan certain assessments levied in the District on the secured roll. Once adopted, a county s Teeter Plan will remain in effect in perpetuity unless the board of supervisors orders its discontinuance or unless prior to the commencement of a fiscal year a petition for discontinuance is received and joined in by resolutions of the governing bodies of not less than two-thirds of the participating districts in the county. An electing county may, 14

23 however, opt to discontinue the Teeter Plan with respect to any levying agency in the county if the board of supervisors, by action taken not later than July 15 of a fiscal year, elects to discontinue the procedure with respect to such levying agency and the rate of secured tax delinquencies in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll by that agency. See RISK FACTORS Teeter Plan Termination. The County has never discontinued the Teeter Plan with respect to any levying agency. In connection with the issuance of $155,000,000 Orange County Special Financing Authority Teeter Plan Revenue Bonds, Series A through E (the Teeter Bonds ), the County covenanted not to discontinue its participation in the Teeter Plan or, to the extent permitted by law, permit any taxing agency to discontinue its participation in the Teeter Plan, (a) at any time prior to the later of (i) the Scheduled Expiration Date (as defined in the Sales and Servicing Agreement executed and delivered in connection with the Teeter Bonds issuance), as such date may be extended in accordance with the Sales and Servicing Agreement, and (ii) the date upon which all Obligations (as defined in the Teeter Bond Indenture) owed to the Bank (as defined by the Teeter Bonds Sales and Servicing Agreement) shall have been satisfied in full and the Credit Facility (as defined by the Teeter Bonds Sales and Servicing Agreement) shall have expired, or (b) unless such discontinuance is required by applicable law. The foregoing covenant is not made for the benefit of the Owners of the Group One Bonds and the Owners of the Group One Bonds have no rights to enforce such covenant against the County. Upon making a Teeter Plan election, a county must initially provide a participating local agency with 95% of the estimated amount of the then accumulated tax delinquencies (excluding penalties) for that agency. In the case of the initial year distribution of taxes and assessments (if a county has elected to include assessments), 100% of the tax and assessment delinquencies (excluding penalties) are to be apportioned to the participating local agency which levied the tax or assessment. After the initial distribution, each participating local agency receives annually 100% of the secured property tax levies to which it is otherwise entitled, regardless of whether the county has actually collected the levies. If any tax or assessment which was distributed to a Teeter Plan participant is subsequently changed by correction, cancellation or refund, a pro rata adjustment for the amount of the change is made on the records of the treasurer and auditor of the county. Such adjustment for a decrease in the tax or 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 Group One Bonds from the risk of delinquencies in Assessments. THE DISTRICT The Group One Bonds are secured by the Group One Fixed Assessments levied on the Group One Designated Parcels. See THE GROUP ONE DESIGNATED PARCELS for a description of such parcels. The Group One Designated Parcels constitute only a portion of the District. Assessments levied on parcels in the District not within the Group One Designated Parcels do not constitute a source of payment for the Group One Bonds. 15

24 District Formation The District was formed for the purpose of financing the costs of acquisition by the County of certain infrastructure improvements to be constructed by The Irvine Company and to pay and discharge the Irvine Coast Assessment District No assessments levied on the parcels in the District. The District is an area of special assessment, referring to the property that is specially benefited from such improvements and that is to be assessed to pay for the costs of acquisition of such improvements. The District is not a governmental unit. The improvement proceedings for the District were conducted pursuant to the 1913 Act, Resolution No , adopted by the Board of Supervisors on November 20, 2001, Article XIIID of the Constitution of the State of California and the Proposition 218 Omnibus Implementation Act (Statutes of 1997, Chapter 38). The Board of Supervisors confirmed a total assessment in the District of $78,720,000 on February 5, 2002, and recorded such confirmed assessment. Assessment proceedings were initiated by the Board of Supervisors upon receipt of a petition by The Irvine Company, as the sole landowner at the time. VanDell and Associates Inc. and MuniFinancial (the Assessment Engineers ) prepared a written report (the Engineer s Report ), which contains, among other things, the proposed assessment for each of the parcels in the District. The total amount of the proposed assessments was based upon the Assessment Engineer s estimated cost of the acquisition of the infrastructure improvements to be completed for the benefit of the District. The Engineer s Report was filed and approved by the Board of Supervisors on February 5, 2002, after a public hearing was held at which property owners in the District had the right to protest the levy of the proposed assessments in writing prior to or at the commencement of the hearing and to be heard at the hearing. An assessment ballot was mailed to The Irvine Company, the only record owner of property within the District prior to the public hearing in accordance with the 1913 Act. No written protests were filed at or prior to the commencement of the public hearing or were voiced at the public hearing. Following the closing of the public hearing, the Board of Supervisors tabulated the assessment ballots and determined that The Irvine Company had cast its assessment ballot in favor of formation of the District and the imposition of the assessments. The Board of Supervisors thereupon approved the Engineer s Report and adopted its resolution confirming the assessments and ordering the acquisition of the infrastructure improvements to be completed for the benefit of the District. After confirmation and recordation, the assessments became liens against the parcels in the District described in the Engineer s Report. Validation Proceedings Pursuant to Sections 860 and following of the California Code of Civil Procedure, the County instituted judicial validation proceedings with respect to the Assessments in the Orange County Superior Court. The purpose of the validation proceedings was to obtain judicial confirmation of the validity and enforceability of the unpaid Assessments. The proceedings were initiated by the filing of the Complaint for Validation on March 26, 2002, in Case No. 02 CC 04772, and no person appeared in the legal proceedings to oppose the County s request for 16

25 validation. On July 9, 2002, the Judgment of Validation was entered, providing among other things that (a) the Assessments have been duly levied and constitute valid and binding obligations, enforceable against the respective parcels upon which they have become a lien, and (b) the bonds for the District, when issued in accordance with the Act, will be valid and binding limited obligations of the County in accordance with the Act and the Indenture. By its terms, the Judgment of Validation is binding and conclusive on such matters, and no person may bring any judicial action or proceeding which raises any issues with respect to them. District Location The District covers approximately 907 gross acres (constituting approximately 291 net developable acres) of land located in the central coastal area of the County, in the City of Newport Beach between Corona Del Mar and Laguna Beach. The District covers portions of two developments of The Irvine Company known as Crystal Cove and Pacific Ridge. The Group One Designated Parcels are comprised of approximately 89 net developable acres consisting of 240 parcels. The Group One Bonds are payable solely from the Group One Fixed Assessments levied on the Group One Designated Parcels and the other assets pledged therefor under the Indenture; the Group One Bonds are not payable from assessments levied on any other parcels within the District. Assessment Formula The 1913 Act and Article XIIID of the State Constitution, pursuant to which the improvements are being acquired, requires that individual assessments levied on the property within the District be based on the special benefit such properties receive from the improvements. The method of assessment developed by the Assessment Engineers bases assessments on various factors such as traffic generation factors for each land use and the net area of each of the parcels described in the Engineer s Report. Improvements to Be Financed The proposed infrastructure improvements to be financed by the District consist of certain street, utility and drainage infrastructure, riding, hiking and bicycle trails and a neighborhood park. Detailed Plans and Specifications for the improvements are on file in the office of the County Surveyor of the County. A portion of the proceeds of the Series 2003 A Adjustable Rate Bonds and a portion of the proceeds of the Series 2003 B Fixed Rate Bonds have been and are expected to be expended to pay the costs of the acquisition of certain of such infrastructure improvements. The County anticipates that it will issue one or more series of Additional Bonds under the Indenture in order to finance the costs of acquisition of the remainder of such infrastructure improvements. Any such Additional Bonds will not be payable from or secured by the Group One Fixed Assessments or the other assets pledged for the Group One Bonds under the Indenture. 17

26 THE GROUP ONE DESIGNATED PARCELS Description The Group One Designated Parcels consist of 240 parcels constituting approximately 89 net developable acres of land located in the District. Of such 240 parcels, 215 are within The Irvine Company s Pacific Ridge planned community and are being developed as production homesites for sale to merchant builders. Pacific Ridge is an approximately 350 gross acre portion of The Irvine Company s Newport Coast Development located in the City of Newport Beach approximately 2.5 miles inland of the Pacific Ocean. The Group One Designated Parcels being developed as production homesites are located on the south side of Ridge Park Road, east of Newport Coast Drive. The remaining 25 Group One Designated Parcels are within The Irvine Company s Crystal Cove planned community and are being developed as custom homesites for sale to individual buyers. Crystal Cove is in the City of Newport Beach situated along the inland side of Pacific Coast Highway across from Crystal Cove State Park and immediately up coast of the City of Laguna Beach. The Group One Designated Parcels being developed as custom homesites are located westerly of Reef Point Drive. The maps in Appendix C APPRAISAL AND APPRAISAL REVIEW show the general location of the Group One Designated Parcels. Property Ownership and Development Ownership of the Group One Designated Parcels Until recently, all of the Group One Designated Parcels were owned by The Irvine Company. The Irvine Company is an integrated real estate firm engaged in the development of large-scale residential communities and commercial business centers on the Irvine Ranch in the County of Orange. The Irvine Company also has an investment property portfolio of apartment communities, office, and research development properties in Silicon Valley, Los Angeles and North San Diego. 18

27 The following chart identifies the owner or expected purchaser of each of the Group One Designated Parcels. Owner/Purchaser Project Parcels Taylor Woodrow Belcara 107 (1) Lennar Pienza 38 (2) Taylor Woodrow Cypress 33 (3) Shea Costa Azul 37 (4) The Irvine Company Crystal Cove Custom Lots 11 Various Owners Crystal Cove Custom Lots 14 Total 240 (1) As of January 7, 2005, 82 of such parcels had been conveyed by The Irvine Company to Taylor Woodrow. (2) As of January 7, 2005, 35 of such parcels had been conveyed by The Irvine Company to Lennar. (3) As of January 7, 2005, 22 of such parcels had been conveyed by The Irvine Company to Taylor Woodrow. (4) As of January 7, 2005, 11 of such parcels had been conveyed by The Irvine Company to Shea. Source: Appraisal; The Irvine Company. Development of the Group One Designated Parcels The following information regarding planned development of Group One Designated Parcels has been obtained from sources which are believed to be reliable. No assurance can be given that the planned development will occur or that the planned development will occur in a timely manner. No representation is made as to the accuracy or adequacy of such information provided by any person or entity proposing to develop any Group One Designated Parcel beyond the stage of development reached by The Irvine Company. Planned development of the Group One Designated Parcels is described below. The Irvine Company s development plan for the Group One Designated Parcels contemplates developing the Group One Designated Parcels to be developed as production homesites to the stage of completed merchant builder pads and developing the Group One Designated Parcels to be developed as custom homesites to the stage of finished lots. The Irvine Company has no intention to develop, and will not have any responsibility for developing, the Group One Designated Parcels beyond such respective stages of development. Any such further development of the Group One Designated Parcels will be undertaken only by the persons or entities purchasing the same from The Irvine Company. Taylor Woodrow Belcara at Pacific Ridge (Tract Nos and 16494). In November 2002, Taylor Woodrow entered into a land sale agreement with The Irvine Company for 107 lots in Tract Nos and The land sale agreement provides for conveyance of such lots in nine phases. According to The Irvine Company, as of January 7, 2005, 82 of such lots had been conveyed to Taylor Woodrow. The Appraiser reports that, as of January 7, 2005, prices for the detached 19

28 single family homes being offered by Taylor Woodrow in Belcara ranged from approximately $1,567,445 to approximately $1,879,350. Cypress at Pacific Ridge (Tract No ). In March 2003, Taylor Woodrow entered into a land sale agreement with The Irvine Company for 33 lots in Tract No The land sale agreement provides for conveyance of such lots in five phases. According to The Irvine Company, as of January 7, 2005, 22 of such lots had been conveyed to Taylor Woodrow. The Appraiser reports that, as of January 7, 2005, prices for the detached single family homes being offered by Taylor Woodrow in Cypress ranged from approximately $2,599,555 to approximately $2,767,430. Lennar Pienza at Pacific Ridge (Tract No ). In November 2002, Greystone, now a part of Lennar, entered into a land sale agreement with The Irvine Company for 38 lots in Tract No The land sale agreement provides for conveyance of such lots in five phases. According to The Irvine Company, as of January 7, 2005, 35 of such lots had been conveyed to Lennar. The Appraiser reports that, as of January 7, 2005, prices for the detached single family homes being offered by Lennar in Pienza ranged from approximately $1,848,000 to approximately $2,142,000. Shea Costa Azul at Pacific Ridge (Tract No ). In March 2003, Shea entered into a land sale agreement with The Irvine Company for 37 lots in Tract No The land sale agreement provides for conveyance of such lots in seven phases. According to The Irvine Company, as of January 7, 2005, 11 of such lots had been conveyed to Shea. The Appraiser reports that, as of January 7, 2005, prices for the detached single family homes being offered by Shea in Costa Azul ranged from approximately $2,209,000 to approximately $2,577,000. Custom Homesites According to the Appraiser, as of January 7, 2005, 14 of the Group One Designated Parcels developed by The Irvine Company as custom homesites had been conveyed to buyers. The County has not been provided with any information as to how or when any such purchasers intend to develop such custom homesites. The Appraiser reports that, as of January 7, 2005, the remaining 11 custom homesite lots owned by The Irvine Company were being offered for sale. The above description of the proposed development of the Group One Designated Parcels beyond the stage of development reached by The Irvine Company is based on information in the Appraisal that was provided to the Appraiser by The Irvine Company and the developers of the Group One Designated Parcels being developed as production homesites. Except to the limited extent indicated above, none of the developers or other purchasers of the Group One Designated Parcels has provided the County with any information about its development plan, its financing for such plan, its experience or its abilities, nor has any such developer or other purchaser participated in any other way in the issuance of the Group One Bonds. Furthermore, the County has not made, and will not make, any investigation of the developers of the Group One Designated Parcels or any other purchaser or potential purchaser 20

29 of any Group One Designated Parcel. Therefore, no representation is made as to the experience, abilities or financial resources of the developers of the Group One Designated Parcels or any other such purchasers or potential purchasers or as to the likelihood that such developers or any other such purchasers or potential purchasers will be successful in developing the Group One Designated Parcels. Purchasers of the Group One Bonds should not assume that the developers or other purchasers of the Group One Designated Parcels or any other persons or entities that purchase Group One Designated Parcels will have the experience, abilities or financial resources necessary to successfully develop such parcels beyond the stage of development reached by The Irvine Company. Property Tax and Assessment Payment Delinquency Status The County reports that according to County records, as of April 15, 2005, owners of the Group One Designated Parcels were delinquent in their respective regular property tax payments in the amount of $4,537. Such amount represents 1.2% of the taxes levied on the Group One Designated Parcels. Appraisal and Appraisal Review The Irvine Company engaged Gary L. Vogt and Associates (the Appraiser ), real estate appraisers and consultants, to appraise the Group One Designated Parcels. See - The Appraisal. The Appraiser has been from time to time, and is currently, retained by The Irvine Company to provide appraisal services with respect to other properties. The Appraisal Standards for Land-Secured Financings, dated May 1994 and revised in July 2004 (the CDIAC Standards ), published by the California Debt and Investment Advisory Commission, provides that an appraiser should be an independent contractor retained by the public agency, rather than a landowner/developer. Thus, in that regard, the appraisal of the Group One Parcels prepared by the Appraiser does not comply with the CDIAC Standards. The Orange County Public Finance Program Policy Statement & Applicant Information Package, dated March 1994 (the County Policy Statement ), provides that the County will require independent review of an appraisal provided by an applicant for land-secured financing. Accordingly, the County engaged Harris Realty Appraisal, appraisers and consultants in real estate (the Appraisal Reviewer ), to review the appraisal of the Group One Designated Parcels prepared by the Appraiser. See - The Appraisal Review. The Appraisal The Summary Appraisal Report, dated February 4, 2005 (the Appraisal ), sets forth the estimate of Gary L. Vogt and Associates, the Appraiser, of the market value of the fee simple interest in the Group One Designated Parcels in their as is condition as of January 7, 2005, and is attached hereto as Appendix C. The Appraiser used the sales comparison approach to value the Group One Designated Parcels being developed as production homesites. In such approach, the appraised properties are compared and contrasted to recent bulk sales of similar lots in the market area. The Appraiser also used the sales comparison approach to value the 14 Group One Designated Parcels being developed as custom homesites that had been conveyed to individual buyers as of January 7, 21

30 2005. Each such parcel was valued individually using recent lot sales data from Crystal Cove and other ocean-oriented custom lot projects in the Orange County coastal area. For the valuation of the remaining 11 Group One Designated Parcels being developed as custom homesites that were owned by The Irvine Company as of January 5, 2005, the Appraiser assumed that all such parcels were to be sold in a bulk sale to one buyer and employed the developmental approach, which utilizes a discounted cash flow analysis. In the Appraisal, the Appraiser valued each property as enhanced by the infrastructure improvements financed by the District and the value estimates consider that the buyers will assume all future financial obligations with respect to the annual debt service on the Group One Bonds. The value estimates cover only the land and direct improvements to the land consisting primarily of grading, drainage facilities, utilities, streets, common area improvements, slope/street landscaping and land-based fees. The estimated costs of any infrastructure improvements that were not completed as of January 7, 2005, were then deducted to arrive at the value estimates reported in the Appraisal. The contributory value of any model home complexes and/or completed or partially completed production homes on the appraised parcels as of the date of value was specifically excluded from the value estimates reported in the Appraisal. In the Appraisal, the Appraiser opines that, as of January 7, 2005, the market value of the fee simple interest in an as is condition for the Group One Designated Parcels is as set forth below. Owner/Purchaser Project Parcels Appraised Value Taylor Woodrow Belcara 107 (1) $81,850,000 Lennar Pienza 38 (2) $38,000,000 Taylor Woodrow Cypress 33 (3) $34,500,000 Shea Costa Azul 37 (4) $42,850,000 The Irvine Company Crystal Cove Custom Lots 11 $28,100,000 Various Owners Crystal Cove Custom Lots 14 $42,600,000 Total 240 $267,900,000 (1) The Appraisal indicates that, as of January 7, 2005, 82 of such parcels had been conveyed by The Irvine Company to Taylor Woodrow. (2) The Appraisal indicates that, as of January 7, 2005, 35 of such parcels had been conveyed by The Irvine Company to Lennar. (3) The Appraisal indicates that, as of January 7, 2005, 22 of such parcels had been conveyed by The Irvine Company to Taylor Woodrow. (4) The Appraisal indicates that, as of January 7, 2005, 11 of such parcels had been conveyed by The Irvine Company to Shea. In the Appraisal, the Appraiser notes that the Orange County residential market has softened substantially since peaking in mid The Appraiser states that, as of January 7, 2005, the drop in new home sales volume over the past six months had not spurred any widespread price cuts, although several builders were reported to be offering incentives for the first time in several years. There can be no assurance that such softening market will not impact the rate of sales of Group One Designated Parcels to ultimate homeowners. 22

31 The Appraisal is attached hereto as Appendix C. Reference is hereby made to the Appraisal for important assumptions and limiting conditions upon which the valuation conclusions are based. See also RISK FACTORS for a discussion of the risks associated with the valuation conclusions contained in the Appraisal and THE GROUP ONE DESIGNATED PARCELS Property Ownership and Development for a discussion of the owners or purchasers of the Group One Designated Parcels. The Appraisal Review The Appraisal Review, dated February 16, 2005 (the Appraisal Review ), reports the opinion of Harris Realty Appraisal, the Appraisal Reviewer, as to the adequacy and accuracy of the Appraisal, and is attached hereto as Appendix C. Reference is hereby made to the Appraisal Review for important assumptions and limiting conditions to which the Appraisal Review is subject. In the Appraisal Review, the Appraisal Reviewer concludes that (a) the Appraisal adequately covered all the necessary components covered by the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and the County Policy Statement, (b) the Appraiser s opinions and conclusions in the Appraisal are appropriate and reasonable, (c) the content, analyses and conclusions stated in the Appraisal are in compliance with applicable standards and requirements, (d) the Appraiser provided sufficient market data and analyses, and utilized the appropriate approach to value, and (e) the value conclusion stated in the Appraisal is appropriate and reasonable and adequately documented. Direct and Overlapping Debt Contained within the District are numerous overlapping local agencies providing public services. Some of such local agencies have outstanding bonds issued in the form of general obligation, special tax and special assessment bonds. Additional indebtedness could be authorized by the County or other public agencies at any time. Irvine Ranch Water District Debt The Irvine Ranch Water District ( IRWD ) has created two improvement districts, Improvement District No. 140 ( I.D. No. 140 ) and Improvement District No. 240 ( I.D. No. 240 and, collectively, the IRWD Improvement Districts ), that overlap the Group One Designated Parcels. I.D. No. 140 and I.D. No. 240 are coterminous and encompass approximately 3,765 acres. IRWD has sold bonds on behalf of I.D. No. 140 to provide regional and local water supply, storage, transmission and distribution facilities to serve residential and commercial development in the improvement district and has sold bonds on behalf of I.D. No. 240 to provide reclaimed water supply and sewage collection, treatment and disposal facilities for residential and commercial development within the improvement district. In addition to the outstanding bonded debt of approximately $51,196,639 reflected on the following table, the IRWD Improvement Districts have a total of $159,900,000 in authorized but unissued bonded debt. The Group One Designated Parcels share of outstanding debt of the IRWD Improvement Districts is approximately $517,154. The Group One Designated Parcels share of the authorized but unissued debt of the IRWD Improvement Districts is approximately $1,455,

32 The IRWD Improvement Districts bonds are general obligation bonds payable from ad valorem taxes; the amount of the tax levy on each parcel is based on the assessed valuation of the land only. If, as Group One Designated Parcels are developed and sold, the assessed valuation of such parcels increases disproportionately to other parcels in the IRWD Improvement Districts, then such parcels share of the debt of the IRWD Improvement Districts would increase. The County cannot predict the amount of authorized but unissued bonds for the IRWD Improvement Districts that will ultimately be issued by IRWD, nor can it predict when such debt would be issued or the debt service payments thereon. Community Facilities District Debt Newport-Mesa Unified School District Community Facilities District No The Newport-Mesa Unified School District ( Newport-Mesa USD ) has established Newport-Mesa Unified School District Community Facilities District No ( NMUSD CFD No ). The Group One Designated Parcels being developed as production homesites within The Irvine Company s Pacific Ridge planned community are within the boundaries of NMUSD CFD No The special taxes levied by NMUSD CFD No on such Group One Designated Parcels are on a parity with the lien of the Group One Fixed Assessments. On June 25, 1998, NMUSD CFD No issued $20,735,000 aggregate principal amount of its Special Tax Bonds, Series 1998 (the NMUSD CFD No Bonds ) to refund previously issued bonds and to finance certain school facilities. As reflected in the table below, as of January 7, 2005, the aggregate principal amount of NMUSD CFD No Bonds outstanding was $17,140,000. Although NMUSD CFD No has additional authorized but unissued bonded debt, the indenture pursuant to which the NMUSD CFD No Bonds were issued provides that additional bonds may be issued only for the purpose of refunding previously issued bonds of NMUSD CFD No David Taussig & Associates, Inc. reports that the aggregate principal amount of NMUSD CFD No Bonds allocable to the Group One Designated Parcels is approximately $812,537, such amount calculated based upon the Group One Designate Parcels expected share of the total maximum special tax once development of the production homesites is completed. Cove) Laguna Beach Unified School District Community Facilities District No (Crystal The Laguna Beach Unified School District ( Laguna Beach USD ) has established Laguna Beach Unified School District Community Facilities District No (Crystal Cove) ( LBUSD CFD No ). The Group One Designated Parcels being developed as custom homesites within The Irvine Company s Crystal Cove planned community are within the boundaries of LBUSD CFD No The special taxes levied by LBUSD CFD No on such Group One Designated Parcels are on a parity with the lien of the Group One Fixed Assessments. On August 18, 2004, LBUSD CFD No issued $9,970,000 aggregate principal amount of its Special Tax Bonds, Series 2004 (the LBUSD CFD No Bonds ) to pay previously issued bond anticipation notes. As reflected in the table below, as of January 7, 2005, 24

33 the aggregate principal amount of LBUSD CFD No Bonds outstanding was $9,970,000. Although LBUSD CFD No has additional authorized but unissued bonded debt, the indenture pursuant to which the LBUSD CFD No Bonds were issued provides that additional bonds may be issued only for the purpose of refunding previously issued bonds of LBUSD CFD No David Taussig & Associates, Inc. reports that the aggregate principal amount of LBUSD CFD No Bonds allocable to the Group One Designated Parcels is approximately $507,114, such amount calculated based upon the Group One Designated Parcels expected share of the total maximum special tax once development of the custom homesites is completed. School Districts General Obligation Debt Newport-Mesa Unified School District The Group One Designated Parcels being developed as production homesites within The Irvine Company s Pacific Ridge planned community are within the boundaries of Newport-Mesa USD. As reflected in the table below, as of January 7, 2005, Newport-Mesa USD had $107,360,000 of general obligation bonds outstanding. Newport-Mesa USD has no remaining authorized but unissued general obligation debt. David Taussig & Associates, Inc. reports that the aggregate principal amount of Newport-Mesa USD general obligation bonds allocable to the Group One Designated Parcels is approximately $82,060, such amount calculated based upon the Group One Designated Parcels share of the fiscal year tax levy. The Newport-Mesa USD general obligation bonds are payable from ad valorem taxes; the amount of the tax levy on each parcel is based on the assessed valuation of the taxable property within the boundaries of the Newport-Mesa USD. If, as Group One Designated Parcels are developed and sold, the assessed valuation thereof increases disproportionately to other parcels in the Newport-Mesa USD, then such Group One Designated Parcels share of the general obligation bond debt of Newport-Mesa USD would increase. Laguna Beach Unified School District The Group One Designated Parcels being developed as custom homesites within The Irvine Company s Crystal Cove planned community are within the boundaries of Laguna Beach USD. As reflected in the table below, as of January 7, 2005, Laguna Beach USD had $36,035,000 of general obligation bonds outstanding. Laguna Beach USD has no remaining authorized but unissued general obligation debt. David Taussig & Associates, Inc. reports that the aggregate principal amount of Laguna Beach USD general obligation bonds allocable to the Group One Designated Parcels is approximately $11,306, such amount calculated based upon the Group One Designate Parcels share of the fiscal year tax levy. The Laguna Beach USD general obligation bonds are payable from ad valorem taxes; the amount of the tax levy on each parcel is based on the assessed valuation of the taxable property within the boundaries of the Laguna Beach USD. If, as Group One Designated Parcels are developed and sold, the assessed valuation thereof increases disproportionately to other parcels in the Laguna Beach USD, then such Group One Designated Parcels share of the general obligation bond debt of Laguna Beach USD would increase. 25

34 Coast Community College District The Group One Designated Parcels are within the boundaries of the Coast Community College District ( Coast Community CD ). As reflected in the table below, as of January 7, 2005, Coast Community CD had $102,780,000 of general obligation bonds outstanding. Coast Community CD has a total of $260,000,000 remaining authorized but unissued general obligation debt. David Taussig & Associates, Inc. reports that the aggregate principal amount of Coast Community CD general obligation bonds allocable to the Group One Designated Parcels is approximately $24,572, such amount calculated based upon the Group One Designate Parcels share of the fiscal year tax levy. The Coast Community CD general obligation bonds are payable from ad valorem taxes; the amount of the tax levy on each parcel is based on the assessed valuation of the taxable property within the boundaries of the Coast Community CD. If, as Group One Designated Parcels are developed and sold, the assessed valuation thereof increases disproportionately to other parcels in the Coast Community CD, then such Group One Designated Parcels share of the general obligation bond debt of Coast Community CD would increase. Direct and Overlapping Debt Summary Set forth in the following table is the summary of the direct and overlapping debt payable from taxes or special assessments for the Group One Designated Parcels. 26

35 Overlapping District Table 1 Group One Designated Parcels Direct and Overlapping Debt Summary Percent of Levy on Group One Designated Parcels Total Debt Outstanding (1) District Share of Total Debt Outstanding Newport-Mesa USD G.O. Bonds 0.076% (2) $107,360,000 $ 82,060 Laguna Beach USD G.O. Bonds (3) 36,035,000 11,306 Coast Community College G.O. Bonds (4) 102,780,000 24,572 Metropolitan Water District G.O. Bonds (5) 418,190,000 6,821 Irvine Ranch Water District (6) 51,196, ,154 Newport-Mesa USD CFD No (7) 17,140, ,537 Laguna Beach USD CFD No (8) 9,970, ,114 Total Overlapping Debt $ 1,961,564 Plus: Conversion 1 Series 2005 Bonds $ 18,670,000 Estimated Share of Direct and Overlapping Debt $ 20,631,564 Estimated Market Value $267,900,000 (9) Value-to-Lien Ratio (1) As of January 7, (2) The percentage in Table 1 is based on the Group One Designated Parcels share of the total fiscal year levy. The fiscal year levy for the Group One Designated Parcels is $4,897.09, and the fiscal year total levy is $6,406, Such percentage may change. See - Newport-Mesa Unified School District. (3) The percentage in Table 1 is based on the Group One Designated Parcels share of the total fiscal year levy. The fiscal year levy for the Group One Designated Parcels is $547.45, and the fiscal year total levy is $1,744, Such percentage may change. See - Laguna Beach Unified School District. (4) The percentage in Table 1 is based on the Group One Designated Parcels share of the total fiscal year levy. The fiscal year levy for the Group One Designated Parcels is $2,316.93, and the fiscal year total levy is $9,691, Such percentage may change. See - Coast Community College District. (5) The percentage in Table 1 is based on the Group One Designated Parcels share of the total fiscal year levy. The fiscal year levy for the Group One Designated Parcels is $1,633.04, and the fiscal year total levy is $100,114, Such percentage may change. (6) The percentage in Table 1 is based on information provided by IRWD. The ad valorem taxes levied on the parcels may increase. The percentage in Table 1 is based on the ratio of the fiscal year Group One Designated Parcels assessed land value to IRWD s locally assessed value. (7) As of June 30, 2004, all Group One Designated Parcels within NMUSD CFD No were classified as Undeveloped Property, for which no special tax was levied for fiscal year The percentage in Table 1 is based on the Group One Designated Parcels expected share of the total maximum special taxes once development within NMUSD CFD No is completed. The fiscal year expected maximum special tax for the Group One Designated Parcels once development within NMUSD CFD No is complete is estimated at $151,974, and the total expected maximum special tax is estimated at $3,205,803. Only the Group One Designated Parcels being developed as production homesites are within NMUSD CFD No See - Newport-Mesa Unified School District Community Facilities District No (8) As of June 30, 2004, all Group One Designated Parcels within LBUSD CFD No were classified as Undeveloped Property, for which no special tax was levied for fiscal year The percentage in Table 1 is based on the Group One Designated Parcels expected share of the total maximum special taxes once development within LBUSD CFD No is completed. The fiscal year expected maximum special tax for the Group One Designated Parcels once development within LBUSD CFD No is complete is estimated at $49,954, and the total expected maximum special tax is estimated at $982,114. Only the Group One Designated Parcels being developed as custom homesites are within LBUSD CFD No See - Laguna Beach Unified School District Community Facilities District No (9) Estimated market value per Appraisal. Source: David Taussig & Associates, Inc. 27

36 Other Potential Debt The County has no control over the amount of additional debt payable from taxes or assessments levied on all or a portion of the Group One Designated Parcels which may be incurred in the future by other governmental agencies having jurisdiction over all or a portion of the property within the Group One Designated Parcels. Furthermore, nothing prevents the owners of the Group One Designated Parcels from consenting to the issuance of additional debt by other governmental agencies which would be secured by taxes on a parity with the Group One Fixed Assessments. To the extent such indebtedness is payable from special taxes levied pursuant to the Mello-Roos Community Facilities Act of 1982 or ad valorem taxes, such special taxes and ad valorem taxes will be secured by liens on the Group One Designated Parcels on a parity with the lien of the Group One Fixed Assessments. Accordingly, the debt on the Group One Designated Parcels could increase, without any corresponding increase in the value of the property therein, and thereby severely reduce the estimated value-to-lien ratio that exists at the time the Group One Bonds are issued. The imposition of such additional indebtedness could reduce the willingness and ability of the owners of the Group One Designated Parcels to pay the Group One Fixed Assessments when due. See RISK FACTORS Cumulative Burden of Parity Taxes and Special Assessments. Moreover, in the event of a delinquency in the payment of Special Taxes, no assurance can be given that the proceeds of any foreclosure sale of property with delinquent Special Taxes would be sufficient to pay the delinquent Special Taxes. See RISK FACTORS Appraised Values; Land Value. Appraised Value-to-Bond Ratio The values, direct and overlapping debt and total tax burden on property vary among the Group One Designated Parcels. As described above, in the Appraisal the Appraiser provides an estimate of the market value of the fee simple interests in the Group One Designated Parcels in their as is condition as of January 7, The Appraisal values each property as enhanced by infrastructure improvements financed by the District. The Appraisal considers that buyers will assume all future financial obligations with respect to the annual debt service on the Group One Bonds. See THE GROUP ONE DESIGNATED PARCELS Appraisal and Appraisal Review and Appendix C APPRAISAL AND APPRAISAL REVIEW. The $18,670,000 principal amount of Group One Bonds constitutes direct debt for the Group One Designated Parcels. As set forth in Table 1 under Direct and Overlapping Debt Direct and Overlapping Debt Summary above, as of March 1, 2005, there is approximately $1,961,564 of other outstanding public indebtedness applicable to the Group One Designated Parcels. Thus, the estimated direct and overlapping debt allocable to the Group One Designated Parcels is approximately $20,631,564. Following is a table that sets forth the appraised value-to-bond ratio for the Group One Designated Parcels. 28

37 Owner/Purchaser Units Appraised Value to Group Value Bonds (5) One Bond Ratio Taylor Woodrow 107 (1) $81,850,000 $6,269, Lennar 38 (3) 38,000,000 3,290, Taylor Woodrow 33 (2) 34,500,000 3,053, Shea 37 (4) 42,850,000 4,047, The Irvine Company 11 28,100, , Individual Property Owners 14 42,600,000 1,125, $267,900,000 $18,670, (1) The Appraisal indicates that, as of January 7, 2005, 82 of such parcels had been conveyed by The Irvine Company to Taylor Woodrow. (2) The Appraisal indicates that, as of January 7, 2005, 35 of such parcels had been conveyed by The Irvine Company to Lennar. (3) The Appraisal indicates that, as of January 7, 2005, 22 of such parcels had been conveyed by The Irvine Company to Taylor Woodrow. (4) The Appraisal indicates that, as of January 7, 2005, 11 of such parcels had been conveyed by The Irvine Company to Shea. (5) The lien of the Group One Fixed Assessments is equal to $26,287,184, which secures the Group One Bonds to be issued in the aggregate principal amount of $18,670,000. The lien of the Group One Fixed Assessments is greater than the principal amount of the Group One Bonds, however, no additional bonds secured by the lien of the Group One Fixed Assessments may be issued. Group One Bonds are allocated to parcels in proportion to the Group One Fixed Assessments levied on the parcels. Source: Appraisal; UBS Financial Services Inc. RISK FACTORS The purchase of the Group One Bonds involves certain investment risks. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Group One Bonds. The discussion does not purport to be comprehensive or definitive and does not purport to be a complete statement of all factors which may be considered as risks in evaluating the credit quality of the Group One Bonds, and the Official Statement should be read in its entirety for the purpose of making an informed investment decision. General All obligations of the County under the Group One Bonds are not general obligations of the County, but are limited obligations, payable solely from the Group One Fixed Assessments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the County or of the State, or any political subdivision thereof, is pledged to the payment of the Group One Bonds. Notwithstanding any other provision of the Indenture, the County is not obligated to advance available funds from the County treasury to cure any deficiency in the Group One Redemption Account. To provide for the payment of debt service on the Group One Bonds, it is necessary that unpaid Group One Fixed Assessment Installments be paid in a timely manner. Although the unpaid Group One Fixed Assessments constitute fixed liens on the Designated Parcels, they do not constitute a personal indebtedness of the respective owners of such parcels. There is no 29

38 assurance that such owners will be financially able to pay the Group One Fixed Assessment Installments or that they will pay such installments even though financially able to do so. Failure by owners of the Group One Designated Parcels to pay Group One Fixed Assessment Installments when due, depletion of the Group One Reserve Account or the inability to sell the Group One Designated Parcels at foreclosure proceedings for amounts sufficient to cover delinquent Group One Fixed Assessment Installments levied against such parcels would result in the inability to make full or punctual payments of debt service to the Group One Bond Owners. Delinquencies Significant delinquencies in the payment of Group One Fixed Assessment Installments or delays in the prosecution of foreclosure proceedings to collect such Group One Fixed Assessment Installments could result in the depletion of the Group One Reserve Account and default in payment of debt service on the Group One Bonds. For so long as the County continues the Teeter Plan, the County is obligated to pay 100% of the amount of the Group One Fixed Assessments actually levied on the Designated Parcels, regardless of any delinquencies. However, the County is required to terminate the Teeter Plan if two-thirds of the participants so petition the Board of Supervisors and may discontinue the Teeter Plan as to the District if the District s delinquency rate exceeds 3%. See Teeter Plan Termination and SECURITY FOR THE GROUP ONE BONDS Covenant to Commence Superior Court Foreclosure Proceedings, for a discussion of the provisions that apply and the procedures the County is obligated to follow under the Indenture in the event of delinquencies in the payment of Group One Fixed Assessment Installments. Risks of Real Estate Secured Investments Generally The Group One Bond Owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation (a) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the Group One Designated Parcels, the supply of or demand for competitive properties in such area, and the market value of residential properties in the event of sale or foreclosure, (b) changes in real estate tax rates, governmental rules (including, without limitation, zoning laws) and fiscal policies, and (c) natural disasters (including, without limitation, earthquakes, fire, landslide and floods), which may result in uninsured losses. Foreclosure Shortfall Pursuant to the Act, if a parcel within the Group One Designated Parcels is foreclosed upon and cannot be sold at the foreclosure sale at a price equal to the amount of the judgment for delinquent Group One Fixed Assessment Installments with costs and interest thereon, the County may petition a court to authorize the sale of such parcel at a lower price upon the consent of Group One Bond Owners owning 75% or more in principal amount of the Group One Bonds and certain other conditions. Any such sale would produce a shortfall in the aggregate Group One Fixed Assessment Installments payable with respect to such parcel. 30

39 In any event, the County may not need to institute foreclosure proceedings so long as the County s Teeter Plan is in existence and such Teeter Plan continues to provide the County with full tax and assessment levies instead of actual tax collections. See SECURITY FOR THE GROUP ONE BONDS Teeter Plan. Factors That May Affect Land Development and Value The sale and development of the Group One Designated Parcels may be adversely affected by changes in general economic conditions, fluctuations in the real estate market, changes in ownership of the land and other factors. In addition, construction of improvements on the Group One Designated Parcels by the current owners, and their respective successors, will be subject to existing and future federal, state and local regulations. Approval may be required from various public agencies in connection with the design, nature and extent of improvements, or such matters as land use and zoning. Failure to meet any such future legislation or obtain any such approvals in a timely manner could delay or adversely affect the improvement of the Group One Designated Parcels. Under current California law, it is generally accepted that proposed development is not exempt from future land use regulations until building permits have been properly issued and substantial work has been performed and substantial liabilities have been incurred in good faith reliance on such permits. In the past, a number of communities in Southern California have placed on the ballot initiative measures intended to control the rate of future development. It is possible that future initiatives could be enacted, could become applicable to the proposed development and could negatively impact the ability of the current owners of the Group One Designated Parcels, and their respective successors, to complete the development thereof as proposed. The application of future land use regulations to such proposed development could cause significant delays and cost increases in the completion of such development and could cause the land values within the Group One Designated Parcels to decrease substantially. Future Indebtedness To develop the Group One Designated Parcels, the owners thereof may require financing that would increase the public and/or private debt for which such property provides security. Such debt and any additional debt could reduce the ability or desire of the owners of such property to pay the Group One Fixed Assessment Installments as they become due. In addition, as described above, if any additional improvements or other costs are financed through the issuance of governmental debt payable from special taxes against the Group One Designated Parcels, such taxes would have a lien on a parity with that of the Group One Fixed Assessments. Concentration of Ownership Ownership of the Group One Designated Parcels is currently concentrated. See THE GROUP ONE DESIGNATED PARCELS Property Ownership and Development. Until The Irvine Company completes the transfer of ownership of the custom lot parcels to purchasers 31

40 thereof, and until the merchant builders transfer their parcels to the ultimate homeowners, thereby diversifying the ownership of such parcels, the timely payment of the Group One Fixed Assessment Installments will depend upon the willingness and ability of the current owners to pay such installments when due. The County has not undertaken to assess the financial condition of the current owners of the Group One Designated Parcels or the likelihood that they will pay or will be able to pay the Group One Fixed Assessment Installments when due, and expresses no view concerning these matters. Cumulative Burden of Parity Taxes and Special Assessments The Group One Fixed Assessments and any penalties received with respect thereto constitute a lien against the Group One Designated Parcels until they are paid. The lien of the Group One Fixed Assessments is on parity with all special taxes levied by other agencies and general property taxes wherever such special taxes and general taxes are imposed on the same property, and subordinate to liens of special assessments previously imposed. The Group One Fixed Assessments have priority over all existing and future private liens imposed on the Group One Designated Parcels and over all future fixed special assessments. The County does not have control over the ability of other local government agencies to issue indebtedness secured by assessments or special taxes against all or a portion of the Group One Designated Parcels. In addition, the owners of the Group One Designated Parcels may, without the consent or knowledge of the County, petition other public agencies to issue public indebtedness secured by assessments or special taxes. Any such assessments or special taxes may have a lien on such property on parity with the Group One Fixed Assessments. See THE GROUP ONE DESIGNATED PARCELS Direct and Overlapping Debt. Bankruptcy The payment of the Group One Fixed Assessment Installments and the ability of the County to foreclose the lien of a delinquent Group One Fixed Assessment Installment may be limited by bankruptcy, insolvency or other laws generally affecting creditors rights or by the laws of the State relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Group One Bonds (including Bond Counsel s approving legal opinion) will be qualified, as to the enforceability of the various legal instruments, by bankruptcy, reorganization, insolvency, or other similar laws affecting the rights of creditors generally. Although bankruptcy proceedings would not cause the Group One Fixed Assessments to become extinguished, the amount of any lien on property securing the payment of delinquent Group One Fixed Assessment Installments could be reduced if the value of the property were determined by the bankruptcy court to have become less than the amount of the lien, and the amount of the delinquent Group One Fixed Assessment Installments in excess of the reduced lien could then be treated as an unsecured claim by the court. Further, bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings. Such a delay would increase the likelihood of a delay or default in payment of debt service on the Group One 32

41 Bonds. The prosecution of foreclosure proceedings could also be delayed for other reasons, including crowded court calendars and procedural delaying tactics. State Budget As a result of the slowing State and United States economies, the State is experiencing serious budgetary shortfalls for the current and subsequent fiscal years. The County is dependent on the State for funding of numerous programs. State revenue shortfalls could result in reductions in the amounts provided by the State to the County to pay all or a portion of the costs of such programs and, ultimately, cutbacks in such programs. The County is unable to predict whether or not reductions and cutbacks may occur or, if they do occur, the effect thereof on the demand for, or value of, the Group One Designated Parcels. Natural Disasters The Group One Designated Parcels, like all areas of California, may be subject to unpredictable seismic activity, fires due to the vegetation and topography, or landslides and flooding in the event of unseasonable rainfall. The occurrence of seismic activity, fires, landslides or flooding in or around the Group One Designated Parcels could result in substantial damage to the Group One Designated Parcels which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Group One Fixed Assessment Installments when due. Endangered Species During the past several years, there has been an increase in activity at the State and federal level related to the listing and possible listing of certain plant and animal species found in the State as endangered species. An increase in the number of endangered species is expected to curtail development in a number of areas. However, the property in the Group One Designated Parcels is part of the Central and Coastal/Natural Community Conservation Planning Program and Habitat Conservation Plan which were adopted in 1996 to address compliance with the State and federal Endangered Species Acts. Pursuant to the Implementation Agreement adopted in conjunction with those plans, landowners are authorized to develop all lands located outside of a Reserve System that was created to protect endangered species. The impacts of any such authorized development are mitigated in accordance with the plans to cover 39 endangered species that are identified as being covered by the plans and where no further mitigation is required. The plans also consider ten additional species to be conditionally covered such that, although development is authorized, additional mitigation will need to be provided. To the extent that any of these conditionally covered species are found to occupy lands proposed for development, the provision of the required additional mitigation could delay the completion of the development as planned. This, in turn, could reduce the likelihood of timely payment of the Group One Fixed Assessment Installments. See Factors That May Affect Land Development and Value and Appraised Value; Land Value. Hazardous Substances One of the most serious risks in terms of the potential reduction in the value of the Group One Designated Parcels is a claim with regard to a hazardous substance. In general, the owners 33

42 and operators of property within the Group One Designated Parcels may be required by law to remedy conditions of such property relating to release 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 State laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of the property whether or not the owner or operator had anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Group One Designated Parcels be affected by a hazardous substance, will be to reduce the marketability and value of such property by the costs of remedying the condition, because the prospective purchaser, upon becoming owner, will become obligated to remedy the condition just as the seller is. Further, it is possible that liabilities may arise in the future with respect to any of the Group One Designated Parcels resulting from the current existence on the property of a substance currently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the current existence on the property of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method in which it is handled. All of these possibilities could significantly affect the value of a parcel within the Group One Designated Parcels that is realizable upon a foreclosure. The Irvine Company has advised the County that it has no knowledge of any hazardous substances being located on the Group One Designated Parcels. Payments by FDIC The ability of the County to collect the Group One Fixed Assessment Installments and interest and penalties specified by State law, and to foreclose the lien of delinquent Group One Fixed Assessment Installments, may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation (the FDIC ) or other similar federal governmental agencies have or obtain an interest. On June 4, 1991, the FDIC issued a Statement of Policy Regarding the Payment of State and Local Property Taxes (the 1991 Policy Statement ). The 1991 Policy Statement was revised and superseded by new Policy Statement effective January 9, 1997 (the Policy Statement ). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property s value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution s affairs, unless abandonment of the FDIC s interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC owned property are secured by a valid lien (in effect before the 34

43 property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC s consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC s consent. The Policy Statement states that the FDIC generally will not pay non ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. The County is unable to predict what effect the FDIC s application of the Policy Statement would have in the event of a delinquency in the payment of a Group One Fixed Assessment Installment levied on a Group One Designated Parcel in which the FDIC has an interest, although prohibiting the lien to be foreclosed at a judicial foreclosure sale would reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. California Constitution Article XIIIC and Article XIIID On November 5, 1996, the voters of the State approved Proposition 218, the so-called Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of the County to levy and collect both existing and future taxes, assessments, fees and charges. Article XIIID requires that, beginning July 1, 1997, the proceedings for the levy of any assessment by the County under the Act (including, if applicable, any increase in such assessment or any supplemental assessment under the Act) must be conducted in conformity with the provisions of Section 4 of Article XIIID. The County has completed its proceedings for the levy of assessments in the District in accordance with the provisions of Section 4 of Article XIIID and the Proposition 218 Omnibus Implementation Act (Statutes of 1997, Chapter 38). Under Section of the California Streets and Highways Code, any challenge (including any constitutional challenge) to the proceedings or the assessment must be brought within 30 days after the date the assessment was levied. Article XIIIC removes limitations on the initiative power in matters of local taxes, assessments, fees and charges. Article XIIIC does not define the term assessment, but, in the opinion of Bond Counsel, it is likely that it would be defined as set forth in Article XIIID. In the case of the Group One Fixed Assessments which are pledged as security for payment of the Group One Bonds, the Act provides a mandatory, statutory duty of the County and the County Auditor to post installments on account of the unpaid Group One Fixed Assessments to the property tax roll of the County each year while any of the Group One Bonds are outstanding in amounts equal to the principal of and interest on the Group One Bonds coming due in the succeeding calendar year. Although the matter is not free from doubt, it is likely that a court would hold that Article XIIIC has not conferred on the voters the power to reduce or repeal the unpaid Group One Fixed Assessments which are pledged as security for payment of the Group One Bonds or to otherwise interfere with performance of the mandatory, statutory duty of the County and the County Auditor with respect to the unpaid Group One Fixed Assessments which are pledged as security for payment of the Group One Bonds. 35

44 The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. No Acceleration The Group One Bonds do not contain a provision allowing for the acceleration of the Group One Bonds in the event of a payment default or other default under the terms of the Group One Bonds or the Indenture. There is no provision in the Act or the Indenture for acceleration of the Group One Fixed Assessment Installments in the event of a payment default by an owner of a Group One Designated Parcel or otherwise, or upon any adverse change in the tax status of interest on the Group One Bonds. Loss of Tax Exemption As discussed under the caption TAX MATTERS, the interest on the Group One Bonds could become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Group One Bonds as a result of failure of the County to comply with certain provisions of the Internal Revenue Code of 1986, as amended (the Code ). Should such an event of taxability occur, the Group One Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under the optional redemption or mandatory sinking fund redemption provisions of the Indenture. Limited Liquidity of the Group One Bonds The County has not applied for, and does not expect to receive, a rating on the Group One Bonds from any nationally recognized rating organization. This fact, coupled with the fact that the Group One Bonds are secured by the Group One Fixed Assessments levied on the Group One Designated Parcels, which constitute a relatively small number of parcels, may limit the secondary market for, and therefore the liquidity of, the Group One Bonds. Teeter Plan Termination In 1993, the County implemented its Teeter Plan as an alternate procedure for the distribution of certain property tax and assessment levies on the secured roll. Pursuant to its Teeter Plan, the County has elected to provide local agencies and taxing areas, including the District, with full tax and assessment levies instead of actual tax and assessment collections. In return the County is entitled to retain all delinquent tax and assessment payments, penalties and interest. Thus, the County s Teeter Plan may help protect Owners of the Group One Bonds from the risk of delinquencies in the payment of Group One Fixed Assessments. However, the County is entitled, and under certain circumstances could be required, to terminate its Teeter Plan with respect to all or part of the local agencies and taxing areas covered thereby. A termination of the Teeter Plan with respect to the District would eliminate such protection from delinquent Group One Fixed Assessments. See SECURITY FOR THE GROUP ONE BONDS Teeter Plan. 36

45 Appraised Value; Land Value The value of the Group One Designated Parcels is a critical factor in determining the investment quality of the Group One Bonds. The Appraisal was prepared for the purpose of estimating the market value of the fee simple interests in the Group One Designated Parcels in their as is condition as of January 7, Should future conditions or events reduce the level of permitted development of the Group One Designated Parcels, the value of the land would likely be reduced from that estimated by the Appraiser. If a property owner is delinquent in the payment of a Group One Fixed Assessment Installment, the County s only remedy is to commence foreclosure proceedings in an attempt to obtain funds to pay the Group One Bonds. Reductions in property values due to a downturn in the economy, physical events such as earthquakes or floods, stricter land use regulations or other events could adversely impact the security underlying the Group One Fixed Assessments. No assurance can be given that should a parcel with delinquent Group One Fixed Assessment Installments be foreclosed upon and sold for the amount of the delinquency, any bid will be received for such property or, if a bid is received, that such bid will be sufficient to pay all delinquent Group One Fixed Assessment Installments. See SECURITY FOR THE GROUP ONE BONDS for a discussion of the provisions which apply, and procedures which the County is obligated to follow under the Indenture, in the event of delinquencies in the payment of Group One Fixed Assessment Installments. Although the Act authorizes the County to cause a foreclosure action to be commenced and diligently pursued to completion, the Act does not specify any obligation of the County with regard to purchasing or otherwise acquiring any parcel of property sold at a foreclosure sale in any such action if there is no other purchaser at such sale. The County has not in any way agreed, nor does it expect, to be such a purchaser. See Payments by FDIC for a discussion of the policy of the FDIC regarding the payment of assessments and special taxes and limitations on the County s ability to foreclose on the lien of the Group One Fixed Assessments in certain circumstances. Limited Development Plan The Irvine Company has no intention to develop, and will not have any responsibility for developing, the custom lots beyond a finished lot stage and the remaining Group One Designated Parcels beyond the stage of completed merchant builder pads. Any further development of such parcels will be undertaken only by the persons or entities purchasing such parcels from The Irvine Company. No owner or potential purchaser of any Group One Designated Parcels has provided the County with any information about its development plan, its financing for such plan, its experience or its abilities, nor has any such owner or potential purchaser participated in any other way in the issuance of the Group One Bonds. Furthermore, the County has not made, and will not make, any investigation of any owner or potential purchaser of such parcels. Therefore, no representation is made herein as to the experience, abilities or financial resources of any such owners or potential purchasers or as to the likelihood that any such owners or potential 37

46 purchasers will be successful in developing the purchased parcels. Owners of the Group One Bonds should not assume that any persons or entities that purchase Group One Designated Parcels will have the experience, abilities or financial resources necessary to successfully develop such parcels beyond the stage of development reached by The Irvine Company. A failure to complete final development of such parcels would likely make the resale thereof more difficult, thereby limiting diversification of ownership. Such lack of diversification could be perceived as adversely affecting the security for the Group One Bonds, which could reduce the value and marketability thereof. NO LITIGATION There is no action, suit, or proceeding pending or, to the best knowledge of the County, threatened at the present time restraining or enjoining the delivery of the Group One Bonds or in any way contesting or affecting the validity of the Group One Bonds or any proceedings of the County taken with respect to the execution or delivery thereof. A no litigation opinion rendered by the County Counsel will be delivered to the Underwriter simultaneously with the delivery of the Group One Bonds. CONTINUING DISCLOSURE The County has covenanted for the benefit of holders and beneficial owners of the Group One Bonds to provide certain financial information and operating data relating to the Group One Bonds, the District, ownership of the Group One Designated Parcels and the occurrence of delinquencies in payment of Group One Fixed Assessment Installments (the County Disclosure Report ), and to provide notices of the occurrence of certain enumerated events, if material. The financial information and operating data will be provided annually. The annual reports will be filed by the County not later than May 1 of each year, commencing May 1, The County Disclosure Reports will be filed by the County with each Nationally Recognized Municipal Securities Information Repository and the State Repository, if any. The notices of material events will be filed by the County with the Municipal Securities Rulemaking Board and the State Repository, if any. The specific nature of the information to be contained in the annual reports or the notices of material events is set forth in Appendix D FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule ). Pursuant to the Continuing Disclosure Certificate, dated as of July 1, 2003 (an undertaking with regard to said Rule entered into in connection with the issuance of the County of Orange Newport Coast Phase IV Assessment District No Limited Obligation Improvement Bonds Fixed Rate Series 2003 B), the County failed to timely file its annual report that was due no later than November 1, The County and Community Facilities District No (Rancho Santa Margarita) of the County of Orange ( District No ), of which the Board of Supervisors is the legislative body, have failed to comply with certain previous undertakings with regard to said Rule to provide annual reports. Pursuant to the Continuing Disclosure Certificate, dated as of January 1, 2001 (an undertaking with regard to said Rule entered into in connection with the issuance of the Community Facilities District No (Rancho Santa Margarita) of the County of Orange Series A of 2001 Special Tax Bonds), District No failed to timely file its annual reports that were due no later than March 1, 38

47 2001, March 1, 2002, March 1, 2003 and March 1, Such annual reports were subsequently filed on August 5, Otherwise, neither the County nor any community facilities districts of which the Board of Supervisors is the legislative body has ever failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Group One Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Group One Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix A hereto. To the extent the issue price of any maturity of the Group One Bonds is less than the amount to be paid at maturity of such Group One Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Group One Bonds), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest on the Group One Bonds which is excluded from gross income for federal income tax purposes and State personal income taxes. For this purpose, the issue price of a particular maturity of the Group One Bonds is the first price at which a substantial amount of such maturity of the Group One Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Group One Bonds accrues daily over the term to maturity of such Group One Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Group One Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Group One Bonds. Owners of the Group One Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Group One Bonds with original issue discount, including the treatment of purchasers who do not purchase such Group One Bonds in the original offering to the public at the first price at which a substantial amount of such Group One Bonds is sold to the public. Group One Bonds purchased, whether at original issuance or otherwise, for an amount greater than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, a purchaser s basis in a Premium Bond, and under Treasury Regulations the amount of tax exempt interest received, will be reduced by the amount of amortizable bond premium properly allocable 39

48 to such purchaser. Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various requirements that must be met in order for interest on the Group One Bonds to be excluded from gross income for federal income tax purposes. The County has made representations related to certain of these requirements and has covenanted to comply with certain of these requirements. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Group One Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Group One Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Group One Bonds may adversely affect the value of, or the tax status of interest on, the Group One Bonds. Certain requirements and procedures contained or referred to in the Indenture, the Tax Certificate, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Group One Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Group One Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than Orrick, Herrington & Sutcliffe LLP. Although Bond Counsel is of the opinion that interest on the Group One Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Group One Bonds may otherwise affect an Owner s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Owner or such Owner s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. In addition, no assurance can be given that any future legislation, including amendments to the Code, if enacted into law, or changes in interpretation of the Code, will not cause interest on the Group One Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent owners of the Group One Bonds from realizing the full current benefit of the tax status of such interest. Prospective purchasers of the Group One Bonds should consult their own tax advisers regarding any pending or proposed federal tax legislation. Further, no assurance can be given that the introduction or enactment of any such future legislation, or any action of the Internal Revenue Service ( IRS ), including but not limited to regulation, ruling, or selection of the Group One Bonds for audit examination, or the course or result of any IRS examination of the Group One Bonds, or obligations which present similar tax issues, will not affect the market price for the such Group One Bonds. NO RATING The County has not made, and does not contemplate making, application to any rating agency for the assignment of a rating for the Group One Bonds. 40

49 LEGAL MATTERS The validity of the Group One Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel. Bond Counsel has not undertaken any responsibility for the accuracy, completeness or fairness of this Official Statement and expresses no opinion as to the matters set forth herein. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix A hereto and will accompany the Group One Bonds. Certain legal matters will be passed upon for the County by the Office of the County Counsel, and for the Underwriter by McFarlin & Anderson LLP, Lake Forest, California. FINANCIAL INTERESTS Payment of the fees and expenses of the Financial Advisor, Bond Counsel and Underwriter s Counsel are generally contingent upon the issuance and delivery of the Group One Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the Group One Bonds. UNDERWRITING The Group One Bonds are being purchased through negotiation by UBS Financial Services Inc. (the Underwriter ). The Underwriter has agreed to purchase the Group One Bonds at an aggregate purchase price of $18,362, (representing the principal amount of the Group One Bonds, less an underwriter s discount of $224, and less an original issue discount of $83,723.15). The Underwriter s obligation to purchase the Group One Bonds is subject to certain terms and conditions set forth in the purchase contract for the Group One Bonds, the approval of certain legal matters by counsel and certain other conditions. The Underwriter is obligated to purchase all of the Group One Bonds if any are purchased. The Underwriter may offer and sell the Group One Bonds to certain dealers and others at prices lower than the public offering prices set forth on the cover page hereof. The offering prices may be changed from time to time by the Underwriter. ADDITIONAL INFORMATION The quotations from, and the summaries and explanations of the Indenture and other documents and statutes contained herein do not purport to be complete, and reference is made to such documents and statutes for the full and complete statements of their respective provisions. This Official Statement is submitted only in connection with the sale of the Group One Bonds by the County. This Official Statement does not constitute a contract with the purchasers of the Group One Bonds. 41

50 Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. Execution of this Official Statement has been duly authorized by the County. COUNTY OF ORANGE, CALIFORNIA By: /s/ Thomas G. Mauk Thomas G. Mauk County Executive Officer 42

51 APPENDIX A FORM OF BOND COUNSEL OPINION Upon delivery of the Group One Bonds, Orrick, Herrington & Sutcliffe LLP proposes to deliver their final approving opinion with respect to the Group One Bonds in substantially the following form: Board of Supervisors County of Orange 10 Civic Center Plaza Santa Ana, CA [Date of Delivery] County of Orange Newport Coast Phase IV Assessment District No Limited Obligation Improvement Bonds, Group One (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the County of Orange, California (the Issuer ) of $18,670,000 aggregate principal amount of the County of Orange, Newport Coast Phase IV Assessment District No. 01-1, Fixed Rate Limited Obligation Improvement Bonds, Group One (the Bonds ) pursuant to the provisions of the Municipal Improvement Act of 1913, the Improvement Bond Act of 1915 and the Indenture, dated as of February 1, 2003 (the Original Indenture ), between the Issuer and U.S. Bank Trust National Association, as trustee (the Trustee ), which Indenture was approved by Resolution No , adopted by the Board of Supervisors of the Issuer on February 11, 2003, as amended and supplemented by the First Supplemental Indenture, dated as of May 1, 2005 (the First Supplemental Indenture ), between the Issuer and the Trustee. Hereafter in this letter, the Original Indenture and the First Supplemental Indenture are referred to collectively as the Indenture. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Indenture. In such connection, we have reviewed the Indenture, the Tax Certificate of the Issuer dated the date hereof (the Tax Certificate ) an opinion of counsel to the Issuer, certifications of the Issuer and others and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Certain agreements, requirements and procedures contained or referred to in the Indenture, the Tax Certificate and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves. A-1

52 The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this opinion. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Issuer. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinion, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. In addition, we call attention to the fact that the rights and obligations under the Bonds, the Indenture and the Tax Certificate may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other similar laws relating to or affecting creditors rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against counties in the State of California. We express no opinion on the plans, specifications, maps and other engineering details of the proceedings, or upon the validity of the individual separate assessments securing the Bonds which validity depends, in addition to the legal steps required, upon the accuracy of certain of the engineering details. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Bonds constitute valid and binding special assessment obligations of the Issuer, payable solely from and secured by the unpaid assessments on the Group One Designated Parcels and certain funds held under the Indenture. 2. The Indenture has been duly authorized and constitutes a valid and binding obligation of the Issuer. 3. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Faithfully yours, A-2

53 APPENDIX B SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

54 [THIS PAGE INTENTIONALLY LEFT BLANK]

55 APPENDIX B SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE The following is a summary of certain provisions of the Original Indenture as amended and supplemented by the First Supplemental Indenture which are not described elsewhere in the Official Statement. This summary does not purport to be comprehensive, and reference should be made to the Original Indenture and the First Supplemental Indenture for a full and complete statement of their provisions. THE INDENTURE Unless the context otherwise requires, the following terms shall have the meanings specified below: Act means, collectively, the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code), as amended and the Improvement Bond Act of 1915 (Division 10 of the California Streets and Highways Code), as amended. Additional Adjustable Rate Bonds means a Series of Bonds, other than the Series 2003 A Adjustable Rate Bonds, initially issued in an Adjustable Rate Mode in accordance with the provisions of the Indenture. Additional Bonds means Additional Adjustable Rate Bonds, Additional Fixed Rate Funding Bonds and Additional Fixed Rate Conversion Bonds. Additional Fixed Rate Conversion Bonds means a Series of Bonds, other than the Series 2003 B Bonds, bearing a fixed interest rate issued under the Indenture in accordance with the provisions of the Indenture. Additional Fixed Rate Funding Bonds means a Series of Bonds, other than the Series 2003 B Bonds, bearing a fixed interest rate issued in accordance with the provisions of the Indenture. Adjustable Rate Assessments means the Assessments other than (1) specific assessments described in the Indenture, and (2) the Assessments on the parcels of real property designated by the County, pursuant to the Indenture, to be represented by a Set of Fixed Rate Bonds. Adjustable Rate Bonds means the Series 2003 A Adjustable Rate Bonds and any Additional Adjustable Rate Bonds while in an Adjustable Rate Mode. Adjustable Rate Mode means the Daily Mode, the Weekly Mode, the Monthly Mode, the Semi-Annual Mode and the Extended Rate Mode. Adjusted Interest Rate means, with respect to the interest rate to be borne by an Adjustable Rate Bond during any Adjustment Period, the interest rate per annum determined on the applicable Rate Determination Date in accordance with the Indenture, provided that at no time shall the Adjusted Interest Rate exceed the Maximum Rate. Alternate Letter of Credit means a letter of credit or other security or liquidity device issued in accordance with the Indenture which shall have a term of not less than one year and shall have the same material terms as the Letter of Credit. B-1

56 Assessment District means the area designated Newport Coast Phase IV Assessment District No. 01-1, formed by the County under the Act. Assessments means the assessments levied within the Assessment District by the Board of Supervisors under the proceedings taken pursuant to the Resolution of Intention and in the amounts set forth in the Engineer s Report. Auditor means the Auditor-Controller of the County, or such other official of the County who is responsible for preparing property tax bills. Authorized Representative means, with respect to the County, the County Executive Officer, Chief Financial Officer, Public Finance Manager or any other Person designated as an Authorized Representative of the County in a Written Certificate of County filed with the Trustee. Board of Supervisors means the Board of Supervisors of the County, as the legislative body of the County. Bond Counsel means a firm of nationally recognized bond counsel selected by the County. Bonds means the County of Orange, California, Newport Coast Phase IV Assessment District No Limited Obligation Improvement Bonds issued under the Indenture, and includes the Series 2003 A Adjustable Rate Bonds issued under the Indenture and any Additional Bonds issued under the Indenture. Book-Entry Bonds means Bonds of a Series registered in the name of the nominee of DTC, or any successor securities depository for such Series of Bonds, as the registered owner thereof pursuant to the terms and provisions of the Indenture. Business Day means any day other than (a) a Saturday, Sunday or legal holiday, (b) a day on which banking institutions in the State of California, in New York, New York or in any city where the Office of the Trustee, the Office of the Paying Agent or the office of the Bank at which drafts are required to be presented under the Letter of Credit is located are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed. Capitalized Payments Account means the account within the Redemption Fund by that name established and held by the Trustee pursuant to the Indenture. Code means the Internal Revenue Code of Construction Fund means the fund by that name established and held by the County pursuant to the Indenture. Continuing Adjustable Rate Costs means, with respect to the Adjustable Rate Assessments and the Adjustable Rate Bonds, costs and expenses incurred in the course of administering the Adjustable Rate Assessments and the Adjustable Rate Bonds and not paid as Costs of Issuance, including the periodic fees, costs and indemnifications due the Trustee, the Paying Agent, the Remarketing Agent or the County and allocable to the Adjustable Rate Assessments and the Adjustable Rate Bonds, together with all amounts due to the Bank from time to time under the Reimbursement Agreement other than amounts due to the Bank to reimburse the Bank, with interest as provided in the Reimbursement Agreement, for draws honored under the Letter of Credit. B-2

57 Continuing Costs means the Continuing Adjustable Rate Costs and the Continuing Fixed Rate Costs, as distinguished from Costs of Issuance. Continuing Costs Fund means the fund by that name established, maintained and administered by the County pursuant to the Indenture. Continuing Fixed Rate Costs means, with respect to the Fixed Rate Assessments and the Fixed Rate Bonds, costs and expenses incurred in the course of administering the Fixed Rate Assessments and the Fixed Rate Bonds and not paid as Costs of Issuance, including the periodic fees, costs and indemnifications due the Trustee, the Paying Agent or the County and allocable to the Fixed Rate Assessments and the Fixed Rate Bonds. Conversion Costs Fund means the account by that name established, maintained and administered by the Trustee pursuant to the Indenture. Conversion Date means, with respect to an Adjustable Rate Bond, the date on which such Adjustable Rate Bond is converted to a Fixed Rate Bond and begins to bear interest at a Fixed Interest Rate. Costs of Issuance means, with respect to a Series or Set of Bonds, all items of cost or expense directly or indirectly payable by or reimbursable to the County relating to the authorization, issuance, sale and delivery of such Bonds, including but not limited to printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges of the Bank and its counsel, initial fees, expenses and charges of the Trustee and its counsel, including the Trustee s first annual administrative fee, fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants, and other professionals, fees and charges for preparation, execution and safekeeping of such Bonds and any other cost, charge or fee in connection with the original issuance or conversion and remarketing of such Bonds. Costs of Issuance Fund means the fund by that name established, maintained and administered by the Trustee pursuant to the Indenture. County means the County of Orange, California, and any successor thereto. County s Teeter Plan means the alternative method of distribution of tax and special assessment levies and collections established by the County pursuant to the provisions of Chapter 3, Part 8, Division 1 of the California Revenue and Taxation Code (Sections 4701 and following). Daily Mode means the Mode in which the duration of each Adjustment Period is determined in accordance with clause (a) of the definition of Adjustment Period. DTC means The Depository Trust Company, New York, New York and its successors. Engineer s Report means the report entitled Engineer s Report, Newport Coast Phase IV Assessment District No. 01-1, dated February, 2002, and approved by Resolution No , adopted by the Board of Supervisors on February 5, 2002, as the same may be amended from time to time in accordance with the Act. Extended Rate Mode means the Mode in which the duration of the Adjustment Period is determined in accordance with clause (e) of the definition of Adjustment Period. B-3

58 Favorable Opinion of Bond Counsel means, with respect to any action the occurrence of which requires such an opinion, an unqualified opinion of Bond Counsel to the effect that such action is permitted under the Act and the Indenture and will not adversely affect the exclusion of interest on the Bonds from gross income for purposes of Federal income taxation or the exemption of interest on the Bonds from personal income taxation under the laws of the State of California (subject to the inclusion of exceptions substantially to the effect of those contained in the opinion delivered upon original issuance of the Series 2003 A Adjustable Rate Bonds); provided that, in the event such unqualified opinion is provided by Bond Counsel other than the Bond Counsel who provides the opinion delivered upon original issuance of the Series 2003 A Adjustable Rate Bonds, such unqualified opinion shall also include an opinion to the effect originally delivered by Bond Counsel that, notwithstanding such action, interest on the Bonds is excluded from gross income for federal income tax purposes. Federal Securities means any of the following which at the time of investment are determined by the County to be legal investments under the laws of the State of California for the funds to be invested therein: (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), and (b) obligations of any agency, department or instrumentality of the United States of America the timely payment of principal of and interest on which are fully guaranteed by the United States of America. Fitch means Fitch, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term Fitch shall be deemed to refer to any other nationally recognized securities rating agency selected by the County and approved by the Bank (who shall not be under any liability by reason of such approval). Fixed Interest Rate means the rate or rates established in accordance with the applicable provisions of the Indenture, provided that at no time shall the Fixed Interest Rate exceed the Maximum Rate. Fixed Rate Assessments means the Assessments on the parcels of real property designated by the County pursuant to the Indenture to be represented by a Set of Fixed Rate Bonds, but excluding the Designated Series 2003 B Assessments. Fixed Rate Bonds means Bonds initially issued in the Fixed Rate Mode (excluding the Series 2003 B Bonds), the Additional Fixed Rate Funding Bonds, the Additional Fixed Rate Conversion Bonds and the Fixed Rate Converted Bonds. Fixed Rate Converted Bond means an Adjustable Rate Bond which has been converted to bear interest at a Fixed Interest Rate. Fixed Rate Mode means (i) in the case of Bonds initially issued in the Fixed Rate Mode, the Mode in which the Fixed Interest Rate is determined in accordance with the Indenture and (ii) in the case of Adjustable Rate Bonds, the Mode in which the duration of the Adjustment Period is determined in accordance with clause (f) of the definition of Adjustment Period. Indenture means the Indenture, dated as of February 1, 2003, by and between the County and the Trustee, as originally executed or as it may from time to time be amended or supplemented by any Supplemental Indenture. B-4

59 Interest Payment Date means (a) with respect to each Adjustable Rate Bond in the Daily Mode, the Weekly Mode and the Monthly Mode, the first Business Day of each calendar month, (b) with respect to each Adjustable Rate Bond in the Semi-Annual Mode, the Extended Rate Mode and the Fixed Rate Mode, each March 2 and September 2, commencing on the March 2 or September 2 immediately following the date on which such Adjustable Rate Bond is converted to the Semi-Annual Mode, Extended Rate Mode or Fixed Rate Mode, (c) with respect to each Additional Fixed Conversion Series Bond or Additional Fixed Funding Series Bond, each March 2 and September 2, commencing on the March 2 or September 2 specified in the Supplemental Indenture pursuant to which such Additional Fixed Conversion Series Bond or Additional Fixed Funding Series Bond is issued and (d) with respect to each Bank Bond, the first Business Day of each calendar month and the dates of any remarketing of such Bank Bond to a new purchaser thereof and the date such Bank Bonds are redeemed. Interest Payment Date shall also mean any Mandatory Purchase Date. Letter of Credit means the irrevocable, direct pay letter of credit issued by the Bank contemporaneously with the original delivery of the Series 2003 A Adjustable Rate Bonds, except that upon the issuance of an Alternate Letter of Credit in accordance with the Indenture such term shall mean such Alternate Letter of Credit. Maximum Rate means 12% per annum. Mode means the Daily Mode, the Weekly Mode, the Monthly Mode, the Semi-Annual Mode, the Extended Rate Mode or the Fixed Rate Mode. Monthly Mode means the Mode in which the duration of the Adjustment Period is determined in accordance with clause (c) of the definition of Adjustment Period. Moody s means Moody s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall no longer perform the function of a securities rating agency for any reason, the term Moody s shall be deemed to refer to any other nationally recognized securities rating agency selected by the County and specified to the Trustee in writing. Notice Parties means the County, the Trustee, the Remarketing Agent, the Paying Agent and the Bank; provided that, so long as the Trustee and the Paying Agent are the same entity, any provision specifying notice to one shall be deemed to include the other without so stating, and actual notice to either shall suffice as notice to both. Office means, with respect to the Trustee and Paying Agent, the principal corporate trust office of the Trustee in New York, New York, or such other office as may be specified to the other Notice Parties by the Trustee in writing; provided that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted. Outstanding, when used as of any particular time with reference to Bonds, means (subject to the provisions of the Indenture) all Bonds theretofore, or thereupon being, authenticated and delivered by the Paying Agent under the Indenture except: (a) cancellation; Bonds theretofore canceled by the Paying Agent or surrendered to the Paying Agent for B-5

60 (b) Bonds with respect to which all liability of the County shall have been discharged in accordance with the Indenture, including Bonds (or portions of Bonds) disqualified under the Indenture; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Paying Agent pursuant to the Indenture. Notwithstanding the foregoing, Bank Bonds shall remain Outstanding until the Bank is paid all amounts due on such Bonds. Owner means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. Paying Agent means (a) with respect to Adjustable Rate Bonds, U.S. Bank Trust National Association, a national banking association organized and existing under the laws of the United States of America, acting through the Office of the Paying Agent, or any successor thereto as Paying Agent, appointed as provided in the Indenture, (b) with respect to all other Bonds, the Trustee, or (c) any successor paying agent appointed in accordance with the Indenture. Permitted Investments means the following, which at the time of investment are determined by the County to be legal investments under the laws of the State of California for the funds to be invested therein: (a) Federal Securities; (b) any of the following direct or indirect obligations of the following agencies of the United States of America: (i) direct obligations of the Export-Import Bank; (ii) certificates of beneficial ownership issued by the Farmers Home Administration; (iii) participation certificates issued by the General Services Administration; (iv) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Federal Housing Administration; (v) project notes issued by the United States Department of Housing and Urban Development; and (vi) public housing notes and bonds guaranteed by the United States of America; (c) interest-bearing demand 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 shall be rated Al or better by Fitch, or (ii) such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation; (d) commercial paper rated in the highest short-term rating category by Fitch, issued by corporations which are organized and operating within the United States of America, and which matures not more than 180 days following the date of investment therein; (e) bankers acceptances, consisting of bills of exchange or time drafts drawn on and accepted by a commercial bank and its affiliates, which mature not more than 270 days following the date of investment therein; (f) obligations the interest on which is excludable from gross income pursuant to Section 103 of the Code and which are rated A or better by Fitch; B-6

61 (g) obligations issued by any corporation organized and operating within the United States of America having assets in excess of $500,000,000, which obligations are rated A or better by Fitch; (h) money market funds which are rated Am or better by Fitch, including those for which the Trustee or an affiliate receives compensation with respect to such money market fund; (i) any investment agreement which is approved in writing by Fitch and, with respect to any investment agreement in which amounts held in a fund or account securing Adjustable Rate Bonds are invested, the Bank, prior to the time of initial investment; and (j) the Orange County Investment Pool. Person means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. Prepayment Account means the account within the Redemption Fund by that name established and held by the Trustee pursuant to the Indenture. Principal Payment Date means, with respect to a Bond, the date on which the principal thereof becomes due and payable in accordance with the terms thereof and in the Indenture, whether as a result of the maturity thereof or as a result of mandatory redemption. Project Costs means the authorized costs and incidental expenses of the Project, as set forth in the Engineer s Report, as the same may be amended from time to time in accordance with the Act. Protocol Agreement means the Protocol Agreement, dated as of February 1, 2003, by and between the County and The Irvine Company, as originally executed or as it may from time to time be amended. Purchase Date means (a) during the Daily Mode, any Business Day, and (b) during the Monthly Mode, the Semi-Annual Mode, the Weekly Mode and the Extended Rate Mode, the first day of the next succeeding Adjustment Period. Purchase Price means (a) with respect to any Adjustable Rate Bonds to be purchased on any Purchase Date, an amount equal to 100% of the principal amount of such Adjustable Rate Bonds, plus, in the case of any purchase of Adjustable Rate Bonds in the Daily Mode or the Weekly Mode, accrued interest, if any, to such Purchase Date, and (b) with respect to any Adjustable Rate Bonds purchased on a Mandatory Purchase Date, an amount equal to 100% of the principal amount of such Adjustable Rate Bonds, plus, in the case of any Adjustable Rate Bonds purchased on a Mandatory Purchase Date described in clause (c), (d) or (e) of the definition thereof, accrued interest, if any, to such Mandatory Purchase Date. Qualified Bank means a state or national bank or trust company or savings and loan association or a foreign bank with a domestic branch or agency which is organized and in good standing under the laws of the United States or any state thereof or any foreign country, which has a capital and surplus of $50,000,000 or more and which has a short term debt rating of the highest ranking or of the highest letter and numerical rating as provided by Moody s or by S&P. Rate Determination Date means, with respect to any Adjusted Interest Rate for any Adjustment Period, the date on which such Adjusted Interest Rate shall be determined, which, (a) in the B-7

62 case of the Daily Mode, shall be each Business Day, (b) in the case of the Weekly Mode, shall be each Tuesday or, if Tuesday is not a Business Day, the next succeeding day, or if such day is not a Business Day, then the Business Day next preceding such Tuesday, (c) in the case of the Monthly Mode, the Semi- Annual Mode or the Extended Rate Mode, shall be the Business Day prior to the first day of such Adjustment Period and (d) in the case of the Fixed Rate Mode, shall be a date determined by the Remarketing Agent which shall be at least one Business Day but no more than ten Business Days prior to the first day of such Adjustment Period. Rebate Fund means the fund by that name established and held by the County pursuant to the Indenture. Rebate Requirement has the meaning ascribed thereto in the Tax Certificate. Redemption Date means the date fixed for redemption of Bonds subject to redemption in any notice of redemption given in accordance with the terms of the Indenture. Redemption Price means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. Registration Books means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to the Indenture. Related Additional Bonds means, with respect to a Set of Fixed Rate Converted Bonds, the Additional Fixed Rate Conversion Bonds, if any, which are being issued in connection with the conversion of such Set of Fixed Rate Converted Bonds and which are designated by the County pursuant to the Indenture to represent the same parcels as such Fixed Rate Converted Bonds. Related Fixed Rate Converted Bonds means, with respect to any Series of Additional Fixed Rate Conversion Bonds, the Set of Fixed Rate Converted Bonds in connection with the conversion of which such Series of Additional Fixed Rate Conversion Bonds are being issued and which are designated by the County pursuant to the Indenture to represent the same parcels as such Series of Additional Fixed Rate Conversion Bonds. Reserve Account means with respect to each Series of Bonds, the account within the Reserve Fund established and held by the Trustee pursuant to the Indenture for such Series of Bonds. Reserve Facility means a policy of insurance or surety bond issued by an insurance company, obligations insured by which have a rating by Moody s and S&P of A or better, or an irrevocable letter of credit, line of credit or similar arrangement issued by a Qualified Bank, to satisfy all or a portion of the Reserve Requirement for a Reserve Account. Reserve Fund means the fund by that name established and held by the Trustee pursuant to the Indenture. Reserve Requirement means, with respect to any Series of the Bonds, an amount equal to the lesser of (a) ten percent (10%) of the proceeds of such Series, (b) maximum annual debt service with respect to such Series or (c) one hundred twenty-five percent (125%) of average annual debt service with respect to such Series. Resolution of Intention means Resolution No adopted by the Board of Supervisors on November 20, B-8

63 S&P means Standard & Poor s, a Division of The McGraw-Hill Companies, Inc., and its successors and assigns. Seasoned Funds means (a) moneys derived from drawings under the Letter of Credit, (b) moneys received by the Trustee and held in a special subaccount established within funds and accounts created under the Indenture for a period of at least 124 days and not commingled with any moneys so held for less than said period and during and prior to which period no petition in bankruptcy was filed by or against the County under the United States Bankruptcy Code, the Trustee shall be entitled to rely upon certificates of the County, regarding the filing of any such petition in bankruptcy, which certificates the County agrees to provide to the Trustee from time to time, upon reasonable request therefor, (c) moneys with respect to which the Trustee shall have received an opinion of counsel experienced in matters pertaining to the United States Bankruptcy Code acceptable to Moody s and S&P to the extent each such rating agency is then rating the Adjustable Rate Bonds, that the contemplated use of such moneys would not constitute a transfer of property voidable under Section 544 or 547 of the United States Bankruptcy Code, should the County become a debtor under such Code, or (d) investment income derived from the investment of moneys described in clause (a), (b) or (c). Semi-Annual Mode means the Mode in which the duration of each Adjustment Period is determined in accordance with clause (d) of the definition of Adjustment Period. Series means the Series 2003 A Adjustable Rate Bonds and any Additional Bonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds. Series 2003 A Adjustable Rate Bonds means the County of Orange, California, Newport Coast Phase IV Assessment District No Limited Obligation Improvement Bonds, Adjustable Rate Series 2003 A, initially issued under the Indenture. Supplemental Indenture means any indenture amendatory of or supplemental to the Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture. Teetered Fixed Rate Assessment Installments means those installments on account of Fixed Rate Assessments (excluding the Designated Series 2003 B Assessments) with respect to which the County advances the amount of said installments from its tax losses reserve fund established and administered pursuant to the County s Teeter Plan. Trustee means U.S. Bank Trust National Association, a national banking association duly organized and existing under the laws of the United States of America, acting through the Office of the Trustee, or any successor thereto as Trustee under the Indenture, appointed as provided therein. Weekly Mode means the Mode in which the duration of each Adjustment Period is determined in accordance with clause (b) of the definition of Adjustment Period. Written Certificate and Written Request of the County mean, respectively, a written certificate or written request signed in the name of the County by its Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Issuance of Additional Fixed Rate Conversion Bonds. In connection with each conversion of Adjustable Rate Bonds to Fixed Rate Converted Bonds pursuant to the Indenture, the County may, in its B-9

64 sole and absolute discretion and subject to all County policy and approval requirements and the requirements of the Act, by Supplemental Indenture establish a Series of Additional Fixed Rate Conversion Bonds, and the Trustee may authenticate and deliver the Additional Fixed Rate Conversion Bonds of any Series so established, in such principal amount as shall be determined by the County in its sole and absolute discretion in said Supplemental Indenture, but only upon compliance by the County with the provisions of the Indenture, and subject to the following specific conditions, which are made conditions precedent to the issuance of any such Series of Additional Fixed Rate Conversion Bonds: (a) The County shall not be in default under the Indenture; provided that this condition shall be deemed satisfied with respect to a default which will be cured not later than the date of delivery of such Additional Fixed Rate Conversion Bonds. (b) All Bonds of the resulting Set of Fixed Rate Bonds shall have the same Interest Payment Dates and Principal Payment Dates. (c) All Bonds of each maturity date of the resulting Set of Fixed Rate Bonds shall bear interest at the same rate. (d) The County shall have designated, pursuant to the Indenture, the parcels of real property to be represented by such Set of Fixed Rate Bonds. (e) The aggregate principal amount of all Bonds of the resulting Set of Fixed Rate Bonds shall not exceed the unpaid principal amount of the Assessments on the parcels of real property designated by the County, pursuant to the Indenture, to be represented by such additional Set of Fixed Rate Bonds. (f) The proceeds of the Additional Fixed Rate Conversion Bonds of such Series shall be applied only to one or more of the following: (i) funding all or a portion of the Reserve Account established, pursuant to the Indenture, for such Set of Fixed Rate Bonds, (ii) paying all or a portion of the Costs of Issuance of such Set of Fixed Rate Bonds, (iii) paying all or a portion of the costs of the conversion and remarketing of the Related Fixed Rate Converted Bonds, and (iv) funding interest payable on such Set of Fixed Rate Bonds through the date on which it is anticipated that collections of Assessments on the parcels of real property designated by the County, pursuant to the Indenture, to be represented by such Set of Fixed Rate Bonds will be available for payment of such interest. (g) The Reserve Account established, pursuant to the Indenture, for such Set of Fixed Rate Bonds shall have been funded in an amount equal to the Reserve Requirement for such Set of Fixed Rate Bonds. (h) All Bonds of the resulting Set of Fixed Rate Bonds shall be subject to redemption at the same times, under the same circumstances and in the same manner. (i) service. Such Set of Fixed Rate Bonds shall have, as nearly as practicable, equal annual debt (j) The aggregate principal amount of Bonds issued under the Indenture shall not exceed any limitation imposed by law or by the Indenture. (k) Each Set of Fixed Rate Bonds shall be secured by and payable from the Assessments on the parcels of real property designated by the County, pursuant to the Indenture, to be represented by such Set of Fixed Rate Bonds, and from the moneys on deposit in the related Reserve Account established with B-10

65 respect thereto, as provided in the Indenture. Neither any Series of Additional Fixed Rate Conversion Bonds nor the Related Fixed Rate Converted Bonds are secured by or payable from draws on the Letter of Credit. Proceedings for the Issuance of Additional Fixed Rate Conversion Bonds. Whenever the County shall determine to issue a Series of Additional Fixed Rate Conversion Bonds, the County shall execute a Supplemental Indenture providing for the issuance of such Series of Additional Fixed Rate Conversion Bonds, specifying the maximum principal amount of the Additional Fixed Rate Conversion Bonds of such Series and prescribing the terms and conditions of such Series of Additional Fixed Rate Conversion Bonds. Such Supplemental Indenture shall prescribe the form or forms of Fixed Rate Bonds of such additional Series and, subject to the provisions of the Indenture, shall provide for the distinctive designation, dating, maturity dates, interest rates, redemption provisions, principal payment dates, mandatory sinking fund redemption dates and methods and places of payment of principal and interest. The County may by such Supplemental Indenture prescribe any other provisions respecting the Additional Fixed Rate Conversion Bonds of such Series not inconsistent with the terms of the Indenture. Before such Series of Additional Fixed Rate Conversion Bonds shall be issued and delivered, the County shall file the following documents with the Trustee and the Bank: (a) A Favorable Opinion of Bond Counsel and a written opinion of Bond Counsel setting forth (i) that such Bond Counsel has examined the Supplemental Indenture and found it to be in compliance with the requirements of the Indenture, (ii) that the execution and delivery of the Additional Fixed Rate Conversion Bonds of such Series has been duly authorized by the County, and (iii) that said Series of Additional Fixed Rate Conversion Bonds, when duly executed by the County and authenticated and delivered by the Trustee, will be valid and binding limited obligations of the County, payable from Assessments or the parcels of real property designated by the County, pursuant to the Indenture, to be represented by such resulting Set of Fixed Rate Bonds, as provided in the Indenture. (b) been met. (c) (d) A Written Certificate of the County certifying that the requirements of the Indenture have An executed continuing disclosure undertaking, if applicable. Said Supplemental Indenture, duly executed. Issuance of Additional Adjustable Rate Bonds. The County may, in its sole and absolute discretion and subject to the requirements of the Act, by Supplemental Indenture establish one or more Series of Additional Adjustable Rate Bonds, and the County may issue and the Trustee may authenticate and deliver Additional Adjustable Rate Bonds of such Series, in such principal amount as shall be determined by the County in said Supplemental Indenture, but only upon compliance by the County with the provisions of the Indenture, and subject to the following specific conditions, which are made conditions precedent to the issuance of such additional Series of Additional Adjustable Rate Bonds: (a) The County shall not be in default under the Indenture; provided that this condition shall be deemed satisfied with respect to a default which will be cured not later than the date of delivery of such Additional Adjustable Rate Bonds. (b) The sum of the aggregate principal amount of the Additional Adjustable Rate Bonds of such Series, plus the aggregate principal amount of Adjustable Rate Bonds Outstanding immediately prior B-11

66 to the issuance of such Additional Adjustable Rate Bonds of such additional Series shall not exceed the unpaid principal amount of the Adjustable Rate Assessments. (c) The proceeds of the Additional Adjustable Rate Bonds of such Series shall be applied only to one or more of the following: (i) paying all or a portion of the Costs of Issuance of such Additional Adjustable Rate Bonds, (ii) funding interest payable on such Additional Adjustable Rate Bonds of such Series through the date on which it is anticipated that collections of Adjustable Rate Assessments will be available for payment of such interest, (iii) funding the Reserve Requirement, if any, for such Additional Adjustable Rate Bonds, (iv) paying for Project Costs and (v) refunding any Bonds which are secured by the Assessments which are the security for such Additional Adjustable Rate Bonds. (d) The amount on deposit in the Adjustable Rate Bonds Reserve Account, established pursuant to the Indenture, shall have been increased to an amount equal to the Reserve Requirement for all Adjustable Rate Bonds, including such Additional Adjustable Rate Bonds. (e) The aggregate principal amount of Bonds issued under the Indenture shall not exceed any limitation imposed by law or by the Indenture. (f) The amount available under the Letter of Credit to pay principal of the Adjustable Rate Bonds (or to pay the principal portion of the Purchase Price of the Adjustable Rate Bonds) shall have been increased to an amount not less than the sum of the aggregate principal amount of the Additional Adjustable Rate Bonds of such Series, plus the aggregate principal amount of Adjustable Rate Bonds Outstanding immediately prior to the issuance of such Additional Adjustable Rate Bonds of such Series, and the amount available under the Letter of Credit to pay interest on the Adjustable Rate Bonds shall have been increased to an amount not less than the Letter of Credit Interest Amount (calculated based on the sum of the aggregate principal amount of the Additional Adjustable Rate Bonds of each such Series, plus the aggregate principal of Adjustable Rate Bonds Outstanding immediately prior to the issuance of such Adjustable Rate Bonds of such Series), as evidenced by a written amendment to the Letter of Credit delivered by the Bank to the Trustee. (g) Additional Adjustable Rate Bonds shall be secured by and payable from the Adjustable Rate Assessments, as provided in the Indenture, on a parity with all Adjustable Rate Bonds previously issued and still Outstanding. Proceedings for the Issuance of Additional Adjustable Rate Bonds. Whenever the County shall determine to issue a Series of Additional Adjustable Rate Bonds, the County shall execute a Supplemental Indenture providing for the issuance of such Series of Additional Adjustable Rate Bonds, specifying the maximum principal amount of Additional Adjustable Rate Bonds of such Series and prescribing the terms and conditions of such Additional Adjustable Rate Bonds. Such Supplemental Indenture shall prescribe the form or forms of Additional Adjustable Rate Bonds of such Series and, subject to the provisions of the Indenture, shall provide for the distinctive designation, dating, maturity dates, Modes (which shall not be the Fixed Rate Mode), principal payment dates, mandatory sinking fund redemption dates and methods and places of payment of principal and interest. The County may by such Supplemental Indenture prescribe any other provisions respecting the Additional Adjustable Rate Bonds of such Series not inconsistent with the terms of the Indenture. Before such Additional Adjustable Rate Bonds shall be issued and delivered, the County shall file the following documents with the Trustee and the Bank: B-12

67 (a) A Favorable Opinion of Bond Counsel and a written opinion of Bond Counsel setting forth (i) that such Bond Counsel has examined the Supplemental Indenture and found it to be in compliance with the requirements of the Indenture, (ii) that the execution and delivery of the Series of Additional Adjustable Rate Bonds has been duly authorized by the County, and (iii) that said Series of Additional Adjustable Rate Bonds, when duly executed by the County and authenticated and delivered by the Trustee, will be valid and binding limited obligations of the County, payable from Adjustable Rate Assessments, as provided in the Indenture. (b) been met. (c) A Written Certificate of the County certifying that the requirements of the Indenture have Said Supplemental Indenture, duly executed. Issuance of Additional Fixed Rate Funding Bonds. The County may, in its sole and absolute discretion, and subject to the requirements of the Act, by Supplemental Indenture establish one or more Series of Additional Fixed Rate Funding Bonds, and the County may issue and the Trustee may authenticate and deliver Additional Fixed Rate Funding Bonds, in such principal amount as shall be determined by the County in said Supplemental Indenture, but only upon compliance by the County with the provisions of the Indenture, and subject to the following specific conditions, which are made conditions precedent to the issuance of such Series of Additional Fixed Rate Funding Bonds: (a) The County shall not be in default under the Indenture; provided that this condition shall be deemed satisfied with respect to a default which will be cured not later than the date of delivery of such Additional Fixed Rate Funding Bonds. (b) The County shall have designated, pursuant to the Indenture, the parcels of real property to be represented by the Additional Fixed Rate Funding Bonds of such additional Series, and the aggregate principal amount of the Additional Fixed Rate Funding Bonds of such Series shall not exceed the unpaid principal amount of the Assessments on the parcels of real property designated by the County, pursuant to the Indenture, to be represented by such Additional Fixed Rate Funding Bonds of such Series. (c) The proceeds of the Additional Fixed Rate Funding Bonds of such Series shall be applied only to one or more of the following: (i) funding all or a portion of the Reserve Account established, pursuant to the Indenture, for such Series of Additional Fixed Rate Funding Bonds, (ii) paying all or a portion of the Cost of Issuance of such Series of Additional Fixed Rate Funding Bonds, (iii) funding interest payable on such Series of Additional Fixed Rate Funding Bonds through the date on which it is anticipated that collections of Fixed Rate Assessments on the parcels of real property designated by the County, pursuant to the Indenture, to be represented by the Additional Fixed Rate Funding Bonds of such Series, will be available for payment of such interest, and (iv) paying for Project Costs. (d) The Reserve Account established, pursuant to the Indenture, for such Additional Fixed Rate Funding Bonds shall have been funded in an amount equal to the Reserve Requirement for such Additional Fixed Rate Funding Bonds. (e) The aggregate principal amount of Bonds issued under the Indenture shall not exceed any limitation imposed by law or by the Indenture. (f) Each Series of Additional Fixed Rate Funding Bonds shall be secured by and payable from the Fixed Rate Assessments on the parcels of real property designated by the County, pursuant to the Indenture, to be represented by such Series of Additional Fixed Rate Funding Bonds, as provided in B-13

68 the Indenture. No Series of Additional Fixed Rate Funding Bonds are secured by or payable from draws on the Letter of Credit. Proceedings for the Issuance of Additional Fixed Rate Funding Bonds. Whenever the County shall determine to issue Additional Fixed Rate Funding Bonds, the County shall execute a Supplemental Indenture providing for the issuance of such Series of Additional Fixed Rate Funding Bonds, specifying the maximum principal amount of Additional Fixed Rate Funding Bonds of such Series and prescribing the terms and conditions of such Additional Fixed Rate Funding Bonds. Such Supplemental Indenture shall prescribe the form or forms of Additional Fixed Rate Funding Bonds of such Series and, subject to the provisions of the Indenture, shall provide for the distinctive designation, dating, maturity dates, interest rates, redemption provisions, principal payment dates, mandatory sinking fund redemption dates and methods and places of payment of principal and interest. The County may by such Supplemental Indenture prescribe any other provisions respecting the Additional Fixed Rate Funding Bonds of such Series not inconsistent with the terms of the Indenture. Before such Additional Fixed Rate Funding Bonds shall be issued and delivered, the County shall file the following documents with the Trustee: (a) A Favorable Opinion of Bond Counsel and a written opinion of Bond Counsel setting forth (i) that such Bond Counsel has examined the Supplemental Indenture and found it to be in compliance with the requirements of the Indenture, (ii) that the execution and delivery of the Series of Additional Fixed Rate Funding Bonds has been duly authorized by the County, and (iii) that said Series of Additional Fixed Rate Funding Bonds, when duly executed by the County and authenticated and delivered by the Trustee, will be valid and binding limited obligations of the County, payable from Fixed Rate Assessments on the parcels of real property designated by the County, pursuant to the Indenture, to be represented by such Additional Fixed Rate Funding Bonds, as provided in the Indenture. (b) been met. (c) A Written Certificate of the County certifying that the requirements of the Indenture have Said Supplemental Indenture, duly executed. Upon the delivery to the Trustee of the foregoing instruments, the Trustee shall authenticate and deliver said Additional Fixed Rate Funding Bonds, in the aggregate principal amount specified in such Supplemental Indenture, to, or upon the Written Request of, the County, when such Additional Fixed Rate Funding Bonds shall have been presented to it for that purpose. Limitations on Additional Bonds. So long as any of the Bonds remain Outstanding, the County will not issue any bonds or other obligations secured by and payable from the Assessments, except pursuant to the Indenture. No Sales After Certain Defaults. The Remarketing Agent shall not remarket Adjustable Rate Bonds if there shall have occurred and be continuing an Event of Default with respect to Adjustable Rate Bonds under the Indenture. Pledges. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the unpaid Adjustable Rate Assessments (including prepayments thereof), together with interest thereon and penalties received with respect thereto, and any and all other amounts (including proceeds of the sale of the Bonds) held in any fund or account established pursuant to the Indenture for the Adjustable Rate Bonds (other than any B-14

69 Rebate Account established therefor and the Adjustable Rate Bonds Continuing Costs Subaccount) are pledged by the County to secure the payment of the principal of, premium, if any, and interest on the Adjustable Rate Bonds and the County s obligations under the Reimbursement Agreement to reimburse the Bank, with interest as provided therein, for draws honored under the Letter of Credit, in accordance with the terms of the Adjustable Rate Bonds and the provisions of the Indenture, the Reimbursement Agreement and the Act. Said pledge shall constitute a first lien on and security interest in such assets. All amounts for the Continuing Adjustable Rate Costs, all additional assessments levied therefor and all other amounts held in the Adjustable Rate Bonds Continuing Costs Subaccount are pledged by the County to secure the payment of the County s obligations to the Bank under the Reimbursement Agreement constituting Continuing Adjustable Rate Costs. Said pledge shall constitute a first lien on and security interest in such assets. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the unpaid Fixed Rate Assessments (including prepayments thereof) pertaining to a given Set of Fixed Rate Bonds, together with interest thereon and any penalties received with respect thereto, and any and all other amounts (including proceeds of the sale of such Set of Fixed Rate Bonds) held in any fund or account established pursuant to the Indenture for such Set of Fixed Rate Bonds (other than any Rebate Account and the Fixed Rate Bonds Continuing Costs Subaccount) are pledged by the County to secure the payment of the principal of, premium, if any, and interest on such Set of Fixed Rate Bonds, in accordance with the terms of such Set of Fixed Rate Bonds and the provisions of the Indenture and the Act; provided that said pledge shall exclude any and all amounts received by the County on account of Teetered Fixed Rate Assessment Installments, which amounts shall be retained by the County and utilized in accordance with the provisions of the County s Teeter Plan. Said pledge shall constitute a first lien on and security interest in such assets. Redemption Fund; Capitalized Payments Account, Adjustable Rate Redemption Account; Redemption Account for Each Set of Fixed Rate Bonds. The Trustee shall establish, maintain and administer a special fund designated the Redemption Fund. Within the Redemption Fund, the Trustee shall establish and maintain a separate account designated the Capitalized Payments Account. There shall be deposited in the Capitalized Payments Account the amount required to be deposited therein pursuant to the Indenture. So long as amounts are available in the Capitalized Payments Account, on each day on which amounts representing draws on the Letter of Credit pursuant to the Indenture are paid by the Bank, the Trustee shall withdraw and apply amounts in the Capitalized Payments Account to reimburse the Bank for such draws. Additionally, the moneys in the Capitalized Payments Account shall be used and withdrawn by the Trustee from time to time to pay the Continuing Adjustable Rate Costs upon submission of a Written Request of the County stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment constitutes a Continuing Adjustable Rate Cost and is a proper charge against the Capitalized Payments Account, and (e) that such amounts have not been the subject of a prior disbursement from the Capitalized Payments Account or the Continuing Adjustable Rate Costs Account; in each case together with a statement or invoice for each amount requested thereunder. Upon the prepayment of any Adjustable Rate Assessment, the Trustee shall transfer a pro rata share of the amount on deposit in the Capitalized Payments Account, if any, to the Adjustable Rate Prepayment Subaccount to be utilized, together with said prepayment and any moneys transferred from the 2003 Conversion Costs Account for the redemption of Series 2003 A Adjustable Rate Bonds. Such pro rata share shall be in the same proportion to the total amount on deposit in the Capitalized Payments Account as the principal amount of the Adjustable Rate Assessment being prepaid is to the total unpaid Adjustable Rate Assessments. B-15

70 On the Conversion Date for each Set of Fixed Rate Converted Bonds being converted from Adjustable Rate Bonds, the Trustee shall transfer a pro rata share of the amount, if any, then on deposit in the Adjustable Rate Bonds Reserve Account to the Reserve Account established for the resulting Set of Fixed Rate Bonds, and then from the Capitalized Payments Account, first, to the Reserve Account established for the resulting Set of Fixed Rate Bonds to the extent necessary, when combined with the amount transferred from the Adjustable Rate Bonds Reserve Account and the amount of proceeds of sale of the Related Additional Bonds, if any, available for such purpose, to cause the amount on deposit therein to be equal to the Reserve Requirement for the resulting Set of Fixed Rate Bonds, and, second, to the Redemption Account established for such Set of Fixed Rate Bonds. Such pro rata share, in each case shall be in the same proportion to the total amount on deposit in the Adjustable Rate Bonds Reserve Account and the Capitalized Payments Account, respectively, as the principal amount of the Adjustable Rate Bonds to be converted to Fixed Rate Converted Bonds is to the total principal amount of Adjustable Rate Bonds Outstanding as of the close of business on the day prior to such Conversion Date. Within the Redemption Fund, the Trustee shall also establish, maintain and administer a separate account designated the Adjustable Rate Redemption Account. Except as otherwise provided in the Indenture, the Trustee shall deposit in the Adjustable Rate Redemption Account all amounts collected on account of unpaid Adjustable Rate Assessments (including prepayments thereof), together with interest thereon and any penalties received with respect thereto, and any other amounts required to be deposited therein by the Indenture or the Act. Within the Redemption Fund, the Trustee shall also establish, maintain and administer a separate account designated the Fixed Rate Redemption Account for each Set of Fixed Rate Bonds. Except as otherwise provided in the Indenture, the Trustee shall deposit in the Fixed Rate Redemption Account established for each Set of Fixed Rate Bonds, all amounts constituting capitalized interest, if any, for such Set of Fixed Rate Bonds and all amounts transferred to the Trustee by the County on account of the unpaid Fixed Rate Assessments (including prepayments thereof) on the parcels of real property designated by the County, pursuant to the Indenture, to be represented by such Set of Fixed Rate Bonds, together with interest thereon and any penalties received with respect thereto, and any other amounts required to be deposited therein by the Indenture or the Act; provided that it is expressly understood that the County will not transfer to the Trustee any amounts received by the County on account of Teetered Fixed Rate Assessment Installments. All such transfers from the County shall be accompanied by a Written Certificate of the County advising the Trustee as to the Redemption Account or Accounts into which the amounts so transferred are to be deposited. On or before each Interest Payment Date for a Set of Fixed Rate Bonds, the Trustee shall withdraw from the Fixed Rate Redemption Account established for each Set of Fixed Rate Bonds for payment to the Owners of the Fixed Rate Bonds of such Set the principal of and interest then due and payable on such Fixed Rate Bonds. Five Business Days prior to each Interest Payment Date, the Trustee shall determine if the amounts then on deposit in the Fixed Rate Redemption Account established for each Set of Fixed Rate Bonds are sufficient to pay the principal, if any, of and interest due on Fixed Rate Bonds of such Set, on such Interest Payment Date. In the event that amounts in the Fixed Rate Redemption Account established for a Set of Fixed Rate Bonds are insufficient for such purpose, the Trustee, on or before such Interest Payment Date, shall withdraw from the Reserve Account established for such Set of Fixed Rate Bonds, to the extent of any funds therein the amount of such insufficiency, and shall transfer any amounts so withdrawn to such Fixed Rate Redemption Account. Amounts so withdrawn from the Reserve Account established for a Set of Fixed Rate Bonds and deposited in the Fixed Rate Redemption Account established for such Set of Fixed Rate Bonds shall be applied to the payment of the Fixed Rate Bonds of such Set. If, after the foregoing transfer, there are insufficient funds in such Fixed Rate Redemption Account to pay principal, if any, and interest on the Fixed Rate Bonds, B-16

71 the Trustee shall notify the County, and the County shall provide the Trustee with a Written Certificate of the County instructing the Trustee on how to apply the available funds in accordance with the Act. Prepayment Account. The Trustee shall establish, maintain and administer a separate account within the Redemption Fund designated the Prepayment Account. Within the Prepayment Account, the Trustee shall establish, maintain and administer a separate subaccount designated the Adjustable Rate Prepayment Subaccount and a separate subaccount designated the Fixed Rate Prepayment Subaccount for each Set of Fixed Rate Bonds. The Trustee shall deposit in the Adjustable Rate Prepayment Account the proceeds of the prepayment of any Adjustable Rate Assessment. The Trustee shall deposit in the Fixed Rate Prepayment Subaccount established for a Set of Fixed Rate Bonds, the proceeds of the prepayment of any Assessment on the parcels of real property designated by the County, pursuant to the Indenture, to be represented by such Set of Fixed Rate Bonds. The Trustee shall deposit in the Adjustable Rate Prepayment Account amounts received from the County in connection with the County s exercise of its rights to optionally redeem Adjustable Rate Bonds pursuant to the Indenture. The Trustee shall deposit in the Fixed Rate Prepayment Subaccount established for a Set of Fixed Rate Bonds amounts received from the County in connection with the County s exercise of its rights to optionally redeem Fixed Rate Bonds of such Set pursuant to the Indenture, or the corresponding provisions of the Supplemental Indenture pursuant to which such Fixed Rate Bonds are issued. Amounts in the Fixed Rate Prepayment Subaccount established for a Set of Fixed Rate Bonds shall be disbursed therefrom for the payment of the Redemption Price of Fixed Rate Bonds of such Set redeemed pursuant to the Indenture and the corresponding provisions of the Supplemental Indenture pursuant to which such Fixed Rate Bonds are issued. Reserve Fund. The Trustee shall establish, maintain and administer a separate fund designated the Reserve Fund. Within the Reserve Fund, the Trustee shall establish, maintain and administer a separate account within the Reserve Fund designated the Reserve Account for the Adjustable Rate Bonds and for each Set of Fixed Rate Bonds. Without limiting the generality of the foregoing sentence, the Trustee shall establish and maintain the Adjustable Rate Bonds Reserve Account and shall deposit in said account the amount specified by the Indenture. Thereafter, there shall be deposited in the Reserve Account established for the Adjustable Rate Bonds and for each Set of Fixed Rate Bonds the amount specified in the Supplemental Indenture pursuant to which an additional Series of Adjustable Rate Bonds or an additional Set of Fixed Rate Bonds is issued; provided, however, in lieu of such deposit there may be deposited in such Reserve Account a Reserve Facility in an amount at least equal to the Reserve Requirement. The County shall cause each Reserve Account established for the Adjustable Rate Bonds and for a Set of Fixed Rate Bonds to be administered in accordance with the Act; provided that any proceeds from redemption or sale of parcels of real property designated by the County, pursuant to the Indenture, to represent a Set of Fixed Rate Bonds, shall be deposited in the Reserve Account established for such Set of Fixed Rate Bonds, to the extent that payment of delinquent installments on account of the Fixed Rate Assessments on such parcels and interest thereon was made from such Reserve Account. Except as otherwise provided in the Indenture, all amounts deposited in the Adjustable Rate Bonds Reserve Account or the Reserve Account for a Set of Fixed Rate Bonds shall be used and withdrawn by the Trustee solely for the purpose of (1) making transfers to the Adjustable Rate Redemption Account (in the case of the Adjustable Rate Bonds Reserve Account) or to the Redemption Account established for such Set of Fixed Rate Bonds in the event of any deficiency at any time in such Redemption Account of the amount then required, in the case of the Adjustable Rate Bonds, pursuant to the Indenture to make timely payment to the Bank in accordance with the Reimbursement Agreement, and in the case of a Set of Fixed Rate Bonds, for payment of the principal of, premium, if any, and B-17

72 interest on the Bonds of such Set or (2) in accordance with the provisions of the Indenture, for the purpose of redeeming Bonds. Transfers shall be made from the Reserve Account established for a Set of Fixed Rate Bonds to the Redemption Account established for such Set of Fixed Rate Bonds in the event of a deficiency in such Redemption Account in accordance with the Indenture. Whenever an Adjustable Rate Assessment is prepaid, in whole or in part, or whenever a Fixed Rate Assessment pertaining to a Set of Fixed Rate Bonds is prepaid, in whole or in part, in either case as provided in the Act, the Trustee, pursuant to a Written Request of the County, shall transfer from the Adjustable Rate Bonds Reserve Account or the Reserve Account established for such Set of Fixed Rate Bonds, as the case may be, to the Adjustable Rate Prepayment Subaccount or to the appropriate Prepayment Subaccount established for such Set of Fixed Rate Bonds, as the case may be, an amount, specified in such Written Request, in the case of prepayment of an Adjustable Rate Assessment equal to the product of the ratio of the amount of the Adjustable Rate Assessment being prepaid to the total amount of all unpaid Adjustable Rate Assessments times the Reserve Requirement for the Adjustable Rate Bonds, and in the case of Fixed Rate Bonds, equal to the product of the ratio of the amount, at the time of such prepayment of the Assessment, or portion thereof, so prepaid to the amount, at the time of such prepayment, of all unpaid Assessments on all parcels of real property designated by the County, pursuant to the Indenture, to be represented by such Set of Fixed Rate Bonds times the initial Reserve Requirement for such Set of Fixed Rate Bonds provided, however, that such transfer shall be reduced proportionately in the event such Reserve Account is funded, in whole or in part with a Reserve Facility. So long as no Event of Default shall have occurred and be continuing, any amount in the Adjustable Rate Bonds Reserve Account and any amount in the Reserve Account established for a Set of Fixed Rate Bonds in excess of the Reserve Requirement for the Adjustable Rate Bonds or such Set of Fixed Rate Bonds, as the case may be, on September 15 of each year shall be withdrawn from such Reserve Account by the Trustee and deposited in the Redemption Account established for the Adjustable Rate Bonds or such Set of Fixed Rate Bonds, as the case may be. Whenever the balance in the Adjustable Rate Bonds Reserve Account or in the Reserve Account established for a Set of Fixed Rate Bonds, as the case may be, is sufficient to retire all the Outstanding Adjustable Rate Bonds or all the Outstanding Bonds of such Set, as the case may be, whether by advance retirement or otherwise, and such Reserve Account is not funded with a Reserve Facility, collection of the principal and interest on the Assessments represented by the Adjustable Rate Bonds or by such Set of Fixed Rate Bonds shall be discontinued and such Reserve Account shall be liquidated by the Trustee in retirement of the Outstanding Adjustable Rate Bonds or the Outstanding Bonds of such Set, as the case may be, as directed by a Written Request of the County. In the event that the balance in such Reserve Account at the time of liquidation exceeds the amount required to retire all Outstanding Adjustable Rate Bonds or the Outstanding Bonds of such Set, as the case may be, the excess shall, after payment of amounts due to the Trustee, be transferred to the County to be used in accordance with the Act. Continuing Costs Fund. The County shall establish, maintain and administer a separate fund designated the Continuing Costs Fund. Within the Continuing Costs Fund, the County shall establish, maintain and administer a separate account designated the Continuing Adjustable Rate Costs Account and a separate account designated the Continuing Fixed Rate Costs Account. The County shall deposit in the Continuing Adjustable Rate Costs Account amounts collected for payment of Continuing Adjustable Rate Costs and shall deposit in the Continuing Fixed Rate Costs Account amounts collected for payment of Continuing Fixed Rate Costs. B-18

73 The moneys in the respective accounts of the Continuing Costs Fund shall be used and withdrawn by the County from time to time to pay the Continuing Adjustable Rate Costs and the Continuing Fixed Rate Costs, as the case may be. Rebate Fund. The County shall establish, maintain and administer a separate fund designated the Rebate Fund. Within the Rebate Fund, the County shall establish, maintain and administer a separate account designated the Series 2003 A Rebate Account. If required pursuant to the terms of a Supplemental Indenture, within the Rebate Fund, the County shall establish, maintain and administer a separate account designated the Rebate Account for each additional Series or Set of Bonds. There shall be deposited in the Series 2003 A Rebate Account such amounts as are required to be deposited therein pursuant to the Tax Certificate, as determined from time to time by the County. All money at any time deposited in the Series 2003 A Rebate Account shall be held by the County in trust, to the extent required to satisfy the Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the Series 2003 A Adjustable Rate Bonds pursuant to the Indenture or anything to the contrary contained therein, all amounts required to be deposited into or on deposit in the Series 2003 A Rebate Account shall be governed exclusively by the Indenture and by the Tax Certificate (which is incorporated to the Indenture by reference therein). (b) Any funds remaining in the Series 2003 A Rebate Account after payment in full of all of the Series 2003 A Adjustable Rate Bonds and after payment of any amounts described in the Indenture, shall be withdrawn by the County and expended for any lawful purpose of the County. Investment of Moneys. Except as otherwise provided in the Indenture, all moneys in any of the funds or accounts (other than the Letter of Credit Account, the Letter of Credit Purchase Account, the Remarketing Proceeds Account and the Conversion Costs Fund) established pursuant to the Indenture shall be invested solely in Permitted Investments, as directed by the County, two Business Days prior to the making of such investment; provided, however, that any Seasoned Funds which are required to pay the Redemption Price of any Adjustable Rate Bonds for which notice of redemption has been given shall be invested only in Federal Securities described in clause (a) of the definition thereof which mature not later than 30 days from the date of purchase or on the applicable Redemption Date, whichever first occurs. Moneys in the Letter of Credit Account, the Letter of Credit Purchase Account and the Remarketing Proceeds Account shall be held uninvested and not commingled with any other funds held under the Indenture. Moneys in the Conversion Costs Fund shall be invested as directed by the County or its designee, two Business Days prior to the making of such investment, either in a money market fund which is rated in the highest rating category by Moody s and Fitch or in Federal Securities which mature not later than 30 days from the date of purchase or on such earlier date as such moneys will be required for the purposes specified in the Indenture. In the absence of such direction, the Trustee shall invest such moneys in such a money market fund. Moneys in all funds and accounts (other than the Letter of Credit Account, the Letter of Credit Purchase Account, the Remarketing Proceeds Account and the Conversion Costs Fund) shall be invested in Permitted Investments maturing not later than the date on which the County estimates that such moneys will be required for the purposes specified in the Indenture. Absent timely written direction from the County, the Trustee shall invest such moneys in Permitted Investments described in clause (h) of the definition thereof. Subject to the provisions of the Indenture, all interest, profits and other income received from the investment of moneys in subaccounts within any fund or account established for the Adjustable Rate Bonds pursuant to the Indenture shall, prior to the date on which the Construction Fund is closed pursuant to the Indenture, be deposited in the Construction Fund and shall, thereafter, be deposited in the Adjustable Rate Redemption Account; provided, however, that all interest or gain from the investment of amounts in the Series 2003 A Rebate Account shall be retained therein and all interest or gain from the investment of amounts in the Conversion Costs Fund shall be retained therein and, provided further, that B-19

74 before any such deposit shall be made, such interest, profits and other income shall be available for the payment of any rebate that may be owed under the Code, as specified in a Written Request of the County delivered to the Trustee. Subject to the provisions of the Indenture, all interest, profits and other income received from the investment of moneys in any fund or account established for any Set of Fixed Rate Bonds pursuant to the Indenture shall, prior to the date on which the Construction Fund is closed pursuant to the Indenture, be deposited in the Construction Fund and shall, thereafter, be deposited in the Redemption Account established for such Set of Fixed Rate Bonds, provided, however, that all interest or gain from the investment of amounts in the Reserve Account and Rebate Account, if any, established for a Set of Fixed Rate Bonds shall be retained therein and, provided further, that before any such deposit shall be made, such interest, profits and other income shall be available for the payment of any rebate that may be owed under the Code, as specified in a Written Request of the County delivered to the Trustee. Permitted Investments acquired as an investment of moneys in any fund or account established under the Indenture shall be credited to such fund or account. All investments of amounts deposited in any fund or account created by or pursuant to the Indenture shall be acquired, disposed of, and valued at fair market value. The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the County or its designee, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such Permitted Investments is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to the Indenture. For purposes of investment, the Trustee may commingle any of the moneys held by it under the Indenture, except moneys in the Remarketing Proceeds Account and moneys derived from draws under the Letter of Credit or Seasoned Funds, which shall not be commingled with any other funds under any circumstances. The Trustee shall be entitled to rely conclusively upon the Written Request of the County directing investments in Permitted Investments as to the fact that each such investment is permitted by the laws of the State of California, and shall not be required to make further investigation with respect thereto. With respect to any legal requirement embodied in any of the above types of investments (e.g., the existence, validity and perfection of security interests in collateral), the Trustee may conclusively rely on an opinion of counsel or a Written Certificate of the County, that such requirement has been satisfied. The County acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the County the right to receive brokerage confirmations of security transactions as they occur, the County specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the County periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Indenture. Collection and Application of Assessments. The County shall comply with all requirements of the Act and the Indenture to assure the timely collection of the Assessments, and interest thereon, including, without limitation, the enforcement of delinquent Assessments. Funds received by the County in and for the Assessment District, including, but not limited to, collections of Assessments (including prepayments thereof), and interest thereon, collections of delinquent Assessments, and interest and penalties received with respect thereto, through foreclosure proceedings or otherwise (other than amounts collected on account of Continuing Costs and such other of said amounts as are payable to the County) shall as soon as practicable be transmitted directly to the Trustee to be deposited into the funds and accounts specified in the Indenture; provided that any amounts received by the County with respect to Teetered Fixed Rate Assessment Installments shall be retained by the County to be utilized in accordance with the County s Teeter Plan. B-20

75 The County or, at the County s direction, the Trustee, as agent of the County, shall collect Adjustable Rate Assessments, together with interest thereon, through direct billing of the owners of the parcels of real property on which Adjustable Rate Assessments are levied, and such Adjustable Rate Assessments, and interest thereon, shall be payable at the end of the period represented by such direct billing and are delinquent thereafter. Any such delinquent Adjustable Rate Assessments shall have the same priority and shall bear the same proportionate penalties after delinquency as do general taxes on real property and shall bear interest at the rate or rates provided in the Reimbursement Agreement with respect to sums payable under the Reimbursement Agreement from such Adjustable Rate Assessments. Interest on Adjustable Rate Assessments shall be in an amount sufficient to pay interest on Adjustable Rate Bonds and to pay interest accruing under the Reimbursement Agreement at the rate or rates provided in the Reimbursement Agreement with respect to sums payable under the Reimbursement Agreement from such Adjustable Rate Assessments, as and when due. In addition, the County or, at the County s direction, the Trustee, provided that if the Trustee is required so to act, the County shall provide sufficient direction as to the manner of effecting collection, including all necessary information, and shall pay the cost thereof, as agent of the County, and subject to limitations contained in the report for the Assessment District and in Section 8663 of the Act, shall collect amounts sufficient to pay the Continuing Adjustable Rate Costs through direct billing of the owners of the parcels of real property on which Adjustable Rate Assessments are levied. If the County directs the Trustee, as agent of the County, to collect the Adjustable Rate Assessments, and the interest thereon, and amounts to pay the Continuing Adjustable Rate Costs through direct billing, the County shall provide the Trustee with sufficient direction as to the manner of effecting collection and all necessary information to accomplish each billing, including the names and address of the owners to be so billed and, if more than one owner is to be so billed, the portion to be billed to each such owner, and the County shall pay the cost thereof. Upon receipt of any amounts collected on account of Continuing Adjustable Rate Costs, the Trustee shall transmit such amounts to the County as soon as practicable for deposit in the Continuing Adjustable Rate Costs Account. Not later than one Business Day prior to each date on which on which Adjustable Rate Assessments, or interest thereon, or Continuing Adjustable Rate Costs are due, the County or, at the County s direction, the Trustee, provided that if the Trustee is required so to act, the County shall provide sufficient direction as to the manner of effecting collection, including all necessary information, and shall pay the cost thereof, shall notify the owners of the parcels of real property on which on which Adjustable Rate Assessments are levied of the amounts becoming due and that the same are required to be received from such owners on or before such due date. The Fixed Rate Assessments and interest thereon shall be payable and be collected in the same manner at the same time and in the same installments as the general taxes on real property are payable, and have the same priority, become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property. The Fixed Rate Assessments pertaining to a given Set of Fixed Rate Bonds, together with the interest thereon, shall be payable in annual installments corresponding in number to the number of series of the Fixed Rate Bonds of such Set. An annual proportion of each Fixed Rate Assessment pertaining to a given Set of Fixed Rate Bonds, together with interest thereon, shall be payable in each year preceding the September 2 date of maturity of each of the several series of Fixed Rate Bonds of such Set in an amount sufficient to pay the Fixed Rate Bonds of such Set, and interest thereon, when due. In addition, the County shall, in accordance with and subject to the limitations contained in the Engineer s Report and in Section 8682 and Section of the Act, cause to be included in the annual installments respecting the Fixed Rate Assessments pertaining to a given Set of Fixed Rate Bonds an amount estimated to be sufficient to pay the Continuing Fixed Rate Costs of such Set for the following annual period. B-21

76 The County shall, before the final date on which the Auditor will accept the transmission of the list of installments billable on account of the Fixed Rate Assessments, for inclusion on the next tax roll, prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include such installments, calculated in accordance with the foregoing paragraph, on the next secured tax roll of the County. Upon receipt of any proceeds of the payment of installments respecting the Fixed Rate Assessments, including penalties thereon or prepayments of such Fixed Rate Assessments, the County shall, as soon as practicable, transfer the same to the Trustee, together with a Written Certificate of the County that identifies the Set of Fixed Rate Bonds to which such amounts relate and identifies which portion, if any, of the amounts so transferred constitute installments on account of Fixed Rate Assessments and which portion, if any, constitute prepayments of Fixed Rate Assessments; provided that any amounts received by the County with respect to Teetered Fixed Rate Assessment Installments shall be retained by the County to be utilized in accordance with the County s Teeter Plan. Any Adjustable Rate Assessment on any parcel of property may be prepaid at any time by paying in whole or part, the unpaid amount thereof less, if available, (i) the amount transferred to the Adjustable Rate Redemption Account from the Capitalized Payments Account pursuant to the Indenture, (ii) the amount transferred to the Adjustable Rate Redemption Account from the Conversion Costs Fund pursuant to the Indenture, and (iii) if the Adjustable Rate Assessment is paid in whole, a credit for the amount of the unpaid Adjustable Rate Assessment for authorized, but unissued, Bonds if any, together with interest on such prepaid Adjustable Rate Assessment (if not collected in an Adjustable Rate Assessment installment) to the earliest Redemption Date for which notice of redemption may be given in accordance herewith. Any Fixed Rate Assessment on any parcel of property may be prepaid at any time by paying the amount prescribed by Section 8766 of the Act. Upon the conversion of Adjustable Rate Bonds to Fixed Rate Converted Bonds, and the issuance of any Additional Fixed Rate Conversion Bonds in connection therewith, the County shall in a Written Certificate of the County delivered to the Trustee, designate (i) by CUSIP numbers, what portion (which may be all) of such Fixed Rate Converted Bonds constitutes a Set of Fixed Rate Converted Bonds for purposes of the Indenture, (ii) by Series identification, what portion (which may be all) of such Additional Fixed Rate Conversion Bonds constitutes Related Additional Bonds for such Set of Fixed Rate Converted Bonds, and (iii) by assessor s parcel numbers or other legal descriptions, the parcels of real property within the Assessment District which shall be represented by such Set of Fixed Rate Converted Bonds and Related Additional Bonds, if any. From and after such designation, said Set of Fixed Rate Converted Bonds and said Related Additional Bonds, if any, shall be payable solely from and secured solely by the Assessments (including prepayments thereof) on said designated parcels, together with interest and any penalties thereon, and any other amounts held in any fund or account established for such Set of Fixed Rate Converted Bonds and Related Additional Bonds, as provided in the Indenture. Upon the issuance of any Series of Additional Fixed Rate Funding Bonds, the County shall in a Written Certificate of the County delivered to the Trustee, designate by assessor's parcel numbers or other legal descriptions, the parcels of real property within the Assessment District which shall be represented by such Series of Additional Fixed Rate Funding Bonds. From and after such designation, said Series of Additional Fixed Rate Funding Bonds shall be payable solely from and secured solely by the Assessments (including prepayments thereof) on said designated parcels, together with interest and any penalties thereon, and any other amounts held in any fund or account established for such Series of Additional Fixed Rate Funding Bonds, as provided in the Indenture; provided said Series of Additional Fixed Rate B-22

77 Funding Bonds shall not be payable from or secured by any amounts received by the County with respect to Teetered Fixed Rate Assessments. The Adjustable Rate Bonds shall represent the Assessments levied upon the parcels of real property within the Assessment District, excluding the Designated Series 2003 B Assessments in the event the Series 2003 B Bonds are issued and further excluding the Assessments levied upon those parcels of real property which have been designated pursuant to this subsection to be represented by any Set of Fixed Rate Bonds. The Adjustable Rate Bonds shall be payable solely from and secured solely by the Assessments (including prepayments thereof) on such parcels that have not been so designated, together with interest and any penalties thereon, amounts collected for the Continuing Costs of the Adjustable Bonds and any other amounts held in any fund or account established under the Indenture and available for payment of the Adjustable Rate Bonds, as provided in the Indenture. Foreclosure. The County covenants that it will within 60 days of a delinquency in the payment of Adjustable Rate Assessments, or interest thereon, or amounts to pay the Continuing Adjustable Rate Costs, forthwith undertake and diligently prosecute foreclosure proceedings in the manner prescribed in Section 8830 et seq. of the Act to collect such delinquent amounts. Upon the redemption or sale of the real property responsible for such delinquencies, the County shall apply the net proceeds thereof to: (a) forthwith remit to the Bank any moneys received on account thereof, up to the amount due to the Bank as an Owner of Bank Bonds or pursuant to the Reimbursement Agreement, and (b) the balance, if any, shall be disbursed as set forth in the judgment of foreclosure or as required by law. With respect to a delinquency in the payment of any installment of any Fixed Rate Assessment not advanced by the County pursuant to the County s Teeter Plan, the County covenants that it will, not later than the first day of November following a delinquency in the payment of any installment of a Fixed Rate Assessment, forthwith undertake and diligently prosecute foreclosure proceedings in the manner prescribed in Section 8830 et seq. of the Act to collect such delinquent amounts; provided, however, that if the amount collected is greater than 92.5% of the total amount of the installments billed with respect to the Fixed Rate Assessments pertaining to a given Set of Fixed Rate Bonds, the County shall not be required to undertake such foreclosure proceedings, unless it is determined that any single property owner is delinquent in excess of $25,000 in the payment of such amounts, in which case the County shall diligently institute, prosecute and pursue such foreclosure proceedings against such property owner as set forth in the Indenture. Upon the redemption or sale of the real property responsible for such delinquencies, the County shall apply the net proceeds thereof to: (a) deposit to the Reserve Account established for such Set of Fixed Rate Bonds the amount of any delinquency advanced therefrom pursuant to the Indenture, and (b) the balance, if any, shall be disbursed as set forth in the judgment of foreclosure or as required by law. No Advances from Available Funds. The County is not and shall not be obligated to advance any funds of the County whatsoever from any source to cure any deficiency which may occur in the Adjustable Rate Redemption Account or any Redemption Account established for a Set of Fixed Rate Bonds; provided, however, that said determination shall not prevent the County, in its sole and absolute discretion, from so advancing such funds. Punctual Payment. The County shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformity, with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Assessments and other assets pledged for such payment as provided in the Indenture and received by the County or the Trustee. B-23

78 Extension of Payment of Bonds. The County 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 Event of Default under the Indenture, 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 not have been so extended. Nothing in the Indenture shall be deemed to limit the right of the County 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. Except as provided in the Indenture or in the Reimbursement Agreement, and except as provided by the County s Teeter Plan regarding any Assessment with respect to which the County has advanced the amount of a delinquent installment pursuant to said Teeter Plan, the County shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Assessments and other assets pledged under the Indenture while any of the Bonds are Outstanding. Notwithstanding the foregoing or any other provision of the Indenture, the County shall retain all police, taxation and regulatory powers with respect to the real property encumbered by the Assessments or any of them. Power to Issue Bonds and Make Pledge. The County is duly authorized pursuant to the Act to issue the Bonds and to enter into the Indenture and to pledge the Assessments and other assets purported to be pledged under the Indenture in the manner and to the extent provided in the Indenture. The Bonds and the provisions of the Indenture are and will be the legal, valid and binding limited obligations of the County in accordance with their terms, and the County shall at all times, to the extent permitted by law, defend, preserve and protect said pledge of Assessments and other assets and all the rights of the Bond Owners and the Bank under the Indenture against all claims and demands of all Persons whomsoever. Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with trust industry standards, in which complete and accurate entries shall be made of all transactions relating to the proceeds of the Bonds, the Assessments and all funds and accounts established pursuant to the Indenture and held by the Trustee. Such books of record and account shall be available for inspection by the County and the Bank, during regular business hours and upon 24 hours notice and under reasonable circumstances as agreed to by the Trustee. The Trustee shall deliver to the County and the Bank a monthly accounting of the funds, accounts and subaccounts (including deposits thereto and disbursements therefrom) it holds under the Indenture; provided, however, that the Trustee shall not be obligated to deliver such accounting for any fund or account that has a balance of zero. Further Assurances. The County will make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the Bonds and the Bank of the rights and benefits provided in the Indenture. Events of Default. The following events shall be Events of Default: (a) Failure to pay any installment of principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise; provided, however, that any such failure with respect to Adjustable Rate Bonds shall not constitute an Event of Default with respect to any Fixed Rate Bonds and, provided, further, that any such failure with respect to Fixed Rate Bonds of a Set shall not constitute an Event of Default with respect to Adjustable Rate Bonds or with respect other Fixed Rate Bonds of any other Set. B-24

79 (b) Failure to pay any installment of interest on any Bonds when and as the same shall become due and payable; provided, however, that any such failure with respect to Adjustable Rate Bonds shall not constitute an Event of Default with respect to any Fixed Rate Bonds and, provided, further, that any such failure with respect to Fixed Rate Bonds of a Set shall not constitute an Event of Default with respect to Adjustable Rate Bonds or with respect to Fixed Rate Bonds of any other Set. (c) Failure by the County to observe and perform any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such failure shall have continued for a period of 60 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the County by the Trustee or, when a Letter of Credit is in effect or any Bank Bonds are outstanding or any other amounts are owing to the Bank under the Reimbursement Agreement, the Bank or, subject to the Indenture, the Owners of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, if in the reasonable opinion of the County the failure stated in the notice can be corrected, but not within such 60 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the County within such 60 day period and the County shall thereafter diligently and in good faith cure such failure in a reasonable period of time. No Acceleration; Foreclosure. The principal of the Bonds shall not be subject to acceleration under the Indenture. If any Event of Default with respect to Adjustable Rate Bonds shall occur under the Indenture, then, and in each and every such case during the continuance of such Event of Default, if the County has not done so, the Trustee may or, at the direction of the Bank shall, commence foreclosure against any parcels of real property in the Assessment District with delinquent Adjustable Rate Assessments, or delinquent payments of interest thereon, or delinquent payments of amounts for the Continuing Adjustable Rate Costs, as provided in Section 8830 et. seq. of the Act. If any Event of Default with respect to Fixed Rate Bonds of a Set shall occur under the Indenture, then, and in each and every such case during the continuance of such Event of Default, if the County has not done so, the Trustee may or, at the direction of the Owners of not less than a majority in aggregate principal amount of the Fixed Rate Bonds of such a Set at the time Outstanding, shall, commence foreclosure with respect to the delinquent installments of the Fixed Rate Assessments pertaining to such Set of Fixed Rate Bonds as provided in Section 8830 et seq. of the Act. Other Remedies. The Trustee shall have the following rights: (a) by mandamus, suit, action or proceeding, to compel the County and its members, officers, agents or employees to perform each and every term, provision and covenant contained in the Indenture and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the County and the fulfillment of all duties imposed upon it by the Act; (b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any rights of the Bond Owners or the Trustee; or (c) upon the happening of any Event of Default, by suit, action or proceeding in any court of competent jurisdiction, to require the County and its members and employees to account as if it and they were the trustees of an express trust. Application of Assessments and Other Funds After Default. If an Event of Default shall occur and be continuing, all Assessments (including any penalties, costs, fees and other charges accruing under the Act) securing the Bonds to which such Event of Default relates and any moneys in the funds and accounts established under the Indenture for the Bonds representing the parcels on which such Assessments are levied (other than the Rebate Fund, the Letter of Credit Account, the Letter of Credit B-25

80 Purchase Account, the Remarketing Proceeds Account and the Continuing Costs Fund) shall, subject to the provisions of the Act, be applied by the Trustee as follows and in the following order: (a) To the payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture; provided, however, that moneys in the Letter of Credit Account shall not be utilized for such Trustee fees, charges and expenses. (b) To the payment of the principal of and interest then due with respect to the Bonds representing the parcels on which such Assessments are levied (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, as follows: First: To the payment to the Persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and Second: To the payment to the Persons entitled thereto of the unpaid principal of any Bonds representing the parcels on which such Assessments are levied which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds representing the parcels on which such Assessments are levied on the date of maturity or redemption, and, if the amount available shall not be sufficient to pay in full all the Bonds representing the parcels on which such Assessments are levied, together with such interest then to the payment thereof ratably, according to the amounts of principal due on such date to the Persons entitled thereto, without any discrimination or preference. (c) If such Assessments are levied on parcels represented by Adjustable Rate Bonds, to the Bank to the extent that amounts are owed to the Bank on account of draws under the Letter of Credit or otherwise under the Reimbursement Agreement. (d) Any remaining funds shall be transferred by the Trustee to the Adjustable Rate Redemption Account or to the Redemption Account, as applicable, established for the Fixed Rate Bonds representing the parcels on which such Assessments are levied, as applicable. Bond Owners Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, but subject to the provisions of the Indenture, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee under the Indenture, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Bond Owners not parties to such direction. Limitation on Bond Owners Right to Sue. No Owner of any Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture, the Act or any other applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, shall have made B-26

81 written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Trustee indemnity against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, the Indenture, the Act or other applicable law with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of the Indenture. Obligation of County. Nothing in the Indenture or in the Bonds contained shall affect or impair the obligation of the County to pay the principal of and interest on the Bonds to the respective Owners of the Bonds at their respective dates of maturity, or upon call for redemption, as provided in the Indenture, but only out of the Assessments and other assets pledged therefor and received by the County or the Trustee under the Indenture, or affect or impair the right of such Owners to enforce such payment by virtue of the contract embodied in the Bonds. Termination of Proceedings. In case any proceedings taken by the Trustee or any one or more Bond Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Bond Owners, then in every such case the County, the Bank, the Trustee and the Bond Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights under the Indenture, severally and respectively, and all rights, remedies, powers and duties of the County, the Trustee and the Bond Owners shall continue as though no such proceedings had been taken. Remedies Not Exclusive. No remedy conferred upon or reserved to the Trustee or to the Owners of the Bonds under the Indenture is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given under the Indenture or now or thereafter existing at law or in equity or otherwise. No Waiver of Default. No delay or omission of the Trustee or of any Owner of the Bonds to exercise any right or power arising upon the occurrence of any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by the Indenture to the Trustee or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient. Duties and Liabilities of Trustee. Duties of Trustee Generally. The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture. The Trustee shall, during the existence of any Event of Default which has not been cured, exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. B-27

82 Removal of Trustee. The County may upon 30 days prior written notice to the Trustee and the Bank remove the Trustee at any time unless an Event of Default shall have occurred and then be continuing and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with the Indenture, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee and thereupon shall, with the written consent of the Bank (which shall not be unreasonably withheld) (when the Letter of Credit is in effect or the Bank is owed any amounts under the Reimbursement Agreement and so long as the Bank is not in default of its obligation to honor conforming draws on the Letter of Credit), appoint a successor Trustee by an instrument in writing. Resignation of Trustee. The Trustee may at any time resign by giving written notice of such resignation by first class mail, postage prepaid, to the County, to the Bank, to the Remarketing Agent and to the Bond Owners notice of such resignation at the respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the County shall, with the written consent of the Bank (which shall not be unreasonably withheld) (when the Letter of Credit is in effect or the Bank is owed any amounts under the Reimbursement Agreement and so long as the Bank is not in default of its obligation to honor conforming draws on the Letter of Credit), promptly appoint a successor Trustee by an instrument in writing. The Trustee shall not be relieved of its duties until such successor Trustee has accepted appointment and the Letter of Credit has been transferred to the successor Trustee. Appointment of Successor Trustee. Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee and the transfer to such successor Trustee of the Letter of Credit in accordance with the terms thereof regarding transfer; provided, however, that under any circumstances the successor Trustee shall be qualified as provided in the Indenture. If no qualified successor Trustee shall have been appointed and have accepted appointment within 45 days following giving notice of removal or notice of resignation as aforesaid, the resigning Trustee, the Bank (solely with respect to Adjustable Rate Bonds) or any Bond Owner (on behalf of himself and all other Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture shall signify its acceptance of such appointment by executing and delivering to the County and to its predecessor Trustee a written acceptance thereof, and to the predecessor Trustee an instrument indemnifying the predecessor Trustee for any costs or claims arising during the time the successor Trustee serves as Trustee under the Indenture, and after payment by the County of all unpaid fees and expenses of the predecessor Trustee, such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee under the Indenture; but, nevertheless at the Written Request of the County or the request of the successor Trustee or the Bank, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture. Upon request of the successor Trustee, the County shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the County shall mail or B-28

83 cause the successor Trustee to mail, by first class mail postage prepaid, a notice of the succession of such Trustee to the trusts under the Indenture to each rating agency which then maintains a rating on the Bonds, to the Bond Owners at the addresses shown on the Registration Books, to the Bank and to the Remarketing Agent. If the County fails to mail such notice within 15 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the County. Qualifications of Trustee. The Trustee shall be a trust company, corporation or bank having the powers of a trust company, having (or if such corporation, bank or trust company is a member of a bank holding company system, its parent bank holding company shall have) a combined capital and surplus of at least one hundred million dollars ($100,000,000), and subject to supervision or examination by federal or state agency. If such corporation, bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this subsection the combined capital and surplus of such corporation, bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of the Indenture, the Trustee shall resign immediately in the manner and with the effect specified in the Indenture. Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which it may be consolidated or any bank or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank or trust company shall be eligible under the Indenture shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding. Liability of Trustee. The recitals of facts and in the Bonds contained shall be taken as statements of the County, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture or of the Bonds or shall incur any responsibility in respect thereof other than as expressly stated in the Indenture in connection with the respective duties or obligations therein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. Except to the extent that the Trustee represents that the Indenture is a valid and binding agreement of the Trustee in accordance with its terms, the Trustee makes no representations as to the validity or sufficiency of the Indenture or of any Bonds, or in respect of the security afforded by the Indenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to: (i) the issuance of the Bonds for value; (ii) the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee; or (iii) the application of any moneys paid to the County or others in accordance with the Indenture except as the application of any moneys paid to it in its capacity as Trustee; or (iv) interest on any moneys received by it that, as a result of the absence of instructions from the County, or as a result of inadequate or incomplete instructions from the County, regarding the disposition of such moneys, have not been deposited by the Trustee in a fund or account established under the Indenture. The Trustee shall not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct. The Trustee shall not be liable for any action taken or omitted by it in good faith, without negligence or willful misconduct, and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture. The Trustee and its officers and employees may become the Owner of Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as B-29

84 depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bond Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture. No personal recourse may be taken, directly or indirectly, against any officer, director, agent or employee of the Trustee with respect to the obligations of the Trustee under the Indenture or any certificate or other writing delivered in connection therewith. In the event the Trustee receives inconsistent or conflicting requests and indemnity from two or more groups of Bond Owners, each representing less than a majority of the aggregate principal amount of Bonds then outstanding, the Trustee, in its sole discretion, may determine what action, if any, shall be taken. The Trustee shall not be liable with respect to any such action taken or omitted to be taken by it in good faith. Except for information provided by the Trustee concerning the Trustee, the Trustee shall have no responsibility for any information in any offering memorandum or other disclosure material distributed with respect to the Bonds, and the Trustee shall have no responsibility for compliance with any state or federal securities laws in connection with the Bonds. The Trustee shall not be deemed to have knowledge of any Event of Default under the Indenture, unless and until it shall have actual knowledge thereof, or a responsible officer shall have received written notice thereof, at its Office. Except as otherwise expressly provided in the Indenture, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements under the Indenture or of any of the documents in connection with the Bonds, or as to the existence of an Event of Default thereunder. No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance or exercise of any of its duties under the Indenture. Before taking any action under the Indenture at the request of the Bond Owners, the Trustee may require that a satisfactory indemnity bond be furnished by the Bond Owners for the reimbursement of all expenses to which the Trustee may be put and to protect the Trustee against all liability, except liability which is adjudicated to have resulted from the Trustee s negligence or willful misconduct in connection with any action so taken. Right to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under the Indenture B-30

85 in good faith and in accordance therewith; provided, however, the Trustee shall in no event delay any payment with respect to the Bonds in anticipation of any such opinion. 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 specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the County, and such Written 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 Written Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Amendments Permitted. The Indenture and the rights and obligations of the County, the Owners of the Bonds and the Trustee may be modified or amended from time to time and at any time by a Supplemental Indenture, which the County and the Trustee may enter into with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding but, with respect to any modification or amendment pertaining to any Adjustable Rate Bonds when a Letter of Credit is in effect or the Bank is owed any amounts under the Reimbursement Agreement, with the written consent of the Bank, which shall have been filed with the Trustee; provided, however, that, notwithstanding the foregoing, the Indenture and the rights and obligations of the County, the Trustee and the Owners of Adjustable Rate Bonds, but only as such rights and obligations relate solely to Adjustable Rate Bonds, may be modified or amended from time to time and at any time by a Supplemental Indenture, which the County and the Trustee may enter into with the written consent of the Owners of a majority in aggregate principal amount of all Adjustable Rate Bonds then Outstanding and, the written consent of the Bank, which shall have been filed with the Trustee, and, provided, further, that, notwithstanding the foregoing, the Indenture and the rights and obligations of the County, the Trustee and the Owners of Fixed Rate Bonds of a Set, but only as such rights and obligations relate solely to Fixed Rate Bonds of such Set may be modified or amended from time to time and at any time by a Supplemental Indenture, which the County and the Trustee may enter into with the written consent of the Owners of a majority in aggregate principal amount of all of the Fixed Rate Bonds of such Set then Outstanding. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof, or reduce the interest rate borne thereby, or extend the time of payment, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or (iii) permit the creation of any lien on the Assessments and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture or deprive the Owners of the Bonds of the lien created by the Indenture on such Assessments and other assets (except as expressly provided in the Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the County and the Trustee of any Supplemental Indenture pursuant to this subsection, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the County), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. The Indenture and the rights and obligations of the County, the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the County and the Trustee may enter into without the consent of any Bond Owners but, when a Letter of Credit is in effect or any amounts are owing to the Bank under the Reimbursement Agreement, only with the written consent of the Bank, for any one or more of the following purposes: B-31

86 (i) to add to the covenants and agreements of the County in the Indenture contained, other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power under the Indenture reserved to or conferred upon the County; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in the Indenture; (iii) to provide for the issuance of additional Series of Bonds, and to provide the terms and conditions under which such additional Series of Bonds may be issued, subject to and in accordance with the provisions of the Indenture; provided, however that if the additional Series of Bonds to be issued as a Series of Additional Fixed Rate Conversion Bonds, the consent of the Bank shall not be required; (iv) to modify, amend or supplement the Indenture in such manner as to permit the qualification 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; (v) to modify, amend or supplement the Indenture in such manner as to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and (vi) in any other respect whatsoever as the County may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners under the Indenture, in the opinion of Bond Counsel filed with the County and the Trustee. The Indenture and the rights and obligations of the County, the Trustee and the Owners of Fixed Rate Converted Bonds, but only as such rights and obligations relate solely to such Fixed Rate Converted Bonds, may also be modified or amended, as of the Conversion Date for such Fixed Rate Converted Bonds, by a Supplemental Indenture which the County and the Trustee may enter into without the consent of any Bond Owners, but only if such Fixed Rate Converted Bonds have been remarketed by the Remarketing Agent pursuant to the Indenture with such modified or amended rights and obligations. The Trustee shall not be required to enter into or consent to any Supplemental Indenture which might adversely affect the rights, obligations, powers, privileges, indemnities, immunities provided the Trustee under the Indenture. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to the Indenture, the Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the County, the Trustee and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture for any and all purposes. Amendment of Particular Bonds. The provisions of the Indenture shall not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner. B-32

87 Discharge of Indenture. The Bonds may be paid by the County in any of the following ways: (a) by paying or causing to be paid the principal of and interest and premium (if any) on the Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust (pursuant to an escrow agreement), at or before maturity, money or securities in the necessary amount (as provided in the Indenture) to pay or redeem all Bonds then Outstanding; or (c) by delivering to the Trustee, for cancellation by it, all of the Bonds then Outstanding. If the County shall also pay or cause to be paid or provide for the payment of all other sums payable under the Indenture by the County including without limitation any compensation due and owing the Trustee thereunder and all sums payable or which may become payable under the Reimbursement Agreement, as verified by the Bank to the Trustee in writing, then and in that case, at the election of the County (evidenced by a Written Certificate of the County, filed with the Trustee, signifying the intention of the County to discharge all such indebtedness and the Indenture), and notwithstanding that any Bonds shall not have been surrendered for payment, the Indenture and the pledge of Assessments and other assets made under the Indenture and all covenants, agreements and other obligations of the County under the Indenture shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the County, and upon receipt of a Written Certificate of an Authorized Representative of the County and an opinion of Bond Counsel acceptable to the Trustee, each to the effect that all conditions precedent to the Indenture provided for relating to the discharge and satisfaction of the obligations of the County have been satisfied, the Trustee shall cause an accounting for such period or periods as may be requested by the County to be prepared and filed with the County and shall execute and deliver to the County all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Indenture, which are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption, to the County. Discharge of Liability on Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in the Indenture) to pay or redeem any or all Outstanding Bonds (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 maturity, notice of such redemption shall have been given as provided in the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the County in respect of such Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject, however, to the provisions of the Indenture. Notwithstanding the foregoing (a) the liability of the County in respect of Adjustable Rate Bonds shall not cease, terminate and be discharged as provided above unless and until the Trustee shall have received an opinion of counsel that the prior and future payments of the principal of and interest and premium, if any, on such Adjustable Rate Bonds do not constitute a voidable preference under then applicable bankruptcy laws, and (b) no Adjustable Rate Bonds or any part thereof shall be deemed to have been paid and discharged within the meaning of the Indenture unless such Adjustable Rate Bonds are to be redeemed on or prior to the next date, if any, on which the interest rate payable on such Adjustable Rate Bonds may change to a different rate and unless such Adjustable Rate Bonds are not subject to optional or mandatory tender for purchase on or prior to such redemption date. B-33

88 Subject to the provisions of the Indenture restricting the entitlement of the County to purchase Bonds, the County may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the County may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. Deposit of Money or Securities with Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Indenture and shall be-- (a) Lawful money of the United States of America, in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds, premium, if any, and all unpaid interest thereon to the redemption date; or (b) Non-callable Federal Securities the principal of and interest on which when due, in the opinion or report of an independent accountant selected by the County, will provide money sufficient to pay the principal of, premium, if any, and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal, premium, if any, and interest become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice; provided, in each case, that the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Written Request of the County) to apply such funds to the payment of such principal and interest with respect to such Bonds. Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of, premium, if any, or interest on, any Bonds and remaining unclaimed for two years after the date of deposit of such moneys shall, to the extent permitted by law, be repaid to the County free from the trusts created by the Indenture and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the County as aforesaid, the Trustee shall (at the cost of the County) first mail, by first class mail postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the County of the moneys held for the payment thereof. Limited Obligation. All obligations of the County under the Bonds and under the Indenture shall not be general obligations of the County, but shall be limited obligations, payable solely from the Assessments and the other assets pledged therefor. All obligations of the County under the Adjustable Rate Bonds shall not be general obligations of the County, but shall be limited obligations, payable solely from the Adjustable Rate Assessments and the other assets pledged therefor. All obligations of the County under the Fixed Rate Bonds of a Set shall not be general obligations of the County, but shall be limited obligations, payable solely from the Assessments levied on the parcels of real property designated by the County, pursuant to the Indenture to be represented by such Set of Fixed Rate Bonds and the other assets pledged therefor. Neither the faith and credit nor the taxing power of the County or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds. Notwithstanding B-34

89 any other provision of the Indenture, the County is not obligated to advance available funds from the County treasury to cure any deficiency in the Redemption Fund. Successor Is Deemed Included in All References to Predecessor. Whenever in the Indenture the County, the Trustee, the Paying Agent, the Bank or the Remarketing Agent is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in the Indenture contained by or on behalf of the County or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Limitation of Rights to Parties and Bond Owners. Nothing in the Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any Person other than the Trustee, the County, the Paying Agent, the Bank, the Remarketing Agent and the Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision therein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Trustee, the County, the Paying Agent, the Bank, the Remarketing Agent and the Owners of the Bonds. Waiver of Notice; Requirement of Mailed Notice. Whenever in the Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the Person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in the Indenture any notice shall be required to be given by mail, such requirement shall be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. Destruction of Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee and the delivery to the County of any Bonds, the Trustee shall, upon the Written Request of the County, in lieu of such cancellation and delivery, destroy such Bonds (in the presence of an officer of the County, if the County shall so require) as may be allowed by law, and deliver a certificate of such destruction to the County. Severability of Invalid Provisions. If any one or more of the provisions contained in the Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in the Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of the Indenture, and the Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained in the Indenture. Evidence of Rights of Bond Owners. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bond Owners in Person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any Person of Bonds transferable by delivery, shall be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee and the County if made in the manner provided in the Indenture. The fact and date of the execution by any Person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the Person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. B-35

90 The ownership of Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the County in accordance therewith or reliance thereon. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, Bonds which are known by the Trustee to be owned or held by or for the account of the County, or by any other obligor on the Bonds, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the County or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged may be regarded as Outstanding for the purposes of the Indenture if the pledgee shall establish to the satisfaction of the Trustee the pledgee s right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the County or any other obligor on the Bonds. In case of a dispute as to such right any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the County shall specify to the Trustee these Bonds disqualified pursuant to the Indenture. Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of the Indenture but without any liability for interest thereon. Funds and Accounts. Any fund or account required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with industry standards to the extent practicable, and with due regard for the requirements of the Indenture and for the protection of the security of the Bonds and the rights of every Owner thereof and the Bank. The Trustee may establish such funds and accounts as it deems necessary or appropriate to perform its obligations under the Indenture. Payment on Non-Business Days. In the event any payment is required to be made under the Indenture on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day with the same effect as if made on such non-business Day. Waiver of Personal Liability. No member of the Board of Supervisors, officer, agent or employee of the County shall be individually or personally liable for the payment of the principal of or premium or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof, including, but not limited to, any Continuing Costs or other cost, expense or fee provided or authorized in the Indenture; but nothing therein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by the Indenture. B-36

91 THE FIRST SUPPLEMENTAL INDENTURE Unless the context otherwise requires, the following terms shall have the meanings specified below: First Supplemental Indenture means the First Supplemental Indenture, dated as of May 1, 2005, by and between the County and the Trustee. Group One Bonds means the $18,670,000 aggregate principal amount of Fixed Rate Bonds, the Conversion Date for which is the Group One Conversion Date. Group One Continuing Disclosure Certificate means the Group One Continuing Disclosure Certificate, dated as of the Group One Conversion Date, executed and delivered by the County to the Group One Original Purchaser on the Group One Conversion Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Group One Conversion Date means May 18, Group One Costs means all items of expense directly or indirectly payable by or reimbursable to the County relating to the authorization, issuance, conversion, remarketing, sale and delivery of the Group One Bonds, including but not limited to printing expenses, rating agency fees, filing and recording fees, fees, expenses and charges of the Trustee and its counsel, fees, charges and disbursements of underwriters, remarketing agents, attorneys, financial advisors, accounting firms, consultants, and other professionals, and fees and charges for preparation, execution and safekeeping of the Group One Bonds. Group One Costs Account means the account by that name established and held by the County within the Costs of Issuance Fund pursuant to the First Supplemental Indenture. Group One Prepayment Subaccount means the subaccount by that name established and maintained by the Trustee within the Prepayment Account pursuant to the First Supplemental Indenture. Group One Redemption Account means the account by that name established and held by the Trustee within the Redemption Fund pursuant to the First Supplemental Indenture. Group One Rebate Fund means the fund by that name established and held by the Trustee pursuant to the First Supplemental Indenture. Group One Rebate Requirement has the meaning ascribed thereto in the Group One Tax Certificate. Group One Reserve Account means the account by that name established and held by the Trustee within the Reserve Fund pursuant to the First Supplemental Indenture. Group One Tax Certificate means the Tax Certificate executed by the County at the time of issuance of the Group One Bonds relating to the requirements of Section 148 of the Code, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. Reserve Requirement-Group One means, with respect to the Group One Bonds, as of the date of any calculation, the least of (a) 10% of the original aggregate principal amount of the Group One Bonds, (b) maximum annual debt service on the Group One Bonds, and (c) 125% of average annual debt service on the Group One Bonds. B-37

92 Group One Costs Account. There is established within the Costs of Issuance Fund a separate account to be known as the Group One Costs Account, which shall be held by the County in trust. On the Group One Conversion Date, there shall be deposited in the Group One Costs Account the amount specified in the First Supplemental Indenture. The moneys in the Group One Costs Account shall be used and withdrawn by the County from time to time to pay the Group One Costs. All moneys in the Group One Costs Account shall be invested by the County solely in Permitted Investments. All interest, profits and other income received from the investment of moneys in the Group One Costs Account shall be retained therein. On December 1, 2005, all amounts remaining in the Group One Costs Account shall be withdrawn therefrom by the County and transferred to the Trustee. Upon receipt thereof, the Trustee shall deposit such amounts in the Group One Redemption Account. Group One Redemption and Reserve Accounts and Prepayment Subaccount. In accordance with the Indenture, the Trustee shall establish and maintain within the Redemption Fund a separate account designated the Group One Redemption Account. In accordance with the Indenture, the Trustee shall establish and maintain within the Reserve Fund a separate account designated the Group One Reserve Account. In accordance with the Indenture, the Trustee shall establish and maintain within the Prepayment Account a separate account designated the Group One Prepayment Subaccount. Notwithstanding anything to the contrary contained in the First Supplemental Indenture and the Indenture, so long as no Event of Default shall have occurred and be continuing, any amount in the Group One Reserve Account in excess of the Reserve Requirement Group One on February 15 and August 15 of each year shall be withdrawn from the Group One Reserve Account by the Trustee and deposited in the Group One Redemption Account. Group One Tax Covenants. The County shall not take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Group One Bonds under Section 103 of the Code. Without limiting the generality of the foregoing, the County shall comply with the requirements of the Group One Tax Certificate, which is incorporated in the First Supplemental Indenture as if fully set forth therein. This covenant shall survive payment in full or defeasance of the Group One Bonds. In the event that at any time the County is of the opinion that for purposes of the First Supplemental Indenture it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in any of the funds or accounts established thereunder, the County shall instruct the Trustee in writing as to the specific investment to be made in order to so restrict or limit the yield, and the Trustee shall take such action as may be necessary in accordance with such instructions. Notwithstanding any provisions of the First Supplemental Indenture, if the County shall provide to the Trustee an opinion of Bond Counsel to the effect that any specified action required thereunder is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Group One Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of the First Supplemental Indenture and of the Group One Tax Certificate, and the covenants under the First Supplemental Indenture shall be deemed to be modified to that extent. Group One Rebate Fund. The Trustee shall establish and maintain a special fund designated the Group One Rebate Fund. There shall be deposited in the Group One Rebate Fund such amounts as are required to be deposited therein pursuant to the Group One Tax Certificate. All money at any time deposited in the Group One Rebate Fund shall be held by the Trustee in trust, to the extent required to B-38

93 satisfy the Group One Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the Group One Bonds pursuant to the First Supplemental Indenture or anything to the contrary contained therein, all amounts required to be deposited into or on deposit in the Group One Rebate Fund shall be governed exclusively by the First Supplemental Indenture and by the Group One Tax Certificate (which is incorporated in the First Supplemental Indenture by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the County, and shall have no liability or responsibility to enforce compliance by the County with the terms of the Group One Tax Certificate. The Trustee may conclusively rely upon the County s determinations, calculations and certifications required by the Group One Tax Certificate. The Trustee shall have no responsibility to independently make any calculation or determination or to review the County s calculations. Any funds remaining in the Group One Rebate Fund after payment in full of all of the Group One Bonds and after payment of any amounts described in the First Supplemental Indenture, shall be withdrawn by the Trustee and remitted to the County. Group One Bonds Continuing Disclosure. The County and the Trustee covenant and agree that they will comply with and carry out all of the provisions of the Group One Continuing Disclosure Certificate. Notwithstanding any other provision of the Indenture, failure of the County or the Trustee to comply with the Group One Continuing Disclosure Certificate shall not be considered an Event of Default; however, the Trustee may (and, at the written direction of any Group One Participating Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Group One Bonds, shall) or any Owner or beneficial owner of the Group One Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order; provided, however, that the Trustee shall be entitled to adequate assurance of indemnification and reimbursement for its costs and expenses as provided in the First Supplemental Indenture prior to taking such action. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] B-39

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95 APPENDIX C APPRAISAL AND APPRAISAL REVIEW

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97 SUMMARY APPRAISAL REPORT COUNTY OF ORANGE NEWPORT COAST PHASE IV ASSESSMENT DISTRICT NO LIMITED OBLIGATION IMPROVEMENT BONDS (GROUP ONE) NEWPORT BEACH, CA Submitted to: Mr. Daniel H. Tonini Director, Public Finance THE IRVINE COMPANY 550 Newport Center Drive Newport Beach, CA Submitted by: Gary L. Vogt, MAI GARY L. VOGT and ASSOCIATES Paseo Blanco San Juan Capistrano, CA Date of Appraisal Report: February 15, 2005 Date of Value: January 7, 2005

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99 GARY L. VOGT & ASSOCIATES REAL ESTATE APPRAISERS AND CONSULTANTS PASEO BLANCO SAN JUAN CAPISTRANO, CA TELEPHONE: (949) FACSIMILE: (949) GARY L. VOGT, MAI MEMBER, APPRAISAL INSTITUTE CERTIFIED GENERAL NO. AG February 15, 2005 Mr. Daniel H. Tonini Director, Public Finance THE IRVINE COMPANY 550 Newport Center Drive Newport Beach, CA RE: Newport Coast Phase IV Assessment District No Limited Obligation Improvement Bonds (Group One) Dear Mr. Tonini: I have examined four merchant builder projects within the Pacific Ridge development and the first marketing phase of 25 custom lots at Crystal Cove for the purpose of estimating the market value of the fee simple interest in the land. The effective date of value of this appraisal is January 7, As a result of my investigation and analyses, I have formed the following value conclusions: Project Name No. Lots Owner/Developer Estimated As Is Bulk Sale Land Value Pacific Ridge 107 Taylor Woodrow $ 81,850,000 Pacific Ridge 38 Lennar 38,000,000 Pacific Ridge 33 Taylor Woodrow 34,500,000 Costa Pacific Ridge 37 Shea 42,850,000 Crystal Cove Custom Homesites 25 The Irvine Company (11 Lots) Various Owners (14 lots) 28,100,000 42,600,000 Total Lots: 240 Aggregate Market Value: $267,900,000 The value estimates for the four Pacific Ridge projects and the eleven custom homesites at Crystal Cove that remained in Irvine Company ownership at date of value assume that all lots in each grouping are sold in bulk to one buyer in a conventional non-phased transaction. The fourteen custom homesites that had closed escrow to individual buyers at date of value are valued separately and the value total shown in the above table represents an aggregation of the individual lot value estimates. Each property is valued in its as is physical condition at date of value as enhanced by existing infrastructure improvements financed by County of Orange Assessment District No The value estimates cover only the land and direct improvements to the land completed at date of value. It should be understood that the contributory value of any model complexes and completed or partially completed production homes has not been estimated.

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101 TABLE OF CONTENTS Appraisal Certification...1 Assumptions and Limiting Conditions Introduction and Purpose of Appraisal...5 Function of Appraisal, Date of Value, and Market Value Definition...6 Scope of Appraisal...7 General Location and Regional Trends Residential Market Overview Surrounding City and Neighborhood Infuences Property Descriptions: Taylor Woodrow (Belcara) Lennar (Pienza) Taylor Woodrow (Cypress) Shea (Costa Azul) Crystal Cove Custom Lots Highest and Best Use Valuation Methodology...28 Valuation - Merchant Builder Projects: Market Data Summary and Analysis Value Estimate - Taylor Woodrow (Belcara) Value Estimate - Lennar (Pienza)...34 Value Estimate - Taylor Woodrow (Cypress) Value Estimate - Shea (Costa Azul)...37 Valuation - Crystal Cove Custom Homesites: Summary of Custom Lot Sales Aggregate Value Estimate (Individual Sold Lots) Bulk Sale Value Estimate (Lots Remaining in Builder Inventory) Market Data (Merchant Builder Land Sales) Addenda Property Assessment Liens (County of Orange Assessment District No. 01-1) Qualifications of Appraiser GARY L. VOGT and ASSOCIATES Real Estate Appraisers and Consultants

102 CERTIFICATION The undersigned does hereby certify as follows: 1. I inspected the subject properties. 2. I have no present or contemplated future interest in the real estate that is the subject of this appraisal report nor do I have any personal interest or bias with respect to the subject matter or the parties hereto. 3. To the best of my knowledge and belief, the statements of fact contained in this report are true and correct. 4. The analyzes and opinions contained herein are limited only by the reported qualifying assumptions and limiting conditions (imposed by the terms of my assignment or by the undersigned) and are my personal, unbiased professional analyzes and opinions. 5. This appraisal report has been made in conformity with and is subject to the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics of the Appraisal Institute. Further, the use of this appraisal report is subject to the requirements of the Appraisal Institute relative to review by its duly authorized representatives. 6. No one other than the undersigned prepared the analyzes, conclusions, and opinions concerning real estate valuation that are set forth in this report. 7. I hereby certify that the fee for this appraisal is not contingent upon the amount of the value reported, nor upon any other condition excepting the predetermined fee. The valuation assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan. 8. The Appraisal Institute conducts a program of continuing education for its designated members. MAI's who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, I have completed the requirements of the continuing education program of the Appraisal Institute. Gary L. Vogt, MAI Certified General Appraiser CA No. AG GARY L. VOGT and ASSOCIATES Page 1 Real Estate Appraisers and Consultants

103 ASSUMPTIONS AND LIMITING CONDITIONS The Uniform Standards of Professional Appraisal Practice require the appraiser to "clearly and unequivocally set forth all facts, assumptions and limiting conditions upon which the appraisal is based." In compliance therewith, and to assist the reader in interpreting this report, such limiting conditions and assumptions are set forth as follows: 1. That the date of value to which the conclusions and opinions expressed in this report apply is set forth in the appraisal report. Further, that the dollar amount of any value opinion herein reported is based upon the purchasing power of the American dollar on that date. 2. That the appraiser assumes no responsibility for economic or physical factors which may affect the opinions herein stated occurring at some date after the date of the letter transmitting this report. 3. That the appraiser reserves the right to make such adjustments to the valuation as may be required by consideration of additional data or more reliable data that may become available. 4. That maps, plats, and exhibits included herein are for illustration only as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced, or used apart from this report. 5. That no opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. 6. That since earthquakes are not uncommon in the area, no responsibility is assumed due to their possible effect on the appraised properties. 7. That this valuation assumes that there are no toxic wastes, contaminants, hazardous materials, or other adverse environmental conditions, on or within the appraised properties that may affect their value and/or utility. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover and evaluate them. 8. That the properties are appraised assuming that all applicable zoning and land use controls and regulations have been complied with unless otherwise stated. Further, the properties are assumed to be under responsible ownership and competent management, and available for their highest and best use. 9. That no soils or geology reports covering the appraised properties were reviewed by the appraiser. It is a premise of this appraisal that soil and geological conditions within each property are stable, or capable of being stabilized through conventional grading and slope stabilization techniques, and upon development in accordance with sound engineering practices will be capable of supporting standard construction consistent with highest and best use. GARY L. VOGT and ASSOCIATES Page 2 Real Estate Appraisers and Consultants

104 ASSUMPTIONS AND LIMITING CONDITIONS (Continued): 10. That no title reports covering the appraised properties were reviewed by the appraiser. Information concerning ownership of individual lots at date of value was taken from Orange County Assessor records and/or The Irvine Company. It is an assumption of this valuation that fee simple title to each property is marketable and, unless otherwise discussed hereinafter, free and clear of any title conditions, liens or other encumbrances that would have a material adverse impact upon the utility or marketability of the property. 11. That no engineering survey was made by the appraiser. Data relative to gross and net land areas as well as individual residential lot sizes was taken from tentative or final tract maps or other documents provided by the master developer and/or the individual merchant builders. Such information is assumed to be correct; however no warranty of same is implied or intended. 12. That there exist no undisclosed restrictions or prohibitions concerning the possible use or development of the properties for any purpose for which they are available. 13. That the appraised land is valued in its as is physical condition at date of value as enhanced by existing infrastructure improvements financed by County of Orange Assessment District No That the value estimates include only the land and direct improvements to the land including grading, drainage facilities, utilities, streets, common area improvements, slope landscaping, and land-based fees. It should be understood that the contributory value of any structures on the appraised land at date of value, including completed or uncompleted models and production homes, has not been estimated. 15. That each grouping of lots identified as a separate merchant builder project is valued as an independent market entity. No attempt has been made to estimate the bulk sale value of all appraised properties if sold to one buyer in a single transaction. 16. That the properties are valued subject to existing special assessment liens from County of Orange Assessment District No as well as tax liens from Irvine Ranch Water District, Laguna Beach Unified School District, and/or Newport-Mesa Unified School District. 17. That the adjustments to the market value of each property for uncompleted site work at date of value are based primarily upon cost estimates provided by the Irvine Company and/or project managers for the individual projects. It is a premise of this appraisal that the cost estimates provided to the appraiser are complete, accurate, and representative of marketbased costs for such uncompleted work at date of value. It should be understood that if actual site improvement costs are significantly higher or lower than the cost estimates available to the appraiser, the value opinions contained herein may be invalid. 18. That, except for the fact that the appraiser was retained by the property owner and not the County of Orange, this appraisal is, to the best of my knowledge, performed in accordance with the Appraisal Standards for Land Secured Financing issued by the California Debt Investment and Advisory Commission. GARY L. VOGT and ASSOCIATES Page 3 Real Estate Appraisers and Consultants

105 ASSUMPTIONS AND LIMITING CONDITIONS (Continued): 19. That this report is based, in part, upon information assembled from a wide range of sources. While the incorporated data is believed to be reliable, it cannot be guaranteed and no warranty is implied or intended for its accuracy. An impractical and uneconomic expenditure of time would be required in attempting to furnish unimpeachable verification in all instances. 20. Disclosure of the contents of this appraisal report is governed by the author and by the By- Laws and Regulations of the Appraisal Institute. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser, or any reference to the Appraisal Institute, or to the MAI designation) shall be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the author. Permission is hereby granted to the named client, the County of Orange, and to other parties specifically authorized by the client or the County, to use this report and to disseminate the information, analyzes, and conclusions contained herein in connection with County of Orange Assessment No. District GARY L. VOGT and ASSOCIATES Page 4 Real Estate Appraisers and Consultants

106 GENERAL INFORMATION INTRODUCTION: The appraised properties are located in the Newport Coast area of the City of Newport Beach and are part of the Crystal Cove and Pacific Ridge planned communities. Each property is briefly described in the following table and complete descriptions may be found later in the report. DEVELOPER PROJECT NAME NO. LOTS DESCRIPTION CURRENT STATUS Taylor Woodrow "Belcara at Pacific Ridge Lennar "Pienza at Pacific Ridge Taylor Woodrow "Cypress at Pacific Ridge Shea "Costa Azul at Pacific Ridge The Irvine Company Custom Homesites at Crystal Cove 107 Detached single family homes (2,475 SF to 3,079 SF) on lots averaging ±6,000 SF. Current price range $1,535,000 to $2,031, Detached single family homes (2,613 SF to 3,557 SF) on lots averaging ±7,000 SF. Current price range $1,848,000 to $2,148, Detached single family homes (2,918 SF to 4,130 SF) on lots averaging ±7,500 SF. Current prices $1,806,000 to $2,767, Detached single family homes (3,632 SF to 4,844 SF) on lots averaging ±9,000 SF. Current prices $2,209,000 to $2,577, Pads range from ±19,000 SF to ±33,000 SF and average ±25,000 SF. Elevated hillside location with excellent ocean & coastline views. Opened March Builder has released 82 homes and reported 74 sales and 23 closed escrows at end of year. Lot condition varies from finished to partially finished. Opened early July Builder has released 28 homes and reported 20 sales and 12 escrow closings at end of year. All lots are in finished condition. Opened August 28, Builder has released 22 homes and reported 17 sales at end of year. No closings yet. 28 lots finished and 5 lots near-finished. Project opened 1/8/2005 (after date of value). As of late January, builder has released 11 homes and reported 11 sales. 5 lots finished and 32 lots partially-finished. Lots partially finished. First lots released for sale in September of At date of value, 18 lots had sold with 14 closed escrows. Prices range from $2,485,000 to $4,051,000. Total: 240 PURPOSE OF APPRAISAL: The purpose of the appraisal is to estimate the market value of the fee simple interest in the land subject to the special taxes and special assessment liens. The contributory value of any structures existing on the appraised land at date of value, including models and completed or uncompleted production homes, has not been estimated. The value estimates for the four Pacific Ridge projects and the eleven custom homesites at Crystal Cove that remained in Irvine Company ownership at date of value assume that all lots in each grouping are sold in bulk to one buyer in a conventional non-phased transaction without seller price or profit participation. The fourteen custom homesites that had closed escrow to individual buyers at date of value are valued separately. GARY L. VOGT and ASSOCIATES Page 5 Real Estate Appraisers and Consultants

107 FUNCTION OF APPRAISAL: The appraised properties are located within the boundaries of County of Orange Assessment District No which was formed in 2002 to finance the construction of certain infrastructure improvements in the Crystal Cove and Pacific Ridge developments. The assessment liens encumbering the appraised properties total $26,287,184. The function of the appraisal is to assist the County of Orange, the property developer, and other members of the finance team in the fixed rate conversion of bonded debt currently encumbering the five appraised properties. DATE OF VALUE: The effective date of value of this appraisal is January 7, ESTATE TO BE VALUED: The real property interest to be valued is the fee simple estate subject to title conditions of record unless otherwise noted. DEFINITION OF VALUE: Market value is defined as 1 : "the most probable price which a property will bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress." Implicit in this definition is consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated. 2. both parties are well informed and each acting in their own best interest. 3. the property is exposed for a reasonable time in the open market. 4. payment is made in terms of cash in U.S. Dollars or in terms of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special financing or sales concessions granted by anyone associated with the sale. 1 Dictionary of Real Estate Appraisal, Third Edition, The Appraisal Institute GARY L. VOGT and ASSOCIATES Page 6 Real Estate Appraisers and Consultants

108 SCOPE OF APPRAISAL AND VALUATION METHODOLOGY: The Uniform Standards of Professional Appraisal Practice require that the appraiser identify the scope of work necessary to complete the appraisal assignment. In compliance therewith, the general scope and extent of the appraisal investigation and valuation analyses is outlined below: 1. The appraised properties and their environs were physically inspected in August and September of 2004 and January of Physical, legal and economic factors impacting the properties were investigated and documented. These included land use entitlements, topography, drainage, utilities, streets and access, view characteristics, special assessments, and status of in-tract land and structural improvements. Copies of tentative and/or final tract maps, development cost estimates, retail product summaries, marketing brochures, and other pertinent information was obtained and reviewed. 3. Local and regional forces that affect real property value, including social, economic, governmental, and environmental factors, were investigated and analyzed. Among the materials reviewed were: Employment, economic, and housing data published periodically by the Orange County Register, The Los Angeles Times, the Southern California Association of Governments, and DataQuick Information Systems Economic Reports and Forecasts by Chapman University, UCLA, Cal State Long Beach, Cal State Fullerton, and the LA County Economic Development Corporation New housing tract surveys published quarterly by MarketPoint Realty Advisors 4. Market data involving custom homesites and land sales to merchant builders was gathered from various sources including Co-Star COMPS, First American Real Estate Solutions, Southern California Multiple Listing Service, land developers, and other appraisers. 5. The relevant market data was compared and contrasted to the subject properties with adjustments considered for significant property variables, including factors such as location, date of sale, terms of sale, physical condition, lot size/density, view characteristics, composite tax rates, and retail product size and price. 6. All land parcels are initially valued as if fully finished lots at date of value. The cost of any site work remaining at date of value to reach a finished lot condition is then estimated and deducted to arrive at an indication of the as is land value. As earlier noted, the contributory value of any models or production homes completed or under construction at date of value has not been estimated. 7. The final opinion of market value for each property was recorded and documented in this Summary Appraisal Report. This report is intended to represent an appraisal assignment as defined by the Uniform Standards of Professional Appraisal Practice. That is, it is intended that the assignment be performed such that the results of the analyses, opinions, and conclusions are those of a disinterested third party. GARY L. VOGT and ASSOCIATES Page 7 Real Estate Appraisers and Consultants

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110 GENERAL LOCATION: The subject properties are located in the central coastal region of Orange County, California in the City of Newport Beach. Directions and driving distances to some key surrounding communities and points of interest are estimated as follows: LOCATION DIRECTION DISTANCE Newport Center Northwest ±4 miles Univ. Of Calif. - Irvine North ±6 miles John Wayne Airport North ±9 miles Santa Ana North ±15 miles Laguna Beach Southeast ±2 miles Los Angeles Northwest ±50 miles San Diego Southeast ±80 miles The Southern California freeway system is accessible from the Newport Coast area via Newport Coast Drive or MacArthur Boulevard to the San Joaquin Hills Transportation Corridor (SR 73). REGIONAL DATA: Orange County is located along the Southern California Coastline between Los Angeles and San Diego. According to the California Department of Finance, the County s population as of January 2004 was 3,017,300. That was an increase of 41,900, or 1.4%, over the January 2003 estimate. The Southern California Association of Governments estimates that the County s population will increase to 3,235,000 by 2010 and 3,542,000 by Aided by six major freeways, three toll roads, passenger and freight rail facilities, and John Wayne Airport, Orange County has developed a diversified economic base. Tourism is a major component with such attractions as Disneyland, Disney s California Adventure, Knott s Berry Farm, and the Anaheim Convention Center. The County s 42 miles of coastline contains three large pleasure boat harbors, and many fine beaches, hotels, and restaurants. The following is a summary of key economic indicators and trends for Orange County: Employment: Following annual employment growth rates as high as 4.6% in 1998, 3.1% in 1999 and 3.2% in 2000, Orange County s annual job growth rate turned negative (±-0.4%) during 2001 before rebounding to +1.3% in 2002 and +0.9% in Recent estimates from the California EDD indicate that Orange County added approximately 11,000 jobs in 2004, a 0.8% gain. However, Esmael Adibi of Chapman University's Economic Forecast Center recently indicated that, based upon new figures from the US Bureau of Labor Statistics, Orange County likely added about 25,000 new jobs during 2004, a 1.7% annual growth rate. GARY L. VOGT and ASSOCIATES Page 8 Real Estate Appraisers and Consultants

111 According to the California EDD, Orange County s unemployment rate fell to 2.7% in December, the lowest rate in over three years. That was down from 3.0% in November and 3.2% in December of The County s estimated non-farm work force during December was 1,455,000 workers. Leading employment sectors in the County are services, manufacturing, retail trade, government, finance / insurance, leisure & hospitality, wholesale trade, and construction. The statewide unemployment rate in December of 2004 was 5.8%, unchanged from November. December 2004 unemployment rates for neighboring counties were Los Angeles (5.7%), San Diego (3.2%), Riverside (4.8%), Ventura (4.5%), and San Bernardino (4.5%). The recent statewide economic forecast from UCLA predicts that California will have solid but not spectacular economic growth in 2005". UCLA is forecasting that statewide employment will grow 1.6% in 2005 and 1.7% in 2006, up from 0.8% in Chapman University recently released their 2005 economic forecast which predicts that California s employment will grow by 1.2% during the year. For Orange County alone, UCLA is forecasting a 1.8% increase in jobs during 2005 while Chapman University s forecast for the year is 1.4%. In a report released in October of 2004, Cal State Fullerton s Institute for Economic and Environmental Studies forecasted that Orange County s job base will grow 1.9% in 2005 and 2.1% in Personal Income and Taxable Sales: Median family income in Orange County was about $73,000 during Chapman University is forecasting that personal income will grow 5.3% in 2005, with a real growth rate (after adjustment for inflation) of 1.9%. UCLA is forecasting that personal income in Orange County will grow 5.8% in 2005 while Cal State Fullerton s 2005 forecast for income growth is 5.9%. Chapman University estimates that Orange County s taxable sales increased about 3.8% in 2003 and 4.4% in 2004 following an increase of only 2.0% in They are forecasting a 5.0% gain in Orange County s taxable sales for UCLA is forecasting increases in statewide taxable sales of 4.8% in 2005 and 5.1% in Real Estate and Construction Activity: Following a decade high of $4.0 billion in 2000, building permit valuations in Orange County declined to $3.4 billion in 2001 and to about $3.3 billion in Permit valuations also totaled about $3.3 billion in 2003 and Chapman University is estimating that permits will total about $3.4 billion in 2004 before dropping slightly to $3.2 billion in To date, most of the decline in construction since 2000 has been in the office and commercial sectors. Orange County s 245 million SF industrial market continues to perform well. According to CB Richard Ellis, the industrial vacancy rate at the end of 2004 was 4.0%, down from 5.1% at mid-year. Total market absorption for 2004 was 3.1 million SF, the highest annual total since The average industrial rental rate during the fourth quarter was $0.60/SF, up from $0.59/SF during the third quarter. Approximately 950,000 SF of new industrial space was under construction at the end of GARY L. VOGT and ASSOCIATES Page 9 Real Estate Appraisers and Consultants

112 Although still over-built by most historical measures, the condition of Orange County s 92 million SF office market continues to improve. About 3.3 million SF of office space was absorbed during 2004, up from 2.8 million SF absorbed in According to CB Richard Ellis, the office vacancy rate at the end of 2004 was 10.6%, down from 11.5% during the third quarter, and down from 15.5% in mid The recent vacancy rate is the lowest since early The current average countywide office rental rate is about $2.05/SF, up from $1.97/SF during the first quarter of the year. Orange County s 76 Million SF retail market remains strong. According to CB Richard Ellis, retail vacancy at the end of 2004 was 4.4%, an 8-year low. The average retail rent at the end of the year was $2.29/SF, up sharply from $2.03/SF during the first quarter. The County absorbed about 750,000 SF of retail space during the year. About 925,000 SF of new retail space was under construction at the end of the year. Due in part to soaring home prices and the resulting gap between monthly mortgage costs and monthly apartment rents, Orange County s apartment market remains strong with current overall vacancy of ±4.3%. According to RealFacts, the average monthly apartment rent in Orange County during the fourth quarter of 2004 was $1,329. While that represented an increase of 4.9% over the prior year, it was only slightly more than half of the County s estimated average mortgage cost of $2,300/month. The estimated average apartment rent in Newport Beach during the fourth quarter was $1,686, up 6.6% from one year ago. Among Orange County cities, average apartment rents are highest in Newport Beach followed by Irvine and Aliso Viejo. In summary, recent economic forecasts for California and Orange County see positive, albeit moderate, growth in jobs, personal income, and taxable sales over the next couple of years. The industrial, retail, and apartment markets remain strong with improving conditions in the office section. Please see the following section of the appraisal for a detailed discussion of Orange County s for sale residential real estate market. GARY L. VOGT and ASSOCIATES Page 10 Real Estate Appraisers and Consultants

113 RESIDENTIAL MARKET OVERVIEW: The following overview of Orange County s for sale housing market is taken primarily from information provided by MarketPointe Realty Advisors, DataQuick Information Systems, and the Real Estate Research Council. Home Sales Residential Building Permits Year New Homes Resales Total Sales Year-end Median $ SFD Permits SFA Permits Total Permits ,742 46,979 55,721 $205,000 8,029 8,608 16, ,722 36,823 44, ,000 3,352 8,627 11, ,288 34,917 41, ,000 3,589 2,980 6, ,418 30,352 35, ,000 3,582 2,361 5, ,441 30,683 36, ,000 4,507 1,903 6, ,218 35,822 43, ,000 7,565 5,079 12, ,227 28,975 35, ,000 5,663 2,616 8, ,175 34,849 42, ,000 7,070 3,131 10, ,844 41,611 49, ,000 8,219 4,020 12, ,864 51,203 58, ,000 7,346 2,735 10, ,972 50,154 57, ,000 7,692 4,658 12, ,833 49,889 57, ,000 6,771 5,406 12, ,122 41,803 52, ,000 5,829 2,731 8, ,846 46,009 52, ,000 6,380 5,435 11, ,423 47,570 53, ,000 5,553 3,715 9, ,001 41,718 47, ,000 4,299 4,802 9,101 According to DataQuick, a total of 358,130 homes were sold in Southern California (Los Angeles, Orange, Riverside, San Bernardino, Ventura, and San Diego Counties) during That was just slightly below the region s strong 2003 total of 359,983 sales. The median home price in the sixcounty region during December of 2004 was $424,000, up 22.5% from the December of However, the rate of increase has slowed significantly since June when the median price reached $406,000. Compared to the six-county region, the pace of home sales in Orange County slowed over the past year. DataQuick reports that a total of 47,719 homes were sold in Orange County during 2004, down 12% from 53,993 sales in Orange County s median home price in December of 2004 was $551,000, up 18% from December of However, Orange County s home price trend is similar to the region in that most of the increase over the past twelve months occurred during the first half of the year. For example, the December median of $551,000 is only 1.5% above the May median of $543,000. Segmented by category, December s median prices in Orange County were $390,000 for condominiums, $567,750 for resale detached homes, and $770,000 for all new homes. GARY L. VOGT and ASSOCIATES Page 11 Real Estate Appraisers and Consultants

114 Home resale prices in Newport Coast and other nearby areas are significantly above the countywide average. For example, DataQuick reported that December s median prices were $1,400,000 in Newport Coast, $1,315,000 in Corona del Mar, $1,028,000 in Newport Beach, and $1,265,000 in Laguna Beach. Those price are up significantly from December of However, over the same time period, total sales in the four communities dropped from 192 units in December of 2003 to 155 units in December of The price disparity between Newport Coast and the balance of the county in the overall housing market is also evident for the new home market. According to MarketPoint Realty Advisors, there were four active new home projects in the local area during the last quarter of 2004, all of which were offering detached product. Prices range from $1,535,000 for a 2,475 SF home at Belcara in Pacific Ridge to $2,730,000 for a 3,622 SF ocean-view unit at Nautilus in Crystal Cove. There were 100 active new home projects in Orange County during the fourth quarter of 2004, up from 90 projects during the third quarter. During the last half of 2004, attached projects represented only about 30% of all active projects but accounted for 54% of all reported sales. The following two-year summary of Orange County s new home market is taken from tract surveys published quarterly by MarketPointe Realty Advisors. It should be noted that the annual sales totals do not correspond with the annual new home sales shown in the prior table since DataQuick reports closed sales and MarketPointe reports new homes that have gone under sales contracts. Period Year/ Quarter Attached Homes Detached Homes Sales Projects Avg. / Mo. Avg. Price Sales Projects Avg. / Mo. Avg. Price $428,495 1, $579, $406,119 1, $692, $394,493 1, $784, $565,097 1, $851,974 Total/Year 2,160 4, $540,935 1, $925, $612,701 1, $1,088, $615, $1,401, $569, $1,207,209 Total/Year 1,885 2,829 As shown in the table, Orange County s new home market was very strong through all of 2003 and the first half of During that period, attached projects averaged about 7.5 sales/month and detached projects averaged about 4.7 sales/month. Those absorption rates were achieved in the face of average attached prices increasing from $428,000 to $612,000 and average detached home prices increasing from $579,000 to $1,088,000. For all of 2003 and the first half of 2004, the Orange County market absorbed an average of 1,677 new homes each quarter. However, local builders reported only 529 new home sales during the third quarter of While reported fourth quarter sales increased to 778 units, total new home sales volume for the last half of 2004 represented only 38% of the first half volume. On average, the attached projects sold 4.2 units/month during the last six months of 2004 while sales at detached homes averaged only 1.5 units/month. GARY L. VOGT and ASSOCIATES Page 12 Real Estate Appraisers and Consultants

115 In summary, the data published by DataQuick and MarketProfiles clearly indicate that Orange County s residential market has softened substantially since peaking in mid That is particularly true in the new home sector where sales volume during the second half of the year represented only 38% of the first half volume. Moreover, the unsold new home inventory at the end of 2004 was 4,246 units, up 81% from 2,342 units reported at mid-year. Of the 4,246 unsold units, 552 are in current phases with the balance in entitled but yet to be constructed project phases. At the average monthly sales rate for the last quarter of 2004, the existing total inventory represents approximately 16.4 months supply of product. By contrast, the available inventory at mid-2004 represented only about 4.1 months supply at the average sales pace of the first two quarters of the year. The primary reason for the slowdown appears to be high prices as interest rates remain low by historical standards, economic forecasts for the next two years are generally positive, and most housing and economic analyst agree that Orange County is still not producing enough new homes to satisfy fundamental demand. For example, a 1999 study by the Southern California Association of Governments estimated that Orange County needs to produce about 15,000 new housing units per year to keep pace with the County s projected growth in population and jobs. However, builders pulled permits for only 9,101 units in 2004 and the most recent 5-year average is 10,184 units/year. The rise in new home prices is perhaps best illustrated when analyzed on the basis of price per SF of living area. According to MarketProfiles, average new home prices during the fourth quarter of 2002 were $240/SF for attached product and $228/SF for detached product. By the fourth quarter of 2004, average prices had increased to $382/SF for attached homes and $372/SF for detached homes. The indicated two-year average price increase is 59% for attached product and 63% for detached product. That compares with a 43% increase in the median price of all homes sold in Orange County over the same time period as reported by DataQuick. The negative impact of rising home prices upon demand is reflected in the drop in the County s Housing Affordability Index (HAI). The HAI is the percentage of households in the County with enough income to buy the median priced home. Orange County s HAI was 48% in 1995 prior to the start of the current housing boom. Since that time, the HAI has steadily declined and was reported by the California Association of Realtors to be at 13% in November of 2004, down from 18% in November of To date, the drop in new home sales volume over the past six months has not spurred any widespread price cuts although several builders are reported to be offering incentives for the first time in several years. Recent forecasts of near-term home price trends in Orange County are mixed. Chapman University is forecasting that Orange County home prices will fall 7.4% in 2005 while Cal State Fullerton recently predicted a 20% drop in home prices over the next two years. On the other hand, Cal State Long Beach is forecasting a 11% increase in the County s home prices during GARY L. VOGT and ASSOCIATES Page 13 Real Estate Appraisers and Consultants

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117 SURROUNDING CITY AND NEIGHBORHOOD INFLUENCES: The five appraised properties are located within the Newport Coast area of the City of Newport Beach. Newport Beach is an upscale coastal community with ±10 miles of ocean frontage and ±25 miles of bay frontage. According to figures from the State of California, the City s population was 80,800 as of January 2004, an increase of 1.1% over the January 2003 population estimate. The ±10,000 acre Newport Coast project is situated along the coastline between Corona Del Mar and Laguna Beach and extends inland to the San Joaquin Hills Transportation Corridor. The project was certified by the California Coastal Commission in 1988 and is entitled for up to 2,600 dwelling units and 2,150 hotel/time-share units. Approximately 7,250 acres, or ±73% of the total Newport Coast project area, are committed to permanent open space uses including Crystal Cove State Park and Pelican Hill Golf Club. The golf course opened in 1991 and consists of two 18-hole public courses, a driving range, and clubhouse/banquet facility. Marriott Corporation is currently developing a 500-unit vacation/time-share facility near the golf courses on Newport Coast Drive. Since 1992, approximately twenty-four production home projects totaling ±1,735 units have been completed and sold out at Newport Coast. These include five attached projects (Altezza, Trovare, Strada, Ziani, and Seascape) and nineteen detached projects (Civita, Santa Lucia, Bramalea and Signature Collection, Tesoro Villas, Tesoro Crest, Campobello, Montecito, Perazul, Serena, Sausalito, Cassis, Seabourn, Watermark, Windward, The Strand, White Sails, Nautilus, and Oceana). Sale prices over that time have ranged from $190,000 at Trovare in 1992 to over $3 million at Watermark in Crystal Cove. At date of value, there were four active projects offering detached product priced from approximately $1,535,000 to $2,730,000. One additional detached project (Costa Azul) opened at Pacific Ridge in early January of this year. The Irvine Company has developed four custom lot projects totaling 426 lots at Newport Coast. Three of the projects totaling 261 lots (Pelican Point, Pelican Hill and Ocean Ridge) have sold out. The fourth and most recent project, the 165-lot Pelican Crest development, is essentially sold out. Since opening in 1996, lot prices at Pelican Crest have ranged from $535,000 for non-view lots to near $5 million for prime ocean view sites. The appraised properties are located within the Crystal Cove and Pacific Ridge residential development enclaves which are part of the larger Newport Coast planned community. Each area is briefly described as follows: Crystal Cove: Crystal Cove is a gated community situated along the inland side of Coast Highway across from Crystal Cove State Park and immediately upcoast of the City of Laguna Beach. The project is entitled for 780 residential units and a ±125,000 SF retail center. The hillside project features primarily single-loaded streets and most residential lots have good to excellent ocean and coastline views. The project is highly amenitized with elaborately landscaped entry complexes at the gates on Crystal Heights Drive and Reef Point Drive. When fully developed, Crystal Cove will consist of 649 production homes and 131 custom lots. The first production home phase at Crystal Cove was referred to as Beachtown I and consisted of four merchant builders offering 263 dwelling units. All four projects in Beachtown I started construction and marketing in 2000 and the last project sold out in late Original prices at Beachtown I ranged from approximately $950,000 to over $2.5 million and recent resales have been as high as $4.6 million. The second development phase (Beachtown II) opened in mid-2003 with four merchant builders offering a total of 207 homes. The opening price range was approximately $1.6 million to $3.1 million. Three of those projects sold out by mid-2004 and the fourth project (Nautilus) was sold out by the end of the year. GARY L. VOGT and ASSOCIATES Page 14 Real Estate Appraisers and Consultants

118 The 25 custom lots being appraised as a part of this assignment represent the first marketing phase of 131 custom homesites to be offered at Crystal Cove. An additional 179 lots will be marketed to merchant builders as semi-custom production homes. Crystal Cove Promenade is a ±125,000 SF specialty retail center located on the inland side of Pacific Coast Highway at the entrance to Crystal Cove. The project opened in 2002 and major tenants include Trader Joe s, Williams Sonoma, The Gap, and Banana Republic. Pacific Ridge Pacific Ridge is a ±350 gross acre portion of the Newport Coast development located approximately 2.5 miles inland of the ocean along both sides of Ridge Park Drive. The gated project is bordered on the west by Los Trancos Canyon and on the east by the wilderness portion of Crystal Cove State Park. The portion inland of Ridge Park Drive was developed with Brookfield s Ziani project. The gated 168-unit townhome project opened in April of 2003 with a price range of $573,000 to $807,000. Ziani sold out in the third quarter of 2004 with a last reported price range of $735,000 to $1,064,000. The portion of Pacific Ridge situated southerly of Ridge Park Drive is approved for 328 detached single family lots ranging in size from ±6,000 SF to ±9,000 SF. Four of the properties included in this appraisal comprise 215 of those lots. In summary, the Crystal Cove and Pacific Ridge projects are situated in one of the premiere coastal developments in all of Southern California with proximity to existing prestigious and high-value residential communities in Newport Beach, Corona del Mar, and Laguna Beach. Offices, shopping, movie theaters, and restaurants are located nearby at Newport Center while Laguna Beach has many fine restaurants and speciality shops. The Newport Coast area is also conveniently located with respect to the University of California at Irvine, John Wayne Airport, and the large employment and business centers at Irvine Spectrum and surrounding John Wayne Airport. In addition to beach, golf, and wilderness park recreational opportunities available within the immediate Newport Coast area, there are many other recreational and cultural amenities located nearby in Newport Beach, Laguna Beach, Irvine, Costa Mesa and other parts of Orange County. All factors considered, surrounding influences are considered strongly positive for the subject properties. GARY L. VOGT and ASSOCIATES Page 15 Real Estate Appraisers and Consultants

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120 PROPERTY DESCRIPTION TAYLOR WOODROW (BELCARA) LOCATION: This project is located on both sides of Upper Ridge between West Coastal Peak and East Coastal Peak in the Pacific Ridge planned community. Pacific Ridge is a gated residential community which is accessed from the north via two entry gates on Ridge Park Drive. LEGAL DESCRIPTION AND OWNERSHIP: This property consists of 107 residential lots which are legally described as: Tract 16462: Lots 1 to 86 Tract 16494: Lots 1 to 21 The 107 lots were purchased by Taylor Woodrow Homes from The Irvine Company in a 9-phase land sale agreement signed in November of 2002 (see Market Data No. 3 later in report). According to The Irvine Company and/or Orange County Assessor records, fee title to 82 lots had transferred to Taylor Woodrow at date of value. Of those, the builder reported that they had completed homes and closed escrows to 23 individual homeowners at date of value. PARCEL AND LOT SIZE: The property contains a net pad area of ±18.45 acres. The indicated project density is 5.8 lots per acre. Individual lots are 50' to 65' wide by 90' to 105' deep and are configured in clusters around a central entry courtyard. The average lot size is ±6,000 SF. PHYSICAL CONDITION / PROJECT STATUS: All lots were purchased in a bluetop pad condition. At time of purchase, the estimated cost to reach finished lot condition was $93,000 per lot. At date of value, all 21 lots in Tract were fully finished. The model complex is located on Lots 1-9 and Lots are improved with completed and occupied production homes. Within Tract 16462, Lots 1-21 and are fully finished with generally completed homes. Lots in Tract are near-finished with homes underway. Lots and are partially finished, generally lacking courtyard paving and common area landscaping. Lots located along the perimeter of the project will have some territorial views. There are no significant ocean views from this location. STREETS AND UTILITIES: All of the appraised lots are accessed off of Upper Ridge, a two-lane collector street located within the northern portion of the Pacific Ridge development. Upper Ridge is fully developed except for portions which currently lack sidewalks, streetscape, and street cap. All required public utilities are available and in service to the site from the following suppliers. Water and Sewer: Electric: Telephone: Gas: Irvine Ranch Water District Southern California Edison General Telephone Southern California Gas Co. GARY L. VOGT and ASSOCIATES Page 16 Real Estate Appraisers and Consultants

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122 REAL PROPERTY TAXES AND ASSESSMENTS: The Belcara project is identified as the following Orange County Assessor Parcels: Tract 16494: to 15 and to 44 Tract 16462: to 61 and to 61 The base tax rate is just over 1%. In addition, the property is subject to special assessments for infrastructure improvements from County of Orange Assessment District No. 01-1, for water and sewer improvements from the Irvine Ranch Water District, and for schools from the Newport-Mesa Unified School District. The special tax lien from AD No is $8,827,783, or $82,503/lot. The sales office estimates that the composite tax rate on finished homes is ±1.7% of market value. The association dues for Belcara at buildout are estimated to be approximately $420/month. ZONING/LAND USE ENTITLEMENTS: The subject property is fully entitled for single family residential use. It is part of Approved Vesting Tentative Tract Map No and is covered by recorded Final Tract Map Nos and RETAIL PRODUCT: Taylor Woodrow is actively constructing and marketing detached single family homes within a project called Belcara at Pacific Ridge. The product is briefly summarized as follows with prices as reported by the sales office in early 2005: Plan Description Size (SF) Current Prices One Milano Two Belleza Three Sienna Four Celano Two story, 3 bedrooms, 3.5 baths, 2-car garage Two story, 3 bedrooms, 2.5 baths, 2-car garage Two story, 4 bedrooms, 3.5 baths, 2-car garage Two story, 4 bedrooms, 4.5 baths, 2 & 3-car garages 2,475 From $1,567,445 2,600 From $1,700,790 2,753 From $1,569,535 3,079 From $1,879,350 At the time that the land purchase was signed in late 2002, the estimated average retail home price was approximately $990,000 which included estimated view premiums of $111,000/lot. The project opened March 20, 2004 with a base price range of $1,183,000 to $1,530,000. By midyear, Taylor Woodrow had released 68 homes and reported 68 sales. On August 15 th, the builder released an additional 14 homes with a price range at that time of $1,517,000 to $2,021,000. As of the end of the year, 6 homes in the final release had sold. In summary, the builder has released 82 homes since March 20, 2004 and reported 74 sales and 23 closed escrows as of December 31, GARY L. VOGT and ASSOCIATES Page 17 Real Estate Appraisers and Consultants

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124 PROPERTY DESCRIPTION LENNAR (PIENZA) LOCATION: The appraised lots are located on Highpoint and Wayside southerly of Upper Ridge and on Coastal Oak southerly of West Coastal Peak in the Pacific Ridge planned community. LEGAL DESCRIPTION AND OWNERSHIP: This property consists of 38 residential lots legally described as: Tract 16464: Lots 1 to 23 & 56 to 70 The 38 lots were purchased by Greystone Homes (now a part of Lennar ) from The Irvine Company in a 5-phase land sale agreement signed in November of 2002 (see Market Data No. 4). According to The Irvine Company and/or Orange County Assessor records, fee title to 35 lots had transferred to Greystone Homes at date of value. Of those, the builder reported that they had completed homes and closed escrows to 12 individual homeowners at date of value. PARCEL AND LOT SIZE: The property contains a net pad area of ±11.36 acres. The indicated project density is 3.35 lots per acre. Individual lots are typically 60' wide by 100' deep with a minimum lot size of ±6,000 SF. The average lot size is approximately 7,000 SF and the maximum lot size is about 10,000 SF. PHYSICAL CONDITION / PROJECT STATUS: All lots were purchased in a bluetop pad condition. At time of purchase, the estimated cost to reach finished lot condition was $83,200 per lot. At date of value, all lots were fully finished except for the street cap on a few lots lots. Lots 1-5 remain vacant and the model complex is located on Lots Production homes are finished or near-finished with some occupancies on lots and A majority of the lots will have territorial hill and canyon views while a few south-facing lots on Wayside and Highpoint may pick up limited blue water ocean views. STREETS AND UTILITIES: Highpoint, Wayside, and Coastal Oak are short cul-de-sac streets which connect to Upper Ridge, a 2-lane collector street located within the northern portion of the Pacific Ridge development. All required public utilities are available and in service to the site from the following suppliers. Water and Sewer: Electric: Telephone: Gas: Cable Television: Irvine Ranch Water District Southern California Edison General Telephone Southern California Gas Co. Cox Communications REAL PROPERTY TAXES AND ASSESSMENTS: The Pienza project is identified as Orange County Assessor Parcel Nos to 38 and to 47. GARY L. VOGT and ASSOCIATES Page 18 Real Estate Appraisers and Consultants

125 The base tax rate is just over 1%. In addition, the property is subject to special assessments for infrastructure improvements from County of Orange Assessment District No. 01-1, for water and sewer improvements from the Irvine Ranch Water District, and for schools from the Newport-Mesa Unified School District. The special tax lien from AD No is $4,633,185, or $121,926/lot. The sales office estimates that the composite tax rate on finished homes is ±1.7% of market value. The estimated monthly association dues for Pienza at buildout are approximately $365. ZONING/LAND USE ENTITLEMENTS: The subject property is fully entitled for single family residential use. It is part of Approved Vesting Tentative Tract Map No and is covered by recorded Final Tract Map No RETAIL PRODUCT: Lennar is actively constructing and marketing detached single family homes within a project called Pienza at Pacific Ridge. The three models are briefly described as follows: Plan Description Size (SF) Current Prices Including Lot Premiums One Two Three One story, 3 bedrooms, 3.5 baths, 2-bay garage Two story, 3 bedrooms, 3.5 baths, 2-bay tandem garage Two story, 4 bedrooms, 4.5 baths, 2-bay tandem garage 2,613 From $1,848,000 3,204 $1,831,000 to $2,148,000 3,557 $2,004,000 to $2,142,000 At the time that the land purchase was signed in late 2002, the estimated average retail home price was approximately $1,448,000 which included estimated premiums of $275,000/lot. The Pienza project opened August 21, 2004 with a release of 13 homes followed by a second release of 4 homes on September 11, The opening price range was approximately $1,752,000 to $1,963,000. As of the end of September, the builder reported that all 17 homes in the first two releases were sold. A third phase of 11 homes was released November 14 th. As of the end of the year, 3 homes in the final release had been sold. In summary, the builder has released 28 homes and reported 20 sales as of the end of GARY L. VOGT and ASSOCIATES Page 19 Real Estate Appraisers and Consultants

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127 PROPERTY DESCRIPTION TAYLOR WOODROW (CYPRESS) LOCATION: The appraised lots are located on Meridian and Observatory westerly of Upper Ridge and on Sundial easterly of Canyon Peak in the Pacific Ridge planned community. LEGAL DESCRIPTION AND OWNERSHIP: This property consists of 33 residential lots legally described as: Tract 16461: Lots 1 to 28 & 41 to 45 The 33 lots were purchased by Taylor Woodrow Homes from The Irvine Company in a 5-phase land sale agreement signed in March of 2003 (see Market Data No. 5). According to The Irvine Company and/or Orange County Assessor records, fee title to 22 lots had transferred to Taylor Woodrow at date of value. There were no closed escrows to individual homebuyers at date of value. PARCEL AND LOT SIZE: The property contains a net pad area of ±8.9 acres. The indicated project density is 3.7 lots per acre. Individual lots are 55' to 75' wide by 110' deep with a typical lot size of ±7,500 SF. PHYSICAL CONDITION / PROJECT STATUS: All lots were purchased in a bluetop pad condition. At time of purchase, the estimated cost to reach finished lot condition was approximately $57,000 per lot. At date of value, Lots 1-28 on Meridian and Observatory were finished. Lots on Sundial were partially finished lacking the street cap, sidewalks, and some common area landscaping. The completed model complex is located on Meridian and construction of production homes is underway on the lots on Observatory. The lots on Sundial remain vacant. A majority of the lots will have territorial hill and canyon views while a few south-facing lots on Meridian and Observatory may pick up limited blue water ocean views. STREETS AND UTILITIES: Meridian, Observatory, and Sundial are short 2-lane cul-de-sac streets which connect to Upper Ridge and Canyon Peak. At date of value, Upper Ridge was finished while Canyon Peak lacks sidewalks, street cap, and landscaping. All required public utilities are available and in service to the site from the following suppliers. Water and Sewer: Electric: Telephone: Gas: Cable Television: Irvine Ranch Water District Southern California Edison General Telephone Southern California Gas Co. Cox Communications GARY L. VOGT and ASSOCIATES Page 20 Real Estate Appraisers and Consultants

128 REAL PROPERTY TAXES AND ASSESSMENTS: The Cypress project is identified as Orange County Assessor Parcel Nos to 17 and to 29. The base tax rate is just over 1%. In addition, the property is subject to special assessments for infrastructure improvements from County of Orange Assessment District No. 01-1, for water and sewer improvements from the Irvine Ranch Water District, and for schools from the Newport-Mesa Unified School District. The special tax lien from AD No is $4,298,853, or $130,268/lot. The sales office estimates that the composite tax rate on finished homes is ±1.6% of market value. The estimated monthly association dues for Cypress at buildout are approximately $400. ZONING/LAND USE ENTITLEMENTS: The subject property is fully entitled for single family residential use. It is part of Approved Vesting Tentative Tract Map No and is covered by recorded Final Tract Map No RETAIL PRODUCT: Taylor Woodrow is actively constructing and marketing large single family homes within a project called Cypress at Pacific Ridge. The four models are briefly described as follows with pricing as reported by the sales office in January Plan Description Size (SF) Current Prices One Palerno One story, 3 bedrooms, 3.5 baths, 3-car garage 2,918-3,337 From $2,599,555 Two Classico Two story, 3 or 4 bedrooms, 3.5 baths, 3-car garage 3,489-3,674 From $1,806,200 Three Magnifico Two story, 4 bedrooms, 4.5 baths, 3-car garage 3,831-4,130 From $2,647,885 Four Pacifico Two story, 5 bedrooms, 5.5 baths, 3-car garages 3,985-4,010 From $2,767,430 At the time that the land purchase was signed in March of 2003, the estimated average retail home price was $1,637,000 which included an estimated average view premium of $217,000/lot. The Cypress project opened August 28, 2004 with a release of 9 homes. The opening price range was approximately $1,745,000 to $2,101,000. A second phase of 7 homes was released September 11 th followed by a third release of 6 homes in early November. As of the end of the year, the sales office reported sales contracts on 17 homes. GARY L. VOGT and ASSOCIATES Page 21 Real Estate Appraisers and Consultants

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130 PROPERTY DESCRIPTION SHEA (COSTA AZUL) LOCATION: The appraised lots are located on Pacific Mist, Morning Light, and Clearview southerly of West Coastal Peak in the Pacific Ridge planned community. LEGAL DESCRIPTION AND OWNERSHIP: This property consists of 37 residential lots legally described as: Tract 15811: Lots 8 to 44 The 37 lots were purchased by Shea Homes from The Irvine Company in a 7-phase land sale agreement signed in March of 2003 (see Market Data No. 6). There is no record of any other transaction within the past three years. According to The Irvine Company and/or Orange County Assessor records, fee title to 11 lots had vested in Shea at date of value. PARCEL AND LOT SIZE: The property contains a net pad area of ±12.89 acres. The indicated project density is 2.9 lots per acre. Individual lots are 65' to 75' wide by 125' deep with a typical lot size of ±9,000 SF. PHYSICAL CONDITION / PROJECT STATUS: All lots were purchased in a bluetop pad condition. At time of purchase, the estimated cost to reach finished lot condition was approximately $76,000 per lot. As of late January, Lots were fully finished and the remaining lots were partially finished lacking sidewalks, street cap, and some slope and common area landscaping. The model complex is located on Lots Production homes are being framed on Lots and foundation work is underway on Lots Lots should have limited distant bluewater ocean views and most of the other lots will have territorial hill and canyon views. STREETS AND UTILITIES: Pacific Mist is a long 2-lane collector street within the southern portion of the Pacific Ridge development and Morning Light and Clearview are short cul-de-sac streets connecting to Pacific Mist. All required public utilities are available and in service to the site from the following suppliers. Water and Sewer: Electric: Telephone: Gas: Cable Television: Irvine Ranch Water District Southern California Edison General Telephone Southern California Gas Co. Cox Communications GARY L. VOGT and ASSOCIATES Page 22 Real Estate Appraisers and Consultants

131 REAL PROPERTY TAXES AND ASSESSMENTS: The Costa Azul project is identified as Orange County Assessor Parcel Nos to 46 and to 38. The base tax rate is just over 1%. In addition, the property is subject to special assessments for infrastructure improvements from County of Orange Assessment District No. 01-1, for water and sewer improvements from the Irvine Ranch Water District, and for schools from the Newport-Mesa Unified School District. The special tax lien from AD No is $5,698,390, or $154,011/lot. The composite tax rate on finished homes is expected to be less than 1.7% of market value. Monthly association dues for Costa Azul are expected to be approximately $400. ZONING/LAND USE ENTITLEMENTS: The subject property is fully entitled for single family residential use. It is part of Approved Vesting Tentative Tract Map No and is covered by recorded Final Tract Map No RETAIL PRODUCT: Shea is actively constructing and marketing large single family homes within a project called Costa Azul at Pacific Ridge. The three models are briefly described as follows with pricing as reported by the sales office in January Plan Description Size (SF) Current Prices One One story, 3 to 5 bedrooms, 3.5 baths, 3-car garage 3,627 $2,209,000 - $2,323,000 Two Three Two story, 3 to 6 bedrooms, up to 5.5 baths, 3-car garage Two story, 4 to 7 bedrooms, up to 6.5 baths, 3-car garage 4,626 $2,459,000 - $2,486,000 4,889 $2,554,000 - $2,577,000 At the time that the land purchase was signed in March of 2003, the estimated average retail home price was approximately $2,005,000, which included an estimated average view premium of $221,000/lot. Shea released the first 11 homes on January 8, As of late January, the sales office reported that all 11 homes were under sale contract. GARY L. VOGT and ASSOCIATES Page 23 Real Estate Appraisers and Consultants

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133 PROPERTY DESCRIPTION THE IRVINE COMPANY (CRYSTAL COVE CUSTOM HOMESITES) LOCATION: The appraised lots represent the first marketing phase of 131 custom homesites within the Crystal Cove planned community. The lots are located westerly of Reef Point Drive on streets named Deep Sea, Mystique, and Del Mar. LEGAL DESCRIPTION AND OWNERSHIP: This property consists of 25 residential lots legally described as: Tract 16455: Lots 13-21, & At date of value, 14 lots had closed escrow with title vested in twelve different buyers. Two buyers purchased double lots. Four other lots were in escrow at date of value. Details of the closed sales and open escrows are retained in the appraisal work file. Title to the remaining 11 lots was vested in Irvine Community Development Company, LLC as of January 7, LOT SIZES: Lot pads range in size from ±17,200 SF to ±33,600 SF and average about 25,000 SF. Deducting required front, side, and rear yard setbacks, maximum permitted building envelopes range from 7,100 SF to 13,400 SF. No net pad area estimate was available for the 25 appraised lots, which are part of a larger development of 131 custom lots. PHYSICAL CONDITION / PROJECT STATUS: At date of value, all appraised lots were in a graded bluetop pad condition and most of the underground utility and drainage systems had been completed. Work yet to be completed in order to deliver finished custom homesites includes most street improvements and common area/slope landscaping. Based upon an estimate provided by the project manager for The Irvine Company, the cost of the uncompleted site work is approximately $255,000/lot. That estimate appears to be consistent with the amount of uncompleted site work observed by the appraiser on the date of inspection. PAD ELEVATIONS AND VIEWS: The appraised lots are located on three hillside tiers serviced by single-loaded streets. Lots on the lower tier are elevated ±75' to ±100' above the adjacent terrain. Lots 36, 37 & 38 have panoramic ocean and coastal views in a westerly direction towards Newport Harbor. Those lots also view over portions of the Pelican Hill golf course. Lot 35 has an expansive blue-water view in a south/southeast direction while Lots 50 & 51 face west/northwest and have partial upcoast views. The lots on the second tier are elevated ±50' to ±60' above the lower tier and, except for Lot 34, have panoramic ocean and coastal views in a westerly direction. Lot 34 has blue-water and coastal views in a southerly direction. GARY L. VOGT and ASSOCIATES Page 24 Real Estate Appraisers and Consultants

134 Third tier lots are elevated ±50' above the second tier and, except for Lot 21, have panoramic ocean and coastal views in a westerly direction towards Newport Harbor. The view from Lot 21 is oriented to the northwest and is somewhat restricted by the elevated terrain in that direction. STREETS AND UTILITIES: Upon completion, all interior tract streets will be single-loaded and will have two travel lanes within rights of way varying from ±45' to ±56' in width. At date of value, the developer had completed portions of Reef Point Drive and Deep Sea to access the recently opened custom homesite sales office situated on Lot 8. Upon completion, the appraised lots will be served by the following utility providers: Water and Sewer: Electric: Telephone: Gas: Cable Television: Irvine Ranch Water District Southern California Edison General Telephone Southern California Gas Co. Cox Communications REAL PROPERTY TAXES AND ASSESSMENTS: The currently available Orange County Assessor records for this area do not yet reflect the subdivision of the site in accordance with recorded Tract The base tax rate is just over 1%. In addition, the property is subject to special assessments for infrastructure improvements from County of Orange Assessment District No. 01-1, for water and sewer improvements from the Irvine Ranch Water District, and for schools from the Laguna Beach Unified School District. The special tax lien from AD No is $2,828,973, or $113,159/lot. Association dues for the custom homesites at Crystal Cove are estimated to be approximately $820/month when the project is fully built out. ZONING/LAND USE ENTITLEMENTS: The appraised lots are fully entitled for single family residential use. They are part of approved Vesting Tentative Tract Map No and are covered by recorded Final Tract Map No RETAIL PRODUCT / MARKETING SUMMARY: Marketing of custom homesites at Crystal Cove commenced in September of By year s end, the Irvine Company had closed 11 transactions totaling 13 lots (two buyers purchased double lots). One additionally transaction closed on January 6, The average price of the closed transactions is about $3,345,000 per lot. As of the end of January, the sales office reported four open escrows with scheduled closing dates between February 8 th and February 15 th. The average price of the open escrows is $3,500,000. The closed transactions and open escrows at Crystal Cove are summarized within the following valuation section of the appraisal. GARY L. VOGT and ASSOCIATES Page 25 Real Estate Appraisers and Consultants

135 HIGHEST AND BEST USE: Highest and best use is defined as: "that reasonably probable and legal use of land found to be physically possible, appropriately supported, financially feasible, and that results in the highest present land value." The five appraised projects are part of the successful Newport Coast master-planned community and are fully entitled for the proposed uses with an approved specific plan, coastal development permits, environmental clearances, and vesting tentative tract maps. In addition, final tract maps are recorded for all of the appraised lots. The master developer has completed all required backbone infrastructure to the five projects and work has been completed or is currently underway by the master developer (Crystal Cove) or the individual merchant builders (Pacific Ridge) on interior tract improvements required to place each lot in a finished condition. Model home complexes are open on the four Pacific Ridge projects and the sales office for the custom homesites at Crystal Cove opened in September of As earlier reported in the individual property sections, the market response to the Belcara, Pienza, and Cypress projects at Pacific Ridge was initially very strong. Belcara opened in April of 2004 and reported 74 sales and 23 closed escrows as of the date of value. The indicated average sales rate is a strong 8.2 homes/month. However, most of those sales occurred in the second and third quarters of the year. There has been only 6 sales since August 15 th. Pienza at Pacific Ridge opened August 21, 2004 and reported 20 sales at year end for an average sales rate of about 4.6/month. The third phase of 11 homes was released in mid-november and the sales office reported that 3 of those homes had sold by year s end which also suggests some recent falloff in demand. The third project to open at Pacific Ridge was Cypress with an initial offering of 9 homes on August 28, A second phase of 7 lots was released on September 11 th followed by a third phase of 6 lots in early November. At year s end, the builder reported a total of 17 sales for an average sales rate of about 4.25 sales/month. Shea s Costa Azul project at Pacific Ridge opened January 8, 2005 with an initial offering of 11 homes. The sales office reported all 11 homes were under contract as of late January. The four merchant builders in the Beachtown II at Crystal Cove opened in mid-2003 with a total of 207 production homes priced at $1,750,000 to $3,000,000. At mid-2004, three of the projects had sold out with an average sales rate of about 3.6 units/month. The fourth Crystal Cove project (Nautilus) is still active and reported 70 sales at the end of 2004 for an indicated average absorption rate of 3.9 units/month. Because of their proximity to Pacific Ridge and similar products and price ranges, several active detached projects in the nearby Irvine Communities of Turtle Ridge, Shady Canyon, and Quail Hill likely represent additional competition for the production home projects at Pacific Ridge. The most pertinent of those projects are summarized in the following table: Name / Community Builder Home SF Avg. Lot SF Date Opened Price Range Total Sales Avg. Sales/Mo. Amberhill, Turtle Ridge Standard Pacific 3,038-4,333 8,400 4/2003 $1,395,000 - $2,240, Ledges, Turtle Ridge Richmond American 2,651-3,186 6,500 1/2004 $1,244,000 - $1,775, GARY L. VOGT and ASSOCIATES Page 26 Real Estate Appraisers and Consultants

136 Name / Community Builder Home SF Avg. Lot SF Date Opened Price Range Total Sales Avg. Sales/Mo. Citrus, Turtle Ridge Brookfield 3,307-3,690 6,800 11/2003 $1,667,000 - $1,790, Chaumont, Turtle Ridge Warmington 2,891-3,667 8,000 9/2003 $1,600,000 - $2,100, The Sycamores, Shady Canyon, Lennar 4,097-5,227 10,000 1/2004 $2,500,000 - $2,777, Vicara, Quail Hill Richmond American 2,906-4,589 6,000 5/2004 $1,658,000 - $1,952, In summary, sales of new high-end production homes in the local market area has generally been strong over the past one to two years. Average absorption rates for the three Pacific Ridge projects which opened in 2004 range from 4.2 to 8.2 units/month. Over the wider market area, absorption rates for high-end production homes at Crystal Cove, Turtle Ridge, Shady Canyon and Quail Hill average about 4.0 sales/month. However, like the rest of the Orange County market, there is clear evidence that demand has significantly softened since mid It is difficult to know at this point if the recent lull in demand stems primarily from buyer resistance to rapidly escalating new home prices or signals the start of a more prolonged market slump. In any event, it is my judgment that a buyer of vacant lots at Pacific Ridge as of the date of value would not have expected to see future absorption rates commensurate with those realized over the past one to two years. Moreover, some moderation in retail prices may be required in order to achieve acceptable absorption rates. Analysis of the land transactions for the projects summarized above indicates that recent market absorption rates substantially exceeded builder expectations when the deals were negotiated. For example, the lot takedown schedules for Market Data Nos. 1 through 10 (summarized later in the appraisal) translate into absorption rates of 2.0 to 4.1 lots/month with an average of slightly less than 3 lots/month. The four appraised Pacific Ridge projects comprise a total of 215 production homes. At date of value, the three active builders had collectively released 132 units and reported 111 sales. At an average sales rate of 3.0 units/month, the remaining unsold inventory of 104 units represents about nine months supply of product. At an average sales rate of 2.0 units/month, the remaining inventory will be depleted in approximately thirteen months. In contrast to the high-end production home market, there is no indication of a softening of demand for custom homesites in the coastal area. As earlier noted, the Irvine Company has closed escrows on 14 custom lots since marketing started in September. Additionally, there are four escrows scheduled to close in February and the sales office reports that contracts are in place or will soon be written on the remaining 7 lots in the first release of 25 lots. In summary, the appraised properties are appropriately zoned for the proposed uses and required infrastructure is already in place or will be completed within the near future. With the exception of the Costa Azul project, each of the appraised properties was an established project at date of value with early marketing success. Even with the recent softening of demand for high-end production homes, it is my judgment that there is there adequate demand to attract buyers to the properties at the prevailing market land values. It is therefore my judgment that highest and best use at date of value is a continuation of the existing uses. GARY L. VOGT and ASSOCIATES Page 27 Real Estate Appraisers and Consultants

137 VALUATION VALUATION METHODOLOGY: The value estimates cover only the land and direct improvements to the land consisting primarily of grading, drainage facilities, utilities, streets, common area improvements, slope/street landscaping, and land-based fees. It should be understood that any value contribution made by the model complexes and/or completed or partially completed production homes located on the appraised lots at date of value is specifically excluded from the value estimates. The appraisal method considered most applicable to the four merchant builder projects within Pacific Ridge is the sales comparison approach. In that approach, the appraised properties are compared and contrasted to recent bulk sales of similar lots in the market area. Adjustments are considered for significant differences between properties, including factors such as location, project size, entitlements, property condition, lot size/density, view potential, size and price of retail product, composite tax rate, and date, terms, and conditions of sale. As a secondary valuation approach for the merchant builder land, finished lot value is also estimated as a percentage of the estimated average retail home price. The sales comparison approach is also applied to the fourteen custom homesites at Crystal Cove which had closed escrow to individual buyers at date of value. Those properties are valued individually as separate market entities using recent lot sale data from Crystal Cove and other ocean-oriented custom lot projects in the Orange County coastal area. The eleven custom homesites which remained in the ownership of the master developer at date of value are valued in their as is condition assuming a bulk sale to one buyer. Since the data search uncovered no bulk sales of similar custom lots in the coastal area, the remaining custom lots are valued using the developmental approach which utilizes a discounted cash flow analysis. Land value comparisons for all appraised properties are initially made on the basis of price per finished lot with deductions made for the estimated cost of any unfinished site work at date of value. The search area for sales of comparable merchant builder land and custom lots was concentrated in the coastal and immediately inland areas of Orange County. Market Data was gathered from various sources, including First American Real Estate Solutions, CoStar COMPS, Southern California Multiple Listing Service, and through contact with land developers, merchant builders, and other appraisers active in the subject area. The land sales considered most helpful in valuing the subject properties are summarized and discussed on the following pages. Additional supporting market data is retained in the appraisal work file. GARY L. VOGT and ASSOCIATES Page 28 Real Estate Appraisers and Consultants

138

139 MARKET DATA SUMMARY - MERCHANT BUILDER LAND: The ten land sales to merchant builders considered most pertinent are summarized in the following table. Additional information on each transaction may be found in the Market Data section. MD No. Location ( Buyer) Pad Ac. No. Lots DU/Acre Lot SF Negotiation Date Phase 1 Close Sale Price Price/Lot Price/Acre $/Fin. Lot Avg. SFR Base Price Fin. Lot % Remarks 1 SE/S Archipelago & SW/S Rockshore Bluff, Crystal Cove, Newport Beach (Standard Pacific) ± ±9,000 11/2003 1/2004 $22,129,909 $1,164,732 $3,815,502 $1,275,932 $2,242, % 3-phase purchase of bluetop lots w/ocean views. SFR s avg. 3,900 SF. 2 nd phase of ongoing project. 2 SW/S Surfspray and Tideline, Crystal Cove, Newport Beach (Laing Homes) ± ±7,000 11/2003 4/2004 $42,801,460 $1,188,929 $4,755,718 $1,288,429 $2,105, % 6-phase purchase of bluetop lots w/ocean views. SFR s avg. 3,330 SF.2nd phase of ongoing project. 3 Upper Ridge W/O West Coastal Peak, Pacific Ridge, (Taylor Woodrow) ± ±6,000 11/2002 7/2003 $45,485,593 $425,099 $2,465,344 $519,100 $988, % 9-phase purchase of bluetop lots. SFR s 2,453-3,052 SF. Sales opened 3/ Highpoint, Wayside & Coastal Oak, Pacific Ridge, (Greystone/Lennar) ± ±7,000 11/2002 6/2003 $27,818,394 $732,063 $2,448,802 $815,000 $1,448, % 5-phase purchase of bluetop lots. SFR s 2,613-3,557 SF. Sales opened 7/ Meridian, Sundial, & Observatory, Pacific Ridge (Taylor Woodrow) ± ±7,500 3/2003 7/2004 $24,641,265 $746,705 $2,768,681 $803,400 $1,637, % 5-phase purchase of bluetop lots. SFR s 2,918-4,130 SF. Sales opened 9/ Clearview, Pacific Mist & Morning Lt, Pacific Ridge (Shea Homes) ± ±9,000 3/2003 7/2004 $38,500,000 $1,040,541 $2,986,813 $1,115,965 $2,005, % 7-phase purchase of bluetop lots. SFR s 3,632-4,844 SF. Sales started January Summerhouse & Village View, Turtle Ridge, Irvine (Standard Pacific) ± ±8,000 Early /2004 $23,886,800 $955,472 $3,219,245 $1,055,919 $1,775, % 4-phase purchase of bluetop lots. SFR s 3,083-4,333 SF. 2 nd phase of ongoing project. Inland views. 8 Canyon Terrace N/O Summit Park, Turtle Ridge, Irvine (Pardee) ± ±7,000 Early /2005 $47,394,950 $947,899 $3,361,344 $997,900 $1,527, % 3-phase sale of bluetop lots. SFR s avg. ±3,500 SF. Inland views. 9 View Terrace S/O Summit Park Drive, Turtle Ridge, Irvine (Laing Luxury) ± ±13,000 Early /2004 $48,180,396 $1,095,009 $2,407,816 $1,152,554 $2,208, % 9-phase purchase of bluetop lots. SFR s to avg. ±4,900 SF. Good inland territorial views 10 SEC Pine Needles & Serentine, Quail Hill, Irvine (Richmond American) ± ±6,000 10/ /2003 $73,749,960 $682,870 $2,499,999 $772,870 $1,391, % 25-phase purchase of bluetop lots with inland views. SFR s 2,906-4,589 SF. Sales opened 4/2004 GARY L. VOGT and ASSOCIATES Page 29 Real Estate Appraisers and Consultants

140 Before any consideration of adjustments, the market data reflect a price range for finished lots of $519,100 to $1,288,429. Data Nos. 3 through 6 are especially significant value indicators since they represent transactions involving the four appraised Pacific Ridge properties. When analyzing the market data and considering application and adjustment to the subject properties, the following factors were considered most relevant: Location: Market Data Nos. 1 and 2 are ocean-view properties within Crystal Cove, a location considered substantially superior to the more inland Pacific Ridge location of the four subject properties. On the other hand, the Irvine location of Data Nos. 7 through 10 is rated marginally inferior to the Newport Beach/Newport Coast address at Pacific Ridge. Site Condition: The four subject properties were purchased in a bluetop pad condition and are currently in various stages of completion with most of the lots in finished or near-finished condition. To facilitate comparison to the market data, each property is initially valued as if all lots were in a fully finished condition at date of value. A negative adjustment is then made to reflect the estimated cost of any unfinished site work at date of value. Composite Tax Rate: All of the comparable land sales are subject to assessment districts with special tax liens similar to the appraised properties. As a consequence, no adjustments for tax rate are deemed necessary. Date of Sale: Market Data Nos. 3, 4, 5, 6, & 10 were negotiated and signed in late 2002 or early 2003 whereas prices for Data Nos. 1, 2, 7, 8 & 9 were established approximately one year later in late 2003 or early As discussed in the Residential Market Overview section, new home prices in Orange County rose significantly over that time period. As might be expected, the available evidence is that land prices also escalated sharply over that time period, at least through mid That upward trend in retail home prices is evident when analyzing the Pacific Ridge land sales. For example, the estimated average retail home price for Data No. 3 (Belcara) in late 2002 was $990,000. As earlier noted, the project opened in March of 2004 with a base price range of $1,183,000 to $1,530,000. Currently, the Belcara base price range is $1,567,000 to $1,879,000. Similarly, Data No. 4 (Cypress) was negotiated in late 2002 with an estimated average retail home price of $1,448,000. The current range is $1,806,000 to $2,767,000. The effect of rising home prices upon underlying land value is evident when analyzing the Amberhill project at Turtle Ridge. The builder purchased the initial 63 lots in that project in 2002 based upon an estimated finished lot cost of $708,000. Market Data No. 7 represents the early 2004 purchase of an additional 25 lots for the same product at an estimated finished lot cost of $1,055,919. Over that same time period, the estimated average retail home price at Amberhill increased from approximately $1,332,000 to $1,775,000. The indicated land price increase at Amberhill is likely overstated since the second purchase involved fewer lots and represented the addition of lots to an ongoing and successful project with a completed model complex. Nevertheless, there is solid support for upward price adjustments to the 2002 and early 2003 land sales when applied to the subject properties at date of value. GARY L. VOGT and ASSOCIATES Page 30 Real Estate Appraisers and Consultants

141 On the other hand, there is no support in my judgment for any upward time adjustments to the more recent land sales. Although current retail asking prices are typically higher than when the deals were negotiated in late 2003 or early 2004, market demand has weakened over the same time period. Consequently, current price levels may not be sustainable. Transaction Phasing: The subject properties are valued assuming that all of the lots in each project are sold in bulk to one buyer in a conventional non-phased transaction without seller price or profit participation. On the other hand, all ten land sales were structured as phased transactions with multiple take-downs spread over 4 to 31 months. Under normal circumstances, phased transactions require consideration of a negative adjustment to reflect the fact that payment to the seller for the second and subsequent phases is deferred from the initial closing date. However, a potentially offsetting factor is that all Irvine Company land sales contain provisions for seller participation in prices and profits over an established baseline amount. Due to the rapid escalation of retail home prices and strong retail absorption figures through at least mid-2004, the seller will likely receive substantial additional compensation for the land sales negotiated in late 2002 and early In my judgment, the seller s prospects for future participation income offsets the need for any negative phasing adjustments to the older transactions. The more recently negotiated land sales also provide for seller participation. However, as earlier discussed, current market conditions suggest that the prospects for continuing retail price appreciation substantially beyond the levels estimated in those transactions is less likely in my judgment. In fact, some downward adjustment from the current asking prices may be required to achieve acceptable absorption rates. Consequently, some negative price adjustment is applied to the more recent sales (Data Nos. 1, 2, 7, 8 & 9) to offset transaction phasing. View Premiums: As discussed in the individual property descriptions, view premiums at Pacific Ridge are primarily limited to hill and canyon territorial views. Nevertheless, the land sales were negotiated based upon estimated average lot premiums ranging from $111,000 at Belcara to $275,000 at Pienza. Generally speaking, estimated lot premiums at Pacific Ridge are similar to those at Turtle Ridge (Data Nos. 7, 8 & 9) and Quail Hill (Data No. 10). Consequently, no significant view adjustments are required when comparing the subject properties to those land sales. On the other hand, Data Nos. 1 & 2 require major downward price adjustments to offset the substantial ocean views available at Crystal Cove. Finished Lot Percentage of Retail Home Price: As a secondary comparison approach, finished lot value can also be measured as a percentage of the estimated average retail price of the finished homes. For the sales, the percentage calculation is based upon the estimated average retail home price at the time that the land sale was negotiated. As shown in the data summary table, the sales reflect estimated finished lot costs ranging from 49.1% to 65.3% of the estimated average retail home price with six of the ten sales grouped in a tighter range between 52.2% and 56.9%. The average finished lot percentage for the ten sales is ±56.4%. Individual market value analyses and conclusions may be found for each appraised property on the following pages. All final land value estimates are rounded to the nearest $50,000. GARY L. VOGT and ASSOCIATES Page 31 Real Estate Appraisers and Consultants

142 VALUATION TAYLOR WOODROW (BELCARA) The Belcara project consists of 107 single family lots with usable pads averaging about 6,000 SF. The project opened in March of 2004 with a base price range of $1,183,000 to $1,530,000. The current base price range is $1,567,000 to $1,879,000 with an average of about $1,650,000. Market Data Nos. 3, 4, 5 & 10, with unadjusted finished lot prices from $519,100 to $815,000 are considered most applicable to this property. Market Data No. 3 is the late 2002 purchase of the subject lots based upon an estimated finished lot cost of $519,100. At that time, the estimated average retail home price was $990,000. The current estimated average retail home price is 67% higher at approximately $1,650,000. However, given the falloff in demand since mid-2004, I believe that most buyers of the bulk lots at date of value would have given consideration to some moderation of retail prices. If a time adjustment factor of 50% is applied to the original land sale, the current finished lot value range is approximately $779,000. Data Nos. 4 and 5 are late 2002 or early 2003 purchases of nearby lots at Pacific Ridge based upon estimated finished lot prices of $815,000 and $803,400, respectively. Compared to the subject, the two sales require upward adjustments for time and offsetting downward adjustments for home and lot size, estimated view premiums, and smaller transaction size (number of lots). Considering current market conditions, the two sales are considered upper value limit indicators for the subject lots at this time. Market Data No. 10 refers to the late 2002 purchase of 108 lots at Quail Hill based upon an estimated finished lot cost of approximately $773,000. This sale requires some upward adjustment for time and a lesser upward adjustment for location. On the other hand, offsetting downward adjustments are indicated for home size and view potential. In my judgment, Data No. 10 supports a current finished lot value of no more than $800,000 for the Belcara property. Finished lot value can also be calculated as a percentage of the estimated average retail home price. The four land transactions discussed above reflected finished lot percentages ranging from 49.1% to 56.3% of the estimated average retail home price at time of negotiation. Considering the rapid escalation of retail prices at Belcara as well as the weaker market absorption conditions at date of value, the lower end of the range, say 49%, is applied to the subject s current estimated average retail home price of $1,650,000. The indicated finished lot value is: $1,650,000 x 0.49 = $808,500 Taking into account both valuation methods, and assuming that all 107 lots are sold in bulk to one buyer in a non-phased transaction, finished lot value is estimated to be approximately $775,000 as of January 7, The aggregate finished lot value estimate is: Deduction for Cost to Finish Lots: 107 $775,000 = $82,925,000 At date of value, approximately forty-seven lots at Belcara were fully finished, forty-four lots were near-finished, and the remaining sixteen lots were partially finished. Based upon the original lot improvement cost data provided by The Irvine Company as well as cost data held in the appraiser s files, the as is land value is estimated as follows: GARY L. VOGT and ASSOCIATES Page 32 Real Estate Appraisers and Consultants

143 Estimated Aggregate Finished Lot Value: $82,925,000 Less Cost to Finish: 44 ±$10, , ±$40, ,000 Estimated As is Land Value: $81,845,000 Round to: $81,850,000 In summary, it is my judgment that the as is market value of the fee simple interest in the 107 lots comprising Taylor Woodrow Belcara project was $81,850,000, as of January 7, The above land value estimate assumes that all lots are sold to one buyer in a single non-phased transaction. It should also be understood that the value estimate covers only the land and improvements to the land including grading, streets and utilities, drainage facilities, common area improvements, and land-based fees. The contributory value of the model complex and production homes completed or under construction at date of value has not been estimated. LAND VALUE ESTIMATE (TAYLOR WOODROW - BELCARA)...$81,850,000 GARY L. VOGT and ASSOCIATES Page 33 Real Estate Appraisers and Consultants

144 VALUATION LENNAR (PIENZA) The Pienza project consists of 38 single family lots with usable pads averaging about 7,000 SF. All lots were fully finished at date of value. The project opened in early July of 2004 with a base prices from $1,504,000 to $1,839,000. The current base price range is $1,831,000 to $2,004,000 with an estimated average base price of about $1,900,000. Market Data Nos. 4, 5, 6, 7, 8 & 9, with unadjusted finished lot prices from $803,400 to $1,152,554 are considered most pertinent to this property. Market Data No. 4 is the late 2002 purchase of the subject lots based upon an estimated finished lot cost of $815,000. At that time, the estimated average retail home price was approximately $1,450,000. The current estimated average retail home price is 31% higher at about $1,900,000. If the original finished lot value indication is adjusted upward by the same percentage, the current finished lot value indication is ±$1,068,000. Given current market conditions, that figure is considered an upper value limit for the subject s finished lots at this time. Data No. 5 is an early 2003 purchase of similar sized lots at Pacific Ridge based upon an estimated finished lot price of $803,400. This sale requires an upward time adjustment similar to Data No. 4 which results in a current finished lot value indication for the subject of about $1,052,000/lot. Data No. 6 is the early 2003 purchase of larger lots at Pacific Ridge based upon a finished lot cost of $1,115,965. This sale requires an upward adjustment for time and offsetting downward adjustments for lot size, view potential, and home size/retail price. Data Nos. 7, 8 & 9 are 2004 transactions at Turtle Ridge with indicated finished lot costs of $997,600 to $1,152,554. Compared to the subject, a small upward adjustment is made for location and larger offsetting negative adjustments are made for lot size and phasing. Given current market conditions, no time adjustment is warranted in my judgment. In summary, direct market comparison supports a current finished lot value for the Pienza lots in the approximate range of $950,000 to $1,050,000. When finished lot cost is expressed as a percentage of the estimated average retail home price, the six sales display a range of 49.1% to 65.3%. For the reasons previously discussed with respect to Belcara, I believe that most buyers at date of value would have applied a percentage factor towards the lower end of the indicated range. Using a percentage 50%, the indicated finished lot value by this approach is: $1,900,000 x 0.50 = $950,000 All factors considered, the current market value of the subject lots s estimated to be $1,000,000 per lot. The aggregate finished lot value is: 38 $1,000,000 = $38,000,000 In summary, it is my judgment that the as is market value of the fee simple interest in the 38 lots comprising Greystone s Pienza project was $38,000,000 as of January 7, The land value estimate assumes that all lots are sold to one buyer in a single non-phased transaction. It should also be understood that the value estimate covers only the land and improvements to the land including grading, streets and utilities, drainage facilities, common area improvements, and landbased fees. The contributory value of the model complex and production homes completed or under construction at date of value has not been estimated. LAND VALUE ESTIMATE (LENNAR - PIENZA)...$38,000,000 GARY L. VOGT and ASSOCIATES Page 34 Real Estate Appraisers and Consultants

145 VALUATION TAYLOR WOODROW (CYPRESS) The Cypress project consists of 33 single family lots with usable pads averaging about 7,500 SF. The project opened in early September with prices from $1,745,000 to $2,101,000 for homes sized from 2,918 SF to 4,130 SF. The current price range is $1,806,000 to $2,767,000 with an average of about $2,350,000. Market Data Nos. 1, 2, 5, 6, 7, 8 & 9, with unadjusted finished lot prices from $803,400 to $1,288,429 are considered most pertinent to this property. Market Data No. 5 is the early 2003 purchase of the subject lots based upon a finished lot cost of $803,400. At that time, the estimated average retail home price was approximately $1,637,000. The current estimated average retail home price is approximately 43% higher at $2,350,000. If the original finished lot value indication is adjusted upward by the same percentage, the current finished lot value indication for the subject is ±$1,149,000. Given current market conditions, that figure is considered an upper value limit for the subject s finished lots at this time. Data Nos. 1 & 2 involve recent purchases of ocean-view lots at Crystal Cove based upon estimated finished lot costs of $1,275,932 and $1,288,429, respectively. The Crystal Cove location is rated superior to Pacific Ridge and the view potential from the two sale properties is substantially superior. Some downward adjustment for phasing is also required for the 2004 sales. As a consequence, Data Nos. 1 & 2 require major downward price adjustments in comparison to the Cypress project in my judgment. Market Data No. 6 is the early 2003 purchase of 37 lots within the Costa Azul project at Pacific Ridge based upon an estimated finished lot cost of $1,115,965. An upper adjustment for time is more than offset by required downward adjustments to reflect the sale s larger lot and home sizes. In my judgment, Data No. 6 represents a strong upper current value limit for the subject lots. Market Data Nos. 7, 8 & 9 are recent Turtle Ridge transactions with indicated finished lot costs from $997,900 to $1,152,554. Data Nos. 7 & 8 are similar to the subject lots in lot size and view potential and are considered strong current value indicators at $997,900 to $1,055,919/lot with some upward adjustment for location offset by a required downward adjustment for phasing. Data No. 9 at $1,152,554/lot requires consideration of downward adjustments for phasing and lot size. The seven sales reflect finished lot percentages from 49% to 65% with the prior sale of the subject lots at the low end. Applying the same percentage factor to the subject s current estimated average retail price of $2,350,000 yields the following indication of current finished lot value. $2,350,000 x 0.49 = $1,151,500 Giving primary weight to the price/lot comparison approach, the current market value of the subject lots, if fully finished, is estimated to be $1,050,000 per lot. The aggregate finished lot value is: Deduction for Cost to Finish Lots: 33 $1,050,000 = $34,650,000 At date of value, the 28 lots on Meridian and Observatory were fully finished. The remaining five lots on Sundial were partially finished lacking sidewalks, street cap, and slope and common area landscaping. Deducting for the uncompleted site improvements, the estimated as is land value at date of value is: GARY L. VOGT and ASSOCIATES Page 35 Real Estate Appraisers and Consultants

146 Aggregate Finished Lot Value: $34,650,000 Less - 5 $30, ,000 Estimated As is Land Value: $34,500,000 In summary, it is my judgment that the as is market value of the fee simple interest in the 33 lots comprising the Cypress project was $34,500,000 as of January 7, The above land value estimate assumes that all lots are sold to one buyer in a single non-phased transaction. It should also be understood that the value estimate covers only the land and improvements to the land including grading, streets and utilities, drainage facilities, common area improvements, and land-based fees. The contributory value of the model complex and production homes completed or under construction at date of value has not been estimated. LAND VALUE ESTIMATE (TAYLOR WOODROW - CYPRESS)...$34,500,000 GARY L. VOGT and ASSOCIATES Page 36 Real Estate Appraisers and Consultants

147 VALUATION SHEA (COSTA AZUL) The Costa Azul project consists of 37 single family lots with usable pads averaging about 9,000 SF. Proposed product ranges from 3,632 SF to 4,844 SF. The project recently opened with retail prices from $2,209,000 to $2,577,000. The average current price is approximately $2,400,000. Market Data Nos. 1, 2, 6, 7 & 9, with unadjusted finished lot prices from $1,055,919 to $1,288,429 are considered most pertinent to this property. Market Data No. 6 is the early 2003 purchase of the subject lots based upon a finished lot cost of $1,115,965. The original estimated average retail home price for this project was $2,005,000. The current estimated average retail home price is approximately 20% higher at $2,400,000. If the original finished lot value indication is adjusted upward by the same percentage, the current finished lot value indication for the subject is ±$1,339,000. Given current market conditions, that figure is considered an extreme upper value limit for the subject s finished lots at this time. Data Nos. 1 & 2 involve recent purchases of ocean-view lots at Crystal Cove based upon estimated finished lot costs of $1,275,932 and $1,288,429, respectively. The Crystal Cove location is rated superior to Pacific Ridge and the view potential from the two sale properties is substantially superior. As a consequence, Data Nos. 1 & 2 clearly represent upper value limits for the appraised lots in my judgment. Market Data Nos. 7 & 9 are recent Turtle Ridge transactions with indicated finished lot costs of $1,055,919 and $1,152,554, respectively. The 2004 transactions require no significant time adjustments and are similar to the subject lots in lot size and view potential. An upward adjustment to reflect the subject s superior Pacific Ridge location is believed offset by a downward adjustment for phasing. On balance, Data Nos. 7 & 9 are considered near lower limit value indicators for the subject lots at date of value if fully finished. All factors considered, the current market value of the subject lots, if sold fully finished in a nonphased transaction, is estimated to be $1,175,000 per lot. That is equivalent to 49% of the current estimated average retail home price. The aggregate finished lot value is: Deduction for Cost to Finish Lots: 37 $1,175,000 = $43,475,000 At date of value, five lots were fully finished and the remaining 32 lots were partially finished lacking street cap, sidewalks, and some common area/street landscaping. Deducting for the uncompleted site improvements, the estimated as is land value at date of value is: Aggregate Finished Lot Value: $43,475,000 Less - 32 ±$20, ,000 Estimated As is Land Value: $42,835,000 Round to: $42,850,000 In summary, it is my judgment that the as is market value of the fee simple interest in the 37 lots comprising the Costa Azul project was $42,850,000, as of January 7, The above land value estimate assumes that all lots are sold to one buyer in a single non-phased transaction. It should also be understood that the value estimate covers only the land and improvements to the land including grading, streets and utilities, drainage facilities, common area improvements, and land-based fees. The contributory value of the model complex and production homes completed or under construction at date of value has not been estimated. LAND VALUE ESTIMATE (SHEA - COSTA AZUL)...$42,850,000 GARY L. VOGT and ASSOCIATES Page 37 Real Estate Appraisers and Consultants

148

149 VALUATION CRYSTAL COVE CUSTOM LOTS The 25 appraised custom homesites at Crystal Cove are separated into two components for purposes of this analysis. The 14 lots that had closed escrow to twelve different buyers at date of value are valued individually using direct market comparison. The total market value reported for the 14 lots represents an aggregation of the individual retail lot value estimates less a deduction for uncompleted site work at date of value. The remaining 11 lots that were still vested in the developer at date of value are valued assuming they were sold in bulk to one buyer in their as is condition at date of value. The data search uncovered no bulk purchases of similar custom lots which could be used to directly value the 11 lots by the market approach. Consequently, a simplified discounted cash flow (DCF) analysis is used to arrive at the as is value of the remaining lots held in builder inventory. AGGREGATE VALUE OF INDIVIDUAL SOLD LOTS: The current market value of individual custom lots at Crystal Cove is estimated by direct comparison to recent sales of similar ocean-view lots in the Orange County coastal area. Comparisons are made upon the basis of price per lot with adjustments considered for factors such as date of sale, location, pad size, and view potential. Primary weight is given to the twelve closed transactions and four open escrows involving individual custom lots within the appraised project. The Irvine Company has provided information on the transactions to this appraiser on the condition that the details not be disclosed publically. Consequently, transaction details are retained in the appraisal work file. Additional weight is given to the following recent custom lot transactions at Pelican Crest in Newport Beach and Ritz Cove in Dana Point. MD Address or Lot/Tract Lot Net SF± Rcd. Date Sale Price Remarks Pelican Crest Sales Avalon Vista Pelican Crest, Newport Beach Avalon Vista Pelican Crest, Newport Beach 13 5 Avalon Vista Pelican Crest, Newport Beach 14 7 Pelican Drive Pelican Crest, Newport Beach Pelican Crest Drive Pelican Crest, Newport Beach 16 3 Pelican Crest Drive Pelican Crest, Newport Beach Dana Point Sale Ritz Cove Drive, Dana Point 26,232 12/19/2003 $3,100,000 17,981 4/8/2004 $2,845,000 35,250 10/3/2003 $2,850,000 23,335 12/5/2003 $3,332,625 21,566 2/18/2003 $3,000,000 19,645 3/19/2004 $3,850,000 7,200 9/10/2004 $3,250,000 Front row end unit with panoramic ocean, harbor and golf course views Front row site with panoramic ocean, harbor and golf course views Large first tier unit with ocean, harbor and golf course views Front row site with panoramic ocean, harbor and golf course views Front row site with panoramic ocean, harbor and golf course views Front row site with panoramic ocean, harbor and golf course views 3 rd tier lot with excellent panoramic ocean and coastal views GARY L. VOGT and ASSOCIATES Page 38 Real Estate Appraisers and Consultants

150 The twelve closed transactions at Crystal Cove (total of 14 lots) recorded between mid-october and early January with an overall price range of approximately $2,500,000 to $4,050,000. The average price for the closed sales is about $3,350,000 per lot. Prices for the open escrows range from approximately $3,350,000 to $3,700,000. All prices are based upon the seller delivering a finished lot with interior streets, utilities, and drainage systems in place and all common area and slope landscaping completed. The low end of the price range at Crystal Cove involve third tier lots with large pads but limited ocean view potential. At the other end of the price range, the sale in excess of $4 million involves a large second tier lot at the end of a cul-de-sac with expansive ocean and coastline views. Market Data Nos. 11 to 16 involve recent sales at Pelican Crest which range from $2,845,000 to $3,850,000. Generally speaking, the Pelican Crest lots are similar to Crystal Cove in pad size, ocean views, and project amenities although they are closer to Newport Harbor and Pelican Hill Golf Club. Data No. 17 is a vacant third tier lot within the Ritz Cove gated community in Dana Point. The lot has a ±7,200 SF pad and sold in September of 2004 for $3,250,000. The subject lots have substantially larger pads and their Crystal Cove/Newport Coast location is rated superior to the Dana Point location of Ritz Cove. However, an offsetting factor is that Ritz Cove is located oceanward of Pacific Coast Highway and residents in that project enjoy convenient beach access. Giving primary weight to the recent transactions from within the appraised project, the estimated current market value of each of the fourteen Crystal Cove lots which had closed escrow at date of value is summarized in the following table. Lot/Tract Pad Area SF± Description Estimated Market Value 13 / ,273 Third row with panoramic views. $ 3,375, / ,022 Third row with panoramic views. 3,350, / ,713 Third row with large pad and panoramic views 3,650, / ,908 Third row with panoramic views 3,650, / ,220 Third tier upcoast (westerly) view orientation. 3,200, / ,296 Third tier upcoast (westerly) view orientation. 3,375, / ,570 Third row with limited ocean views. Large pad. 2,600, / ,542 Third row with limited ocean views. Large pad. 2,475, / ,579 Second tier with upcoast (westerly) view orientation. 3,750, / ,291 Second tier corner lot with panoramic views 3,375, / ,792 Second tier corner lot with panoramic views 3,375, / ,784 Second row with panoramic views. 3,275, / ,149 Second row with panoramic views. 3,300, / ,682 Second tier cul-de-sac with panoramic views 4,050,000 Aggregate Market Value (If Finished) $46,800,000 GARY L. VOGT and ASSOCIATES Page 39 Real Estate Appraisers and Consultants

151 The above lot value estimates assume a finished lot condition. However, the lots were sold in a partially finished condition with the developer obligated to complete all required interior tract improvements including slope and common area landscaping. The cost of the uncompleted site work is estimated to be approximately $255,000 per lot. Adding a 15% contingency factor, the estimated cost-to-complete adjustment is $293,250, which is rounded to $300,000 per lot. The indicated aggregate as is value is therefore: Estimated Aggregate Finished Lot Value: $46,800,000 Less Cost to Finish (14 $300,000): 4,200,000 Indicated Aggregate As Is Lot Value: $42,600,000 ESTIMATED AGGREGATE AS IS VALUE (INDIVIDUAL SOLD LOTS)...$42,600,000 GARY L. VOGT and ASSOCIATES Page 40 Real Estate Appraisers and Consultants

152

153 ESTIMATED BULK SALE VALUE OF LOTS IN BUILDER INVENTORY: The starting point of the DCF analysis is an estimate of the aggregate retail value of the 11 lots still vested in the land developer at date of value. The retail lot value estimate assumes that the lots are sold individually in a finished condition. Direct and indirect costs of development and marketing are then deducted from the estimated gross sales proceeds to arrive at an estimate of net income per period. The resulting forecasted net cash flow stream is then converted to an indication of present value using a market-derived discount rate over the projected development and market absorption period. Estimated Retail Lot Prices: Relying primarily upon the recent transactions from within the project, previously summarized as Data Nos , the average retail price of the lots remaining in the ownership of the developer at date of value is estimated to be approximately $3,500,000 if fully finished. Land Development Costs: The appraised lots were in a graded bluetop pad condition at date of value with most underground utility and storm drain work completed. The major uncompleted site work includes interior street improvements and slope and common area landscaping. As earlier discussed, the cost of the uncompleted site work is estimated to be approximately $255,000 per lot. With a 15% contingency factor, the cost deduction is approximately $300,000 per lot. All land development costs are assumed to be expended during the first three months following date of value. Sales Absorption Period: Four of the appraised lots are currently in escrow with scheduled closing dates five to six weeks after date of value. The closings for the remaining seven lots are spread evenly over the remaining four months of the projected absorption period. SUMMARY AND CONCLUSION - LAND IN MASTER DEVELOPER INVENTORY: The key factors utilized in the DCF valuation analysis for the first marketing phase of custom lots at Crystal Cove are summarized as follows: Months in Forecast: 6 (analyzed in monthly increments) Starting Date: January 7, 2005 Total Custom Lots Valued: 11 Average Retail Finished Lot Price: $3,500,000 Gross Revenue from Land Sales: $3,850,000 First Lot Sales Close: 2 nd month Assumed Land Appreciation/Year: 0% Remaining Site Development Cost: $255,000/lot Construction Contingency: 15% Growth Rate for Costs: 3.0%/year General & Administrative Overhead: 3.0% of revenues Marketing, Sales & Closing Costs: 5.0% of revenues Real Property Tax Rate: 1.6% of market value The DCF cash flow model is summarized on the facing page. Using a dual rate discounting methodology and taking 10% of revenues as a line item profit, the indicated bulk sale market value of the eleven remaining custom homesites in their as is condition ranges from $28,080,255 to $28,114,219 when the monthly cash flows are discounted to present worth using annual rates of 10% to 14%. GARY L. VOGT and ASSOCIATES Page 41 Real Estate Appraisers and Consultants

154 Using a single rate discounting methodology (without a deduction for line item profit), the indicated current as is property value is $31,809,696 to $31,857,364 when discounted at annual composite rates of 20% to 25%. Over a longer development and absorption period, the value indications from the two discounting methods would generally be closer together. Because of the short (6-month) projected cash flow period, the dual rate discounting methodology is considered to provide a better value indication for the appraised property in this instance. Giving primary weight to that approach, it is my judgment that the market value of the eleven lots still owned by the land developer was $28,100,000 as of January 7, That value estimate considers the property in its as is physical condition as of date of value and assumes a bulk sale of all eleven lots to one buyer in a single transaction. ESTIMATED BULK SALE VALUE (LOTS IN BUILDER INVENTORY)...$28,100,000 GARY L. VOGT and ASSOCIATES Page 42 Real Estate Appraisers and Consultants

155 MARKET DATA GARY L. VOGT and ASSOCIATES Page 43 Real Estate Appraisers and Consultants

156 MARKET DATA NO. 1 LOCATION: Southeast side Archipelago Drive west of Dunes Bluff and southwest side of Rockshore Bluff, Newport Beach LEGAL: Lots 1-2 Tract 15919, Lots 1-10 Tract 16428, Parcels 9 & 10 LLA , Parcels 11 & 12 LLA , and Parcels LLA NET PAD ACRES: ±5.8 NO. OF LOTS: 19 DENSITY: 3.3 du/ac. AVG. LOT SF: ±9,000 SF DESCRIPTION: 10 lots on Rockshore Bluff bluetop pad condition. Remaining lots essentially finished condition at time of purchase. Located on single-loaded streets with elevated ocean and coastal views. LAND USE STATUS: Portion of approved Vesting Tentative Tract Map No Buyer secured final tract map approvals. RETAIL PRODUCT: TAXES/ASSESSMENTS: SALE DATE: Continuation of "Oceana" project with same model complex. 1 & 2 story homes 3,524 SF to 4,338 SF. 2 to 5 bedrooms, 2.5 to 5.5 baths. 2 to 4 car garages. Estimated average retail price when land deal negotiated was $2,242,000 which included average view premium of $531,000. Located in County of Orange (Irvine Coast) AD No and Laguna Beach School District CFD No Composite tax rate estimated to be ±1.4% of market value. Price agreed to and approved by seller's Board of Directors 11/2003. Buyer signed in January Three takedown phases starting 1/2004 and ending 1/2005 LAND SALE PRICE: $22,129,909 $/LOT: $1,164,732 $/PAD ACRE: $3,815,502 SELLER: BUYER: PURCHASE TERMS: VERIFICATION: REMARKS: The Irvine Company Standard Pacific of Orange County Cash upon close of each phase Cindy Daley, Irvine Co. & Pete Hemphill, Standard Pacific Deal also provides for profit participation by seller if retail prices and developer's profits exceed specified amounts. Estimated finished lot cost is $1,275,932, or ±56.9% of estimated average home retail price with view premiums. Builder had released and sold all 42 homes by mid Last base price range was $1,965,000 to $2,311,000. GARY L. VOGT and ASSOCIATES Page 44 Real Estate Appraisers and Consultants

157 MARKET DATA NO. 2 LOCATION: Southwest side of Surfspray Bluff and Tideline Bluff, Crystal Cove Planned Community, Newport Beach LEGAL: Lots 1-17 of Tract and Lots 1-19 of Tract NET PAD ACRES: ±9.0 NO. OF LOTS: 36 DENSITY: 4.0 du/ac. AVG. LOT SF: ±7,000 SF DESCRIPTION: Bluetop pad condition at time of purchase. All lots on singleloaded streets with elevated ocean and coastal views. LAND USE STATUS: Portion of approved Vesting Tentative Tract Map No Buyer secured final tract map approvals. RETAIL PRODUCT: TAXES/ASSESSMENTS: LAND SALE PRICE: Continuation of "Nautilus" project (total of 70 homes). Will use same model complex. One and two story production homes 2,930 SF to 4,012 SF. 3 to 5 bedrooms, 3.5 to 5.5 baths. 2 to 3 car garages. Estimated average retail price when land deal negotiated was $2,105,000 which included average view premium of $552,000. Located in County of Orange (Irvine Coast) AD No and Laguna Beach School District CFD No Composite tax rate estimated to be ±1.5% of market value. Price agreed to and approved by seller's Board of Directors 11/2003. Buyer to sign in January Six takedowns starting 4/2004 and ending 3/2005 SALE PRICE: $42,801,460 $/LOT: $1,188,929 $/PAD ACRE: $4,755,718 SELLER: BUYER: PURCHASE TERMS: VERIFICATION: REMARKS: The Irvine Company Laing Luxury Homes Cash upon close of each phase Cindy Daley, Irvine Co. & Ginny Kerr, Laing Luxury Homes Deal also provides for profit participation by seller if retail prices and developer's profits exceed specified amounts. Estimated finished lot cost is $1,288,429, or ±61.2% of estimated average home retail price with view premiums. Sales opened on first phase on 6/2003. As of end-2004, the builder had released and sold all 70 homes with 45 closed escrows. The last price range was $2,555,000 to $2,730,000. GARY L. VOGT and ASSOCIATES Page 45 Real Estate Appraisers and Consultants

158 MARKET DATA NO. 3 LOCATION: Both sides Upper Ridge westerly of West Coastal Peak, Pacific Ridge Planned Community, Newport Beach LEGAL: Lots 1-21, Tract & Lots 1-86, Tract NET PAD ACRES: ±18.45 NO. OF LOTS: 107 DENSITY: 5.8 du/ac. AVG. LOT SF: ±6,000 SF DESCRIPTION: LAND USE STATUS: RETAIL PRODUCT: TAXES/ASSESSMENTS: LAND SALE DATE: Bluetop pad condition at time of purchase. Lots are 50 to 65' wide by 90' to 105' deep. Lots clustered around central entry courtyard. Views limited to territorial. Approved tentative and final tract maps Project named Belcara. 2-story SFR s sized from 2,453 SF to 3,052 SF. 3 to 5 bedrooms, 2.5 to 4.5 baths. 2-car garages. Estimated average retail price when land deal negotiated in late 2002 was $988,600. Located in County of Orange AD No and Newport- Mesa Unified School District. Composite tax rate on new homes ±1.7% of market value. Deal signed 11/2002. Nine phases to record from July of 2003 through October of SALE PRICE: $45,485,593 $/LOT: $425,099 $/PAD ACRE: $2,465,344 SELLER: BUYER: PURCHASE TERMS: VERIFICATION: REMARKS: The Irvine Company Taylor Woodrow Cash upon close of each phase Cindy Daley, Irvine Co. Deal also provides for seller price/profit participation. Estimated finished lot cost is $519,099, or ±52.5% of initial estimated average home retail price. Sales opened 3/20/2004. As of end of 2004, the builder had released 82 units and reported 74 sales and 23 closed escrows. Current price range is $1,535,000 to $2,031,000. GARY L. VOGT and ASSOCIATES Page 46 Real Estate Appraisers and Consultants

159 MARKET DATA NO. 4 LOCATION: Highpoint & Wayside S/O Upper Ridge and Coastal Oak E/O Pacific Mist, Pacific Ridge Planned Community, Newport Beach LEGAL: Lots 1-23 & 56-70, Tract NET PAD ACRES: ±11.36 NO. OF LOTS: 38 DENSITY: 3.3 du/ac. AVG. LOT SF: ±7,000 SF DESCRIPTION: LAND USE STATUS: RETAIL PRODUCT: TAXES/ASSESSMENTS: LAND SALE DATE: Bluetop pad condition at time of purchase. Lots are ±60 to 65' wide by ±100' deep. Most lots have some territorial views and a few lots may have limited blue-water ocean views. Approved tentative and final tract maps Project named Pienza. Detached single family homes sized from 2,613 to 3,557 SF. 3.5 to 4.5 bedrooms, 3.5 to 4.5 baths. 3-car garages. Estimated average retail price when land deal negotiated in late 2002 was $1,448,000. Located in County of Orange AD No and Newport- Mesa Unified School District. Composite tax rate estimated to be ±1.7% of market value. Deal signed 11/2002. Five phases to record from June of 2003 through December of 2004 SALE PRICE: $27,818,394 $/LOT: $732,063 $/PAD ACRE: $2,448,802 SELLER: BUYER: PURCHASE TERMS: VERIFICATION: REMARKS: The Irvine Company Greystone Homes Cash upon close of each phase Cindy Daley, Irvine Co. Deal also provides for seller price/profit participation. Estimated finished lot cost is $815,000, or ±56.3% of initial estimated average home retail price. Sales opened early July As of end of 2004, the builder had released 28 units and reported 20 sales with 12 closed escrows. Current price range is $1,848,000 to $2,142,000. GARY L. VOGT and ASSOCIATES Page 47 Real Estate Appraisers and Consultants

160 MARKET DATA NO. 5 LOCATION: Both sides Meridian and Observatory westerly of Upper Ridge and both sides of Sundial easterly of Canyon Peak, Pacific Ridge Planned Community, Newport Beach LEGAL: Lots 1-28 & 41-45, Tract NET PAD ACRES: ±8.9 NO. OF LOTS: 33 DENSITY: 3.7 du/ac. AVG. LOT SF: ±7,500 SF DESCRIPTION: LAND USE STATUS: Bluetop pad condition at time of purchase. Lots are 55 to 75' wide by ±110' deep. Most lots have territorial hill & canyon views with a few minor blue-water ocean views. Approved tentative and final tract maps RETAIL PRODUCT: Project named Cypress. SFR s from 2,918 to 4,130 SF. 3 to 5 bedrooms, 3.5 to 5.5 baths. 2 & 3-car garages. Estimated average retail price when land deal negotiated in early 2003 was $1,637,000. TAXES/ASSESSMENTS: LAND SALE DATE: Located in County of Orange AD No and Newport- Mesa Unified School District. Composite tax rate estimated to be ±1.6% of market value. Deal signed March Five phases to record from July 2004 through May 2005 SALE PRICE: $24,641,265 $/LOT: $746,705 $/PAD ACRE: $2,768,681 SELLER: BUYER: PURCHASE TERMS: VERIFICATION: REMARKS: The Irvine Company Taylor Woodrow Cash upon close of each phase Cindy Daley, Irvine Co. Deal also provides for seller price/profit participation. Estimated finished lot cost is $803,400, or ±49.1% of initial estimated average home retail price. Sales opened September 4, 2004 with a release of 9 homes. As of end of 2004, builder had released 22 homes with 17 reported sales. Current price range is $1,802,000 to $2,676,000. GARY L. VOGT and ASSOCIATES Page 48 Real Estate Appraisers and Consultants

161 MARKET DATA NO. 6 LOCATION: Both sides Pacific Mist, Morning Light and Clearview southerly of West Coastal Peak, Pacific Ridge Planned Community, Newport Beach LEGAL: Lots 8-44, Tract NET PAD ACRES: ±12.89 NO. OF LOTS: 37 DENSITY: 2.9 du/ac. AVG. LOT SF: ±9,000 SF DESCRIPTION: LAND USE STATUS: RETAIL PRODUCT: TAXES/ASSESSMENTS: LAND SALE DATE: Bluetop pad condition at time of purchase. Lots are 65' to 75' wide by ±125' deep. Approximately 7 lots should have some blue-water ocean views while others will have some territorial hill & canyon views. Approved tentative and final tract maps Project named Costal Azul 1 & 2-story SFR s sized from 3,632 to 4,844 SF. 3 to 7 bedrooms, 3.5 to 6.5 baths. 3-car garages. Estimated average retail price when land deal signed in March of 2003 was $2,005,000. Located in County of Orange AD No and Newport- Mesa Unified School District. Composite tax rate estimated to be ±1.7% of market value. Deal signed March of Seven phases to record from July of 2004 through of March of SALE PRICE: $38,500,000 $/LOT: $1,040,541 $/PAD ACRE: $2,986,813 SELLER: BUYER: PURCHASE TERMS: VERIFICATION: REMARKS: The Irvine Company Shea Homes Cash upon close of each phase Cindy Daley, Irvine Co. Deal also provides for seller price/profit participation. Estimated finished lot cost is $1,115,965, or ±55.7% of initial estimated average home retail price. Project released first 11 homes on January 8, 2005 and reported all 11 were under contract as of late January. Current price range is $2,209,000 to $2,577,000. GARY L. VOGT and ASSOCIATES Page 49 Real Estate Appraisers and Consultants

162 MARKET DATA NO. 7 LOCATION: Both sides Summerhouse and Village View north of View Terrace, Turtle Ridge Planned Community, Irvine LEGAL: Lots 1-25, Tract NET PAD ACRES: ±7.42 NO. OF LOTS: 25 DENSITY: 3.4 du/ac. AVG. LOT SF: ±8,000 SF DESCRIPTION: LAND USE STATUS: RETAIL PRODUCT: TAXES/ASSESSMENTS: LAND SALE DATE: Bluetop pad condition at time of purchase. Located on single-loaded streets with good territorial and night light views. Approved tentative and final tract maps Continuation of existing Amberhill project at Turtle Ridge (total of 88 homes). SFR s sized from 3,083 to 4,333 SF. Estimated average retail home price when land deal signed in early 2004 was $1,775,000. Located in City of Irvine AD No and Irvine Unified School District CFD No Composite tax rate estimated to be ±1.7% of market value. Deal signed early Four phases to record from July through October of SALE PRICE: $23,886,800 $/LOT: $955,472 $/PAD ACRE: $3,219,245 SELLER: BUYER: PURCHASE TERMS: VERIFICATION: REMARKS: The Irvine Company Standard Pacific Cash upon close of each phase Cindy Daley, Irvine Co. Deal also provides for seller price/profit participation. Estimated finished lot cost is $1,055,919, or ±59.5% of estimated average home retail price. The initial Amberhill project opened in April of As of end of 2004, sales office reported they had released all 88 homes87 sales and 60 closed escrows. Current price range is $1,395,000 to $2,240,000. GARY L. VOGT and ASSOCIATES Page 50 Real Estate Appraisers and Consultants

163 MARKET DATA NO. 8 LOCATION: Both sides Canyon Terrace north of Summit Park Drive, Turtle Ridge Planned Community, Irvine LEGAL: Lots & , Tract NET PAD ACRES: ±14.1 NO. OF LOTS: 50 DENSITY: 3.6 du/ac. AVG. LOT SF: ±7,000 SF DESCRIPTION: LAND USE STATUS: RETAIL PRODUCT: TAXES/ASSESSMENTS: LAND SALE DATE: Bluetop pad condition at time of purchase. Located on double-loaded streets. Approximately 29 lots have territorial and night light views Approved tentative and final tract maps Future project to be named Arezzo. SFR s from 3,435 SF to 3,796 SF. Estimated average retail home price when land deal signed in early 2004 was $1,527,000 which included average view premium of $209,000. Located in City of Irvine AD No and Irvine Unified School District CFD No Composite tax rate estimated to be ±1.7% of market value. Deal signed early Three phases to record from May of 2005 through January of SALE PRICE: $47,394,950 $/LOT: $947,899 $/PAD ACRE: $3,361,344 SELLER: BUYER: PURCHASE TERMS: VERIFICATION: REMARKS: The Irvine Company Pardee Cash upon close of each phase Cindy Daley, Irvine Co. Deal also provides for seller price/profit participation. Estimated finished lot cost is $997,900, or ±65.3% of estimated average home retail price. GARY L. VOGT and ASSOCIATES Page 51 Real Estate Appraisers and Consultants

164 MARKET DATA NO. 9 LOCATION: Both sides View Terrace south of Summit Park Drive, Turtle Ridge Planned Community, Irvine LEGAL: Lots 26-69, Tract NET PAD ACRES: ±20.01 NO. OF LOTS: 44 DENSITY: 2.2 du/ac. AVG. LOT SF: ±13,000 SF DESCRIPTION: LAND USE STATUS: RETAIL PRODUCT: TAXES/ASSESSMENTS: LAND SALE DATE: Bluetop pad condition at time of purchase. Most lots located on single-loaded streets with good territorial and night light views Approved tentative and final tract maps Future project to be named La Cima. To feature large SFR s from ±4,000 SF to ±6,000 SF. Estimated average retail home price when land deal signed in early 2004 was $2,208,000 which included average view premium of $350,000. Located in City of Irvine AD No and Irvine Unified School District CFD No Composite tax rate estimated to be ±1.7% of market value. Deal signed early Nine phases to record from September 2004 through July of SALE PRICE: $48,180,396 $/LOT: $1,095,009 $/PAD ACRE: $2,407,816 SELLER: BUYER: PURCHASE TERMS: VERIFICATION: REMARKS: The Irvine Company Laing Luxury Homes Cash upon close of each phase Cindy Daley, Irvine Co. Deal also provides for seller price/profit participation. Estimated finished lot cost is $1,152,554, or ±52.2% of estimated average home retail price. GARY L. VOGT and ASSOCIATES Page 52 Real Estate Appraisers and Consultants

165 MARKET DATA NO. 10 LOCATION: Southeast corner Pine Needles and Serpentine, Quail Hill Planned Community, Irvine LEGAL: Lots 1-108, Tract NET PAD ACRES: ±29.5 NO. OF LOTS: 108 DENSITY: 3.7 du/ac. AVG. LOT SF: ±6,000 SF DESCRIPTION: LAND USE STATUS: RETAIL PRODUCT: TAXES/ASSESSMENTS: LAND SALE DATE: Bluetop pad condition at time of purchase. 55' to 65' wide by 105' deep. Most lots on single-loaded streets with territorial and night light views Approved tentative and final tract maps Project called Vicara. SFR s from 2,906 SF to 4,589 SF and average ±3,681 SF. Estimated average retail home price when land deal signed in 10/2002 was $1,391,000 which included average view premium of $258,000. Located in City of Irvine AD No and Irvine Unified School District CFD No Deal signed October of Twenty-five phases to record from November 2003 through June of SALE PRICE: $73,749,960 $/LOT: $682,870 $/PAD ACRE: $2,499,999 SELLER: BUYER: PURCHASE TERMS: VERIFICATION: REMARKS: The Irvine Company Richmond American Cash upon close of each phase Cindy Daley, Irvine Co. Deal also provides for seller price/profit participation. Estimated finished lot cost is $772,870, or ±55.5% of original estimated average home retail price. Project opened April As of end of 2004, builder reported they had released 36 units with 33 sales and 9 closed escrows. The current price range is $1,590,000 to $1,952,000. GARY L. VOGT and ASSOCIATES Page 53 Real Estate Appraisers and Consultants

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168 QUALIFICATIONS OF GARY L. VOGT, MAI PROFESSIONAL BACKGROUND: : Real Property Agent and Staff Appraiser, Orange County Department of Real Property Services, Santa Ana, CA : Real Estate Appraiser and Consultant, George Hamilton Jones, Inc., Newport Beach, CA 1982-Present: Self-employed Real Estate Appraiser and Consultant, Gary L. Vogt & Associates Paseo Blanco, San Juan Capistrano, CA Phone: (949) Fax: (949) PROFESSIONAL AND CIVIC AFFILIATIONS AND ACCREDITATIONS: Member - Appraisal Institute (Certificate No. 5842): National Experience Examiner, Board of Directors, Southern California Chapter, Assistant Regional Member, Ethics Administration Division, Certified General Appraiser, State of California (Certificate No. AG007272) Member - International Right of Way Association Member - Transportation Commission, City of San Juan Capistrano, EDUCATION: B.A., Economics, California State University, Los Angeles Advanced Real Estate and Appraisal Study from American Institute of Real Estates Appraisers, Society of Real Estate Appraisers, Appraisal Institute, and International Right of Way Association Instructor, Real Estate Appraisal, Coastline Community College COURT QUALIFICATIONS: Qualified as expert witness for purposes of real estate valuation in Orange County Superior Court and Federal Bankruptcy Court. Also appointed to numerous formal and informal arbitration panels. SCOPE OF WORK EXPERIENCE: Work experience is concentrated primarily in Southern California but also includes assignments in Central and Northern California and Hawaii. Experience includes valuation of most categories of real property including office buildings, industrial buildings, apartments, shopping centers, condominium projects, marinas, mobile home parks, single family residential, residential subdivision land, commercial land, industrial land, apartment land, master planned communities, wetlands, ranch land, large undeveloped acreage parcels, and special use properties. Real property interests appraised include fee simple, leased fee, leasehold, fractional interests, fair rental value, partial acquisitions, temporary easements, utility and drainage easements, sub-surface tunnel easements, slope easements, and rights of way.

169 REPRESENTATIVE APPRAISAL ASSIGNMENTS: Client Department of the Navy Department of the Navy & Southern California Edison Orange County Water District The Irvine Company Job Description Appraisal of ±1,500 acre Tustin Marine Corps Air Station assuming conversion to master-planned community with residential, commercial, and business park components Estimate of market value for 134 acres of land surrounding San Onofre Nuclear Power Station Valuation of four water injection well sites in Huntington Beach for Salt Water Barrier Project Valuation of Newport Coast and Newport Ridge Planned Communities for formation of Assessment District Nos. 88-1, 92-1 & 01-1 Valuation of drainage and utility easements from ±193 acre University of California Agricultural Research Station in Irvine City of Riverside Valuation of partial takings from nine ownerships for widening of Arlington Avenue County of Riverside Valuation of right of way from five ownership for Galena Street Interchange on I-15 Freeway in Mira Loma Valuation of partial takings from 64 ownerships for widening of Reche Canyon Road University of California City of San Juan Capistrano Valuation of vacant land in University Research Park for ground lease Valuation of five existing city parks for establishment of In-Lieu park fees. City of San Clemente Valuation of ±535 acre Laing Forster Ranch for Assessment District No Metropolitan Water District Valuation of waterline easements from nine ownerships in Rancho California Valuation of partial takings from eight ownerships for expansion of MWD's Chemical Unloading Facility in Perris Valuation of deep tunnel easements and surface construction easements from four ownerships near Redlands City of Irvine County of Orange Alvord Unified School District Valuation of various residential and commercial projects for formation of Assessment District Nos. 87-8, 93-14, 97-16, 97-17, 00-18, & Valuation of encroachments into state-owned tidelands from twenty-eight residential properties on Harbor Island in Newport Beach Valuation of 11-acre elementary school site in Lake Hills Planned Community Valuation of 19-acre elementary school site in Home Gardens area of Riverside Co. Warmington Land Company Newco Management Co. Valuation of street right of way parcels from 36-acre ownership in Menifee area of Riverside County Valuation of Ortega Village Retail Center & Office Cottages, San Juan Capistrano Valuation of 103,000 SF office building in San Bernardino Tustin Unified School District Valuation of Lower Peters Canyon Planned Community for CFD No Laguna Beach Unified School District South Orange County Community College District Valuation of Crystal Cove Planned Community for CFD No Valuation of ±68-acre portion of former Tustin Marine Corps Air Station for proposed Learning Village

170 REPRESENTATIVE CLIENTS: Financial Institutions: Home Savings of America Merrill Lynch Capital Markets Downey Savings and Loan Manufactures Bank PaineWebber Inc. Bank of America Wells Fargo Bank First Interstate Bank Stone & Youngberg Corporations / Developers: Mission Viejo Company Kaiser Permanente The Irvine Company Warmington Homes William Lyon Company Shea Homes Standard Pacific Corporation Santa Margarita Company Van Daele Development Aetna Realty Advisors M. H. Sherman Company O Hill Partners Manor Care, Inc. Carson Estate Company AirTouch Cellular Preferred Property Development TRW Space & Electronics Rossmoor Partners Centerstone Development Warmington Land Company Government / Public Agencies: Laguna Beach Unified School District City of Riverside Saddleback Unified School District Solano Beach School District Southern California Edison Company Metropolitan Water District of So. Calif. Orange County Water District City of San Juan Capistrano City of Newport Beach County of Orange University of California City of San Clemente Hemet Unified School District Resolution Trust Corporation Federal Deposit Insurance Corporation City of Costa Mesa City of Irvine City of Perris City of Corona Rancho Santiago College City of Tustin County of Los Angeles City of Santa Clarita Moreno Valley School District Orange County Transit District City of Brea City of Orange Riverside County Flood Control District Etiwanda School District Transportation Corridor Agencies City of Fullerton Community Redevelopment Agency, City of LA Alvord Unified School District Tustin Unified School District City of West Covina Department of the Navy Mt. San Jacinto College District City of Fontana Law Firms: Best, Best and Krieger, Riverside Fulbright & Jaworski, Los Angeles Paul, Hastings, Janofsky & Walker, Costa Mesa Phelps, Schwarz & Phelps, Pasadena Gibson, Dunn & Crutcher, Washington, D. C. Oliver, Barr and Vose, Los Angeles Harwood, Adkinson and Bernauer, Newport Beach Allen Matkins Leck Gamble & Mallory Stern, Neubauer, Greenwald & Pauly, Santa Monica Turner & Mulcare, San Mateo Urland, Morello, Dunn and Maynard, Santa Ana Thompson & Colgate, Riverside Rutter, O Sullivan, Greene and Hobbs, Los Angeles Call Clayton & Jensen, Newport Beach Palmieri, Tyler, Wiener, Wilhelm and Waldron, Irvine Wise, Wiezorek, Timmons and Wise, Long Beach Drummy, King, White and Gire, Costa Mesa Bowie, Arneson, Wiles & Giannone, Newport Beach

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