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05-1 Official Statement
NEW ISSUE NO RATING BOOK-ENTRY-ONLY SYSTEM [v the opinion of Orrick, Herzington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing Taws, regulations, mlings, and court decisions and assuming (among other things} compliance with certain covenants, interest on the Bonds is exe(uded from Boss income for federal tax purposes and is exempt from State of California personal ineometaxes. Inthe opinion of Bond Counsel, interest on the Bonds is note specific preference iremfor purposes of the Federal individual and corporate alternative minimum taxes, although Band Counsel observes that such interest is included in adjusted cuuen[ earnings in calculating federal corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other fax consequences caused by thn ownership or disposition of, or [he accmal or receipt of interest oq the Bonds. See "TAX MATTERS" - $15,595,000 CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO.OS-1 (CITY IN THE HILLS) LIMITED OBLIGATION IMPROVEMENT BONDS Dated: Date of Delivery Due: September 2, as shown below The Bands described herein {the "Bonds") are special, limited obligation bonds being issued by the City of Bakersfield, California (the "City"), to finance the acquisition of certain public improvements specially benefidng properties located within the boundaries of the City's Assessment District No. OS-1 (CiCy in the Hills} (the "Assessment District"). The Assessment Dis[ric[ was formed and the acquisition of [he improvements will be undertaken as authorized under the provisions of [he Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) and Section 13.08.070 of the Municipal Code of [he City. The Bonds aze being issued pursuant [o the provisions of the Improvement Bond Act of 1915 (Division ]0 of the California Streets and Highways Code) {the "1915 Act"}. The Bonds are issuable only as fully-registered Sends in the denomination of $5,000 each or any integral multiple thereof. Principal, interest at maturity or upon earlier redemption, as applicable, and premium, if any, with respect [o [he Bands will be payable upon presentation and surrender [hereof a[ [he corporate [rusC office oP U.S. Bank National Association, rise paying agent, registrar, and transfer agent Por the Bonds (the "Paying Agent"}, in St. Paul, Minnesota. Interest on Che Bonds (other than the final payment of interest, which is payable upon surrender of the Bonds) will be payable from their date of delivery, commencing Mazch 2, 2006, and thereafter semiannually on September 2 and Mazch 2 (each an "Interest Payment Date'°) by check of the Paying Ageut mafled on each Interest Payment Date to the persons in whose natnes such Bonds are registered at the close of business on the fifteenth day of the calendaz month~immediately prior to an Interest Payment Date (or, in the case of an owner of at least $1,OOQ000 in principal amount of [he Bonds who so requests in writing prior to the close of business on the fifteenth day of the month immediately preceding such Interest Payment Date, by wire transfer). The Bonds will be issued initially inbook-entry-only form tlrrough the book-entry system of The Depository Trnst Company, New York, New York. See "BOOK- F;NTRY--ONLY SYSTEM:' The Bonds ue subject to redemption on any Interest Payment Date in advance of maturity a[ the option of the City upon giving at leas[ thirty (30) days prior notice and upon payment of the principal [hereof and interest accmed thereon ro the date of redemption, plus any applicable redemption premium, as more firlly described herein The Term Bonds maturing on September 2, 2025, are also subject to mandatory redemption in part prior to their sorted maturity, as more fully described herein. Further development of pazcels within the Assessment District, transfers of property ownership, and other similar circumstances could result in prepayment of all or part of [he assessments. Such prepayment would result in redemption of a portion of the Bonds prior to their stated maturiries. Under [he provisions of the 1415 Act, installments of principal and interest sufficient m meet annual debt service requirements with respect to the Bonds shall be included ov the regular Kem County tax bills sent to owners of property against which there are unpaid assessments. The portion of the annual installments for the payment of principal of and interest on the Bands is to be paid into [he Redemption Fund, to be held by the Finance Director, and will be used m pay debt service on the Bonds as it becomes due. To provide funds for payment of rite Bonds and [he interest thereon as a result of arty delinguem assessment installments, the City will establish a Special Reserve Fund and deposit therein Bond proceeds in the original amount of $],309,495. Additionally, the City has covenanted that, under certain circumstances, by no later than October 1 in any year, it will file an action in superior court to foreclose the lien on each delinquent assessment, as more pazticularly described herein. [F A DELINQUENCY OCCURS IN THE PAYMENT OF ANY ASSESSMENT INSTALLMENT, THE CITY WILL HAVE A DUTY ONLY TO TRANSFER INTO THE REDEMPTION FUND THE AMOUNT OF THE DELINQUENCY OUT OF THE SPECIAL RESERVE FUND. THIS DUTY OF THE CITY IS CONTINUING DURING THE PERIOD OF DELINQUENCY, ONLY TO THE EXTENT OF FUNDS AVAILABLE FROM THE SPECIAL RESERVE FUND, UNTIL REINSTATEMENT, REDEMPTION, OR SALE OF THE DELINQUENT PROPERTY. THERE IS NO ASSURANCE THAT SUFFICIENT FUNDS WILL BE AVAILABLE FROM THE SPECIAL RESERVE FUND FOR THIS PURPOSE. THEREFORE, IF, DURING THE PERIOD OF DELINQUENCY, THERE ARE INSUFFICIENT AVAILABLE FUNDS, A DELAY MAY OCCOR IN PAYMENTS TO THE OWNERS OF THE BONDS. IN ACCORDANCE WITH SECT]ON 8769(6) OF THE 1915 ACT, THE CITY HAS DETERMINED THAT IT WILL NOT OBLIGATE ITSELF TO ADVANCE FUNDS FROM ITS TRF,ASURY TO CURE ANY DEFICIENCY (N THE REDEMPTION FUND. This cover page wnmins certain inforzna[ioo for quick reference only. IC is not a summary of thn issue. Investors mast read the entire Official Statement to obtain information essential to the making of an informed investment decision. MATURITY SCHEDULE $12,065,000 Serial Bonds Maturity Principal Interest Price) (September 2) Amount Rate - -f=ield CUSIPtt t No. 2007 $53Q000 40090 3.50% 057510 B32 2008 SSQ000 .-~ 4.00 3.80 057510 640 2009 575,000 4,00 100.00 057510 657 2010 595,000 4.50 4.20 057510 665 2011 625,000 4.50 4.40 057510 673 2012 550,000 4.55 100.00 057510 B81 2013 68Q000 4 70 100.00 057510 699 2014 715,000 4.80 100.00 057510 C23 Maturity Principal InCcres[ Pricel (September 2) Amount Rate Yield CUSIPm No. 2015 $ 745,000 4.909a 100.00% 057510 C31 2076 185,000 5.00 100.00 057510 C49 2017 `'~-- 820,000 5.10 100.00 057510 C56 201 B 865,000 5.15 100.00 057510 C64 2019 970,000 5:L0 100.00 057510 C72 2020 955,000 525 100.00 057510 C80 2021 1,005,000 53Q 100.00 057510 C98 2022 1,060,000 5.35 100.00 057510 D22 $3,530,000 SA00% Term Bond Due September Z, 2025 -Price: 100A0°fo {CUSiYnI No. 057510 D55} ~~~ Copyright 2005, American Bankers Association CUSP data herein is provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw- Hill Companies, Inc, This data is no[ intended to create e dambase and does not serve in any way as a substitute fm the CUSIP services. CUSP is a registered trademark of the American Bankers Association. THE BONDS ARE NOT SECURED BY THE. GENERAL TAXING POWER OF THE CITY, THE COUNTY OF KERN {THE "COUNTY'), THE STATE OF CALIFORNIA (TFIE "STATE"), OR ANY OTHER POLITICAL SUBllIVIS[ON OF THE STATE, AND NEITHER THE CITY, NOR THE COUNTY, NOR THE STATE, NOR ANY OTHER POLITICAL SUBDIVISION OF THE STATE HAS PLEDGED ITS FULL FAITH AND CREDIT FOR THE PAYMENT OF THE BONDS. The Bonds are being offered when, as, and if issued by the Ciry and received by the Underwriter, subject to prior.raLe and to the approval of validiry by Orrick, Herrington & Sutcliffe LLP, Sarz Francisco, California, Bond Counseb and the approv¢1 nfcerr¢in matters for the City by the City Attorney of the Ciry of Bakersfield. Certain other Legal matters wilt be passed on by Pillsbury Winthrop Shaw Pittman LLP, Century Ciry, Cailfornia, as Disclosure Counsel to the Ciry. h is expected that the Bonds in definitive form will be avaitabte for delivery in New York, New York on ar about December 21, 2005. STONE &YOUNGBERG LLG The date of [his Official Statement is December 1, 2005. i No dealer, broker, salesperson, or other person has been authorized by the City or the Underwriter to give ' any information or to make any representations other than those contained in this Official Statement, and, if given or i made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy the ' Bonds, nor shall there be any sale of the Bonds, by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. ! This Official Statement is not to be construed to be a contract with the purchasers ofthe Bonds. Statements contained in this Official Statement which involve estimates, forecasts, or matters of opinicn, whether or not expressly described herein, are intended solely as such and aze not to be construed as representations of fact. I~ The information set forth herein has been obtained from the City and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and it is not to be construed as a representation by the Ciry. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the City or the AssessmenfDistrict since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this I transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. ' This Official Statement is submitted in connection with the sate of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVP NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. ' IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF ' COMMENCED, MAY BE DISCONTINUED AT ANY TIME. CITY OF BAK ERSFIELD Mavor and Citv Council Harvey L. Hall, Mayor Irma Cazson, Councilmember First Wazd Susan M. Benham, Councihnember Second Ward Mike Maggard, Vice Mayor, Councilmember Third Ward David R. Couch, Councihnember Fourth Wazd Harold Hanson, Councilmember Fifth Ward Jacquie Sullivan, Councilmember Sixth Ward Zack Scrivner, Councilmember Seventh Ward Ci Staff Alan Tandy, City Manager Virginia Gennaro, City Attorney Pamela A. McCarthy, City Clerk Raul M. Rojas, Public Works Drector Nolson K Smith, Finance Director BOND COUNSEL Orrick, Herrington & Sutcliffe LLP San Francisco, Califomia ASSESSMENT ENGINEER Wilson & Associates Fresno, California PAYING AGENT, REGISTRAR, AND TRANSFER AGENT U.S. Bank National Association Los Angeles, California PROPERTY APPRAISER Kern Appraisal Company "'-- Bakersfield, California DISCLOSURE COUNSEL r Pillsbury Winthrop Shaw Pittman LLP Century City, Califomia Oregon I-9 Pacrf'ic Ocean The City of Bakersfield, California, '. the county seat of the County of Kern, is located at the southern end '. of California's San Joaquin Valley. it Bakersfield is aFFroXiat2tely 110 ~ miles north of Los Angeles and 290 miles south of San Francisco. i-s Nevada Bakersfield ~-... "--, ~ tdr Los. Angeles Me~dco TABLE OF CONTENTS Page INTRODUCTORY STATEMENT ......................................................................................................................... ......1 The Bonds ......................................................................................................................................................... .....1 The Assessment District .................................................................................................................................... ..... l Property Ownership ............................................................................................... ..... ....................................... .....2 hnprovements .................................................................................................................................................... ..... 2 Assessments ....................................................................................................................................................... ..... 2 Appraisal ........................................................................................................................................................... .....2 Security for the Bonds .............................................................................................:...................:..................... .....3 Special Reserve Fund ........................................................................................................................................ .....3 Foreclosure ........................................................................................................................................................ ..... 3 Assessment Delinquencies ................................................................................................................................ .....4 Book-Entry-Only System ........................................................................................:......................................... .....4 Continuing Disclosuxe ....................................................................................................................................... .....4 Forward-Looking Statements ............................................................................................................................ .....4 Miscellaneous .................................................................................................................................................... ..... 5 ESTIMATED SOURCES AND USES OF FUNDS ................................................................................................ .....5 THE BOND5 ............................................................................................................................................................ .....5 Purpose of the Bonds ......................................................................................................................................... .....5 Authority for Issuance ....................................................................................................................................... .....6 General .............................................................................................................................................................. ..... b Transfer and Exchange of Bonds ....................................................................................................................... .....7 Bonds Mutilated, Destroyed, or Lost ................................................................................................................. .....7 Redemption .................................:..................................................................................................................... .....7 Effect of Redemption; Defeasance .................................................................................................................... .....8 Refunding Bonds ............................................................................................................................................... .....8 Disposition of Surplus from the Improvement Fund ......................................................................................... .....9 Investment of Bond Proceeds ............................................................................................................................ .....9 Security for the Bonds ....................................................................................................................................... .....9 Special Reserve Fund ........................................................................................................................................ ...10 Redemption Fund Deficiencies ......................................................................................................................... ...11 Covenant to Commence Superior Court Foreciosure ....................._................................................................. ...11 Priority of Lien .................................................................................................................................................. ...12 Tax Covenants ................................................................................................................................................... ...12 Debt Service Schedule ....................................................................................................................................... ...12 BOOK-ENTRY-ONLY SYSTEM ........................................................................................................................... ...13 THE ASSESSMENT DISTRICT-.AND THE IMPROVEMENTS ..................._..................................................... ... IS General .............................................................................................................................................................. ... I S Description of tfre Assessment District and the Improvements :...,, .................................................................. ...16 Estimated Improvement Costs ..........................................................:a. ....... ...20 Method of Assessment Spread .......................................................................................................................... ...20 OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT... ...21 Ownership of Property in the Assessment District ............................................................................................ ...21 Mountain View Bravo ....................................................................................................................................... ...22 Regent ......................................................................................................... ~...................................................... ...23 D.R. Horton ....................................................................................................................................................... ...23 KHOV Entities .................................................................................................................................................. ...24 Development and Financing Plans .................................................................................................................... ...25 Assessment Roll ................................................................................................................................................ ...33 Utilities .............................................................................................................................................................. ...33 Flood and Earthquake Zones ............................................................................................................................. ...34 Zoning ................................................................................................................ .. ............................................. ...34 Tax Delinquencies ........................................................................................... .....................................................34 Environmental Issues Affecting Assessment District Property ....................... ..............................._....................34 Appraised Value-to-Assessment Lien Ratio .................................................... ..........................................:..::.:....34 Duect and Overlapping Debt ........................................................................... .....................................................36 SPECIAL RISK FACTORS ................................................................................... .....................................................37 General ............................................................................................................ ..................................................... 37 Risks of Real Estate Secured Investments Generally ...................................... .....................................................37 Concentration of Ownership ............................................................................ .....................................................37 Property Values ............................................................................................... .....................................................38 Availability of Funds to Pay Delinquent Assessment Installments ................. .....................................................38 Hazardous Substances ..................................................................................... .....................................................39 Endangered and Threatened Species ..........................................................:.... .....................................................39 Factors Wltich May Affect Land Development ............................................... .....:...................:...........................40 Private Improvements; Increased Debt ............................................................ .....................................................40 Subordinate Debt; Payments by FDIC and other Federal Agencies ................ .....................................................40 Tax Delinquencies ........................................................................................... .....................................................41 Limited Obligation of the City Upon Delinquency ......................................... .....................................................41 Bankruptcy and Foreclosure ............................................................................ .....................................................42 Economic, Political, Social, and Environmental Conditions ........................... .....................................................43 Articles XIIIA and XIIIB of the Califomia Constitution ................................. .....................................................43 Articles XIIIC and XIIID of the California Constitution ................................. .....................................................45 Future Initiatives .............................................................................................. .....................................................45 Covenant to Commence Superior Court Foreclosure ...................................... .....................................................45 Price Realized Upon Foreclosure ............................................... .................. .....................................................46 Priority of Lien ................................................................................................ .:...................................................47 Refunding Bonds ............................................................................................. .....................................................47 Absence of Mazket for Bonds .......................................................................... .....................................................47 Loss of Tax Exemption ...................................................................... .......... .....................................................47 ENFORCEABILITY OF REMEDIES ................................................................... .....................................................47 NO LITIGATION ................................................................................................... .....................................................48 CERTAIN INFORMATION CONCERNING THE CITY .................................... .....................................................48 TAX MATTERS ..................................................................................................... ....................................................48 APPROVAL OF LEGALITY ................................................................................. ....................................................49 UNDERWRITING ................................................................................................. .....................................................49 NO RATING ........................................................................................................... ....................................................49 CONTINUING DISCLOSURE ............................................................................... ....................................................49 MISCELLANEOUS ................................................................................................ .................................................... 50 APPENDIX A -CITY OF BAKERSFIELD ECONOMIC, FINANCIAL, AND DEMOGRAPHIC INFORMATION ..............................................................................._.............A-1 APPENDIX B -APPRAISAL:....~..._ ......................................................................................................................B-1 APPENDLY C -FORM OF OPINION OF BOND COUNSEL ................................................................................C-1 APPENDIX D -ASSESSMENT DIAGRAM ................................:.~......................................................................D-1 APPENDLY E -ASSESSMENT ROLL AND VALUE-TO-LIEN DA'fA ............................................................... E-1 APPENDIX F -FORMS OF CONTINUING DISCLOSURE CERTIFICATES ..................................................... F-1 i ~~ OFFICIAL STATEMENT $15,595,000 CITY OF BAKERSFIELD J . ASSESSMENT DISTRICT N0.05-1 (CITY IN THE HILLS) LIMITED OBLIGATION IMPROVEMENT BONDS INTRODUCTORY STATEMENT THIS INTRODUCTORY STATEMENT IS SUBJECT IN ALL RESPECTS TO THE MORE COMPLETE INFORMATION IN THIS OFFICIAL STATEMENT, INCLUDING THE COVER PAGE AND APPENDICES HERETO AND THE OFFS > RING OF THE BONDS TO POTENTIAL INVESTORS IS MADE ONLY B Y MEANS OF THE ENTIRE OFFICIAL STATEMENT. The Bonds The purpose of this Official Statement, which includes the cover page and the appendices hereto, is to set forth certain information concerning the issuance and sale by the City of Bakersfield, California (the "City"), of $15,595,000 in aggregate principal amount of its City of Bakersfield Assessment District No. OS-1 (City in the Hills) Limited Obligation Improvement Bonds (the `Bonds") for Assessment District No. OS-1 (City in the Hills) (the "Assessment District"). The Bonds are issued pursuant to the Improvement Bond Act of 1915, being Division 10 of the California Sreets and Highways Code (the "1915 Act"), the Charter and Municipal Code of the City, and Resolution No. 251-OS adopted by the City Council of the City (the "City Council") on November 9, 2005 (the "Bond Resolution"). The Assessment District The Assessment District was formed and the assessments are being levied in accordance with the Municipal Improvement Act of 1913, being Division 12 of the California Streets and Highways Code (the "1913 Act"), and Section 13.08.070 of the Municipal Code of the City. Proceedings for the formation of the Assessment District were commenced by the City Council pursuant to a property owner petition Sled by Mountain View Bravo, LLC, a California limited liability company ("Mountain View Bravo"), as the owner at the date of the filing thereof of more than 60% of the assessable land within the Assessment Distrct. The Assessment District consists of approximately 517.80 gross acres in an irregularly shaped community area located in northeast Bakersfield. The property within the Assessment District covers the entire areas of Parcels 5, 6, 8, 9, 10, and 11, and most of the areas of Pazcels 1, 2; 3, 4, and 7, of Parcel Map No. 11013. The assessment roll {"Assessment Roll") prepazed by Wilson & Associates, Fresno, California, acting as assessment engineer for the City {the "Assessment Engineer"}, establishes eleven sepazate assessments corresponding to the eleven legal pazcels within the Assessment District. Four vesting tentative tract maps have been approved for the property within the Assessment District as follows: Tentative Tract Map No. 6444 ("TTM 6444"), which comprises the property subject=to Assessment Nos. 1 through 4; Tentative"Pratt Map No. 6498 {"TTM 6498"), which comprises the property subject to Assessment Nos. 5 and 6; Tentative Tract Map No. 6452 {"TTM 6452"), which comprises the property subject to Assessment No. 7; and Tentative Tract Map No. 6406 {"TTM 6406"), which comprises the property subject to Assessment Nos. 8 and 9. Approval is pending for one vesting tentative tract map, Tentative Tract Map No. 6696 {"TTM 6696"), which will cover the property subject to Assessment Nos. 10 and 11. Final tract maps are not expected to be recorded prior to the issuance of the Bonds. In addition, no building permits, other than building permits for model homes, have been issued for such property. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS" and "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." The Assessment District boundaries are shown on the assessment diagram, a copy of which is attached hereto as APPENDIX D. See also "APPENDIX E -Assessment Roll and Value-to-Lien Data" Property Ownership The Assessment District encompasses approximately 517.80 gross acres. As of November 8, 2005, the property within the Assessment District was owned as follows: (i} Mountain View Bravo owned approximately 103.07 net acres, consisting of property subject to Assessment Nos. 7, 10, and 11, (ii) Regent Land Investment, LLC, a Delaware limited liability company ("Regent"), owned approximately 160 67 net acres, consisting of property subject to Assessment Nos. 1, 3, 4, and 5, (iii) D.R. Horton Los Angeles Holding Company, Inc., a Califomia corporation ("D.R. Horton"), owned approximately 97.71 net acres, consisting of property subject to Assessment Nos. 8 and 9, (iv) K. Hovnanian's Four Seasons at Bakersfield, L.L.C., a California limited liability company ("KHOV-FS"), owned approximately 55.82 net acres, consisting of property subject to Assessment No. 2, and (v) K. Hovnanian at Rosemary Lantana, L.L.C., a Califomia limited liability company ("KHOV-RL" and together with KHOV-FS, the "KHOV Entities"), owned approximately 31.21 net acres, consisting of property subject to Assessment No. 6. The remaining approximately 69.32 acres of property within the Assessment District are currently owned by the Landowners and comprise major off-site street rights-of--way, future park sites, and the future site of a storm drain sump, none of which will be subject to an assessment levy. Mountain View Bravo, Regent, D.R. Horton, and the KHOV Entites are collectively referred to herein as the "Landowners." See "TIIE ASSESSMENT DISTRICT AND THE IMPROVEMENTS" and "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." Improvements Proceeds from the sale of the Bonds issued pursuant to the Assessment District proceedings will be used to fmance (i} the acquisition of certain public infrastructure improvements for the Assessment District, which improvements will be owned, operated, and maintained by the City (collectively, the "hmprovements"), (ii) the cost to pay off existing pazcel assessments confirmed pursuant to the City of Bakersfield Assessment District No. 93-1 (Northeast Sewer) {"AD 93-1"}; and (iii) the payment of certain incidental costs and expenses related to the acquisition of the Improvements, the Assessment District proceedings, and the issuance of the Bonds, including the establishment of a Special Reserve Fund for the Bonds and the funding of capitalized interest on the Bonds through September 2, 2006. For a further description of the Assessment District and the Improvements, sea "THE ASSESSMENT DISTRICT AND THE LMPROVEMENTS -Description of the Assessment District and the Improvements." The Improvements are proposed to be fmanced by the City in accordance with the terms and conditions of that certain Acquisition and Disclosure Agreement No. 05-285, effective July 2Q, 2005 (the "Acquisition Agreement"), by and between the City and Mountain View Bravo. Upon their completion by Mountain View Bravo, the Improvements aze proposed to be acquired by the City using Bond proceeds. Assessments _ The land within the Assessment District specially benefited by the Improvements has been assessed to pay the estimated cas[ of the Improvements and certain fmancing dash related thereto. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Estimated Improvement Costs." The City Council, pursuant to Resolution No. 250-05, adopted on November 9, 2005, confirmed the amount of assessments for the Assessment District in the aggregate amount of $15,820,000. The Bonds are secured by the assessments as hereinafter described under the heading "THE BONDS -Security for the Bonds." The total assessment lien is not less than the aggregate principal amount of the Bonds being issued. r Appraisal Kern Appraisal Company, Bakersfield, Califomia (the "Appraiser"), has prepazed an appraisal dated November 9, 2005 (the "AppraisaP'), appraising, as of October 1, 2005, the property within the Assessment District that is subject to the lien of the assessments. Such appraised property consists of approximately 448.48 net acres, and does not include major off-site street rights-of--way, future park sites, or the future site of a storm drain sump, none of which will be subject to an assessment levy. Based on the Appraisal; the ratio of the aggregate appraised value of the Assessment District property to the aggregate assessment lien is 4.54:1. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Appraised Value-to- Assessment Lien Ratio." The assumptions and limitations regarding the appraised valuations are set forth in the Appraisal, a copy of which is attached hereto as APPENDIX B. Certain considerations relating to the Appraisal aze discussed under the heading "SPECIAL RISK FACTORS." Neither the Ciry nor the Underwriter makes any representation as to the accuracy or completeness of the Appraisal. See APPENDIX E for a listing of the ratio of the appraised value of the property by assessment number to the amount of the assessment lien against such properly. The appraised values of the Assessment District property reflected in the Appraisal have been determined assuming, among other things, the completion of the Bond-financed Improvements. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Assessment District and the Improvements" and "OWNERSHB' AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT" for descriptions of the plans of the Landowners for the development of the property within the Assessment District. Security for the Bands The Sonds are issued upon and secured by the unpaid assessments and, together with interest thereon, constitute security for the redemption and payment of the principal of the Bonds and the interest thereon. All the Bonds are secured by the moneys in the Redemption Fund created pursuant to the Bond Resolution and by the unpaid assessments levied to provide for payment of said acquisition of the Improvements, and, including principal and interest, are payable exclusively out of the Redemption Fund. The unpaid assessments represent fixed liens on the parcels of land assessed under the proceedings. They do not, however, constitute the personal indebtedness of ', the owners of said pazcels. Under the provisions of the 1915 Act, assessment installments sufficient to meet annual debt service on the Bonds are to be collected on the regular Kern County tax bills sent to owners of property within the Assessment District against which there are unpaid assessments. These annual installments are to be paid into the Redemption Fund, which will be held by the Finance Director and used to pay Bond principal and interest as they become due. The installments billed against each parcel of property each yeaz represent a pro rata share of the total principal and interest coming due that year, based on the percentage which the unpaid assessment against that property bears to the total of unpaid assessments within the Assessment District. The Bonds are not secured by the general taxing power of the City, the County of Kern (the "County"), the State of California (the "State"), or any other political subdivision of the State, and neither the City, nor the County, nor the State, nor any other political subdivision of the State has pledged its full faith and credit for the payment of the Bonds. Special Reserve Fund The City will establislraSpecial Reserve Fund (the "Special Reserve Fund") in the amount of $1,309,495 from Bond proceeds, which amount will be transferred to the Redemption Fund in the event of delinquencies in the payment of the assessment installments to the extent of such delinquencies. The Special Reserve Fund will be maintained, from assessment installment payments and from proceeds of redemption or sale of pazcels with assessment delinquencies, in an amount equal to the least of (i) 10% of the proceeds of the Bonds, (ii) the maximum annual debt service an the Bonds, or (iii) 125% of the average annual debt service on the Bonds, less any amounts transferred to the Redemption Fund when assessments aze paid following the issuance of the Bonds, as determined from time to time (the "Reserve Requirement"). See "THE BONDS -Special Reserve Fund." Foreclosure The City has covenanted that it will, no later than October 1 in any year, file an action in the Superior Court of the County to foreclose the lien on each delinquent assessment if (i) the sum of uncured assessment delinquencies for the preceding fiscal year exceeds 5% of the assessment installments posted to the tax roll for that fiscal yeaz and (ii) the amount in the Special Reserve Fund is less than the Reserve Requirement. See "PHE BONDS -Covenant to ~ Commence Superior Court Foreclosure" and "SPECIAL RISK FACTORS -Covenant to Commence Superior Court Foreclosure." Assessment Delinquencies If a delinquency occurs in the payment of any assessment installment, the City has a duty to transfer into the Redemption Fund the amount of the delinquency out of the Special Reserve Fund. This duty of the City is continuous during the period of delinquency, uatil reinstatement, redemption, or sale of the delinquent property. There is no assurnnce that funds will be available for such purpose and if, during the period of delinquency, there are insufficient moneys in the Special Reserve Fund, a delay may occur in payments to the owners of the Bonds. As authorized by the 1915 Act, the City has elected not to obligate itself to advance avatlable funds from its treasury to cure any deficiency which may occur in the Redemption Fund by reason of the failure of a property owner to pay an assessment installment when due. If there are addiflonal delinquencies after depletion of funds in the Special Reserve Fund, the City is not obligated to transfer into the Redemption Fund the amount of such delinquencies out of any other available moneys of the City. Book-Entry-Only System The Bonds will be initially issued and registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York. Payment of principal of and interest on the Bonds to the Beneficial Owners (as defined below} will be made in accordance with the procedures of DTC described below. See "BOOK-ENTRY-ONLY SYSTEM." Continuing Disclosure Each of the City, Mountain View Bravo, for itself and on behalf of Regent, D.R. Horton, and KHOV-FS, for itself and on behalf of KHOV-RL, has covenanted in its respective Continuing Disclosure Certificate for the benefit of Bondholders to provide an annual or serni-annual report, as applicable, containing certain fmancial information and operating data relating to the Assessment District and the property in the Assessment District and to provide notices of the occurrence of certain enumerated events, if material. The form of each such Continuing Disclosure Certificate is attached hereto as "APPENDLY F -FORMS OF CONTINUING DISCLOSURE CERTIFICATES." These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Coaunission Rule 15c2-12(b}(5}, as it may be amended from time to time. See "CONTINUING DISCLOSURE." In the event any person or entity should acquire property in the Assessment District that, when aggregated with all other property in the Assessment District owned by such owner or its affiliates, is subject to a lien of twenty percent {20%} or more of the annual assessment securing payment of the Bonds, such owner shall be required to enter into a Continuing Disclosure Certificate as described in the preceding paragraph. Forward-Looking Statements This Official Statement contains statements relating to future results that are "forwazd-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. When used in this Official Statement, the words "estimate," "forecast," "intend," "expect," and similar expressions identify forwazd-looking statements. Such statements are subject to risks and uncertainties that could cause actual resins to differ materially from those contemplated in such forwazd-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. See also "SPECIAL RISK FACTORS" herein. Miscellaneous Set forth herein are brief descriptions of the Bonds, the Assessment District, the Improvements, the City, the Bond Resolution, the Landowners, and certain other matters. Such descriptions and the discussions and information contained herein do not purport to be comprehensive or defmitive. All references in this Official i Statement to documents, the Bonds, and the Assessment District proceedings aze qualified in their entirety by references to such documents and the City's resolutions setting forth the terms and descriptions thereof Copies of the Bond Resolution and other documents described in this Official Statement may be obtained from the City. The City's address for such purpose is: City of Bakersfield, 1501 Ttuxtun Avenue, Bakersfield, California 93301, Attention: Finance Director; telephone number (661} 326-3740. ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the sale of the Bonds will be deposited with the Finance Director in trust pursuant to the terms of the Bond Resolution in the amounts set forth below. The moneys in the Improvement Fund established for the Bonds will be used to acquire or otherwise finance the Improvements, to pay off existing pazcel assessments confirmed pursuant to AD 93-1, and to pay certain costs associated with the issuance and delivery of the Bonds. A portion of the net proceeds of the Bonds will be deposited in the Special Reserve Fund. Capitalized interest on the Bonds from their dated date to September 2, 2006, will be deposited into the Redemption Fund. The estimated sources and uses of funds for the Bonds are summarized as follows: TABLE 1 SOURCES AND USES OF FUNDS Sources of Funds J Principal Amount of Bonds $15,595,000.00 Plus: Net Original Premium 17,654.30 Less: Underwriter's Discount (148,152.501 Total $15,464,501.80 Uses of Funds Improvement Fund $13,613,174.49 f 1 Special Reserve Fund 1,309-,495.00 Redemption Fund 541.832.31 (z) Total $15,464,501.80 {1) Includes costs of issuance of approximately $339,853.46. {2) Represents capitalized interest on fhe Bonds from theft dated date to September 2, ?AU6. THE BONDS Purpose of the Bonds Proceeds from the sale of the Bonds will be used to finance (i) the Improvements, which comprise the acquisition of certain public improvements within the Assessment District, (ii) the cost to pay off existing parcel assessments confumed pursuant to AD 93-1, and (iii) the payment of certain incidental costs and expenses related to the acquisition of the Improvements, the Assessment District proceedings, aqd the issuance of the Bonds, including the establishment of a Special Reserve Fund for the Bonds and the fitnding of capitalized interest on the Bonds through September 2, 2006. See "TFIE ASSESSMENT DISTRICT AND TFIE A~PROVEMENTS -Description of the Assessment District and the Improvements: ' Authority for Issuance The Assessment District proceedings aze being conducted pursuant to the 19li Act, Section 13.08.070 of the Municipal Code of the City, and a Resolution of Intention No. 1384, adopted by the City Council on May 25, 2005 (the "Resolution of Intention"). The Bonds, which represent the unpaid assessments levied against privately owned property in the Assessment District, are being issued pursuant to the provisions of the 1915 Act and the Bond Resolution approving the issuance of the Bonds under the 1915 Act and the terms thereof. In the proceedings of the City with respect to the Assessment District, all costs either are estimated or are ascertained prior to the constmction or acquisition of the improvements, right-of-way, or property involved. Under such proceedings, the assessments are then levied, cash collections are made, and bonds are sold to represent unpaid assessments. The money obtained from cash collections and bond proceeds is used by the City as payment for the improvements to be acquired, for the property or rights-of--way (if any) to be acquired, and for incidental expenses and expenses of the Sond issue. Each of the Landowners has waived the cash collection period and no such cash collections were made. Assessment district proceedings can be initiated by either a petition or by the City Council without a petition. A petition filed with the City Council and signed by Mountain View Bravo as the owner of more than 60% of the assessable land within the Assessment District at the time of such filing, initiated the proceedings for the Assessment District. The property owner petition was accepted by Resolution No. 110-05, adopted by the City Council on May 25, 2005. After the proceedings were initiated, the Assessment Engineer prepared a written report, which contains, among other things, the list of improvement costs and the amount of the assessments to be levied against the parcels in the Assessment District. The assessments were levied on the basis of the special benefit to be derived by such parcels from the Improvements. (See "THE ASSESSMENT DISTRICT AND THE I&IPROVEMENTS -Method of Assessment Spread.") The Assessment Engineer's written report was filed with the City Clerk on September 29, 2005, and was approved by the City Council in preliminary form on October 12, 2005. The Assessment Engineer's written report in final form was filed with the City Clerk on October 29, 2005. The public hearing required by law was held on November 9, 2005. The property owners in the Assessment 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. No such protests were made. In accordance with Article XBID of the State Constitution, the property owners were also requested to submit ballots, weighted according to the proportional financial obligation of the affected property, in favor of or opposition to the assessment. All ballots submitted by property owners were in favor of the assessment. See "SPECIAL RISK FACTORS -Articles XBIC and XBID of the California Constitution." Upon conclusion of the hearing, the Ciry Council tabulated the ballots and adopted its resolution confirming the assessments and ordering the acquisition of the Improvements. The assessments confirmed by the City were based on the improvementcosts listed in the Assessment Engineer's final written report (the "Engineer's Report"}. After confirmation, the assessments became liens against the assessed parcels by recordation of a notice of assessment, which recording was made in the Office of the Superintendent of Streets on November 10, 2005, and was recorded in the Office of the County Recorder on November 11,2005. No cash payments were made by the property owners. General The Bonds will be issued in fully-registered form, without couponts, in the denomination of $5,000 each or in any integral multiple thereof. The Bonds will be dated the date of delivery, and will bear interest at the rates per annum, will mature on the dates (each a "Principal Payment Date"), and will mature in the amounts set forth on the front cover pages of this Official Statement. Interest on the Bonds is payable on Mazch 2, 2006, and thereafter semiannually on September 2 and March 2 (each an "Interest Payment Date"}. Principal, interest at maturity or upon eazlier redemption, if applicable, and premium, if any, with respect to the Bonds will be payable at the corporate trust office of U.S. Bank National Association, as paying agent, registraz, and transfer agent (the "Paying Agent"), in St. Paul, Minnesota, upon presentation and surrender of the Bonds. Interest (other than at maturity or upon earlier redemption) on the Bonds ', will be payable by check of the Paying Agent mailed on each Interest Payment Date to the owner's of record ar the '~ addresses shown on the registration books maintained by the Paying Agent for such purposes {the "Registration Books") as of the fifteenth day of the month immediately prior to an Interest Payment Date {or, in the case of an owner of at least $1,04Q,000 in principal amount of the Bonds who so requests in writing prior to the close of I business on the fifteenth day of the month immediately preceding such Interest Payment Date, by wire transfer). Transfer and Exchange of Bonds Any Bond may be transferred or exchanged upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer or authorization for exchange,-duly executed in a form approved by the Paying Agent. The Paying Agent shall not be obligated to make any transfer or exchange of any Bond during the period commencing with the fifteenth day of the month immediately preceding each Interest Payment Date and ending on such Interest Payment Date. The City may require the Bond Owner requesting such transfer or exchange to pay any tax or other governmental chazge required to be paid with respect to such transferor exchange. Bonds Mutilated, Destroyed, or Lost If any Bond becomes mutilated, the City, at the expense of the Owner of such Bond, will execute, and the Paying Agent will authenticate and deliver, a new Bond in exchange and substitution for the Bond so mutilated, but only upon sunender by the owner of the Bond so mutilated. Every mutilated Bond so surrendered will be canceled. If any Bond becomes lost or destroyed, evidence of such loss or destruc5on may be submitted to the City and, if such evidence is approved by the City and indemnity satisfactory to the City is given, the City, at the expense of the Owner, will execute, and the Paying Agent will authenticate and deliver, a new Bond in lieu of and in replacement for the Bond so lost or destroyed. The owner must pay all costs of issuance of the new Bond. Redemption The following redemption provisions, including the optional redemption schedule, are different than those set forth in the Preliminary Official Statement, dated November 15, 205, relating to the Bonds. Optional Redemption and Prepavment of Bonds. Any Bond or portion thereof in the amount of $5,000 or any integral thereof outstanding may be called for redemption prior to maturity on any Interest Payment Date upon payment of the principal, plus accrued interest to the date of redemption, together with a redemption premium (calculated as a percentage of the paz value of Bonds being redeemed) as set forth in the following table. Redemption Dates Redemption Premium March 2, 2006 through September 2, 2013 3.0% March 2, 2014 and September 2, 2014 2.0 ~VII3rCh 2, 2015 and September 2, 2015 1.0 Mazch 2, 2016 and thereafter - 0.0 No interest will accrue on a Bond beyond the Interest Payment Date on which said Bond is called for redemption. Notice of redemption must be given to the registered owner of the Bond by registered or certified mail or by personal service at least thirty (30) days prior to the redemption date, as provided is the 1915 Act. In accordance with the 1915 Act, the Finance Director will select Bonds for redeemption in such a way that the ratio of outstanding Bonds to issued Bonds will be approximately the same in each annual series insofar as possible. Within each annual series, Bonds shall be selected for redemption by lot. Further development of the parcels in the Assessment District, a transfer of property ownership, and other similar circumstances could result in prepayment of all or part of the assessments. Such prepayment would result in redemption of a portion of the Bonds prior to their stated maturities. Mandatory Redemption of Term Bonds. The Bonds maturing on September 2, 2025 (the "Term Bonds"), aze subject to mandatory redemption in part prior to their stated maturity, as authorized under the Bond Resolution. The redemption shall occur on September 2 in the following yeazs and in the following principal amounts, Together with interest accrued on such amounts to the date fixed for redemption, and shall be without premium: Year Principal Amouut 2023 $1,115,000 2024 1,175,000 2025 (maturity) 1,240,000 If the Bonds are redeemed in part, as described under the subheading "optional Redemption and Prepayment of Bonds" above, the principal of the Term Bonds to be redeemed on each of the payment dates set forth above shall be modified by deducting the principal amount of the Bonds redeemed in $5,000 increments as proportionally as pmetieable from the principal amounts set forth above. Effect of Redemption; Defeasance From and after the date fixed for redemption pursuant to the Bond Resolution, if funds available for the payment of the principal of and interest (and redemption premium, if any} on the Bonds or portion of Bonds so called for redemption have been duly provided, then Bonds or portion of Bonds so called for redemption will become due and payable at the redemption price therein specified, and from and after such date (unless the City shall default in the payment of the redemption price or interest) such Bonds or portions of Bonds shall be defeased and shall cease to be entitled to any benefit or security under the Bond Resolution (other than the right to receive payment of the redemption price and interest) and shall cease to beaz interest. Receipt of notice of redemption by the owner of a Bond shall not be a condition precedent to redemption and failure by the owner of a Bond to actually receive such notice of redemption shall. not affect the validity of the proceedings for the redemption of such Bond or the cessation of interest. Refunding Bonds Pursuant to the Refunding Act of 1984 for 1915 Itnprovement Act Bonds (Division 11.5 of the California Streets and Highways Code), the City may issue refunding bonds for the purpose of redeeming the Bonds. The City may issue and sell refunding bonds without giving notice to and conducting a hearing for the owners of property in the Assessment District, or giving notice to the owners of the Bonds, if the City Council fmds that: (A} Each estimated annual installment of principal and interest on the reassessment to secure the refunding bonds is less than the corresponding annual installment of principal and interest on the portion of the original assessment being superseded and supplanted by the same percentage for all subdivisions of land`~itbin-the Assessment District. Any amount added m the annual installments on the reassessment due to a delinquency in payment on the original assessment need not be considered in this calculaiioti; (B) The number of years m maturity of all refunding bonds is not more than the number of yeazs to the last maturity of the Bonds; and I (C} The principal amount of the reassessment on each subdivision of land within the ', Assessment District is less thatt the unpaid principal amount of the portion of the original assessment being superseded and supplanted by the same percentage for each subdivision of land within the Assessment District. Any amount added to a reassessment because of a delinquency in payment on the original assessment need not be considered in this calculation. Upon issuing refunding bonds, the City Council could require that the Bonds be exchanged for refunding bonds on any basis which the City Council determines is For the City's benefit, if the Bond owners consent to the exchange. As an alternative to exchanging the refunding bonds for the Bonds, the City could sell the refunding bonds and use the proceeds to pay the principal of and interest and redemption premium, if any, on the Bonds as they become due, or advance the maturity of the Bonds and pay the principal of and interest and redemption premium thereon. Disposition of Surplus from the Improvement Fund The amount of any surplus remaining in the Improvement Fund afrer completion of the acquisition of the Improvements and payment of all claims shall be applied -as a credit to the assessments or to call Bonds, all as provided in the 1413 Act. Investment of Bond Proceeds Moneys held in the Improvement, Redemption, and Special Reserve Funds created pursuant to the Bond Resolution shall be invested by the Finance Director in accordance with generally applicahle City investment policies, subject m State LYw and federal tax regulations governing the investment of tax-exempt bond proceeds. Investment income on moneys in the Redemption Fund shall be retained therein. Proceeds of the investment of amounts in the Improvement Fund and the Special Reserve Fund will be deposited into an Investment Earnings Fund, to be established and maintained by the Finance Duector. Moneys in the Investment Earnings Fund will be rebated, to the extent required by law, to the federal govemment. To the extent that moneys in the Investment Earnings Fund are not required for rebate to the federal government, as determined by the Finance Director as of June 30 of each yeaz, such moneys shall be transferred to the Special Reserve Fund until the balance therein is equal to the Reserve Requirement. The remaining balance, if any, in the Investment Earnings Fund will be transferred, fast, to the Improvement Fund until the Improvements aze completed and such fund is closed and, thereafter, to the Redemption Fund to be used, in the discretion of the Finance Director, as a credit upon the annual installments of assessments ar for the advance retirement of Bonds. Security for the Bonds The Bonds are issued upon and secured by the unpaid assessments against the property in the Assessment District, together with interest thereon, and said unpaid assessments, together with interest thereon, constitute security for the redemption and payment of the principal of the Bonds and the interest thereon. The Bonds are further secured by the moneys in the Redempfion Fund and the Special Reserve Fund created pursuant to the Assessment District proceedings. Principal of and interest and redemption premiums, if any, on the Bonds are payable exclusively out of the Redemption Fund. The assessments and each installment thereof and any interest and penalties thereon constitute a lien against the pazcels of land on which the assessments are levied until the same are paid. Suoh lien is subordinate to all fixed special assessment liens previously imposed upon the same property, but has priority over all existing and future private liens and over all fixed special assessment liens that may thereafter be created against the property. Such lien is co-equal to and independent of the lien for general property taxes and special taxes, including, without limitation, special taxes creafed`putsuant to the Mello-Roos Community Facilities Act of 1982 (being Chapter Z.S, Part 1, Division 2, Title 5 of the Government Code of the State of California) (the "Mello-Roos Act"), whenever created against the p"roperty. Upon the issuance of the Bonds, none of the property in the Assessment District will be subject to any special tax lien created under the Mello-Roos Act. All of the property in the Assessment District is subject to an existing special assessment lien created by AD 93-I; however, such assessment will be paid in full upon the issuance of the Bonds from a portion of the proceeds thereof. Therefore, upon the issuance of the Bonds, none of the property in the Assessment District will be subject to any other special assesstment lien created under the 1913 Act. See "THE BONDS -Priority of Lien." The Bonds are not secured by the general taxing power of the City, the County, the State, or any other political subdivision of the State, and neither the City, nor the County, nor the State, nor any other political subdivision of the State has pledged its fuR faith and credit for the payment thereof. Although the unpaid assessments constimte fixed liens on the parcels assessed, they do not constitute the personal indebtedness of the owners of said parcels. Furthermore, there can be no assurance as, to the ability or the willingness of such owners to pay the unpaid assessments. In addition, there can be no assurance that the present owners will continue to own all or any of said parcels. The unpaid assessments will be collected in semi-annual installments, together. with interest on the declining balance, on the County tax roll on which general taxes on real property aze collected, and are payable and become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do said geneml taxes. Notwithstanding the City's covenant to commence foreclosure proceedings in connection with delinquent assessments, the property upon which the assessments were levied is subject to the same provisions for sale and redemption as are properties for nonpayment of general taxes. The semi-annual assessment installments are to be paid into the Redemption Fund, which will be held by the Finance Director and used to pay the principal of and interest on the Bonds as they become due. The installments billed against all of the parcels of property in the Assessment District subject to the assessments will be equal to the total principal and interest coming due on all of the Bonds that year, plus, with respect to each parcel in the Assessment District, an additional amount to cover the administrative charges of the City. Special Reserve Fund Out of the proceeds of the sale of the Bonds, the City Council will set aside into a Special Reserve Fund the amount of $1,309,495. The Special Reserve Fund will be maintained, from assessment installment payments and from proceeds of redemption or sale of parcels with assessment delinquencies, in an amount equal to the least of (i) 10% of the proceeds of the Bonds, (ii) the maximum annual debt service on the Bonds, or (iii) 125% of the average annual debt service on the Bonds, less any amounts transferred to the Redemption Fund when assessments are paid following the issuance of the Bonds, as determined from time to time (the "Reserve Requirement"). The Special Reserve Fund will constitute a trust fund for the benefit of the owners of the Bonds. The Special Reserve Fund will be maintained, used, transferred, reimbursed, and liquidated as follows: {a) Whenever there are insufficient funds in the Redemption Fund to pay the next matruing installment of principal of or interest on the Bonds, an amount necessary to make up such deficiency will be transferred from the Special Reserve Fund, to the extent of available funds, to the Redemption Fund. The amounts so advanced will be reimbursed from the proceeds of redemption or sale of the parcel for which payment of delinquent installments of the assessments and interest thereon has been made from the Special Reserve Fund. Tn the event that the Special Reserve Fund is completely depleted from such advances prior to reimbursement from resales of property or delinquency redemptions, payments to the owners of the Bonds will be dependent upon reimbursement of the Special Reserve Fund. {b} If any assessment or any portion thereof is prepaid prior to the fmal maturity of the Bonds, the amount of principal of the assessment to be prepaid will be reduced by an amount which is in the same ratio to the original amount of the Special Reserve Fund as the original amount of the prepaid assessment beazs to the total original amount of unpaid assessmennts o7iginally securing the Bonds. The reduction in the amount of principal prepaid shall be compensated for by a transfer of like amount from the Special Reserve Fund to the Redemption Fund. {c) All proceeds from the investment of moneys in the Special Reserve Fund will be deposited into an Investment Earnings Fund, to be established and maintained by the Finance Director. Moneys in the Investment Earnings Fund will be rebated, to the extent required by law, to the federal government. To the extent that moneys in the Investment Earnings Fund are not required for rebate to the federal government, as deternned by the Finance Drector as of June 30 of each yeaz, such moneys shall be transferred to the Special Reserve Fund until the balance Uterein is equal to, as of the date of calculation, the Reserve Requirement. The remaining balance, if any, in the Investment Earnings Fund will be transferred, first, to the Improvement Fund until the improvements are completed and such fund is closed and, thereafter, to the Redemption Fund to be used, in the discretion of the Finance Director, . as a credit upon the annual installments of assessments or for the advance retirement of Bonds. Amounts in the Special Reserve Fund in excess of the Reserve Requirement shall be deposited into the Investment Earnings Fund. See "TIC BONDS -Investment of Bond Proceeds." to (d) When the balance in the Special Reserve Fund is sufficient to retire all Bonds then outstanding (whether by advance retirement or otherwise), the amount of the Special Reserve Fund will be•transferred-to the Redemption Fund, and the remaining installments of principal and interest not yet due from the assessed property owners will be canceled without payment, and the Special Reserve Fund will be liquidated ugon the retirement of the Bonds. (e) In the event that the balance in dre Special Reserve Fund at the time of liquidation exceeds the amount necessary to retire all Bonds then outstanding, the excess will be paid to the owners of the assessed parcels in the Assessment District provided, however, that, if the excess is less than $I,ODO, such excess may be transferred by the Finance Director to the General Fund of the City. The need to make advances from the Special Reserve Fund may result itt its total depletion prior to reimbwsement from resales of property or delinquency redemptions. 1n that event, there could be a default in payments to owners of the Bonds, the curing of which would be dependent upon reimbursement of the Special Reserve Fund. Redemption Fand Deficiencales If there are not sufficient funds in the Special Reserve Fund to fully cover a Redemption Fund deficiency and the City Council determines that there is a deficiency in the Redemption Fund to pay the principal of and interest on the Bonds such that there will be an ultimate loss accming to the owners of the Bands, the City will pay to the owners of the Bonds a proportionate shaze of the principal and interest due on the Bonds based on the percentage that the amount on deposit in the Redemption Fund is of the total amount of the unpaid principal of the Bonds and the interest thereon. Thereafter, as moneys representing payments of the assessments are periodically deposited into the Redemption Fund, similaz proportionate payments will be made to the owners of the Bonds, all in ' accordance with the procedwes set forth in the 1915 Act. If there are not sufficient funds in the Special Reserve Fund to fully cover a Redemption Fund deficiency and it is determined by the Finance Director that there will not be an ultimate loss to the owners of the Bonds, the Finance Dtrector is required to direct the Paying Agent to pay matwed Bonds as presented and pay interest on the Bonds when due as long as there are available funds in the Redemption Fund, in the following order of priority: (I) all matwed interest payments shall be made before the principal of any Bonds is paid; (2} interest on Bonds of eazlier maturity shall be paid before interest on Bonds of later maturity; (3} within a single maturity, interest on lower-numbered Bonds shall be paid before interest on higher-numbered Bonds; and (4} the principal of Bonds shall be paid in the order in which the Bands are presented for payment. This procedwe could result in some matured Bonds not being redeemed and interest on the Bonds not being fully paid on the due dates. Such matured Bonds would not be fully redeemed and such delayed interest would not be paid until funds are available from a forecloswe sale of the property having the delinquent assessment installments. Covenant to Commence Superior Court Foreclosure The 1915 Aetprovides that in the event any assessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to~ldteclose the lien of the unpaid assessment. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. This forecloswe sale procedwe is not mandatory. However, in the Bond Resolution, the Ciry has covenanted with the Bond owners that, in the event any assessment or installment thereof, including any interest thereon, is not paid when due, the City will, no later than October I in any year, file an action in the Superior Court of the County to foreclose the lien on each delinquent assessment if (i) the sum of uncured assessment delinquencies for the preceding fiscal yeaz exceeds 5% of the assessment installments posted to the tax roll for that fiscal year, and (ii) the amount in the Special Reserve Fund is less than the Reserve Requirement. In the event such Superior Court foreclosure or forecloswes aze necessary, there may be a delay in payments to Band owners pending prosecution of the forecloswe proceedings and receipt by the City of the proceeds of the forecloswe sale. It is also possible that no bid for the pwchase of the applicable property would be received at the forecloswe sale. See "SPECIAL RISK FACTORS -Covenant to Commence Superior Court Forecloswe." n 1 Priority of Lieu Each assessment {and any reassessment) and each installment thereof, and any interest and penalties j thereon, constitutes a lien against the parcel of land on which it was imposed until the same is paid. Such a lien is ~ subordinate to all fixed special assessment liens previously imposed upon the same property, but has priority over all private liens and aver all fixed special assessment liens that may thereafter be created against the property. Such a lien is co-equal to and independent of the lien for general property taxes and special taxes, including, without limitation, special taxes created pursuant to the Me11o-Raps Act, whenever created against the property. '' 1 Upon the issuance of the Bonds, none of the property in the Assessment District will be subject to any special tax lien created under the Mello-Roos Act. All of the property in the Assessment District is subject to an existing special assessment lien created by AD 93-1; however, such assessment wilLbe paid in full upon the issuance I of the Bonds from a portion of the proceeds thereof Therefore, upon the issuance of the Bonds, none of the property in the Assessment District will be subject to any other special assessment lien created under the 1913 Act. Tax Covenants Pursuant to the Bond Resolution, the City has covenanted that it will not make any use of the proceeds of the Bonds which would cause the Bands to become "azbitrage bonds" subject to Federal income taxation pursuant to the provisions of Section 148{a) of the Internal Revenue Code of ].986, as amended {the "Code"}, or to become "Federally-guazanteed obligations" pursuant to the provisions of Section 149{b) of the Code, or to become "private activity bonds" pursuant to the provisions of Section 141(a) of the Code. To that end, the City will comply with all applicable requirements of the Code and all regulations of the United States Department of Treasury issued thereunder to the extent such requirements aze, at the time, applicable and in effect. Debt Service Schedule Set forth below is the debt service schedule for the Bonds. TABLE 2 ANNUAL BOND DEBT SERVICE Period Ending Principal Total Bond tSentember 2) Maturing Interest Debt Serviee 2006 --- $ 541,83231111 $ 541,832.31 2007 $ 530,000 777,130.00 1,307,130.00 2008 550,000 755,930.00 1,305,930.00 2004 575,000 733,430.00 1,308,430.00 2010 595,000 710,930.00 1,305,930.00 2011 625,000 684,185.00 1,309,155.00 2012 _ _ 650,000 _ 656,030.00 1,306,030.00 2013 _ 680,000 626,455.00 1,30b,45590 20]4 715,000 594,495.00 1,309,445.00 2015 745,000 560;1.75.00 1,305,175.00 2016 785,000 523,670:00 1,308,670.00 2017 820,000 484,420.00 1,304,420.00 2018 865,000 442,600.00 1,307,600.00 2019 910,000 398,052.50 1,308,052.50 2020 955,000 350,732.50 1,305;732.50 _ 2021 1,005,000 300,595.00. 1,305,595.00 2022 1,060,000 247,330.00 1,307,330.00 '. 2023 1,115,000 190,620.00 1,305,620.00 2024 1,175,000 130,410.00 1,305,410.00 '. 2025 1.240,000 66.960.00 1.306.960.00 Totals $15,595,000 $9,776,452.31 $25,371,452.31 (Q Capitalized interest on the Bonds has been funded t hrough september 2, 2006. Source: Underwriter. 12 BOOK-ENTRY-ONLY SYSTEM The Bonds will be initially delivered in the form of one fully-registered Bond for each of the maturities of the Bonds, registered in the name of Cede & Co. (OTC's partnership nominee), as registered owner of all the Bonds, or such other nominee as may be requested by an authorized representative of OTC. The following description of DTC and its book-entry system has been provided by DTC and has not been verified for accuracy or completeness by the City, and the City shall have no liability with respect thereto. The City shall have no responsibility or liability for any aspects of the records maintained by DTC relating to or payments made on account of beneficial ownership, or for maintaining, supervising, or reviewing any records maintained by DTC relating to beneficial ownership, of interests in the Bonds. DTC, the world's largest depository, is alimited-purpose tmst company organized under the New York Banking Law, a "banking orgavzation" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money mazket instnrment from over 100 countries that OTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in tum, is owned by a number of Direct Pazticipants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Mazkets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Swck Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants" and, collectively with Direct Participants, "Participants"). DTC has Standazd & Poor's highest rating: AAA. The DTC Rules applicable to its Participants aze on file with the Securities and Exchange Commission (the "SEC"). More information about DTC can be found at www.dtec.com and www.dte.org. The foregoing Internet addresses are included for reference only and the information on the Internet site is not a part of this Official Statement or incarporated by reference Into this Offictal Statement. No representation is made in dhis Offtclal Statement as to the accuracy or adequacy of the information included in such internetsites. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on OTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner"} is in turn to be recorded on the Direct and Iudirect Participants' records. Beneficial Owners will not receive written confixntation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations provr~ing details of the transaction, as well as periodic statements of their holdings, from the Director Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by enfiies made on the books of Duect and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds except in the event that use of the bank-entry system for the Bonds is discontinued. i To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of OTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; OTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds aze credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 13 Conveyance of notices and other communications by DTC to Dtrect Participants, by Direct Participants to Indirect Participants, and by Duect Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment transmission to them of notices ~!! of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the _ ~ ~~ notices be provided directly to them. REDEMPTION NOTICES SHALL BE SENT BY THE PAYIlVG AGENT TO DTC. IF LESS THAN ALL OF THE BONDS ARE BEING REDEEMED, DTC'S PRACTICE IS TO DETERMINE BY LOT THE AMOUNT OF THE INTEREST OF EACH DIRECT PARTICIPANT IN SUCH ISSUE TO BE REDEEMED. ' Neither DTC nor Cede & Co. (nor such other DTC nominee} will consent or vote with respect to the Bonds unless authorized by a Duect Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting tights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, redemption price, and interest payments with respect the Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Ciry or the Paying Agent, on the payable date in accordance with their respective holdings shown on DTC's records. Paymems by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with seetvities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC or its nominee, the Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered in accordance with the terms of the Bond Resolution. The City may decide to3iscontinue use of the system of hook-entry-only transfers through DTC (or a successor securities depository). In that event, the Bonds will be printed and delivered to DTC as described in the Bond Resolution. "" - THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC'S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE CITY BELIEVES TO BE RELIABLE, BUT IT TAKES NO RESPONSIBILITY FOR THE ACCURACY THEREOF. THE CITY CANNOT AND DOES NOT GIVE ANY ASSURANCES THAT DTC WILL DISTRIBUTE PAYMENTS T,O DTC PARTICIl'ANTS OR THAT PARTICB'ANTS OR OTHERS WILL DISTRIBUTE PAYMENTS WITH RESPECT TO THE BONDS RECEIVED BY DTC OR ITS NOMINEES AS THE REGISTERED OWNER, ANY REDEMPTION NOTICES, OR OTHER NOTICES TO THE BENEFICIAL OWNERS, OR THAT THEY WILL DO SO ON A TIMELY ' BASIS, OR THAT DTC WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. lA THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS The information under this heading is taken primarily from the Engineer's Report for the Assessment District prepared by Wilson & Associates, Fresno, California, which Engineer's Report is on f:le with the City, and from information provided by the Landowners, as applicable. General The Assessment District was formed in accordance with the 1913 Act and Section 13.08.070 of the Municipal Code of the City. Proceedings for the formation of the Assessment District were commenced by the City Council pursuant to a property owner petition filed by Mountain View Bravo who, at the time the petition was filed, was the owner of over b0% of the assessable land within the Assessment District The petition was accepted by Resolution No. 110-05, adopted by the City Council on May 25, 2005, and the petition is on file with the City Clerk of the City along with a Certificate signed by the City Director of Public Works attesting to its sufficiency under the requirements of the Streets and Highways Code of the State. The Assessment District consists of approximately 517.80 gross acres in an irregularly shaped community area located in northeast Bakersfield that has anorth-to-south dimension of approximately one and one-sixteenth miles as measured from the north end to the south end of the Assessment District, and awest-to-east dimension of approximately one and one-quarter miles as measured from the west end to the east end of the Assessment District. The Assessment District is generally bounded on the south by the northwesterly boundary of the right-of--way for the future alignment for Highway 178, a portion of the northerly boundary of the right-of--way for the existing Highway 178, and a portion of the centerline for the City Hills Drive right-of--way, by Vineland Road on the west, by Paladino Drive on the north, and by Masterson Street on the east. Various parts of the Assessment District aze involved in various stages of the land development, entitlement, or site development process. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." The Assessment Disnict boundaries are shown on the assessment diagram, consisting of three sheets, entitled "ASSESSMENT DIAGRAM OF CITY OF BAKERSFLELD ASSESSMENT DISTRICT NO.OS-1 (CITY IN THE HILLS}, COUNTY OF KERN, STATE OF CALIFORNIA," a copy of which is attached hereto as APPENDIX. D. Proceeds from the sale of the Bonds issued pursuant to the Assessment District proceedings will be used to finance (i) the Improvements, which are generally described as the acquisition of certain public infrastmcture improvements for the Assessment District, which Improvements will be owned, operated, and maintained by the City, (ii) the AD 93-1 existing parcel assessments payoff costs, and {iii) the payment of certain incidental costs and expenses related to the acquisition of the Improvements, the Assessment District proceedings, and the issuance of the Bonds, including the establishment of a Special Reserve Fund for the Bonds and the funding of capitalized interest on the Bonds through September 2, 2006. The hnprovernents are proposed to be financed by the City in accordance with the terms and conditions of the Acquisition Agreement The Acquisition Agreement sets forth the procedure by which the Improvements aze to be constmcted and installed by Mountain View Bravo, and, upon dreircompletion, acquired by the City using funds provided through the Assessment District proceedings. The scope of the Improvements includes the acquisition by the City of various "off-site" and "on-site" (in- tract) subdivision improvements and the payment of incidental costs that are already required or that are expected by Mountain View Bravo to be required to be installed as conditions of fmal su)division or site plan approvals within the Assessment District. The entire Assessment District is classified as one assessment area for the purpose of assessment allocation. The costs fmanced by the Assessment District for the acquisition of the Improvements located within or adjacent to the Assessment District have been assessed only to properties that are located within the Assessment District. Bond proceeds are not expected to be used for the acquisition of land. 15 Description of the Assessment District and the Improvements The information under this subheading has been provided by the Engineer's Report or the Landowners, as applicable, and has not been verified for accuracy or completeness by the City or the Underwriter, and neither the City nor the Underwriter shall have liability with respect thereto. The current development plans for the Assessment District are subject to change. Furthermore, the current plans are subject, in large part, to the financial resources and construc8on and marketing capabilities and efforts of the Landowners, as applicable, and the other builders or persons to whom the parcels within the Assessment District are sold. There can be no assurance that such development will occur as described herein, or that it will occur at all. The Assessment District The Assessment District consists of approximately 517.80 gross acres in an irregularly shaped community area located in northeast Bakersfield. The property within the Assessment District covers the entire azeas of Parcels 5, 6, 8, 4, 10, and 11, and most of the azeas of Parcels 1, 2, 3, 4, and 7, of Pazcel Map No. 11013. The Assessment Roll establishes eleven separate assessments corresponding to the eleven legal parcels within t]te Assessment District. Four vesting tentative tract maps have been approved for the property within the Assessment District as follows: TTM 6444, which comprises the property subject to Assessment Nos. 1 through 4; TTM 6498, . which comprises the property subject to Assessment Nos. 5 and 6; TTM 6452, which comprises the property subject to Assessment No. 7; and TTM 6406, which comprises the property subject to Assessment Nos. 8 and 9. Approval is pending for one vesting tentative tract map, TTM 6696, which will cover the property subject to Assessment Nos. 10 and 11. Final tract maps aze not expected to be recorded prior to the issuance of the Bonds. The Assessment District boundaries aze shown on the assessment diagram, a copy of which is attached hereto as APPENDIX D. See also "APPENDIX E -Assessment Roll and Value-to-Lien Data." The Assessment District encompasses approximately 517.80 gross acres. As of November 8, 2005, the property within the Assessment District was owned as follows: (i} Mountain View Bmuo owned approximately 103.07 net acres, consisting of property subject to AssessmenC Nos. 7, 10, and 11, (ii} Regent owned approximately 160.67 net acres, consisting of property subject to Assessment Nos. 1, 3, 4, and 5, (iii) D.R. Horton owned approximately 97.71 net acres, consisting of property subject to Assessment Nos. 8 and 9, (iv) KHOV-FS owned approximately 55.82 net acres, consisting of property subject to Assessment No. 2, and (v} KHOV-RL owned approximately 31.21 net acres, consisting of property subject to Assessment No. 6. The remaining approximately 69.32 acres of property within the Assessment District aze currently owned by the Landowners and comprise major of£ site street rights-of--way, future park sites, and the future site of a storm dram sump, none of which will be subject to an assessment levy. The property within the Assessment District is planned for subdivision as follows: • Property subjecTto~lssessment Nos. 1 through 4: a combined total of approximately 752 R-1 lots (as defined herein), one private lodge/recreation facility lot, and several private landscape/pocket park lots. • Property subject to Assessment Nos. 5 and 6. a combined total of approximately 420 R-1 lots, one public park parcel, one public recreation area lot, and several landscapelpocket park lots. • Property subject to Assessment No. 7 a total of 181 R-1 lots and several private landscape/pocket pazk lots. • Property subject to Assessment Nos. 8 and 9: a combined total of approximately 396 R-1 lots, one public park parcel, and several landscape/pocket park lots. • Property subject to Assessment Nos. 10 and 11: a combined total of approximately 200 R-1 lots. 16 The ownership and planned subdivision of the property within the Assessment District is summarized in the following table. TABLE 3 SUMMARY OF PLANNED SUBDIVISION OF THE PROPERTY CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO.05-1 (CITY IN THE HILLS) Assessment No. Pro a Owner Net Acrestt/ Tentative Tract Ma No. of tinitsl Zonin Desi nation 1 Re ent 59.79 2 RHOV-FS 55.82 6444 - 752 R-I Lots 3 Re ent 32.35 4 Re ent 16.89 5 Re ent 51.64 6498 420 R-1 Lots 6 KHOV-RL 31.21 7 Mountain View Bravo 57.01 6452 181 R-1 Lots 8 D.R. Horton 32.23 6406 396 R-1 Lots 9 D.R. Horton 65.48 10 Mountain View Bravo 26.89 66961~1 200 R-1 Lots I 1 Mountain View Bravo 19.17 Totat NtA 448.48 N/A 1,449 R-1 Lots (I) Net acres excludes approximately b9.32 acres within the Assessment District comprised of major off-site meet rights-of--way, future park sites, and the future site of a storm drain sump, cone of which will be subject to an assessment levy. (2) Pending approval. Source: Engineer's Report. The Imprnvements The general scope of the Improvements includes the acquisition of public infrastructure improvements that will be owned, operated, and maintained by the City, and the payment of certain improvement, assessment proceeding, and Bond issuance incidental costs and expenses related to the Improvements and to the assessment proceedings. All of the Improvements aze public infrastructure improvements that aze either aheady required to be installed or are expected by Mountain View Brava to be required to be installed as conditions of tentative or final subdivision and pazcel map approvals, or of land use entitlement approvals with the Assessment District. The Improvements are proposed to be financed by the City in accordance with the terms and conditions of the Acquisition Agreement, which defines the specific scope of public infrastucture improvements to be constmcted and installed by Mountain View Bravo and, upon their completion, to be acquired by the City using funds provided through only the Assessment District proceedings. The improvements related to the development of the property in the Assessment District are generally described as improvements in and along City Hills Drive, Panorama Drive, Vineland Road, Masterson StreetYPaLadino Drive, Canteria Drive, and various City development fees that are required to be constructed or paid, or are expected by Mountain View Bravo to be required to be constructed or paid, as conditions of approval for those subdivisions. The general location and extent of the Improvements in City Hills Drive include: {i} for the east portion of City Hills Drive, constmction of City Hills Drive (entire street) from Canteria Drive to Panorama Drive, including grading, paving, curb, gutter, meandering sidewalk, handicap ramps, street signs, median curb, street lighting and conduits and pull boxes for street lighting, subdivision block wall, sanitary sewer pipeline with manholes, storm drain pipeline with manholes and catch basins, and a traffic signal at tha intersection of City Hills Drive and Panorama Drive; {ii} for the west portion of City Hills Drive, construction of City Hills Drive (entire street) from Canteria Drive to Vineland Road, including grading, paving, curb, gutter, meandering sidewalk, handicap ramps, street signs, median curb, street lighting and conduits and pull boxes fox street lighting, subdivision block wall, i storm drain pipeline with manholes and catch basins, and a traffic signal at the intersection of City Hills Drive and Vineland Raad; and (iii) for both the east and west portions of City Hills Drive, incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and Metropolitan Bakersfield Habitat Conservation Plan ("MBHGP") fees. 17 The general location and extent of the Improvements in Panorama Drive include constmction of Panorama Drive (entire street) from Vineland Road to Masterson Street, including grading, paving, curb; gutter, meandering sidewalk, handicap ramps, street srgns, median curb, street lighting and conduits and pull boxes for street lighting, subdivision block wall, sanitary sewer pipeline with manholes, and storm drain pipeline with manholes and catch basins. Also included in the scope of work for Panorama Drive are incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and MBHCP fees. The general location and extent of the Improvements in Vinehmd Road include: (i) for the north portion, construction of the east side of Vineland Road from Paladino Drive to Panorama Drive, including grading, paving, curb, gutter, sidewalk, handicap ramps, street signs, street lighting and conduits and pull boxes for street lighting, ' subdivision block wall, storm drain pipeline with manholes and catch basins, a traffic signal at the intersection of Vineland Road and Panorama Drive, a traffic signal at the intersection of Vineland Road and Paladino Drive, and median deposit; (ii) for the south portion, construction of the east side and entire street of Vineland Road from Panorama Drive to 664 feet south of City Hills Drive (south 664 feet full width), including grading, paving, curb, gutter, sidewalk, handicap ramps, street signs, street lighting and conduits and pull boxes for street lighting, subdivision block wall, storm drain pipeline with manholes and catch basins, and median deposit; and (iii) for both the north and south portions of Vineland Road, incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and MBHCP fees. The general location and extent of the Improvements in Masterson Street include construction of the west side of Masterson Street from Paladino Drive to the exiting Highway 178 (south 1,514 feet full width}, including grading, paving, curb, gutter, sidewalk, handicap ramps, street signs, streel lighting and conduits and pull boxes for street lighting, subdivision block wall, storm drain pipeline with manholes and catch basins, a traffic signal at the intersection of Masterson Street and the future alignment of Highway 178, and median deposit. Also included in the scope of work for Masterson Street are incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and MBHCP fees. The general location and extent of the hmprovements ni Paladvro Drive include consnuction of the south side of Paladino Drive from Vineland Road to Masterson Street, including grading, paving, curb, gutter, sidewalk, street lighting and conduits and gull boxes for street lighting, subdivision block wall, and median deposit. Also included in the scope of work far Paladino Drive are incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and MBHCP fees. The general location and extent of the Improvements in Canteria Drive include construction of storm drain pipeline with manholes and catch basins and sanitary sewer pipeline with manholes_ Also included in the scope of work for Canteria Drive are incidental expenses for, but not limited to, MBHCP fees. _ The Improvements also include (i) construction of a complete storm drain sump located at the northwest comer of the intersection of Highway 178 and Canteria Drive, including excavation, outlet stmctures, fence with redwood slats and curb, an~access gate; (ii) City facilities fees, which include the City Park Land In-lieu and Development Fees for TTM 6448 (which comprises the property subject to Assessment Nos. 5 and 6) only; and (iii) Mountain View Bsavo's incidental costs, including, but not limited to the design engineering, improvement bonds, constmction staking, soils and materials analysis and testing, plan cheek fees, inspection fees, dust control expenses, slope protection and erosion expenses, and MBHCP fees. [Remainder of Page Intentionally Left Blank.] is Mountain View Bravo estimates that all of the Improvements in the Assessment District that are to be financed with Bond proceeds will be completed by December 2008, as follows: TABLE4 • - SCHEDULE OF IMPROVEMENTS TO BE FINANCED WITH BOND PROCEEDS ~! Assessment Estimated Description oi'Improvements No{s). Completion Date Sewer 1-4 Completed - Storm Dmin l~ 1-4 Completed Completed Water {Panorama Drive) I-4 Completed Dry Utilities Street Improvements (Panorama Drive - C&G, sidewalk, AC paving} _ 7-0 Completed '. Sewer 5-6 Completed Water 5-6 Completed Grading 7 Completed 5~~, g-g Completed Dry Utilities 8-9 10 Completed Completed Sewer Water (Masterson Street) 1-4 January 2006 Dry Utilities 5-6 January 2006 . Grading 9 January 2006 Street Improvements {Panorama Drive-Landscaping) ].I 5 6 Febmary 2006 Febmary 2006 Sueet Improvements (City Ilills Drive and Panorama Drive -Landscaping) - Street Improvements (City Hilts Drive and Panorama Drive -Landscaping) 8-9 Febmary 2006 Street Improvements (City Hills Drive and Panorama Drive -C&G, sidewalk, AC 5-6 Febmary 2006 i paving) Sneet Improvements (City Hills Drive and Panorama Drive - C&G, sidewalk, AC 8-9 March 2006 I Paving) ~', Improvements (interior subdivision) 7 May 2006 - Storm Drain ~ 5-6 9 June 2006 June 2006 Improvements (interior subdivision) 10 June 2006 Dry Utilities Street Improvements (Vineland Road - C&G, sidewalk, AC paving) 1 June 2006 Street Improvements (Vineland Road - C&G, sidewalk, AC paving) 9 June 2006 Street Improvements (Vineland Road - C&G, sidewalk, AC paving) 10 Juoe 2006 Grnding 70-I1 July 2006 Improvements (interior subdivision) rovements {Masterson Street- C&G, sidewallc, AC paving) Street Im 10-1 l 5-6 Jviy 2006 September 2006 p Sneet Improvements (Paladino Drive - C&G, sidewalk, AC paving) 1-4 December 200b ' Street Improvements (Masterson Street - C&G, sidewalk, AC paving) 11t December 2006 Storm Drain 8-9 December 2006 Storm Drain 10 December 2006 Street Improvements (Masterson Street-Landscaping) 5-6 January 2007 Street Improvements (Patadino Drive- Landscaping) 1 ~ Febmary 2007 ' Street Improvements (Vineland Road-Landscaping) I February 2007 Street Improvements (Vineland Road -Landscaping) 9 February 2007 Street Improvements (Vinelaad.Lioad-Landscaping) 10 Febmary 2007 Street Improvements (Masmrson Street -Landscaping) IA Febmary 2007 Source: Mountain View Bravo. [Remainder of Page Intentionally Left Blank.] 19 Estimated Improvement Costs Set forth below are the confirmed assessment amounts with regard to the estimated costs of the Improvements and other costs relating to the Assessment District proceedings, as described in the Engineer's i Report. A copy of the Engineer's Report is on file with the City. j TABLE 5 ENGINEER'S ESTIMATE OF TOTAL COST ANI? ASSESSMENT CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO.OS-I ~~, (CITY IN THE HILLS) CONFD2MED 'i ACTIVITY DESCRIPTION ASSESSMENT COST OF QvLPROVEMENT, CONTINGENCY, AND INCIDENTALS '. A. IMPROVEMENTS AND FEES $ 9,742,430.00 B. CONTINGENCY 923,723.00 C. INCIDENTALS 2.447.8b9.00 - D. TOTAL IMPROVEMENT, CONTINGENCY, AND INCIDENTAL COST $13,114,022.00 PAYOFF OF EXISTING ASSESSMENT DISTRICTN0.93-t ASSESSMENTS NOS. 1087 159,29803 THROUGH 1091 AND 1093 THROUGH 1101 TOTAL ESTIMATED ASSESSMENT DISTRICT PROCEEDING COST AND EXPENSE 331,830.55 TOTAL 1911 ACT BOND ISSUANCE COST AND RESERVE 2.210,ggg,g2 it TOTAL AMOUNT ASSESSED $15,820,600.00 Source: Engineer's Report. The cost of terrain Improvements approved by the Resolution of Intention have been "zeroed out" to obtain a certain level of assessment amounts as stated above. Such costs, if not funded by the Bond proceeds, will be paid by Mountain View Bravo. However, such Improvements are included in the assessment proceedings in order to allow for their acquisition and payment by the City in the event that the overall final hnpmvement costs or costs of any of [heir components end up below the estimates shown above. There can be no assurance as to the ability or the willingness of Mountain View Bravo to pay for such costs. Method of Assessment Spread Spread of the Assessment District Costs to Benefited Parcets Section 10204 of the 1913 Act requires that the assessments must be levied in proportion to the estimated benefit that the subject properties receive from the works of improvement. The statute does not provide the specific method or formula that should be used in any particular special assessment district proceeding. That responsibility rests initially wittLthe Assessment Engineer, who is retained by-the City for the purpose of making an independent analysis of the facts and recommendations about the apportionment of the assessment obligation. For the proceedings with respect to the Assessment District, the City has retained Wilson & Associates, Fresno, California, to serve as the Assessment Engineer. The 1913 Act provides that the Assessment Engineer makes his recommendations as to the cost and method of apportionment of the assessments in the Engineer's Report, whicls is then considered at the public hearing on the Assessment District. Final authority and action with respect to the levy of the assessments rests with the City Council after hearing all testimony and evidence presented at the public hearing. Upon the conclusion of the public h earin th e Ci Council must take fin g, ty al action in determining the proportionality of the benefits received by the properties assessed. The financed costs will be spread to the assessed pazcels in the Assessment District in the manner set forth in Municipal Code Section 13.08.070 -Benefit Spread, which was added to the City's Municipal Code on 20 April 5, 1995, by City Council adoption of Ordinance No. 3643. The parcel assessment shares for City assessment districts are to be allocated or spread in accordance with the 1913 Act, which requires that the financed cost in a special assessment proceeding be allocated among the benefited pazcels of land in proportion to the estimated benefit each parcel can be expected to receive from the work and improvement covered by the assessment. Municipal Code Section 13.08.070 authorizes the "reallocation" to alternate properties of assessments initially allocated to parcels in proportion to their estimated benefit (i.e., initial allocation made in accordance with the 1913 Act costlbenefit requirement), when such reallocation is so requested by the owner of all property to be assessed and upon the written consent of the owner of the property to which assessments are reallocated and approval thereof by the City Council. The Assessment District individual pazcel assessment amounts shown on APPENDIX E have been calculated ar spread among the assessed parcels pursuant to Municipal Code Section 13.08.070. The alternate method used by the Assessment Engineer to reallocate the benefit based assessment shares initially allocated by the Assessment Engineer to each assessed parcel has been provided by Mountain View Bravo. The Assessment Engineer has determined that the spreading of the assessments in accordance with the alternate method conforms to the requirements of Municipal Code Section 13.08.070. To the extent that any assessments are reapportioned after the Bonds have been issued, the City will approve the same only if the security for the Bonds is not reduced or impaired. Keadlocation Spread Method In accordance with Municipal Code Section 13.08.070, Mountain View Bmvo has submitted a proposed alternate method and mte of assessment. Further, Mountain View Bravo has stated that, as of the date of the approval of the alternate method and rate of assessment, Mountain View Bmvo, Regent, KHOV-FS, ICHOV-RL, and D.R Horton were the owners of all the property proposed to be reallocated a share of the assessment and, as of such date, they consented to the reallocation. The Assessment Engineer's estimates of the costs of the Improvements is presented above under the heading "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Estimated Improvement Costs." The alternate method (the "Reallocation Spread Method") is described as follows: The total improvement acquisition cast (street, water, sewer, storm drain, utility, etc.) within the Assessment District is allocated to the eleven undeveloped parcels in the Assessment District in direct proportion to their assessable areas, where the assessable areas are calculated as the total tmcUunit/subdivision area less the azea of the off-site street right-of--way (City Hills Drive, Panorama Drive, Vineland Road, Masterson Street, Paladino Drive, and Canteria Drive), and less the areas of the future storm drain sump located west of Canteria Drive in the progeny subject to Assessment No. 7 and the future public parks located in the azea subject to Assessment Nos. 5, 8, and 9. The total cost of the City Pazk Land In-lieu and Development Fees is assessed only to the future R-1 lots in TTM 6498 (which comprises the property subject to Assessment Nos. 5 and 6). There are no exceptions in the Assessment District to the equal cost share per acre and equal cost per plaaned R-1 lot Reallocation Spread Method. In TTM 6444 {which comprises the property subject to Assessment Nos. 1 tltrough 4), the R-1 lots aze further classified into three different categories of lot sizes (each a "Product Type Area"). The total combined shaze of the costs of the improvements for the property subject to Assessment Nos. I through 4 is first allocated to each Product Type Area in duect proportion to the sum of each Product Type Area's R-1 lot net areas. Each Product Type Area's total allocated share of the Improvement costs is then apportioned as an equal shaze per planned R-1 lot within the Pmduct Type Area. OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT Ownership of Property in the Assessment District As of November 8, 2005, the property within the Assessment District was owned as follows: (i) Mountain View Brava owned approximately 103.07 net acres, consisting of property subject to Assessment Nos. 7, 10, and 11, (ii} Regent owned approximately 160.67 net acres, consisting of property subject to Assessment Nos. 1, 3, 4, and 5, (iii) D.R. Horton owned approximately 97.71 net acres, consisting of property subject to Assessment Nos. 8 and 9, (iv) KHOV-FS owned approximately 55.82 net acres, consisting of pmperty subject to Assessment No. 2, and {v) 2t ICEIOV-RL owned approximately 31.21 net acres, consisting of property subject to Assessment No. b. The remaining approximately 69.32 acres of property within the Assessment District are currently owned by the I Landowners and wmprise major off-site street rights-of--way, future park sites, and the future site of a stoirn drain I, sump, none of which will be subject to an assessment levy. None of the Landowners, or any other owner of property within the Assessment District (each, a "Property Owner"), will be personally liable for payments of the assessments to be applied to pay the principal of and interest on the Bonds. In addition, there is no assurance that the Landowners or any other 'y,j Property Owner will be able to pay the assessment installments or that the Landowners or any other Property Owner wiB pay such installments even if it is financially able to do so. Furthermore, except to the extent expressly set forth herein, no representation is made that the Landowners or any other Property Owner will have moneys available to complete or improve the development. of the land within the Assessment District (other than the Improvements) in the manner described herein. Accordingly, no Property Owner's financial statements are included in this Official Statement. Mountain View Bravo The information under this subheading has been provided by Mountain View Bravo and has not been verified for accuracy or completeness by the City or the Underwriter, and the City and the Underwriter shall have rto liability with respect thereto. Mountain View Bravo was formed as a Califomia limited liability company in 1997 by its members Qumran Investments, Ina, a Califomia corporation, Sterhen Capital Corp., a Panama corporation, Verdant Hills Investments, Ltd., a British Virgin Islands company, and Canaan Valley, Inc., a California corporation, for the purpose of developing property in California, including the property within the Assessment District owned by Mountain View Bravo. Mountain View Brava and its affiliated companies are cunently engaged in the development of residential real estate properties in southern and central Califomia. Mountain View Bravo and its affiliated companies develop fmished lots for re-sale to custom homebuilders and also constmct homes for sale to individual homeowners. Recent and current projects of Mountain View Bravo and its affiliated entities in the County are set forth in the following table. TABLE 6 RECENT AND CURRENT PROJECTS IN KERN COUNTY OF MOUNTAIN VIEW BRAVO AND ITS AFFILIATES No. of Date Homes Base Priee Approximate Project Location Homes Completed of Homes Square Feet Bella Vista City of Arvin 36 July 2005 $119,000 - 1,250 - 2,021 (Kern Co-untyJ- $159,000 Cielo City of Arvin 700 December 20(l8{~1 $210,000 - 1,250 - 2,500 -~ ` (Kern County} $275,000 Summer Moon City of Arvin 105 October2006tt~ $148,000- 1,250-2,021 (Kem County) $264,000 Sky 19 City of Bakersfield 1,450 December 2o12f 1 $310,000 - 2,000 - 4,000 {K.em County) $550,000 (1)Projeeted completion date, t Source: Mountain View Brnvo. Mountain View Bravo's management team is comprised of owners and senior managers who have diversified real estate experience, including investment, asset management, residential and commercial construction, and land development. Members of the management team include Philippe Laik, Chairman and CEO, Dennis A. Harris, President, Mimi Mok, Executive Vice President, Van Roberts, President of Construction, S.F. Budd Nelson, 22 Offsite Constmction Manager, and Tom Lee, Advisory Board. In addition, the management team had significant involvement in the following master planned communities: , • Hunter's Ridge, Fontana, Califomia (1,847 residential lots and multifamily units}. Oak Park, Thousand Oaks, Califomia (5,000 residential lots}. Riverwalk, Riverside, Califomia (1,200 single-family lots). I Seco Canyon, Santa Ckuita, Califomia (2,300 single-family lots). Brentwood, Victorville, Califomia (1,900 single-family lots). ~~ Regent The information under this subheading has been provided by Regent and has not been verifted for accuracy or completeness 6y the City or the Underwriter, and the City and the Underwriter shall have no liability with respectihereta. Regent is an entity controlled by Regent Properties, a California corporation. Regent acquired the property subject to Assessment Nos. 1, 3, 4, and 5 pursuant to that certain (i) Agreement to Ptrchase and Sale and Escrow Instructions with Mountain View Bravo, dated October 25, 2005, for the property subject to Assessment Nos. 1, 3, and 4, which property is subject to the KHOV-FS Option Agreement (as defined herein) and (ii) that certain Agreement to Purchase and Sale and Escrow instmctions with Mountain View Bravo, dated October 25, 2005, for the property subject to Assessment No. 5, which property is subject to the KHOV-RL Option Agreement (as defined herein) (collectively, the "Purchase Agreements"). The Purchase Agreements provide that while Regent owns fee title to the property subject to Assessment Nos. 1, 3, 4, and 5, Mountain View Bravo retains its obligations to constmct certain improvements specified in the Purchase Agreements. Mountain View Bravo has also retained the obligation to pay any assessments levied on such property until such time as the KHOV Entities purchase the ', property as set forth ih the KHOV-FS Option Agreement and the KHOV-RL Option Agreement, as applicable. To ', the extent that either KHOV-FS or KHOV-RL does not purchase the applicable property as set forth in the KHOV- ~, FS Option Agreement and the KHOV-RL Option Agreement, respectively, Mountain View Bravo retains the ! obligation to pay any assessments levied on such property until such time as the KFIOV Entities' options to purchase ~ such property expire. Thereafter, Regent assumes the obligation to pay the assessment amounts. D.R. Horton The information under this subheading has been provided by D.R. Horton and has not been verified for accuracy ar completeness by the City or the Underwriter, and the City and the Underwriter shall have no liability with respectthereta. D.R. Horton Los Angeles Holding Company, Inc., a Califomia corporation ("D.R. Horton"), is a wholly- owned subsidiary of D.R. Horton, Inc., a Delawaze corporation ("D.R. Horton, Inc.', a public company whose common stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "DHI: ' D.R. Horton, Inc., is subject to the information requirements of the Securities Exchange Act of 1934, and in accordance therewith, files reports, proxy statements, and other information with the SEC. Such filings, particularly the Annual Report on Form 10-K and its most recent Quarterly Report on Form 10-Q, may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifh Street, N.W., Washington, D.C. 20549 at prescribed rates. Such files can also be accessed over the Internet at the SEC's website at wwwsec.gov. The foregoing Internet address is included for reference only and the information on the Internet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Offtcial Statement as do the accuracy or adequacy of dhe information included in such iniernet site. Copies of such material can be obtained from the public reference section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the aforementioned material may also be inspected at the office of the NYSE at 20 Broad Street, New York, New York 10005. D.R. Horton, Inc., and its subsidiaries, including D.R. Horton, design, construct, mazket, and sell single- family residences, townhomes, and condominiums, primarily to entry-level and "move-up" buyers and aze geographically diverse homebuilders in the United States of America. D.R. Horton, Inc., and its subsidiaries closed 23 approximately 43,567 homes and had approximately $10.8 billion in consolidated revenues for the twelve months ended September 30, 2004. D.R Horton closed approximately 51,172 homes for the twelve months ended September 30, 2005. D.R. Horton, Inc., and i ts subsidiaries also provide mortgage banking and title agency services to many of their homebuyers. The following table describes some of the more recent single-family developments that D.R. Horton has developed in California. TABLE 7 RECENT AND CU RRENT PROJECTS IN CALIFORNIA OF D.R. HORTON No. of Base Price Approximate Project Name Location Homes Completion Date of Homes Square Feet Amoroso City of Palmdale 103 September 2005 $377,000 - 2,276 - 3,233 (Los Angeles County) $415,990 River Glen Ciry of Oxnard 151 April 2004 $624,000 - 2,471 - 3,021 (Ventura County) $b89,990 Legends City of Bakersfield 200 March 2005 $329,000 - 2,175 - 3,200 (ICem County) $402,990 Canyon Gate City of Newhall 154 December 2005tt1 $644,000 - 2, 114 - 2,899 (Los Angeles County) $719,990 Mariposa City of Santa Clarita 534 March 2006f } $243,000 - 1,019 - 1,711 {Los Angeles County) $379,990 Big Sky City of Simi Valley 260 January 2006(1 $739,000 - 2,639 - 3,586 {Ventura County) $939,990 ~ Seabridge City of Oxnard 610 December 2007tt1 $321,?00 - 1,117 - 3,748 (Ventura County} $1,239,000 (1) Projected completion date. Source: D.R. Horton. KHOV Entities The information under this subheading has been provided by the KHOV Entities and has not been verified for accuracy or completeness by the City or the Underwriter, and the City and the Underwriter shall have »o liability with respect thereto. The KHOV Entities were formed in 2004 for the purpose of owning and developing property within the Assessment District. The I~OV Entities are wholly-owned subsidiaries of Hovnanian Enterprises, Inc., a Delaware corporation ("Hovnanian Enterprises"). Originally founded in 1959 by Kevork Hovnanian, Hovnanian Enterprises was originally incorporated in New Jersey in 1967 and reincorpgrated in Delaware in 1982. Hovnanian Enterprises and its family of itomebuilders design, construct, and mazket a "variety of for-sale housing in more than 300 residential communities in 17 states. The homes of Hovnanian Enterprises are marketed and sold under the trade names K. Hovnanian, Washington Homes, Goodman Homes, Matzel & Mumford, Diamond Homes, Westminster Homes, Fortis Homes, and Forecast Homes, among others Hovnanian Enterprises is also one of the nation's lazgest sellers of homes to active adults, under the name of K. Hovnanian's Four Seasons Communities. Hovnanian Enterprises ranks among the largest homebuilding companies in the United Slates, with total revenues of $4.2 billion on 14,586 home deliveries in fiscal year 2004. Hovnanian Enterprises is also one of the largest builders in both the Inland Empire region of Southern California and the greater Sacramento and Central Valley markets in Northern California. Financial information about Hovnanian Enterprises is currently included in documents filed with the' SEC, particularly in its Annual Reports on Form lOK and its most recent quarterly reports on Form IOQ. Information on Hovnanian Enterprises and its affiliates is available on its website at www.khov.com. The foregoing intemet address is included for reference only and the information on the interrtet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Offcial Statement as to the accuracy or adequacy of the informatlon included an such intemet site. 24 Recent and current projects of Hovnanian Enterprises and its affiliated entities in California are set forth in the following table. . TABLE 8 RECENT AND CURRENT PROJECTS IN CALIFORNIA OF 130VNANIAN ENTERPRISES AND ITS AFFILLATES No. of Project Name Location Homes Dominguez Hills Village City of Carson 574 (Los Angeles County) Four Seasons at Temecula City of Murrieta 524 (Riverside County) Hilltop at Encinitas Ranch City of Encinitas 103 (San Diego County) Menifee City of Menifee 306 (Riverside County) Park Lane City of Irvine 190 (Orange County) Four Seasons at Beaumont Ciry of Beaumont 2,018 (Riverside County) Four Seasons at Hemet City of Hemet 1,128 (Riverside County) Four Seasons at Palm City of Palm Springs S02 Springs {Riverside County) Riverbend II City of Mira Loma 80 (Riverside County) Skye Isle City of Ladera Ranch 61 (Orange County) 10 Bloom Road City of Chino 69 {San Bernardino County) Palomino City of San Diego 97 (San Diego County) Completion Sase Price Approximate Date of Homes Square Fee[ October 2004 $200,000 1,094 - 2,309 October 2003 ~ $250,000 1,772 - 2,773 June 2004 $860,000 3,130 - 5,182 August 2003 ~ $240,000 1,925 - 3,453 December 2002 $330,000 1,064 - 2,083 October 2012tt1 $270,000 - 1,199 - 2,775 $440,000 July 2009tt1 $286,000 - 1,444 - 2,775 $aaa,ooo October 2008tH $262,000 - 1,899 - 2,635 $460,000 January 2006tH $49Q,000 - 2,828 - 4,209 $ssa,ooo October 2006tt1 $1,500,000 - 4,607 - 5,930 $1,800,000 Apri12006tt1 $490,000 - 1,927 -2,569 $536,000 October 2005 $761,000 4,152-4,595 (1) Projected completion date. Source: KHOV Entities. Development and Financing Plans The enrrent development plans and Snancing plans of the Landowners for the development of Che property within the Assessment Dtstrfct are subject to change. Furthermore, the current development plans and financing plans for the Assessment District are subject, in large part, to the financial resources and construction and marketing capabilities and efforts of the Landowners, and any other merchant builders and other persons to wham the parcels within the Assessment District may be sold. There can be no assurance that such development will occur as described herein, or that it will occur at all. The information under this section has been provided by the Landowners, as applicable, and has not been verified for accuracy or completeness by the City or the Underwriter, and neither the City nor the Undernriter shall have any liability with respect thereto. e Mountain View Bravo Development Plan Mountain View Bravo intends to develop approximately 103.07 net acres of its property within the Assessment District as 381 residential units for sale to individual homeowners, as follows: Property Subject to Assessment No. 7. The property subject to Assessment No- 7 encompasses approximately 57.01 net acres and is approved for subdivision into approximately 181 R-1 lots and several private 25 landscape(pocket pazk lots. Mountain View Bravo plans to develop the property subject to Assessment No. 7 in two ', phases as a residential gated community currently named by Mountain View Bravo-as "Julianna's Gazden," and ', plans to sell the 181 finished lots and homes to third party buyers. Finished homes are expected to range in size from approximately 1,750 square feet to approximately 3,000 squaze feet, with prices ranging from $280,000 to ', $400,000. Construction is expected to commence in January 2006 and to be completed by October 2007. Mountain View Bravo will offer eight model types and estimates that the first of such model homes will be opened in May ', 2006. The first home sale closings are expected to oceur in August 2006, with final Name sales expected to close by June 2007 for the first phase and February 2008 fox the second phase. TTM 6452, which encompasses the property subject to Assessment No. 7, was approved on August 18, 2005, and Mountain View Bravo anticipates to obtain final map approval by December 2005. As of November 1, 2005, no building permits have been issued in connecfion with the development of the property subject to Assessment No. 7. Grading has commenced and is expected to be completed by February 2006. Mountain View Bravo expects that,all infrastructure improvements, other than the Improvements, will be completed in February 2007. The following table summarizes Mountain View Bravo's development plans for the property subject to Assessment No. 7. TABLE9 - PROPERTY SUBJECT TO ASSESSMENT N0.7 PROPOSED PRODUCT MIX AND CONSTRUCTION AND SALES SCHEDULE Date of Date of No. of Commencement Opening of Date of First Dale of Final No. of Model Approximate Anticipated of Home Model Home Sale Home Sate Project NamelPhase Units Tvpes Square Feet Home Prices Construc4an Homes Ctosines Closings Phase 1 100 8 1,750 - 3,000 $280,000 - January 2006 May 2006 October 2006 June 2007 $400,000 Phase 2 8 ] 8 1,750 - 3,000 $280,000 - January 2007 May 2006 October 2007 February 2008 $400,000 Total 181 Source: Mountain View Bmva. It is anticipated that, subject to the issuance of the Bonds, Mountain View Sravo will transfer title to the property subject to Assessment No. 7 to its homebuilder affiliate, Blu S.K.Y. Homes, a California corporation; provided, however, that there can be no assurance such transfer will occur. Property Subject to Assessment Nos. 10 and Il. The property subject to Assessment Nos. 10 and I1 encompasses approximately 46.06 net acres and is planned for subdivision into approximately 200 R-I lots. Mountain View Bravo plans to develop the property subject to Assessment Nos. 10 and 11 as a residential community and plans to sell the 200 finished lots and homes to third party buyers. Finished homes are expected to range in size from approximately 1,600 squaze feet to approximately 2,200 square feet, with prices ranging from $245,000 to $310,000. Construction is expected to commence in May 2006, and to be completed by December 2008. Mountain View Bravo will offer three model types and expects that the first model home will be opened in July 2006. The first home sale closings aze expected to occur in 7anuary 2007, with final home sales expected to close by December 2008. Mountain View Bravo expects that T'1'M 6696 will be approved in December 2005, and that final map approval will be obtained by June 2006. As of November 1, 2005, no building permits have been issued in connection with the development of the property subject to Assessment Nos. 10 and 11. Grading is expected to commence in March 2006 and is expected [o be completed by July 2006. Mountain View Bravo expects thaC all infrastructtue improvements, other than the hnprovements, will be comgleted by February 2002 The following table summarizes Mountain View Bravo's development planstfor the property subject to Assessment Nos. 10 and 11. [Relnaiuder of Page Intentionally Left Blank.] 26 TABLE 10 PROPERTY SUBJECT TO ASSESSMENT NOS. 10 AND 11 - PROPOSED PRODUCT MIX AND CONSTRUCTION AND SALES SCHEDULE - Date of Date of No. of Commencement Opening of Date of First Date of Final No. of Model Approximate Anticipated of Home Model Home Sale Home Sale Proiect NamelPbase U;its es Saoare Feet Home Prices Construction Hames Closings Closings Assessment No. 10 100 3 1,600 - 2,200 $215,000 - May 2006 September 2006 January 2007 December 2008 $310,000 Assessment No. 11 100 3 1,450 - 2,000 $245,000 - May 2006 September 2006 January 2007 December 2008 $295,000 Total 200 ~ , Source: Mountain View Bravo. 1Kountain View Bravo Financing Plan Mountain View Bravo estimates the cost of the development for the property subject to Assessment Nos. 7, 1Q and 11 will total approximately $71,008,500, including the costs for all on-site and off-site improvements. The following tables detail the constmction budgets for the development of the property subject to Assessment Nos. 7, 10, and I I. Such budgets have been prepazed based upon assumptions of future sales revenues, development costs, operating costs, property taxes, public facilities financing, and other matters. There can be na assurance that the actual development costs will not tie greater than projected or be incurred sooner than projected. TABLE 11 PROPERTY SUBJECT TO ASSESSMENT N0.7 ESTIMATED CONSTRUCTION BUDGET Description of Cost Item Grading and Infrastmcmre On-site Improvements Totals Estimated Cost $ 7,240,000.00 32,308,500.00 $39,548,500.00 Expenditures as of November 1.2005 $ 0.00 0.00 $ 0.00 Sovrce: Mountain View Bravo. TABLE 12 PROPERTY SUBJECT TO ASSESSMENT NOS.10 AND Il ESTIMATED CONSTRUCTION BUDGET Expenditures as of Description of Cost Item Estimated Cost November 1, 2005 Grading and Infrastructure $ 8,000,000.00 $ 0.00 On-site Improvements 23,460,000.00 0.00 Totals 531,460,000.00 t $ 0.00 JOLLiee: MOllnmm VICW rSraVn. Mountain View Bmvo has obtained a construction loan from IndyMac Bank in the amount of $20,755,934 (the "IndyMac Loan") for grading, improvements, and construction of homes on the fast 100 lots in the property subject to Assessment No. 7. No portion of the IndyMac Loan will be used to fund the Improvements. Mountain View Bravo has gledged the property subject to Assessment No. 7 as security for the IndyMac Loan, and has 27 ,~ contributed $1,867,462 as a required equity contribution. To date, no funds have been drawn against the IndyMac Loan. Mountain View $ravo anticipates that similaz fmancing will be available for the second phase of ~ constmction on the property subject to Assessment No. 7, which will include the construction of the remaining 81 lots for such property, as well as for the planned constmction on the property subject to-Assessment Nos. 10 and 11. i All Improvements on the property subject to Assessment Nos. 7, 10, and 11 not financed with proceeds from the sale of the Bonds will be financed with moneys derived from available cash and constmction loans. Mountain View Bravo has represented that the funding sources described above will be sufficient to complete the development of the property subject to Assessment Nos. 7, 10, and 11,, as described herein. There is no assurance, however, that amounts necessary to finance any outstanding development costs will be available from Mountain View Bravo, or any other source, when needed. Neither Mountain View Bravo nor any of its affiliated entities is under any legal obligation of any kind to expend funds for the development of the property subject to Assessment Nos. 7, 10, and 11. Any contributions by Mountain View Bravo to fund the costs of such development are entirely voluntary. Notwithstanding available sources of financing, neither Mountain View Bravo not any of its affiliates is wider any obligation to apply such sources to the completion of development within the property subject to Assessment Nos. 7, ] 0, and 11. Regent Development Plan Regent owns the property subject to Assessment Nos. 1, 3, 4, and 5, but Regent does not intend to develop such property. Rather, Mountain View Bravo, pursuant to the Purchase Agreements, has retained the obligations to install the infrastructure for the property subject to Assessment Nos. I, 3, 4, and 5. Regent acquired such property I for investment purposes and intends to sell or otherwise transfer such property as described below. The progeny subject to Assessment Nos. 1, 2, 3, and 4 is subject to the Option Agreement and Joint Escrow Instmctions, effective June 7, 2004, by and between Mountain View Bravo and K. Hovnanian Companies of Southem Califomia, Inc., a California corporation ("KHOV Southern California"), which is an affiliate of KHOV- FS and awholly-owned subsidiary of Hovnanian Enterprises, as amended and assigned (the "RFIOV-FS Option Agreement"). Pursuant to the KHOV-FS Option Agreement, KHOV-FS has been granted the option to purchase a total of approximately 164.85 net acres of property subject to Assessment Nos. 1, 2, 3, and 4, to be acquired in three phases. KHOV-FS has completed the fast phase of the acquisition by taking ownership of 55.82 acres of such property, which constitutes the property that is subject to Assessment No. 2. Pursuant to the KFIOV-FS Option Agreement, KHOV-FS must exercise its option to purchase the remaining 109.03 net acres from Regent by no later than March 2007. There can be no assurance, however, that any further transfer and sale of property to KHOV- FS will occur pursuant to the KHOV-FS Option Agreement. See "KHOV Entities Development Plan" below for a description of the developmenfplan of KHOV-FS. The property subject to Assessment Nos. 5 and 6 is subj~et.to the Option Agreement and Joint Escrow Instmctions, effective September 29, 2004, by and between Mountain View Bravo and KHOV Southem California, which is an affiliate of KHOV-RL, as amended and assigned (the "KIIOV-RL Option Agreement"). Pwsuant to the KHOV-RL Option Agreement, KIIOV-RL has been granted the option to purchase a total of approximately 82.85 net acres of property subject to Assessment Nos. St and 6, to be acquired in three phases. KHOV-RL has completed the fast phase of the acquisition and has taken ownership of 31.21 acres, which constitutes the property that is subject to Assessment No. 6. Pursuant to the KHOV-RL Option Agreement, KHOV- RL must exercise its option to purchase the remaining 51.64 net acres from Regent by no later than April 2007. There can be no assurance, however, that any further transfer and sale of property to KHOV-RL will occur pursuant to the KIIOV-RL Option Agreement. See "KHOV Entities Development Plan" below for a description of the development plan of KHOV-RL. zs Regent Financing Plan 'i . ~ Regent has no plans to finance any development within the Assessment District. Regent acquired the property subject to Assessment Nos. 1, 3, 4, and 5 for investment purposes only and intends to sell or otherwise transfer such property to KHOV-FS and KHOV-RL in accordance with the I{HOV-FS Option Agreement and the I{FIOV-RL Option Agreement, respectively. For information regarding the financing. plans. of KHOV-FS and KHOV-RL, see "KHOV Entities Financing Plan" below. D.R Horton Development Plan II As of November $, 2005, D.R. Horton owned 97.71 net acres within the Assessment District. D.R. Horton plans to develop its property with the Assessment District as a residential community, as follows: Property Subject to Assessment Nos. 8 and 9. The property subject to Assessment Nos.8 and 9 encompasses approximately 97.71 net acres and is approved for subdivision into approximately 396 R-1 lots, one public park parcel, and several landscape/pocket pazk lots. D.R. Horton plans to develop the property subject to Assessment Nos. 8 and 9 as two residential communities currently named by D.R. Horton as "Lavender Trails" and "Contessa's Vineyard," and plans to sell the 396 Finished lots and homes to third party buyers. In the Lavender Trails neighborhood, D.R. Horton plans to develop 206 finished R-1 lots with single- family homes, which are estimated to range in size from approximately 2,191 square feet to approximately 2,771 square feet, with a proposed price range from $305,000 to $355,000. D.R. Horton will offer four model types and estimates that the fsst of such model homes will be opened in Mazch 2006. The first home sale closings are estimated to occur in May 2006, with final home sales estimated to close by July 2008. In the Contessa's Vineyazds neighborhood, D.R. Horton plans to develop 190 finished R-1 lots with single- family homes, which are estimated to range in size from approximately 2,252 squaze feet to approximately 3,502 square feet, with a proposed price range from $315,000 to $400,000. D.R. Horton will offer five model Types and estimates that the fast of such model homes will be opened in March 2006. The fast home sale closings are estimated to occur in May 2006, with final home sales estimated to close by July 2008. ', The following table summarizes D.R. Horton's development plans for the property subject to Assessment Nos. 8 and 9. TABLE 13 PROPERTY SUBJECT TO ASSESSMENT NOS. S AND 9 PROPOSED PRODUCT MIX AND CONSTRUCTION AND SALES SCHEDULE Date of Date of No. oL_ Commencement Opening of Date of Firsi Date of Final Na of Model Approximate Anticipated of Home Model Home Sale Home Sale Proiect Name Units Tvoes Square Feet Home Prices Construction Homes Closines Closines Property Subject to Assessment No. 8 ,. Lavender Trails 32 4 2,191-2,771 $305,000 $355,000 Contessa's Vineyards 174 4 2,252 -3,502 $315,000 $400,000 Property Sazbjeet to Assessment No. 9 Lavender Trails 95 5 2,191 - 2,771 $305,000 $355,000 Contessa's Vineyards 95 5 2,252 - 3,502 $315,000 $400,000 Total 396 December 2005 March 2006 December 2005 March 2006 t May 2006 March 2006 August 2006 Maroh 2006 May 2006 September 2006 May 2006 January 2007 September 2006 JuSy 2008 January 2007 July 2006 Source: D.R. Honon 29 As of November 1, 2005, no building permits have been issued in connection with the development of the property subject to Assessment Nos. 8 and 9. Constmction for both the Lavender Trails and Contessa's Vineyards j neighborhoods is expected to commence in December 2005, and to be completed by July 2007. TTM 6406 was approved in Mazch 2005, and D.R. Horton estimates that fmal map approval for all phases will be obtained in March ~ 2006. Grading began-in November 2005 and is expected to be completed in September 2006. D.R. Horton estimates that all infrastructure improvements, other than the Improvements, will be completed in September 2007. '. D.R Horton Financing Plan D.R. Horton expects to finance the development of the property subject to Assessment Nos. 8 and 9 with internal funds, including funds provided by its pazent company, D.R. Horton, Inc., and does not expect to request or obtain any third party loans or other external credit arrangements to provide such financing. D.R. Horton expects the cost of the development for the property subject to Assessment Nos. 8 and 9 to total approximately $76,672,794, including all remaining on-site development and home constmction costs. The following table details D.R. Horton's constmction budget for the development of the property subject to Assessment Nos. 8 and 9. This budget has been prepazed based upon assumptions of future sales revenues, development costs, operating costs, property taxes, and other matters. There can be no assurance that the actual development costs will not be greater than projected or be incurred sooner than projected. TABLE Id PROPERTY SUBJECT TO ASSESSMENT NOS. S AND 9 ESTIMATED CONSTRUCTION BUDGET Expenditures as of Description of Cost Item Estimated Cost November 1, 2005 Land Development, Permits and Fees, Contingency $31,906,383.00 $ 0.00 House Duects, Contingency, Options and Upgrades 68.038.943.00 0.00 Totals $99,945,32b.00 $ 0.00 Source: D.R. Horton. D.R. Horton has represented that the funding sources described above will be sufficient to complete the development of the property subject to Assessment Nos. 8 and 9, as described herein. There is no assurance, however, that amounts necessary to finance any outstanding development costs will be available from D.R. Horton or D.R. Horton, Inc., or any other source when needed. None of D.R. Horton, D.R. Horton, Inc., or any of their affiliated entities is under any legal obligation of any kind to expend funds for the development of the property subject to Assessment Nos. 8 and 9. Any contributions by D.R. Horton or D.R. Horton, Inc., to fund the costs of such development aze entirely voluntary. Notwithstanding available sources of fmancing, neither D.R. Horton nor D.R. Horton, Inc., is under any obligation to apply such sources to the comple5on of development within the property subject to Assessment Nos. 8 and 9. SHOV Entides Development Plan Each of the KHOV Entities plans to develop the property obtained in accordance with the KHOV-FS Option Agreement or the KHOV-RL Option Agreement, as applicable, as set forth below. See "Regent Development Plan" above for a description of the KHOV-FS Qption Agreement and the ICHOV-RL Option Agreement. Property Subject to Assessment Nos. 1 through 4. The properly subject to Assessment Nos. 1 through 4 , encompasses approximately 164.85 net acres and is approved for subdivision into approximately 752 R-1 lots, one private lodgelrecreation facility lot, and several private landscape/pocket park lots. KHOV-FS plans to develop the property subject to Assessment Nos. 1 through 4 as an "active adult" community with three residential neighborhoods currently named by KHOV-FS as "Patina," "Fresco," and "Camera," and plans to develop the 752 finished lots with single-family homes and sell the finished lots and homes to third party buyers. 30 `l Tn the Patina neighborhood, KHOV-FS plans to develop 273 finished R-1 lots with single-family homes, which are estimated to range in size from approximately 1,444 square feet to approximately 1,556 square feet, with a proposed price range from $280,000 to $295,000. ICFIOV-FS will offer three model types and estimates that the first i of such model homes will be opened in May 2006. The first home sale closings are estimated to occur in June 2006, with final home sales estimated to close by April 2011. In the Fresco neighborhood, KHOV-FS plans to develop 241 finished R-1 lots with single-family homes, which aze estimated to range in size from approximately 1,900 square feet to approximately 2,102 square feet, with a proposed Brice range from $300,000 to $320,000. KHO V-FS will offer three model types and estimates that the fast of such model ]tomes will be opened in May 2006. The first home sale closings are estimated to occur in June 2006, with final home sales estimated to close by April 2011. In the Carrera neighborhood, KHOV-FS plans to develop 238 finished R-1 dots with single-family homes, which are estimated to range in size from approximately 2,472 square feet to approximately 2,775 square feet, with a proposed price range from $350,000 to $400,000. KFIOV-FS will offer four model types and estimates that the first of such model homes will be opened in May 2006. The first home sale closings are estimated to occur in June 2006, with final home sales estimated to close by April 2011. As of November 1, 2005, building permits have been issued for ten model homes for the development of the property subject to Assessment No. 2. As of November 1, 2005, no building permits have been issued in connection with the developmem of the property subject to Assessment Nos_ 1, 3, or 4. Construction for the Patina, Fresco, and Carrem neighborhoods commenced in November 2005, and is expected to be completed by April 2011. TTM 6444 was approved on June 2, 2005, and KHOV-FS estimates that final map approval will be obtained in December 2005. Grading has commenced and is expected to be completed in December 2005. KHOV-FS estimates that all infrastmciure improvements, other than the Improvements, will be completed in September 2007. The following table summarizes I{IIOV-FS's development plans for the property subject to Assessment Nos. 1 through 4. TABLE 15 PROPERTY SUBJECT TO ASSESSMENT NOS.1 THROUGH 4 PROPOSED PRODUCT MIX AND CONSTRUCTION AND SALES SCHEDULE Date of Date of No. of Anticipated Commencement Opening of Date of First Date of Final No. of Model Approximate Base Home of Home Model Home Sale Horoe Sate Project Name/Phase Units Twes Square Feet Prices Construction Homes C7osinas Closines Patina 273 3 1,444 -1,556 $280,000 - November 2005 May 2006 June 2006 Apri12011 $295,000 Fresco 241 3 1,900 - 2,102 $30Q,000 - November 2005 May 2006 June 2006 April 2011 ' $320,000 ' Calrera 238 4 2,472-2,775 $350,000- November 2005 May 2006 June 2006 Apri12011 $400,000 Total 752 - Somce: ICHOV-FS. Property Ss{bject to Assessment Nos. 5 and b. The property subject to Assessment Nos. 5 and 6 encompasses approximately 82.85 net acres and is approved for subdivision into approximately 420 R-1 lots, one public park parcel, one public recreation area lot, and several landscape/pocket park lots. KHOV-RL plans to develop the property subject to Assessment Nos. 5 and 6 as two residential neighborhoods currently nazned by I{FIOV-RL as "Lantana's Edge" and "Rosemary Arbor," and plans to sell the 420 finished lots and homes to third party buyers. In the Lantana's Edge neighborhood, ICFIOV-RL plans to develop 222 finished R-1 lots with single-family homes, which are estimated to range in size from approximately 1,639 square feet to approxunately 2,404 square feet, with a proposed price range from $280,000 to $350,000. KHOV-RL will offer three model types and estimates 31 that the first of such model homes will be opened in June 2006. The first home sale closings are estimated to occur in August 2006, with final home sales estimated to close by Apri12011. In the Rosemary Arbor neighborhood, KHOV-RL plans to develop 198 finished R-1 lots with single-family homes, which aze estimated to range in size from approximately 2,155 square feet to approximately 2,726 squaze feet, with a proposed price range from $325,000 to $380,000. KHOV-RL will offer three model types and estimates that the fast of such model homes will be opened in June 2006. The fnst home sale closings are estimated to occur i in August 2006, with final home sales estimated to close by Apri12011. The following table summarizes KHOV-RL's development plans for Lantana's Edge and Rosemary Arbor. TABLE 16 PROPERTY SUBJECT TO ASSESSMENT NOS. 5 AND fi I PROPOSED PRODUCT Mflt AND CONSTRUCTION AND SALES SCHEDULE Date of Date of No. of Commencement Opening of Date of First Date of Final No. of Model Approximate Anticipated of Home Model Home Sale Home Sale Project NametPhase Uni[s Tv es Sauare Feet Home Prices Construc8on Homes Closines Closinns Lantana's Edge 222 3 1,639 - 2,404. $280,000 - January 2006 June 2006 August 2006 Apri1201 I $35Q,000 Rosemary Arhar 198 3 2,155 - 2,726 $325,000 - January 2006 June 2006 August 2006 Apol 2011 $380,000 Total 420 ' Source: KHOV-RL. ~ Constmetion for both the Rosemary Arbor and Lantana's Edge neighborhoods is expected to commence in January 2006, and to be completed by April 2010. TTM 6498 was approved on July 7, 2005, and KHOV-RL '~.. estimates that final map approval will be obtained in January 2006. Grading is estimated to commence in December ', 2006 and is expected to be completed in March 2006. KHOV-RL estimates that all infrastructure unprovements, other than the Improvements, will be completed in October 2007. IfHOV Entities Financing Plan The KHOV Entities expect to finance the development of the property subject to Assessment Nos. 1 through 6 wilt available cash from Hovnanian Enterprises, and do not expect to request or obtain any third party loans or other external credit arrangements to provide such financing. KIIOV-FS has estimated the total budget for land acquisition and construction of its improvements in the property subject to Assessment Nos. 1 through 4 to be $132,200,000. As of November 1, 2005, KHOV-FS has expended approximately $6.7 million on land acquisition and approximately $1.1 million on construction, leaving approximately $124.4 million in remaining construction costs m finish the lots within the property subject to Assessment Nos. 1 through 4. KHOV-RL has estimated the total budget for land acquisition and construction of its improvements in the property subject to Assessment Nos. 5 and 6 table $78,000,000. As of November I, 2005, KHOV-RL has expended approximately $4.0 million on land acquisition and approximately $22Q000 on construction, leaving approximately $73.78 million in remaining construction costs to finish the lots within the property subject to Assessment Nos. 5 and 6. [Remainder of Page Intentionally Left Blink.] 32 The following table details the construction budgets for the development of the groperty subject to Assessment Nos. 1 through 6. These budgets have been prepared based upon assumptions of future sales revenues, development costs, operating costs, property taxes, public facilities financing, and other matters. There can be no assurance that the actual development costs will not be greater than projected or be incurred sooner than projected. TABLE 17 PROPERTY SUBJECT TO ASSESSMENT NOS.1 THROUGH 4 ES'T'IMATED CONSTRUCTION BUDGET Expenditures as of Description of Cast Item Estimated Cast November 1, 2005 Land $ 20,200,000.00 $b,70Q,000.00 Land Development 32,000,000.00 1,100,000.00 House Constmction 80.000.000.00 0.00 Totals $132,200,000.00 $7,800,000.00 Source: KHOV F5. TABLE I8 PROPERTY SUBJECT TO ASSESSMENT NOS. 5 AND 6 ESTIMATED CONSTRUCTION BUDGET Expenditures as of Description of Cost Item Estimated Cost November 1, 2005 Land $11,000,000.00 $4,000,000.00 Land Development 25,000,000.00 220,000,00 House Construction 42.000.000.00 0.00 Totals $98,000,000.00 $4,220,000.00 Source: KHOV RL. The KHOV Entities have represented that the funding sources described above will be sufficient to complete the development of the property subject to Assessment Nos. 1 through 6 as described herein. There is no assurance, however, that amounts necessary to fmance any outstanding development costs will be available from the KHOV Entities or Hovnanian Enterprises, or any other source when needed. Neither the KI-IOV Entities nor Hovnanian Enterprises, or any of their affiliated entities is under any legal obligation of any kind to expend funds for the development of the property subject to Assessment Nos. I through 6. Any contributions by the KHOV Entities or Hovnanian Enterprises to fund the costs of such development aze entirely voluntary. Notwithstanding available sources of financing, neither the KHOV Entities nor Hovnanian Enterprises is under any obligation to apply such sources to the completion of development within the property subject to Assessment Nos. 1 through 6. Assessment Roll Set forth in APPENDIX E is the assessment roll, including appraised value to assessment lien ratio information, for the_parcels of property within the Assessment District that are subject to the lien of the assessments. The assessment roll shows the amount of the total estimated cast Qf the proposed Improvement acquisition, construction and incidental cost that is assessed upon each of the lots and pazcels within the Assessment District based upon the alternate method and mte of assessment permitted under Section 13.08.070 of the Municipal Code of the City. See "THE ASSESSMENT DISTRICT AND TILE IMPROVEMENTS -Method of Assessment Spread" above. The assessment numbers that appeaz on the assessment roll correspond to the assessment numbers shown on the assessment diagram, attached hereto as APPENDIX D. Utilities All utilities, including gas, water, electricity, sewer, storm drains, telephone service, and cable television service are or will be installed in the frontages along the streets within the Assessment District and will connect to existing facilities in the surrounding streets. Natural gas and electricity services are provided by Pacific Gas & Electric; water service is provided by California Water Service; sewer service is provided by the City; telephone service is provided by SBC; and cable television is provided by Bright House Networks. 33 Flood and Earthquake Zones Pursuant to the Appraisal, according to the maps prepazed by the Federal Emergency Management Agency, the Assessment District is situated in a Zone C flood area. "Zone C" denotes an area that is not considered a flood hazard zone. No flood insurance is required for property in a Zone C flood area, and no flood insurance has been obtained for any property within the Assessment District. Pursuant to the Appraisal, the Assessment District is not located within any Special Studies Zone, as defined in the Alquist-Priolo Special Studies Zone Act. Zoning According to the Planning Department of the City, all of the parcels in the Assessment District are zoned R-1 for residential uses. An R-1 zoning designation allows single-family residential land uses, with a minimum lot size of 6,000 square feet for each dwelling unit. The property subject to Assessment Nos. 1 through 6 have planned unit development ("PITD"} zoning, which allows for a higher density than the R-1 zoning. PITD zoning provides for lot sizes of less than 6,000 square feet of total lot area. For purposes of this Official Statement, the term "R-1 lots" refers to lots beazing either the R-1 or PUD zoning designation. Tax Delinquencies The City reports that, based upon the records of the office of the Kern County Tax Collector, there aze no delinquent taxes or penalties owed against the pazcels in the Assessment District. Each of the Landowners has reported that it has never been late on making assessment payments in other assessment districts, defaulted on any assessment payments, or lost any property to foreclosure as a result of not paying assessments. Environmental Issues Affecting Assessment District Property Pursuant to the Charter and Municipal Code of the City, the formation of an assessment district is exempt from compliance with the California Environmental Quality Act ("CEQA"}. Accordingly, a Notice of Exemption from CEQA was filed by the City with the Kern County Clerk for the Assessment District proceedings on September 20, 2005. The City reports that separate environmental review proceedings will be conducted for the improvement projects proposed to be financed by the Assessment District as part of the CEQA compliance associated with the land use entitlement and subdivision approval process within the Assessment District. Each of the Landowners has reported that, to its knowledge, there are no additional environmental issues affecting its respective property within the Assessment District that would impede the development of such property as described in this Qffieial Statement. Appraised Value-to-Assessment Lieo Ratio An Appmisal of the property within the Assessment District that is subject to the lien of the assessments has been prepazed for the City by the Appraiser. The Appraisalx subject to the various limitations and assumptions set forth therein, provides an estimate of the as-is market value oT''each parcel of property within the Assessment District using the cost approach. The "Mazket Value" is described in the Appraisal as: "the mast probable price which a property should bring in a competitive and open market under alt conditions requisite to a fair sate, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this deftntfton is the consummation of a sate as of a specdfzed date and the passing of title from setter to batyer under conditions whereby: a. buyer and setter are typically motivated,• b. both parties are well deformed or well advised, and acting in what they eortsider their own best dnteresfs; 34 c. a reasonable time is allowed for exposure in the open market; d payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents normal consideration for the property sold unaffected by special or creative ftnancing or sales concessions granted by anyone associated with the sale. " To apply the cost approach, the depreciated replacement cost of Ule improvements is added to the value of the land as though vacant tD amve at a value opinion. This approach is most reliable when the improvements are new or nearly new and represent the highest and best use of the site. In this appraisal, the Landowner's improvements to the land to date and the acquisition Improvements of the Assessment District are added to the undeveloped or "raw" land value. The Appraiser has valued the land as undeveloped or "raw" using the sales aomparisan approach, which derives an indication of value by comparing recent transactions involving similar, competitive properties on the basis of a common unit of comparison. See "APPENDIX B -Appraisal." For a discussion of liens encumbering the Assessment District property other than the assessments, see "Direct and Overlapping Debt" below and "THE BONDS -Priority of Lien" herein. Based on the Appraisal, the ratio of the aggregate appraised value of the Assessment District property to the aggregate assessment lien is 4.54:1. The following table sets forth the appraised values of the property in the Assessment District and the applicable value-to-assessment lien ratios. TABLE 19 APPRAISED VALUES AND APPRAISED VALU E-TO-ASSESSMENT LIEN RAT IOS CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO.OS-1 (CITY IN THE HILLS) LAND VALUE wiTH BOND-FINANCED VALUE- NET IMPROVEMENTS ASSESSMENT TA-LIEN ASSESSMENT NO. TRACT NO. ACREStrI ^H PLACE LIEN RATIO 1 6444 59.79 $ 9,841,112 $ 2,307,432.43 4.26 i 2 6444 55.82 8,727,173 1,572,539.43 5.55 ~' 3 6444 32.31 5,118,346 1,023,646.74 5.00 4 6444 16.89 2.801.25b 690,088.74 4_06 '. TOTALSIAVERAGE FOR FUTURE TRACT N0.6444 (COVERING ASSESSMENT NOS.I THROUGH 4): 164A5 526,487,887 $ 5,593,70739 4.74 5 6498 51.64 $ 8,533,334 $ 2,067,501.71 4.13 6 6498 31_21 5.237.358 1.345.903.66 3_89 TOTALStAVERAGE FOR FUTURE TRACT N0.6498 (COVERING ASSESSMENT NOS 5 AND 6): 82.85 513,770,692 S 3,413,404.77 4.03 ' 7 6452 57.01 $ 9.128.li2 $ 1934.469.27 4.72 TOTALS/AVERAGE FOR FUTURE TRACT N0.6452 (COVERRVG ASSESSMENT N0.7): 57.01 5 9,128,132 5 1,934,469.27 4.72 ' 8 6406 32.23 $ 5,135,366 $ 1,063,306.26 4.83 9 - ----~--6406 65.48 10.509.428 2.252.199.71 4_67 TOTALS7AVERAGE FOR FUTURE TRACT N0.6406 (COVERING ASSESSMENT NOSE AND 9): 97.71 _ 515,644,195 S 3,315,505.91 4.72 l0 6696 26.89 $`3;9$4,350 $ 914,303.95 4.36 I1 6696 l9l7 2.837867 648.608.71 4_38 ' TOTALSIAVERAGE FOR FUTURE TRACT N0.6696 (COVERING ASSESSMENT NOS. 16 AND 11): 46.06 5 6.822.157 5 1.562,912.66 437 TOTALStAYERAGE FOR ENTIRE AD 05.1: 448.48 $71,853,662 515,820,000.00 4.54 (1) Ne[ Acres excludes major off-site street right-of--ways, fut ure park lots, and future storm drain sump. Source: Appraisal and Engineer's Report. The assumptions and limitations regazding the appraised valuations are set forth in the Appraisal, a copy of which is attached hereto as APPENDIX B. See APPENDLY E for additional information regarding the appraised value of each assessed parcel and the ratio of such value to the amount of the assessment lien against such parcel. The Ciry makes no representations as to the accuracy or completeness of the Appraisal. Certain considerations relating to the Appraisal aze discussed under the heading "SPECIAL RISK FACTORS." 35 NO REPRESENTATIONS ARE MADE REGARDING THE APPRAISED VALUATIONS QUOTED IN APPENDIX B OR E, AND PROSPECTIVE PURCHASERS ARE CAUTIONED NOT TO RELY ON THE i VALUATIONS IN DETERMINING WHETHER OR NOT THE BONDS DESCRIBED HEREIN ARE A SUITABLE INVESTMENT. PROSPECTIVE PURCHASERS OF THE BONDS SHOULD NOT ASSUME THAT THE PROPERTY WITHIN THE ASSESSMENT DISTRICT COULD BE SOLD FOR THE VALUATION AMOUNT AT A FORECLOSURE SALE FOR DELINQUENT ASSESSMENTS. Direct and Overlapping Debt I The following table (the "Direct and Overlapping Debt Table") details the direct and overlapping debt currently encumbering property within the Assessment District. The Direct and Overlapping Debt Table has been derived from data assembled and reported to the Ciry by California Municipal Statistics, Inc, as of November 1, 2005. Neither the Ciry nor the Underwriter has independently verified the information in the Dtrect and Overlapping Debt Table and neither the City nor the Underuaiter guarantees its completeness or accuracy. TABLE 20 DIRECT AND OVERLAPPING DEBT CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO.OS-1 (CITY IN THE HILLS) Appraised Value: $71,853,662ti1 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: °/a Annlieable a) Debt I 1/1/OS '.., Kem Community College District School Facilities Improvement District No. 1 0.004% $ 2,849 Kem High School District 0.006 8,01 I Bakersfield City School District - 0.030 6,858 ', Ciry of Bakersfield 0.0]2 248 ', Kem Community College District Assessment District 0.004 264 ',. City of Bakersfield Assessment District No. OS-I 100.000 15.595,000 lai ', TOTAL GROSS DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $15,613,230 Less: City of Bakersfield water bonds 248 ~, TOTAL NET DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $15,612,982 ~, OVERLAPPING GENERAL FUND DEBT: Kern County General Fund Obligations 0.004% $ 3,107 Kem County Pension Obligations 0.004 19,596 Kern County Board of Education Certificates of Participation 0.004 3,$50 Kem Community College District Certificates of Participation 0.004 3,440 Kern High School District General Fund Obligations 0,006 5,718 Bakersfield City School District Certificates of Participation 0.032 1,219 City of Bakersfield Certificates of Participation 0.013 4.350 TOTAL OVERLAPPING GENERAL FUND DEBT $41,280 GROS5 COMBINED TOTAL DEB_T_ _ $15,654,510 t4I NET COMBINED TOTAL DEBT $15,654,262 (1) Appraised value as set fortb in Table 19. The 2005-06 local secured assessed,Kalue of the property in the Assessment District is $1,762,886. (2) Based an 2004-OS assessed valuation ratios. (3) 1915 Act bonds to be sold. (4) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and no n-bonded capital lease obligations. Ratios fo Annraised Value: - Duect Debt._. oY ................................................................................................21.70 / Total Gross Direct and Overlapping Tax and Assessment Debt ....................2193% Total Net Dirsct and Overlapping Tax and Assessment Debt ........................21.73% Gross Combined Total Debt ..........................................................................21.79% Net Combined Total Debt .............................................................................. 22.79% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30!05: $0 Source: Caiifomia Municipal Statistics, Inc. 3b SPECIAL RISK FACTORS General ' Under the provisions of the 1915 Act, assessment installments, from which funds for the payment of annual i installments of principal and interest with respect to the Bonds are derived, will be billed to properties against which there aze unpaid assessments on the regular property tax bills sent to owners of such properties. Such assessment installments are due and payable, and beaz the same penalties and interest for non-payment' as do regular property tax installments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies will likely indicate an unwillingness or inability to make regular property tax payments and assessment installment payments in the future. i In order to pay deb[ service on the Bonds, it is necessary that unpaid installments of assessments on land within the Assessment District are paid in a timely manner. Should the installments not be paid on time, the City has established a Special Reserve Fund in the initial amount of $1,309,445, which will thereafter be maintained, from assessment installment payments and from proceeds of redemption or sale of parcels with assessment delinquencies, in the amount of the Reserve Requirement, to cover delinquencies in the payment of assessments. The assessments are secured by a lien on the parcels of land and the City can institute foreclosure proceedings to sell land in the Assessment District with delinquent installments for the amount of such delinquent installments in order to obtain funds to pay debt service on the Bonds. Failure by owners of the pazcels to pay installments of assessments when due, depletion of the Special Reserve Fund, or the inability of the City to sell parcels which have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent installments of assessments levied against such parcels may result in the inability of the City to make full or punctual payments of debt service on the Bonds, and Bond owners would therefore be adversely affected. The Bonds are mot secured by the general taxing power of the City, the County, the State, or any other political subdivision of the State, and neither the City, nor the County, nor the State, nor any other political subdivision of the State has pledged its full faith and credit for the payment thereof. Unpaid assessments do not constitute a personal indebtedness of the owners of the lots and parcels within the Assessment District. There is no assurance the owners will be able to pay the assessment installments or that they will pay such installments even though financially able to do so. Risks of Real Estate Secured Investments Generally Owners of the Bonds will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in and in the viciLni_ty of the Assessment District, the supply of or demand for competitive praperties in such area, and the mazket value of residential property or buildings andlor sites in the event of sale or foreclosure; (ii) changes in reaLestate tax rate and other operating expenses, govemmenta] roles (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes and floods), which may result in uninsured losses. Concentration of Ownership As of November 8, 2005, Mountain View Bravo owned agpxo~imately 103.07 net acres, comprising approximately 22.98% of the assessed property in the Assessment District and approximately 22.11% of the assessment amount, Regent owned approximately 160.67 net acres, comprising approximately 35.82% of the assessed property in the Assessment District and approximately 38.49% of the assessment amount, D.R. Horton owned approximately 97.71 net acres, comprising approximately 21.79°l0 of the assessed property in the Assessment District and approximately 20.95% of the assessment amount, and the KHOV Entities collectively owned approximately 87.03 net acres, comprising approximately 19.41% of the assessed property in the Assessment District and approximately 18.45% of the assessment amount. The remaining acres within the Assessment District comprise major off-site street right-of-ways, future parks, and a future storm drain sump. 37 Although Regent, as successor-in-interest to Mountain View Bravo, has entered into agreements granting KHOV-FS and KHOV-RL, as successors-in-interest to KHOV Southern California,.options to purchase property owned by Regent in the Assessment District, there can be no assurance that such sales will occur as planned. Further, there is no assurance that after the issuance of the Bonds, Mountain View Bravo will transfer title to any of its property within the Assessment District to its homebuilder affiliate, Blu S.K.Y. Homes. Therefore there is no assurance of any degree of further diversification of ownership of the assessed property. Also, unless and until such ~ ownership is further diversified, the inability or refusal of any of the Landowners to pay its respective assessment installments when due could result in the rapid total depletion of the Special Reserve Fund prior to reimbursement thereof from foreclosure proceedings. Under such circumstances, there would be insufficient moneys with which to pay principal of and interest on the Bonds. Failure of any future property owners to pay instalhnents of assessments when due could also result in a default in payment of the principal of and interest on the Bonds prior to the resales of foreclosed property or delinquency redemptions. In that event, there could be a default in payments of the principal of and interest on the Bonds. Property Values Reference is made to APPENDIX B, which contains the Appraisal and the Appraiser's opinion with respect to the value of the property that is subject to the lien of the assessments and the assumptions made by the Appraiser in connection therewith. Reference is also made to "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT - Apgraised Value-to-Assessment Lien Ratio" for a summary of the value of the property within Assessment District that is subject to the lien of the assessments and the ratio of the appraised value of such property to the total amount of the assessment liens on such property that secure the Bonds. See also APPENDIX E for a listing of the ratio of the appraised value of each assessed pazcel to the amount of the assessment lien against such parcel. No assurance can be given that this appraised value-to-lien ratio will not decline should subsequent liens be placed on property within the Assessment District. Further, there is no assurance that in the event of a foreclosure sale for a delinquent assessment installment, any bid will be received for any such property within the Assessment District or that any bid received or resale price will be sufficient to pap such delinquent installments (plus costs and penalties). The 1415 Act provides that a parcel be sold for the delinquent instalhnent(s) amount (plus costs and penalties) and not the entire outstanding assessment. The Appraiser has made various assumptions, which may vary from the assumptions made by other parties (including the Landowners}, in order to derive the aggregate valuation estimate of the property within the Assessment District to be assessed. See APPENDLX B for an explanation of methodology and a statement of contingent and limiting conditions and assumptions used by the Appraiser to derive the aggegate value of the property. Although these contingent and limiting conditions and assumptions were considered reasonable by the Appraiser based on information available to the Appraiser, neither the Appraiser nor the City can give any assurance that any parcel will be developed in accordance with the uses that the Appraiser has projected. Availability of Funds to Pay Delinquent Assessment Installments- , The City will establish a Special Reserve Fund out of Bond proceeds in the amount of $1,309,495, which will thereafter be maintained, from assessment installment payments and from proceeds of redemption or sale of pazcels with assessment delinquencies, in the amount of the Reserve Requirement. As discussed herein under the heading "THE BONDS -Special Reserve Fund," if a delinquency occurs in the payment of any assessment `' ~ installment, the City has a duty to transfer to the Redemption Fund the amount of the delinquency out of the Special Reserve Fund. This duty of the City is continuing during the period of delinquency, until reinstatement, redemption, or sale of the delinquent property. There is no assurance that the balance in the Special Reserve Fund will always be adequate to pay all delinquent installments and if, during the period of delinquency, there aze insufficient funds in the Special Reserve Fund to pay all delinquent installments, a delay may occur in payments to the owners of the Bonds. 38 Hazardous Substances Although governmental taxes, assessments, and chazges are a common claim against the value of an assessed parcel, other less common claims may be relevant. One of the mast serious in terms of the potential reduction in the value that may be realized to pay the unpaid assessments is a claim with regard to hazazdous substances. Iu general, the owners and operators of parcels within the Assessment District may be required by law to remedy conditions of the parcels related to the releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation, and Liability Act of 1984, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well-known and widely applicable of these laws, but California laws with regazd to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substances condition of a property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any pazcel within the Assessment District be affected by a hazardous substance, would be to reduce the marketability and value of the pazcel by the costs of remedying the condition, because the owner (or operator} is obligated to remedy the condition. Further, such liabilities may arise not simply from the existence of a hazazdous substance but from the method of handling or disposing of it. All of these possibilities could significantly affect the Financial and legal ability of a property owner to develop the affected parcel or other parcels, as well as the value of the property that is realizable upon a delinquency and foreclosure. The appraised values set forth in the Appraisal do not, unless expressly noted, take into account the possible reduction in marketability and value of any of the parcels by reason of [he possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the parcel. Each of the Landowners has represented to the City that it is not awaze of any current liability for hazazdous substances with respect to any of its pazcels within the Assessment District. Further, it is possible that liabilities may arise in the future with respect to any of the parcels within the Assessment District resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or [he release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling or disposing of it. All of these possibilities could significantly affect the value of an assessed parcel that is realizable upon a delinquency of an unpaid assessment. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Environmental Issues Affecting Assessment District Property." Endangered and Threatened Species No threatened or endangered species (or their respective habitats} have been identified in the Assessment District. If, however, any threatened or endangered species (or their respective habitats} were to be discovered on a parcel within the Assessment District prior to or during development, the ability of the then-current landowner to develop the affected parcel couldbe severely limited. In such an event, the then-current landowner's willingness or ability to pay assessment installments couldbe adversely affected. The property within the Assessment District is subject `to the Metropolitan Bakersfeld Habitat Conservation Plan ("MBHCP"}, joint program of the City and the County that was undertaken to assist urban development applicants in complying with State and federal endangered species laws. Under the MBHCP, each development applicant pays to the City a mitigation fee for grading or building permits that funds the purchase and maintenance of habitat land to compensate for the effects of urban development on endangered species habitat. The lands acquired for the MBHCP program aze generally located outside tyre metropolitan Bakersfield area. In exchange for the MBHCP mitigation fee, the applicant is relieved of the obligation of demonstrating compliance with the endangered species laws by preparing biological reports, securing compensation lands, and undertaking ', other measures to avoid impacts to the species. 39 Factors Which May Affect Land Development I There is no assurance that the amount to be fmanced by the assessments will be sufficient to pay for the entire cost of the Improvements. The Landowners will each be obligated to pay all of its costs in excess of the amount financed by the assessments. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS - Description of the Assessment District and the Improvements." Future development in the Assessment District may be affected by changes in the general economic conditions, fluctuations in the real estate mazket, and other factors, in addition, development may be subject to future federal, state, and local regulations. Approval may be required from various agencies from time to time in connection with the layout and design of any proposed development in the Assessment District, the nature and extent of public improvements, lead use, zoning, and other matters. Although no such delays aze anticipated, failure to meet any such future regulations or obtain any such approvals in a timely manner could delay or adversely affect any proposed development in the Assessment District. The development of property within the Assessment District could be adversely affected if lawsuits or other actions were commenced to restrict or prevent further development within the Assessment District. Private Improvements; Increased Debt The development of the property within the Assessment District depends upon bout public and private improvement of land within the Assessment District. The cost of additional private improvements within the Assessment District, together with public improvements financed with any additional property secured financing, will increase the public and private debt for which the land within the Assessment District is the security. Any additional public improvements for which the property owners or their properties might be obligated could reduce the ability or willingness of the property owners within the Assessment District to pay the annual assessment installments levied against their property. See "SPECIAL RISK -Priority of Lien." In addition to the assessments being levied to finance the constmction and acquisition of the Improvements, the City intends to include as a part of such levy an annual assessment upon each pazcel of land in the Assessment I District to cover all administrative costs of the City with respect to the Assessment District. These additional administrative assessment amounts could reduce the ability or willingness of the property owners within the Assessment District to pay the annual assessment installments levied against their property. Subordinate Debt; Payments by FDIC and other Federal Agencies Mountain View Bravo has reported that the property subject to Assessment No. 7 has been pledged as security for the construction loan it has obtained from IndyMac Bank, which loan funds are to be used for the constmction of improvements and homes in the property subject to Assessment No. 7. Each of Regent, D.R. ~ Horton, KAOV-RL, and KHOV-FS has reported that none of its pmperiy within the Assessment District currently serves as security for any of its obligations to third party lenders. All or portions of the Assessment District property may in the future secure additionaTIoans of the owners thereof. Any such loans are subordinate to the lien of the assessments. However, in the event that any of the financial institutions making any loan that is secured by real property within the'Assessment District is taken over by the Fede'ra1 Deposit Insurance Corporation ("FDIC") or if a lien is imposed on the property by the Dmg Enforcement Agency, the Internal Revenue Service, or other sitnilaz federal governmental agency, and, prior thereto or thereafter, the loan or loans go into default, the ability of the City to collect interest and penalties specified by state law and to foreclose the lien of a delinquent unpaid assessment may be Limited. Specifically, with respect to the FDIC, on Tune 4, 1991, the FDICtissued 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 4, 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 ao abandonment of the F'DIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent properly taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest} on FDIC owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those clauns. The Policy Statement firrdrer 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 pertnit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent. The Policy Statement is unclear as to whether the FDIC considers assessments such as those levied by the City to be "real property taxes" which they intend to pay. However, the Policy Statement states that the FDIC generally will not pay non-ad valorem taxes, including special assessments, on property m which it has a fee interest unless Ute 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 City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency on a parcel within the Assessment District in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial foreclosure sale would reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. Owners of the Bonds should assume that the City will be unable to foreclose on any parcel owned by the FDIC. Such an outcome could cause a draw on the Special Reserve Fund and perhaps, ultimately, a default in payment nn the Bonds. Based on the secured tax roll as of January 1, 2005, the FDIC does not presently own any property within the Assessment District The City expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. Tax Delinquencies Assessment installments, fiom which funds necessary for the payment of annual installments of principal of and interest oa the Bonds are to be derived, will be billed to each property against which there is an unpaid assessment on the regular property tax bills sent to the owner of such property. Such installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. Under certain circumstances, assessment installment payments on pazcels of property in Kern County can be made sepazately from regular property tax payments for such parcels. Property tax payments will not be accepted, however, unless the assessment installments for such pazcels have also been paid. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills, as evidenced by property tax delinquencies, will likely indicate an unwillingness or inability to make regular property tax payments and assessment installment payments in the future. A failure of property owners to pay installments of assessments when due could result in a default in payments of the principal of and interest on the Bonds. The City reports that, based upon the records of the office of the Kern Gounty Tax Collector, none of the parcels in the Assessment District shows delinquencies in the payment of fiscal year 2001-02, 2002-03, 2003-04, or 2004-OS groperty tax installments. - Limited Obligation of the City Upon Delinquency - If a delinquency occurs in the payment of any assessment installment, the City has a duty only to transfer into the Redemption Fund the amount of the delinquency out of the Special Reserve Fund and to undertake, under certain circumstances, judicial foreclosure proceedings to recover such delinquencies. See "THE BONDS- - Covenant to Commence Superior Court Foreclosure." This duty of the City is continuing during the period of delinquency, until reinstatement, redemption, or sale of the delinquent property. There is no assurance that funds I will be available for this purpose and if, during the period of delinquency, there are insufficient funds in the Special Reserve Fund, a delay may occur in payments to the owners of the Bonds. If there are additional delinquencies after exhaustion of funds in the Sgecial Reserve Fund, the Ciiy is not obligated to transfer into the applicable Redemption Fund the amount of such delinquency out of any other auailable moneys of the City. THE CITY'S LEGAL RESPONSB3II.ITIES WITH RESPECT TO SUCH DELINQUENT INSTALLMENTS ARE LIMITED TO ADVANCING THE AMOUNT THEREOF SOLELY FROM ANY at AVAILABLE MONEYS IN THE SPECIAL RESERVE FUND AND TO UNDERTAKING, UNDER CERTAIN CIRCUMSTANCES, JUDICIAL FORECLOSURE PROCEEDINGS TO RECOVER SUCH DELINQUENCIES. THIS DUTY OF THE CITY TO ADVANCE FUNDS IS CONTINiJING DURING THE PERIOD OF ', DELINQUENCY ONLY TO THE EXTENT OF FUNDS AVAILABLE FROM THE SPECIAL RESERVE FUND UNTIL REINSTATEMENT, REDEMPTION, OR SALE OF THE DELINQUENT PROPERTY. IN ~ ACCORDANCE WITH SECTION 8769(6) OF THE 1915 ACT, THE CITY HAS DETERMINED THAT IT WILL NOT ADVANCE FUNDS FROM ITS TREASURY TO CURE ANY DEFICIENCY I[V THE REDEMPTION FUND. Bankruptcy and Foreclosure The payment of assessment installments and the ability of the City to foreclose on the lien of a delinquent unpaid assessment, as discussed below in the section enfitled "SPECIAL RISK FACTORS -Covenant to Commence Superior Court Foreclosure," may be limited by bankruptcy, insolvency, or other laws generally affecting creditors' rights or by the laws of the State of California relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified, as to the enforceability of the various legal instruments, by reference to bankruptcy, insolvency, reorganization, arrangement, moratorium, and other similar laws affecting the rights of creditors generally, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies in the State. On July 3Q 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a banlaugtcy case entitled Zn re Gtarply Marine Industries. In that case, the court held that ad vatorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner fated a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. The court upheld the priority of unpaid taxes imposed after the filing of the bankruptcy petition as "administrative expenses" of the bankruptcy estate, gayable after all secured creditors. As a result, the secured creditor was able to foreclose on the property and retain all of the proceeds of the sale except the amount of the pre-petition taxes. According to the court's ruling, as administrative expenses, post-petition taxes would have to be paid, assuming that the debtor has sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise) it would at that time become subject to current ad valorem taxes. Gtasply is controlling precedent on bankruptcy courts in the State of California. Pursuant to statute, the lien date for general ad valorem property taxes levied in the State of Calffornia is the January 1 preceding the fiscal year for which the taxes are levied. Therefore, under Glasply, a bankruptcy petition filing would prevent the lien for general ad valorem property taxes levied in subsequent fiscal yeazs from attaching so long as the property was a part of the estate in batdmiptcy. Under current law, dte hen of an assessment, unlike the lien for general ad valorem property taxes, attaches upon recordation of the notice of assessment. The notice of assessment for the Assessment District assessments was recorded in the Official Records of the County on November 11, 2005. Therefore, before applying Glasply to~a bankruptcy situation involving assessments rather than general ad vatorem property taxes, a court would need to consider the differences in the statutory provisions for creation of the applicable assessment lien. If a court were to apply Glasply to eliminate the priority as a secured claim of the assessment lien with respect to post petition levies of the assessments as against property owners within the Assessment District who file for bankruptcy, collections of the assessments from such property owners could be reduced. It should also be noted that on October 22, 1994, Congress enacted 11 U.S.C. Section 362(6)(18), which added a new exception to the automatic stay for ad valorem property taxes imposed by a political subdivision after the filing of a bankruptcy petition. Pursuant to this new provision of law, in the event of a bankruptcy petition filed on or after October 22, 1994, the lien for ad valorem taxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bond owners should be aware that the potential effect of 11 U.S.C. Section 362(6)(18) on the Assessment District assessments depends upon whether a court were to determine that the assessments should be treated like ad valorem taxes for this purpose. 42 Whether or not bankruptcy proceedings were to cause the assessment liens to become extinguished, bankruptcy of a property owner in all likelihood would 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 the principal of and interest on We Bonds, and the possibility that delinquent assessment installments might not be paid in full. Economic, PoGtieal, Social, and Environmental Conditions Prospective investors aze encouraged to evaluate current and prospective economic, political, social, and environmental conditions as part of an informed investment decision. Changes in economic, political, social, or environmental conditions on a local, state, federal, or international level may adversely affect investment risk generally. Such changes may also adversely affect the value of property within We Assessment District or the willingness or ability of the owners of land within the Assessment District to pay their assessments. Such conditional changes may include (but are not limited to) fluctuations in business production, consumer prices, or financial markets, unemployment rates, technological advancements, shortages or surpluses in natural resources or energy supplies, changes in law, social unrest, fluctuations in the crime rate, political conflict, acts of waz or terrorism, environmental damage, and natural disasters. Articles XIIIA and XIIIB of the California Constitution On June 6, 1478, California voters approved an amendment to We California Constitution, commonly known as Proposition 13 (the JarvislGann Initiative) which added Article XIIIA to the California Constitution. The effect of Article XTIA is to limit ad valorem taxes on real property. On November 7, 1978, California voters approved Proposition 8, which made certain clarifications to Article XIIIA. Article XIIIA of the California Constitution limits the amount of ad valorem taxes on real property to 1% of "full cash value" as determined by the county assessor. Article XIIIA defines "full cash value" to mean "the county assessor's valuation of real properly as shown on the 1975-76 tax bill under `full cash value' or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment "The "full cash value" is subject to annual adjustment to reflect increases, not to exceed 2% per yeaz, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or outer factors. Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and allows local governments to raise Weir property tax rates above the constitutionally mandated 1% ceiling for the purpose of paying off certain new general obligation debt issued for We acquisition or improvement of real property and approved by two-thirds of the votes cast by We qualified electorate. Article XIIIA requires a vote of two-Wirds of We qualified electorate to impose special taxes on real property, while otherwise generally precluding We imposition of any additional ad valorem, sales or transaction tax on real property. In addition, Article XIIIA requires We approval of two-thirds of all members of We State Legislature to change any State laws resulting in increased tax revenues. Enactment of Article XIIIA has reduced We amount of general property tax revenues received by the Ciry. This reduction in such revenues makes it less likely Wat the City-Jvill have stuplus funds, other than We Special Reserve Fund, wiW which to advance funds to make any payments or to Dore any deficiency in the Redemption Fund, should We City, in We exercise of its discretion, choose to do so. If Were are additional delinquencies after exhaustion of funds in the Special Reserve Fund, We City has no obligation to transfer into the Redemption Fund We amount of any such delinquencies out of any surplus moneys of the City. On July 2, 1979, We Fifth District Court of Appeal rendered a 3-0 decision in We case of Countv of Fresno v. Mahnstrom {94 Cal. App. 3d 1974) Wat determined Wat special assessments are not subject to We limitations of Article XIIIA (Proposition 13). The Court held the one percent [ax limitation imposed by California Constitution Article XI1TA on ad valorem taxes does not apply to special assessments levied pursuant to We lrrtprovement Act of 1911 (Streets and Highways Code, Section 5000 et seq., We relevant portions of which are incorporated in the 1915 Act) and We 1913 Act. The Court fiuther held that because special assessments pursuant to such acts are not wiWin We definition of "special taxes" in Article XIIIA, We Constitution does not require We levy of assessments and the issuance of bonds to be approved by a two-thirds vote of the qualified electors in an 43 assessment district. On September 12, 1979, the California Supreme Court refused to hear an appeal of the lower court's decision. , At the November 6, 1979, general election, Proposition 4 (the Gann Initiative) was approved by the voters of California. Such proposition added Article XIIIB to the California Constitution. Article XIIIB of the California Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal yeaz, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. The "base yeaz" for establishing such appropriation limit is the fiscal year 1978-79 and the limit is to be adjusted annually to reflect changes in populafion, consumer prices and certain increases in the cost of services provided by these public agencies. Apprapriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii) the investment of tax revenues. Article XIIIB includes a requirement that if an entity's revenues in any year exceed the amounts permitted to be spent, the excess would have to be allocated to fund schools or be returned by revising tax rates or fee schedules over the subsequent two years. On December 17, 1480, the Third District Court of Appeal rendered a 3-0 decision in the case Coun of Placer v. Conn (113 Cal. App. 3d 443) that determined thaC special assessments are not subject to the limitation of Article XIIIB (Proposition 4). The Court held that the defmition of "proceeds of taxes" imposed by California Constitution Article XIIIB does not apply to special assessments and improvement bonds issued pursuant to the 1915 Act and the 1913 Act. The decision of the Court was not appealed. The enactment of Article XIIIA of the California Constitution (Proposition 13) and subsequent legislative enactments effectively repeal the otherwise mandatory duty on the part of the City, under the 1915 Act, to levy and collect a special tax (in an amount necessary to meet delinquencies, but not to exceed ten cents on each $100 of assessable property within the City in any one year) if other funds aze not available to cover delinquencies. In early 1990, the U.S. Supreme Court struck down as a violation of equal protection certain property tax assessment practices in West Virginia, which had resulted in vastly different assessments of similar properties. Since Article XIIIA provides that property may only be reassessed up to 2%, per yeaz, except upon change of ownership or new construction, recent pumhasers may pay substantially higher property taxes than long-tune owners of comparable property in a community. The Supreme Court in the West Virginia case expressly declined to comment in any way on the constitutionality of Article XIIIA. Based on this decision, however, property owners in California brought three suits challenging the acquisition value assessment provisions of Article XIIIA. Two cases involve residential property and one case involves commercial groperty. In all three cases, State trial and a'p~ellate courts have upheld the constitutionality of Article XIIIA's assessment rules and concluded that the West Virginia case did not apply to California's laws. On June 3, 1991, the U.S. Supreme Court agreed to heaz the appeal in the challenge relating to commercial property, but the plaintiff subsequently decided to drop the case. On June 18, 1992, in the case of Nordlineer v. Lvnch (112 U.S. X326), the U.S. Supreme Court affumed the decision of the California Court of Appeal, Second Appellate District, which lower court previously held that Article XIIIA does not violate the U.S. Constitution. The City cannot predict whether any other pending or future challenges to the State's present system of property tax assessment will be successful, when the ultimate resolution of any challenge will occur, or the ultimate effect any decision regarding the State's present system of property tax assessment will have on the City's revenues or on the State's financial obligations to local governments. as Articles XIIIC and XIIID of the California Consfitution Proposition 218, a state ballot initiative known as the "Right to Vote on Taxes Act," was approved by California voters on November 5, 1996. Proposition 218 added Articles XIIIC and X~ to the State Constitution, and, with the exception of certain provisions, Articles XIIIC and XIIID became effective on November 6, 1996. Article XIIID, entitled "Assessment and Property Related Fee Reform," contains several new provisions making it generally more difficult for local agencies to levy and maintain "assessments" for municipal services and programs. Article XIIID requires that, beginning July I, 1997, the proceedings forthe levy of any assessment by the City under the 1913 Act (including, if applicable, any increase in such assessment or any supplemental assessment under the 1913 Act) must be conducted in conformity with the provisions of Section 4 of Article XIIID. "Assessment" is defined to mean any levy or chazge upon real property for a special benefit conferred upon the real property. Article XJIID additionally provides that in levying "assessments" a local govemrttent must separate the "general benefits" from the "special benefits" conferred on a pazcel and may not impose on any pazcel an assessment which exceeds the `Yeasonable cost of the proportional special benefit conferred on that parcel." Article XIIID also contains various notice requirements and a public hearing requirement and prohibits the imposition of an assessment if ballots submitted by property owners, weighted according to the proportional financial obligation of the affected property, in opposition to the assessment exceed the ballots submitted in favor of the assessment. The City believes that it has complied with all provisions of Article XBID applicable to the Assessment District proceedings described herein. All ballots submitted by property owners were in favor of the assessment. Article XIIIC, entitled "Voter Approval for Local Tax Levies," provides, in Section 3 thereof, that the initiative power shall "not be prohibited or otherwise limited in matters of reducing or repealing any ... assessment" of the City. Therefore, Article XIIIC removes limitations on the initiative power in matters of, among other things, assessments. Consequently, the voters of the City could, by future initiative, repeal, reduce, or prohibit the future imposition or increase of any assessment. "Assessment," is not defined in Article XIIIC and it is not clear whether the definition of that term in Article XIIID (which is generally property-related as described above) would be applied to Article XIIIC. No assurance can be given that the voters of the City will not, in the future, approve initiatives that repeal, reduce, or prohibit the future imposition or increase of any assessments. Iu the case of the unpaid assessments that are pledged as security for payment of the Bonds, the 1915 Act provides a mandatory, statutory duty of the City and the County Auditor to post installments on account of the unpaid assessments to the County property tax roll each year while any of the Bonds are outstanding in aggregate amounts equal to the principal of and interest on the Bonds coming due in the succeeding calendar year. Although the provisions of Article XIBC have not been interpreted by the courts, the City believes that the initiative power cannot be used to reduce or repeal the unpaid assessments that are pledged as security for payment of the Bonds or to otherwise interfere with the mandatory, statutory duty of the City and the County Auditor with respect to the unpaid assessments that are pledged as security for payment of the Bonds. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters~iscussed above, and it is not possible at [iris time to predict with certainty the outcome of such determination. Future Initiatives Articles XIIIA, XIiIB, XIIIC, and XIIID of the Constitution were each adopted as measures that qualified for the ballot pursuant to California's initiative process. From fnne to time other initiative measures could be adopted, which may affect the ability of the City to levy and maintain assessments. Covenant to Commence Superior Court Foreclosure The 1915 Act provides that in the event any assessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to foreclose the lien of assessment. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. This foreclosure sale procedure is not mandatory. However, in the Bond Resolution, the City has covenanted that, in the event any assessment or installment thereof, including any interest thereon, is not paid when due, the City will, no later than as October I in any year, file an action in the Superior Court of Kem County to foreclose the lien on each delinquent assessment if (i} the sum of uncured assessment delinquencies for the preceding fiscal year exceeds 5% of the assessment installments posted to the tax roll for that fiscal year and (ii} the amount in the Special Reserve Fund is less than the Reserve Requirement. 1n the event such Superior Court foreclosure or foreclosures aze necessary, there may be a delay in payments to the owners of the Bonds, pending prosecution of the foreclosme proceedings and receipt by the City of the proceeds of the foreclosure sale. It is also possible that no bid for the purchase of the applicable property would be received at the foreclosure sale. Prior to July 1, 1983, the right of redemption from foreclosure sales was limited to a period of one year from the date of sale. Under legislation effective July 1, 1983, the statutory right of redemption from such foreclosure sales has been repealed. However, a period of 140 days must elapse after a court adjudges and decrees a lien against the lot or pazcel of land covered by an assessment or reassessment before the sale of such parcel can be given. Furthermore, if the purchaser at the sale is the judgment creditor, i.e., the City, an action may be commenced by the delinquent property owner within ninety (90) days after the date of sale to set aside such sale. Price Realized Upon Foreclosure The 1915 Act provides that, under certain circumstances, property may be sold upon foreclosure at less than the Minimum Price or without a Minimum Price upon petition by the City. "Minimum Price" as used in this section is Ure amount equal to the delinquent installments of principal and interest on the assessment or reassessment, together with all interest, penalties, costs, fees, chazges and other amounts more fully detailed in the 1915 Act. The court may authorize a sale at less than the Minimum Price if the court determines, based on the evidence innoduced at the required hearing any of the following: (A} Sale at the lesser Minimum Price or without a Minimum Price'wffi not result in an ultimate loss to the owners of the Bonds. (B) Owners of 75% or more of the outstanding Bonds, by principal amount, have consented to such petition by the City and the sale will not result in an ultimate loss to the non-consenting Bond owners. (C) Owners of 75% or more of the outstanding Bonds, by principal amount, have consented to the petition and all of the following apply: (1} By reason of determination pursuant to the 1915 Act, the City is not obligated to advance funds to cure a deficiency (the City made such a determination not to be obligated with respect to the Bonds). (2} No bids equal to or greater than the Minimum Price have been received at the foreclosure sale. (3) No funds remain in the Special Reserve Fund. (4) The City has reasonably determined that a reassessment and refunding proceeding is not practicable, or has in good faith endeavored to accomplish a Teasgessment and refunding and has not been successful, or has completed a reassessment and refunding arrangement which will, to the maximum extent feasible, minimize the ultimate loss to the Bond owners. {5} No other remedy acceptable to owners of 75% or more of the 'outstanding Bonds, by principal amount is reasonably available. , The assessment or reassessment lien upon property sold pursuant to this procedure at a lesser price than the Minimum Price shall be reduced by the difference between the Minimum Price and the sale price. In addition, the' court shall permit participation by the Bond owners in its consideration of the petition as necessary to its determinations. Implementation of the above-described Minimum Price provision by the court upon foreclosure could result in nonpayment of amounts due to Bond owners who are not in agreement with the 75% of such Bond owners 46 { required to approve the sale at less than the Minimum Price. Reference should be made to the 1915 Act for a complete presentation of this provision. Priority of Lien I Each assessment {and any reassessment) and each installment thereof, and any interest and penalties I thereon, constitutes a lien against the parcel of land on which it was imposed un61 the same is paid. Such a lien is j subordinate to all fixed special assessment liens previously imposed upon the same property, but has priority over all 11 private liens and aver all fixed special assessment liens which may thereafter be created against the property. Such a - lien is co-equal to and independent of the lien fox general property taxes and special taxes, including without ', limitation, special taxes created pursuant to the Mello-Roos Act, whenever created against the property. Upon the issuance of the Bonds, none of the property in the Assessment District will be subject to any special tax lien created under the Mello-Roos Act. All of the properly in the Assessment District is subject to an existing special assessment lien created by AD 93-1; however, such assessment will be paid in full upon the issuance of the Bonds from a portion of the proceeds thereof. Therefore, upon the issuance of the Bonds, none of the _ property in the Assessment District will be subject to any other special assessment lien created under the 1913 Act. See "THE BONDS -Priority of Lien" Refunding Bonds Pursuant to the Refundmg Act of 1984 for 1915 Improvement Act Bonds {Division 11.5 of the California Streets and Highways Code), the City may issue refunding bonds for the purpose of redeeming the Bonds. After the making of certain required findings by the City Council, the City may issue and sell refunding bonds without giving notice to and conducting a hearing for the owners of property in the assessment district, or giving notice to the owners of the Bonds. See "I IIE BONDS -Refunding Bonds." Upon issuing refunding bonds, the City Council could require that the Bonds be exchanged for refunding bonds on any basis which the City Council determines is for the City's bene5t, if the Bond owners consent to the exchange. As an alternative to exchanging the refunding bonds for the Bonds, the City could sell the refunding bonds and use the proceeds to pay the principal of and interest and redemption premium, if any, on the Bonds as they become due, or advance the maturity of the Bonds and pay the principal of and interest and redemption premium thereon. Absence of Market for Bonds No application has been made for a rating for the Bonds, and it is not known whether a rating for the Bonds could be secured either now or in the future. There can be no assurance that there will ever be a secondary market for purchase or sale of the Bonds, and from time to time there may be no market for them, depending upon prevailing mazket conditions and the financial condition or mazket position of firms who may make the secondary market. Loss of Tax Exemption As discussed under the heading "TAX MATTERS," inteiestop the Bonds could cease m be excluded from gross income for purposes of federal income taxation, retroactive to the date the Bonds were issued, as a result of future acts or omissions of the City. ENFORCEABILITY OF REMEDIES The remedies available to the Paying Agent, the City, or the owners of the Bonds upon any nonpayment of assessment installments are in many respects dependent upon judicial actions, which aze often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically Title 11 of . the United States Code (the federal bankruptcy code) and relevant banking and insurance law, the remedies provided in the 1915 Act and the 1913 Act may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by bankmptcy, reorganization, insolvency, or other similaz laws affecting the 47 rights of creditors generally, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limita5ons on legal remedies in the State of California. _ , NO LITIGATION No litigation is pending concerning the validity of the Bonds or the Bond Resolution, and an opinion of the City Attorney to that effeot will be famished to the purchaser at the time of the original delivery of dme Bonds. The City is not awaze of any litigation pending or threatened questioning dme political existence of the City or contesting the City's ability to pay interest on the Bonds. There are a number of lawsuits and claims pending against the City. In the opinion of the Gity Attorney, the aggregate amount of liability that the City might incur as a result of adverse resolutions in such cases would likely be covered under the City's insurance policies or self-insurance program. CERTAIN INFORMATION CONCERNING THE CITY Certain general information concerning the City is included in APPENDIX A hereto. THE GENERAL FUND OF THE CITY IS NOT LIABLE FOR THE PAYMENT OF THE BONDS OR THE INTEREST THEREON, AND THE TAXING POWER OF THE CITY IS NOT PLEDGED FOR THE PAYMENT OF THE BONDS OR THE INTEREST THEREON. TAX MATTERS In the opinion of Omck, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings, and court decisions, interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes. Bond Counsel is also of the opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, although Band Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. A complete copy of the opinion of Bond cormsel is set forth in APPENDIX C hereto. The Internal Revenue Code of 19&6 (the "Code") imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The City has covenanted to comply with certain restrictions designed to assure that interest on the Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in federal gross income, possibly from the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform anp person) whether any actions taken (or not taken) ar events occurring (or nor occurring) after the date of issuance of the Bonds may adversely affect the tax status of the interest on the Bonds. Certain requirements and procedures contained or referred to in the Bond Resolution, the tax certificate to be executed by the City at closing, and other relevant documents may be changed and certain actions (including, witlmout limitation, defeasance ofZlieBonds) 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 Bonds or the interest thereon if any such change occurs or actions are taken' br- opmitted upon the advice or approval of bond counsel other than Orrick, Herrington & Sutcliffe LLP. However, without limiting the generality of the foregoing, the City has covenanted in the Bond Resolution that, prior to making any change to or taking or omitting to take any action with respect to any of the agreements, requirements, or procedures contained or referred to in the Bond Resolution, the tax certificate, or other relevant documents pertaining to the Bonds, the City will do either of the following: (i} obtain a subsequent opinion of Orrick, Hemngion & Sutcliffe LLP that such change, action, or omission will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds; or (ii} obtain an opinion of alternative nationally recognized bond counsel to the effect originally delivered by Bond Counsel that, notwithstanding such change, action, or omission, interest on the Bonds is excluded from gross income for federal income tax purposes. Although Bond Counsel will render an opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Bondholder's federal tax liability. The as nature and extent of these other tax consequences will depend upon the particular tax status of the Bondholder or the Bondholder's other items of income or deduction. Bond Counsel exgresses no opinion regarding any such other tax consequences. APPROVAL OF LEGALITY The validity of the Bands and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel. A complete copy of the proposed form of bond counsel opinion is contained in APPENDIX C hereto and is printed on the Bonds. Bond counsel undertakes no responsibility for the accuracy, comgleteness, or fairness of this Official Statement. Certain matters will be passed upon for the City by the City Attorney of the City of Bakersfield. Certain other matters will be passed upon by Pillsbury Winthrop Shaw Pittman LLP, Century City, Cahfomia, as disclosure counsel to the City. I UNDERWRI'T'ING Pursuant to a Bond Purchase Contract between the City and the Underwriter, the Bonds aze being pttrchased by the Undenuriter at a purchase price equal to the principal amount of Bonds being issued, plus a net original premium of $11,654.30, and less an Underwriter's discount of $148,152.50. The Bond Purchase Contract provides that the Underwriter will purchase all of the Bands if any are purchased, the obligation to make such purchase, if made, being subject to certain terms and conditions set forth in the Bond Purchase Contract, the approval of certain legal matters by counsel, and certain other conditions. The Underwriter may offer and sell Bonds to certain dealers and others at a price other than the offering price. The offering price maybe changed from time to time by the Underwriter. NO RATING The City has not made and does not contemplate making application m any rating agency for the assignment of a rating to the Bonds. CONTINUING DISCLOSURE Each of the City, Mountain View Bravo, for itself and on behalf of Regent, D.R. Horton, and hHOV-FS, for itself and on behalf of KHOV-RL, has covenanted fox the benefit of Bondholders to provide an annual or semi- annual report, as applicable, containing certain fmancial information and operating data relating to the Assessment District and the property in the Assessment District, and to provide notices of the occurrence of certain enumerated events, if material. The specific nature of the information to be contained in each annual or semi-annual report, as applicable, or each notice of material events, if any, and the applicable deadlines, are set forth in the respective Continuing Disclosure Certificates, the forms of which aze attached hereto as "APPENDIX F -FORMS OF CONTINUING DISCLOSURE CERTIFICATES ° These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule ISe2-12(b}{5), as amended (the "Rule"). Each of the City, jylountain View Bravo, D.R. Horton, and KHOV-FS has represented that, in the previous five years, it has never failed to comply with any previous undertakirtg. to provide annual or semi-annual reports, as applicable, and notices of material events. In the event any person or entity should acquire property in the Assessment District that, when aggregated with all other property in the Assessment District owned by such owner or its affiliates, is subject to a lien of twenty i percent {20°10} or more of the annual assessment securing payment of the Bonds, such owner shall be required to enter into a Continuing Disclosure Certificate as described in the preceding paragraph. [Remainder of Page Intentionally Left Blank.] 49 MISCELLANEOUS The foregoing summaries or descriptions of provisions of the Bonds, the Bond Resolution, and alI references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof and do not purport to summarize or describe all of the provisions thereof, and reference is made to said documents for full and complete statements of their provisions. The appendices hereto are a part of this Official Statement. Arty statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the Bonds. The execution and delivery of this Official Statement has been duly authorized by the City. CITY OF BAKERSFIELD By: /s( Nelson K. Smith ~~ti"~""~G~S~{ Nelson K. Smith Finance Duector So APPENDIX A CITY OF BAI{ERSFIELD ECONOMIC, FINANCIAL, AND DEMOGRAPHIC INFORMATION i. ~~ General The City is located at the southern end of dte San Joaquin Valley, approximately 110 miles north of Los " Angeles and 290 miles south of San Francisco. The City includes over 118.51 squaze miles of land and an additional 89 square miles of land area is located within the City's sphere of influence. The City is a regional center for industry, government, transportation, retail trade, medical services, and oil field operations. Major manufacturing activities include iron and steel fabrication, plastic foam products, food products, petroleum refining, and textiles. Bakersfield is one of the leading convention centers of the state and is the commercial hub of Kern County {the "County"). As the County seat, it is the location of many county, state, and federal offices. The metropolitan area has expanded considerably beyond the City limits. As of January 1, 2005, the estimated population of the County was 753,070 and the estimated population of the City was 295,893, according to the California Department of Finance. The Bakersfield Standard Metropolitan Statistical Area (SMSA) includes all of the County, as defined by the State Department of Employment Development. City Government The City was incorporated on January 11, 1898, under the general laws of the State of California (the "State"). The City is a charter city with acouncil/manager form of government. The City Council is comprised of seven council members, elected by ward on a staggered basis for a term of four years. The mayor is directly elected for afour-year term. The council appoints the Ciry Attorney and the City Manager, who also serves as the Executive Director of the Bakersfield Redevelopment Agency (the "Agency"). There are approximately 1,325 permanent City employees, including 68 persons in management and 179 persons in supervisory positions. Fire protection is provided by 175 Firefighters, manning 13 stations. The police department has 321 Police Officers. Tax Levies and Delinquencies; Assessed Valuation of Taxable Property The Kern County Tax Collector collects ad valorem property tax levies representing taxes levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding March 1. Unsecured taxes are assessed and payable on March 1 and become delinquent August 31, in the next fiscal year. I Accordingly, unsecured taxes aze levied at the rate applicable to the fiscal year preceding the one in which they are paid. - _-- One half of the secured tax levy is due November 1 and becomes delinquent December 10; the second installment is due February I and becomes delinquent April 10. A ten,percent (10°l0) penalty is added to any late installment. On June 30, delinquent properties are sold to the State. Property owners may redeem property upon payment of delinquent taxes and penalties. Tax-defaulted properties aze subject to a redemption penalty of one and one-half percent (1.50°fo) of the tax due, charged from July I following the date on which the property became tax-defaulted to the daterof redemption, plus a penalty for every subsequent tax yeaz (i.e., July 1 through June 30) in which the property remains tax-defaulted, at a rate of one and one-half percent (1.50%) of the tax due for each such tax yeaz. Properties may be redeemed under an installnent plan by paying current taxes, plus 20% of delinquent taxes each yeaz for five yeazs, with interest accruing at one and . one-lalf percent (1.50%) per month on tle unpaid balance. If no payments have been made on delinquent taxes at the end of five fiscal years, the property is deeded to the State. Such properties may tlereafter be conveyed to the County Tax Collector as provided by law. A-1 The table below summarizes the City's property tax levies, the current amounts delinquent, and total collections for fiscal years 1994-95 through 2003-04. , Fiscal Year 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-O1 2001-02 2002-03 2003-04 Table A-1 City of Bakersfield Property Tax Levies and Delinquencies trl Fiscal Years 1994-95 through 2003-04 Total Tax Levy $16,349,776 16,856,805 17,175,495 17,289,200 17,864,445 18,554,717 19,043,149 zo,121s2a 21,301,453 22,792,274 Total Tax CoOections $16,239,085 16,975,278 17,464,195 17,430,365 20,488,683 19,123,448 18,199,926 20,675,415 23,523,106 23,186,177 Percent of Levy Collected 96.7% 96.4 , 97.5 97.4 111.7 99.5 92.9 99.4 lo7.a 101.7 Q) Excludes redevelopment tax increment revenues. Source: Ciry Comprehensive Armual Financial Report for Fiscal Year Ended June 3Q, 2004. Percent of Current Taxes Collected 99.3% 100.7 101.7 100.8 114.7 103.1 95.3 102.8 110.4 105.0 The table below summarizes the assessed valuations in the City for fiscal years 1994-95 through 2003-04. Table A-2 City of Bakersfield Assessed Value of Taxable Property (Fiscal Years 1994-95 through 2003-04) Fiscal Year Secured 1994-95 $7,662,423,762 1995-96 8,068,506,294 1996-47 8,213,247,086 1997-98 8,407,516,746 1998-99 8,628,532,571 1999-00 9,268,459616 2000-01 9,809,567,800 2001-02 10,11 I ,103,449 2002-03 -10,820,926,790 2003-04 11,947,359, 805 Unsecured $342,662,118 356,616,991 350,499,835 374,446,012 453,535,838 423,862,659 432,049,903 462,192,054 481,183,430 483,752,532 Utiti $14,097,810 13,232,785 13,971,013 15,497,196 17,719,409 19,424,138 19,039,560 18,851,231 18,714,866 26,993,919 Source: City Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2004. Total Assessed Value $8,019,183,690 8,438,356,070 8,577,717,934 8,797,459,954 9,099,787,818 9,711,746,413 10,26Q,657,263 10,542,146,734 11,320,725,086 12,458,106,256 Percent Increase (Decrease) 5.23% 1.65 2.56 3.44 6.72 5.65 3.23 6.88 10.05 A-2 The table below shows the assessed valuations of the principal taxpayers in the City as of June 30, 2005. Table A-3 City of Bakersfield Assessed Valuation of Principal Taxpayers (June 30, 2005) Taxpayer Type of Business Castle & Cooke Comm. Inc. Real Estate Development Bakerafeld Mall LLC Shopping Center Chevron USA Inc. Oil Company Ice Cream Partners, USA Manufacturing Beaz Mountain Limited Cogeneration State Farm Insurance Company Inswance AlbertsonsInc. Groceries Cox Communication Cable Nakanogumi Corporation SBD Group Inc Real Estate Development Columbus & Chester Partnership Real Estate Total taxable assessed value of ten (10) largest taxpayers Total taxable assessed value of other taxpayers Total taxable assessed value of all taxpayers Source: City of Bakersfield Demographic Statistics Percentage 2004-OS of Total Assessed Assessed Valuation Valuation $ 155,296,097 1.08% 115,530,696 0.80 66,181,306 0.46 61,617,198 0.43 52,155,000 0.36 43,500,000 0.30 37,157,672 0.26 14,511,150 0.10 12,500,000 0.09 12,330.874 0.09 $ 570,779,993 3.96% 13,836,370,210 96.04 $14,407,150,203 100.00% The following table sets forth various demographic data regarding the City, including population, estimated median household income, elementary school enrollment, and estimated unemployment rate, from fiscal year 1994- 95 through 2003-04. Table A~ City of Bakersfield Demographic Statistics (Fiscal Years 1994-95 through 2003-04) Estimated Median Elementary Schoo- Estimated Fiscal Year Popnlatian Household Income Enrollment Unemployment Rate 1994-95 207,472 $37,449 26,354 12.8% 1995-96 _ 212,715 31,852 26,903 12.4 1946-97 214,554 31,888 27,126 11.4 1997-98 221,654 33,339 27,370 10.9 1998-99 230,771 33,754 27,668 11.0 1999-00 237,222 34,343 21,783 12.5 2000-O1 254,368 37,573 28,099 10.4 2001-02 257,914 35,153 1t8,267 11.2 2002-03 266,784 42,800 28,179 12.0 2003-04 279,672 46,000 28,315 12.6 Sources: City Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2004. A-3 i Employment The County's total labor force, the number of persons who work or aze available for work, is estimated to j be 317,100 for February 2005, an increase of 0.63% over the preceding year. The number of employed workers in I the labor force is estimated to be 284,000 for the same date. The following table sets forth information regazding the size of the labor force, employment and unemployment rates for the County, the State, and the United States for the calendar years 2000 through 2005. Table A-5 Employment -Averages Calendar Years 2000 - 2005 2000 2001 2002 20U3 2004 Feb 2005 Kern County Labor Force {OOOs) 287.1 292.0 299.1 305.4 315.1 317.1 Employment (OOOs) 254.7 260.9 264.0 267.9 284.5 284.0 Unemployment Rate 11.3% 10.6% 11.7% 12.32% 9.7% 10.4% State of California Labor Force (OOOs) 16,884.2 17,182.9 17,404.6 17,629.3 17,627 17,714 Employment (OOOs) 16,048.9 16,260.1 16,241.8 16,455.4 16,630 16,625 Unemployment Rate 4.9% 5.4% 6.7% 6.7% 5.7% 6.1% United States Labor Force(OOOs} 142,58311 143,734 144,863 146,SIOttI 147,877 147,649 Employment(OOOs) 136,89111 136,933 136,485 137,736 140,278 139,100 Unemployment Rate 4.0°fo 4.7% 5.8% 6.0% 5.1% 5.8% '. (1) Not strictly compamblc with data for prior years. Source: California Employment Development Department and U.S. Department of Labor Bureau of Labor Statistics. The following table sets forth the top twenty employers in the City as of July 2005. Table A-6 CITY OF BAKERSFIELD Principal Employers (As of July 2005) h'IRM PRODL'CTlSERVICE EM PLOYEES County of Kem Government $,400 Giumarra Vineyards Agriculture 5,000 Griaunway Enterprises Agriculture 4,000 Bakersfield City Schools Education 4,000 Kem High School District Education 3,600 Wm. Bolthouse Farms - Agriculture 2,500 Catholic Healthcare West Health Caze 2,540 Bakeisfield Memorial Hospital Heahh Care 1,400 City of Bakersfield Government 1,400 ARB Inc. Metal Fabrication 1,2Q0 Kern Medical Center Health Caze 1,200 State Farm Insurance Insurance 1,400 AeraEnergy Energy 1,150 Chevron Texaco Oil Production 1,000 California State University Bakersfield Education 900 Dreyers Ice Cream Co LLC. Food Processing 800 ' Frito Lay Food Processing ?25 Tazget Distribution Center Retail Distribution 650 Clinica Sierra Vista Health Care 600 ', ACS Call Center 600 '. Bakersfield College Education 450 Sotvice: City of Bakersfield. A4 Building Activity The following table summarizes the City's total annual building permit valuations since Fiscal Yeaz 1994- 95. -- Table A-7 CITY OF BAKERSFIELD Property Value, Construction, and Bank Deposi ts ctl Fiscal Years 1994-95 through 2003-04 Commercial Residential Other Total Construction Construction Construction Construction Fiscal Number Number Number Bank Year of Units Value of Units Value Value afUnits Value Deuosits 1994-95 39 $65,891 1,571 $150,429 $37,167 1,610 $253,487 $1,563,075 1995-96 50 26,287 1,909 179,127 41,962 1,959 247,376 1,678,075 1996-97 102 42,352 1,352 132,785 40,459 1,454 215,596 2,310,008 1997-98 147 49,241 1,983 197,773 67,281 2,130 314,295 2,438,004 1998-99 213 78,199 2,088 223,576 36,458 2,301 338,733 2,464,202 1999-00 140 51,251 1,890 218,656 34,438 2,030 304,245 2,454,280 2000-O1 123 38,113 2,012 261,522 48,067 2,135 347,702 2,73Q107 2001-02 143 70,874 2,445 311,639 57,983 2,588 440,496 2,865,985 2002-03 141 56,694 2,981 428,534 b2,112 3,122 547,340 3,179,623 2003-04 130 82,003 3,677 568,413 65,878 3,807 116,294 (not available) (Ij Property eatues and bank deposits are reported iu tLousands Sources: City Finance Department. Commercial Activity Consumer spending in calendar yeaz 2003 resulted in approximately $4,164,067,000 in taxable sales in the Ciry, which is approximately 8.77% above calendar year 2002. The following table sets forth information regarding taxable sales in the City for calendar years 1999 through 2003. Table A-8 CITY OF BAKERSFIELD Taxable Retail Sales 1999 - 2003 (OOOs) 1999 Apparel stores $ 97,207 General merchandise stores 564,971 -- -- OS Food stores 162,5 Eating and drinking places 266,476 Home fumisbings and appliances 113,435 Building materials and farm implmts. 217,197 Automobile dealers and auto supplies 623,868 Service stations 179,011 Other retail stores 342.586 Total Retail Outlets $2,567,256 All Other Outlets 629.476 Total All Outlets $3,196,732 2000 2001 2002 2003 $ 109,847 $ 117,059 $ ]26,267 $ 129,457 598,519 633,842 667,344 699,810 176,986 181,300 196,060 215,506 287,815 309,643 33Q,061 362,907 123,510-,- 126,841 142,019 154,731 244,146 ~- 256,506 286,088 340,528 716,804 845,904 850,364 913,717 209,649 187,497 178,716 210,459 372.930 384,538 413,285 464.338 $2,840,206 $3,Q43,IS0 $3,190;204 $3,491,453 657 574 701 212 637,989 672.614 $3,497,780 $3,714,392 $3,828,193 $4,164,067 Source: California State Boazd of Equalization. A-S There are three major shopping centers in the Ciry. Major department stores with local outlets include Robinsons-May, Macy's, Mervyns, J.C. Penney, and Seazs. The retail base includes .two Wal-Marts, two Targets, one K-Mart, two Home Depots, a Lowe's Home Improvement Store, and a Costco. The number of sales permits issued and the valuation of taxable transactions for the years 1999 through 2003 is presented in the following table. Table A-9 CITY OF BAKERSFIELD Number of Permits and Valuation of Taxable Transactions 1999-2003 Retail Stores Year No. of Permits Taxable Transactions 1999 2,955 2,567,256 2000 3,163 2,840,206 2001 3,422 3,043,180 2002 3,552 3,190,204 2003 3,899 .3,491,453 Source: California State Boanl of Equalisation. Transportation Total All Outlets No. of Permits Taxable Transactions 5,887 3,196,732 5,961 3,497,780 6,213 3,744,392 6,359 3,828,193 6,704 4,164,067 Well-developed surface and air transportation facilities are available to City residents and business firms. Main lines of both the Union Pacific and the Burlington Northern Santa Fe raiUoads traverse the azea. Amtrak service is available. State Highway 99, the main north-south artery serving the most populous communities along the east side of the Central Valley, runs through the center of the City. State Highway 58 provides east-west linkage between Interstate 5, 20 miles west, and Interstate 15 at Barstow, to the east, Highway 178, heading northeast, is the major route along the Kern River Valley. Highway 65, to the north, provides access to communities east of Highway 99 and to Sequoia National Park. Interurban motor transportation is made available by Orange Belt Stages, Greyhound, and Trailways. Golden Empite Transit provides local bus transportation. Meadows Field (Kem County Airport) adjoins the City to the north. Regularly scheduled passenger and air cargo service is available as well as charter service and general aviation services. The main runway is 11,000 feet in length. Utilities Electricity throughout the City is supplied by Pacific Gas and Electric Company. This company, along with Southern California Gas Company, also supplies natural gas. Telephone service is by SBC. Fifteen private water companies serve the City. Sewer service is provided by the City. Education Public educafion in the City through the secondary grades is provided by a number of elementary school districts, including the Bakersfield City School District and Kern High School District. There aze also a number of private schools, nursery schools, and pre-schools within the City. The City lies within. Kern Community College District, which administers Bakersfield College. This two year institution is located on a 150-acre site in northeast Bakersfield. Vocational and technical courses are offered A-6 as well as academic courses designed to equip the student for transfer to a four-year college or university in the third year. Bakersfield College attracts about half the local high school graduating class each year. California State University, Bakersfield opened in 1970 and received its university status in 1988. It is on a 375-acre site located in the western portion of the City. Majors offered include anthropology, art, earth sciences, philosophy, mathematics, political science, business and teaching. A graduate program offers the master's degree in a number of fields. 1 The newest campus in the University of California system, UC Merced, opened in 2005. UC Merced serves the entire San 7oaquin Valley, with the main campus located in the City of Merced and satellite centers located in the City and the Cities of Fresno and Modesto. The satellite centers in the Ciiy and Fresno have already ~, opened. , Financial5ervices Statewide banking systems serving the City include Bank of America, Washington Mutual Bank, Sanwa Bank California, Union Bank, Rabobank, and Wells Fazgo Bank. Their services are supplemented by local and regional banks, and vazious savings and loan associations. Community Facilities The City has six general hospitals with a total bed capacity of 1,075. The City is a primary medical center of a region larger than some states. Mercy Hospital and Greater Bakersfield Memorial Hospital are among the largest employers in the City. Kern Medical Center, administered by the County, is affiliated with UCLA Medical ~! Center of Los Angeles. The daily "Bakersfield Californian" and two weekly newspapers provide regional news coverage. i Bakersfield has twenty radio stations, four television stations, and three cable TV companies. The City has 45 public pazks, covering s total of 433.27 acres. The Bakersfield Rabobank Arena, Theater and Convention Center contains a 3,250-seat concert hall, a 9,000-seat arena, four meeting halls, and six conference rooms. Memorial Stadium hosts more National AAU track meets than any other city in the country. County-owned golf courses and five private courses offer year-round golf, and tennis is played throughout the year at the Bakersfield Racquet Club. Cultwal advantages of the City include a community theater, the Bakersfield Symphony orchestra, a community concert group, and Cunningham Art Gallery. Bakersfield College and California State University, Bakersfield, sponsor plays, concerts, lectures, and special events throughout the year. A-7 (THIS PAGE INTENTIONALLY LEFT BLANK} APPENDIX B APPRAISAL is s-~ (THIS PAGE INTENTIONALLY LEFT BLANK} COMPLETE APPRAISAL Si.JMMARY REPORT OF City of Bakersfield Assessment District OS-1 City in the Hills Bakersfield, CA For CITY OF BAKERSFIELD 1501 Truxtun Avenue Bakersfield, CA 93301 As Of October 1, 2005 Prepazed By Randall Franz, MAI, SRA KERN APPRAISAL COMPANY Real Estate Appraisal Services 5401 Business Pazk South, Suite 103, Bakersfield, CA 93309 KERN APPRAISAL COMPANY REAL ESTATE APPRAISAL SERVICES RAIVDALL FRANZ, IVfAI, November 9, 2005 Your Reference No. CA05-017 OurFile No. 2371 Nelson K. Smith ,~ Finance Director CITY OF BAKERSFIEI,D 1501 Truxiun Avonue Bakersfeld, CA 93301 Subject: Complete Appraisal Summary Report Assessment District OS-1 City in the Rills T.29S. R.29E. Portions of Sections 17, 18, 8c 19 Bakersfield, CA 93306 Dear Mr. Smith: In completion of our agreement as outlined in the consultant's agreement dated May 23, 2005, I am pleased to transmit the following Complete Appraisal Summary Report. In this report, my opinion of market value is expressed for the fee simple interest of the real property consisting of residential subdivision land included in Assessment District 05-1 located in Bakersfield, California. The inspection was made for the purpose, and as part of the process, of developing opinions of value for the subject properties, as of October 1, 2005. The value opinions reported are qualified by certain definitions, limiting conditions, and certifications, which are set forth in this report. As a result of my analysis, I have formed an opinion that the market values "as is" assuming the improvements as a result of AD OS-1 are installed (as defined in the report}, subject to the definitions, certifications, and limiting conditions set forth in the attached report, were as reflected in the `Value Opinions - ~ssesstient District OS-1"table before page 1 and "Summary of Assessment District OS-I Values" spreadsheet in the addenda. The subject property has been appraised subject to the special tax lien of Assessment District OS-1 taking into consideration the improvements/fees that accrue to-the property. This is a complete appraisal performed under Standard 1 of the IJnifotrn Standards of Professional Appraisal Practice {USPAP}, The report is defined as a Summary Appraisal Report, which is intended to comply with ttte reporting requirements set forth under Standard 2-2(b} of USPAP effective January 1, 2005 for a Summary Appraisal Report. It has also been written to California Debt and Tnveshnent Advisory Commission Standards revised July 2004.. As such, it represents: 5401 Business Park South, Suife 103 • Baker§field, California 93309 (681 } 321-4545 • Fax {86i} 321-0995 • www.kernappraisaLcom Nelson If. Smith, ~ CITY OF 13AKERSFIELD Page 2 only summary discussions of the data, reasoning, and analyses that were used in the appraisal process o develop the appraiser's opinion of value. Supporting documentation concerning the data, reasoning, and analyses isretained in the appraiser's file. The depth of discussion contained nthis report'is specific to the needs of the client. Thecappraiser is not responsible for unauthorized uses of this report. The intended users of this report arcs City of'$akersfield its affiliates, designates and assignees, rating agencies, bond holders and .prospective band 'holders, and a duly'xuthorized Appraisal Institute-peer review committee. The appraiser has granted; permission to publish this appraisal in :the Official Statement. and .consented for. its use in marketing of the Assessment District OS-1 bonds. This letter of transmittal is part of the attached report, which sets forth the data and .analyses: upon which my opinion of values aze, in part; predicated. Sincerely, IKERN APPRAISAL COMPANY Randall Franz, MIAI, SRA Certified General #: AGt104344 CA Expiration: 1 210 512 0 0 6 TABLE OF CONTENTS INTRODUCTION Value Opinions -Assessment District 05-1 Aerial Phota of Subject Area Subject Photographs PURPOSE AND INTENDED USE ................................................ PROPERTY RIGHTS APPRAISED .............................................. SCOPE OF WORK ........................................................................... MARKET VALUE DEFINITION ................................................... ASSUMPTIONS AND LIMITING CONDITIONS ....................... AREA ANALYSIS ........................................................................... NEIGHBORHOOD ANALYSIS ..................................................... SINGLE-FAMILY RESIDENTIAL MARKET OVERVIEW ...... DEVELOPMENT AREA (Vesting Tentative Tract No. 6444)...... DEVELOPMENT AREA (Vesting Tentative Tract No. 6498}...... DEVELOPMENT AREA (Vesting Tentative Tract No. 6452)...... DEVELOPMENT AREA (Vesting Tentative Tract No. 6406)...... DEVELOPMENT AREA (Future Tract No. 6696) ......................... AD OS-1 IMPROVEMENT ACQUISITIONS ................................ HIGHEST AND BEST USE ............................................................ VALUATION PROCEDURE .......................................................... Cost Approach :..::..- _~ :...................................................... RECONCILIATION AND FINAL VALUE CONCLUSION....... CERTIFICATION ............................................................................. ADDENDUM Summary of Assessment District OS-1 Values Land Sales Data Sheets Qualifications .......... I .......... 1 .......... 1 .......... 2 .......... 3 .......... 14 ... 17 ... 20 ... 25 ... 30 ... 34 ... 39 ... 43 ... 47 ... 49 ... 49 ... 54 ... 57 Value Opinions -Assessment District 05-1 LAND VALUE WITH AD FINANCED ASMT NO DEVELOPMENT AREA DESCRIPTION INFRASTRUCTURE IN PLACE ASSESSMENT LIEN VALUE TO LIEN RATIO 1 Lot 1 in Lot Line Adjustment No. 05-0480 {Portions of Parcels 8 and 9 in Pacel Ma No. 71013 "SupeP Lot (Portion of TTM No. 6444 9,841,172 2.307,432.43 4.26 2 Lot 2 in Lot Line Adjusfmant No. 05-0480 (Portions of Parcels 8, 9 and 10 in Parcel Ma No.1 W73 "SUpef Lot (Portion of TTM No. 6444 8,727,173 1,572,539.43 5.55 3 Lot 3 in Lat Line Adjustment No. 05-0480 (Portions of Parcels 10 and 11 in Parcel Ma No. 11013 "Super" Lot (Portion of TTM No. 6444 5,118,346 1 A23,646.79 5.00 4 Lot 4 in Lot Line Adjustment No. 05-0480 (Portions of Parcels 10 and 11 in Parcel Ma No. 71013 "Super' Lot (Portion of TTM No. 6444 2,801,256 690,088.74 4.06 TOTALSI AVERAGE FOR FUTURE TRACT N0.6444 COVERING ASSESSMENTS NOS. 1 THROUGH 4 : 26,487,887 5,593,707.39 4.74 5 Lot i in Lot Line Adjustment No. OS-0550 {Portions of Parcels 3, 6 and 7 in Parcel Ma No. 17013 "Super" Lot (Phase 2 of TTM No. 6498 8,533,334 2,067,501.77 4.13 6 Lot 2 in Lot Line Atljustrnent No. 05-0550 (Portions of Parcels 6 and 7 in Parcel Ma No. 1tOt3 "Super" Lot (Phase 1 of Trect No. 6498 5,237,358 1,345,903.06 3.89 TOTALS! AVERAGE FOR FUTURE TRACT N0.6498 COVERING ASSESSMENTS NOS.5AN06: 13,770,692 3,413,404.77 4.03 7 Lot D in Lot Line Adjustment No. 05-1188 (Portions of Parcels 3, 6 and 7 in Parcel Ma No. 11013 "Su r Lot TTM No. 6452 9,128,132 1,934,469.27 4.72 TOTALS! AVERAGE FOR FUTURE TRACT NO. 6452 COVERING ASSESSMENT N0.7: 9,128,132 1,934469.27 4.72 8 Lot A in Lot Line Adjustment No. 05-0427 (Portions of Parcel2 in Parcel Ma No. 17013 "Super" Lot (Portion of TTM No. 6406 5,135,366 7 063,306.20 4.83 9 Parcel 5 in Parcel Ma No. 11073 "Super" Lot (Podion of TTM No. 6406 10,509.428 2,252,199.71 4.67 TOTALS! AVERAGE FOR FUTURE TRACT N0.6406 COVERING ASSESSMENTS NOS. B AND 9 : 15,644.795 3,315,505.91 4.72 10 Lot A in Lo[ Line Atljuslment No. 05-1788 (Portions of Parcels 1 antl 4 in Parcel Ma No. 11013 Unenlitled Residential Lantl 3,984,350 974,303.95 4.36 it Lot 8 in Lot line Adjustment No. 05-1788 (Portions of Parcel4 in PamaFMa No. 77013 Unentilled Residential Land 2,837,807 648,60811 4.38 TOTALSI AVERAGE FOR FUTURE TRACT N0.8696 COVERING ASSESSMENTS NOS. 10 AND 11 : 6,822,157 1,562,912.66 4.37 TOTALS! AVERAGE FOR ENTIRE AO 05.1: 71,853,662 15,820,000.00 4.54 t Aerial. Photo SUBJECT PHOTOS ~ ~ t FFS6 y~ ~~~ in 'x` '. i ~t ~, ~ 3 ~ ~ ~~ ~ ti ~ .. . x~~ 'f^W ~ a SS3i^ Highway 178 Facing West, Subject at Right Masterson Street Facing North, Subject at Left 3r '~ .,, pp .*rc~ $` Y r 'iY ' :ti : T View Facing West from Masterson Street Panorama Drive Facing West from Masterson Street Assessment Nos. 5 & 6 in Foreground ~'T ~ i+ ITT '4. e 5S..;;~~ } ~ V~ " Z h .a' ^n3' ~" .%~ S 4 f (Y ~ ~Ff Y " .v", .~ '~ ` c ,~ i,'~, ~ ~ .m de S~ 7~ ~s , t 'Y i5'b" S t4 h1~sR 4 i''tt~~4 ,. 4 '~~ ,~ll ~ ! 8 I I iii' Paladino Drive Facing West from Masterson Masterson Street Facing South from PaLidino Street, Subject at LeR Drive, Subject At Right SUBJECT PHOTOS 4y?¢ t ,~~`Y~ . ~F~~1 ~ r ~~ ym. ! ~ ~ 6-. ~,~„~~~ ~ ~ ' ,:.,,g.. a ,, ~ s kfia~ e ~ a.x ;~ ~ '~ ~ '` ~~~ ~ i Ai_{ View Facing South from Paladino Drive Assessment View Facing South from Paladino Drive Assessment Nos. 3 & 4 in F foreground P ~`(~~~ (1~ i~~~i#~~ Ih~l 1 I I' 'll ~` ` ~~I~~i ~f ii it ~ ~ I I ail I ~ i ~ No. 1 in Foreground x 7124 s{ ~ i 1'~1 to Paladino Drive Facing East, Subject at Right View Facing East from Vineland Road Assessment No. I in Foreground f P e i _ `{ ~fi y," 4'~k~~v~~ . Y . { l '~ Fe ~ 5~f '"' its ~ r.~,. r,~ FI{ iY~4 ~ V~i~yt~~~i~ 4 Vineland Road Facing South, Subject at Left Panorama Drive Facing East from Vineland Road 1 , , h ~ p.~ f its ~i+Ifu s ~~ S ~` ~ ~~E`^~fS ~ -"i ~ ~s ; r ~~~£+ ~7 ,, ~ 3' r ti's r r ~i,il ~ ,~..',~~#h ~ ~T( ~ ~ k~ ~ k'v J~ ~'* df ~ "~ p ~k k S~ ~ ~' .' s '*Y r f :. .5.~. ~~~~i~-2w +~ r~ d.. Tti~S `F'~L Yi }~kP'2 *i '~ '~`' pG~.. r .;:4 + ... p i ~ ~ . .. ~. i ~' ly 1 E ~ l~~ ~ .;t~. ~,~ '3"y. ~~~~~.' Vi~S~+ ~'k~Y' s'k M1 4 y .Fbr' ~' u+?„ x,~~ ~'~"" gar "~ ~, r ~,~ ~ ~ ~r ~ a: i ~ h 7 s ~ ~, s*~ ~'~r : ~.', a .11 '1.1 1 1 is yi+ " `~~~. ". '"~,ir _ ~r~ r ~~ r {~ 4 E~ l+1 ~ ,: ' bra.. f~^v n I .. ~ h q ~ tS , _ ~, ~ _ T4 rem` `x., ~ ,,,Cl~a'.! 1 li" i~ x_ .S 3 a d ! ~ v' , . q S tJ .; '. Y .: ';~~5 I tc ~ ~~ ~ kt ~ .'.~'~ ~hE ~'I~ + ~ 3 g ~ ~ ;; ~~' i q:"s . y S s ~, ~ N t +zs 'i.;Ai' Y ~' ~ S .i e` 4M E 5., yy ~ .~ ~ ~ ~ ~ W. ~ fr 2~4~ ~ i F .t r '"'1`Y~~ s ~. 1• • 1. 1' 1- 1 1 1• 's :? f C. - 1• • 1 1 1 1' 1 1 - • 1 1 • 1• ~ ~ ~. J ~ xrk$ ~, ' ~f ~~~k ~ 1 ff "~4 .~' ti ~ 'X t~~~ 3 s +y' 'mil 4Y i» j ~S y l' 'y "1{ uI ~ ~{~~ S u a'" h 1 3A ` t ~ E~it SSW ~~~ ~~'Yfrlk W'~ Sul~.Ya ~~~~ k - 454 ~ 4 =a..~~~r`.v+`.~.°~ .-..ia'-a'tk ~ 1.~k ~ 4~~ 'S t~ ~: S~19 ~ frs i ~ ,~~1 ~111111 1i11•.~•~ ~{~:' " ~1. •"~ 1 1~ 1 11 11' 1 1 1 • • 11 PURPOSE AND INTENDED USE ~ ' The purpose of this appraisal is to develop an opinion of the market value "as is" of the real property, subject to assumptions and limiting conditions shown in the addendum of this report, as of the date of inspection. The property rights appraised are the fee simple interest. The report is intended for use only by: the CITY OF BAKERSFIELD, its affiliates, designates and assignees, the underwriter of the proposed bond financing, raring agencies, bond holders and prospective bond holders, and a duly authorized Appraisal Institute peer review committee. PROPERTY RIGHTS APPRAISED The property rights appraised are the fee simple interest subject to restrictions, reservations, and easements of record. Fee simple estate as defined by the Appraisal Institute in the third edition of The Dictionary of Real Estate Anpraisal means: Absolute ownership, unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. SCOPE OF WORK This is a complete appraisal summary report that in my opinion, has been prepared in accordance with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and the professional standards and~thics of the Appraisal Institute. It is also my opinion that the report is in accordance witli._the appraisal standards for land-secured financings (revised July 2004) of the California Debt and Investment Advisory Comrnission. The appraisal assignment was not based on a specific valuation or any action or event resulting from the analyses. As part of this appraisal a number of independent investigations and analyses have been conducted. The area and neighborhood analyses include collection, assimilation and analysis of demographic.. data collected from federal, state, county and city government agencies. The neighborhood, site and improvements have been inspected and investigated. Market data including undeveloped residential 2 land sales have been collected, verified and analyzed. The search for applicable market data was limited to northeast Bakersfield. Sources of this data include public records, assessor's records, buyers, sellers, and real estate agents. I have the knowledge and experience necessary to complete this assignment and have appraised similar property types previously. Please refer to the Appraiser's Qualifications included in the addenda to this report for additional information about the appraiser's education and work experience. MARKET VALUE DEFINITION "Market Value" as set forth by the Office of the Comptroller of the Currency under 12 CFR, Part 34, Subpart C-Appraisals, 34.42 Definitions [fJ and the Office of Thrift Supervision under section 564.2freads as follows: ' "'Mazket Value' means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this defmition is the consmntnation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller aze typically motivated; b. both parties aze well informed or well advised, and acting in what they consider their own best interests; c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of Ctnancial arrangements comparable thereto; and ' e. the price represents normal consideration for the property sold unaffected by special or creative fmancing or sales concessions granted by anyone associated with the sale." 3 Exposure Time The Appraisal Standards Board of the Appraisal Foundation defines exposure time as: The estimated length of time that the property interest being appraised would have been offered on the mazket prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assmning a competitive and open market. Exposure times for the comparable sales located in the sales comparison approach range from not openly marketed to approximately one year with one to, six months being typical. Considering current market conditions for similar type subdivision properties, a six months exposure time was estimated. ASSUMPTIONS AND LINIITING CONDITIONS Standards Rule {"S.R.") 2-1{c) of the "Standazds of Professional Appraisal Practice of the Appraisal Foundation" requires the appraiser to "clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting condition used in the assignment " In interpreting this report, such assumptions and limiting conditions are set forth as follows: Extraordinary Assumptions 1. None Hypothetical Conditions L The market values "as is" in this appraisal are made assuming the improvements as a result of Assessment District OS-1 "District" are installed in a good workmanlike manner. 2. The properties are appraised subject to the assessment lien of AD 05-1 and assumes all improvements to be funded by the District are in place. 4 General Assumptions and Limiting Conditions l . The conclusions-and opinions expressed in this report apply to the date of value set forth in the letter of transmittal accompanying this report. The dollar amount of any value opinion or conclusion rendered or expressed in this report is based upon the purchasing power of the American dollar existing on the date of value. 2. The appraiser assumes no responsibility for economic, physical or demographic factors, which may affect or alter the opinions in this report if said economic, physical or demographic factors were not present as of the date of the letter of transmittal accompanying this report. The appraiser is not obligated to predict future political, economic or social trends. 3. In preparing this report, the appraiser was required to rely on information furnished by other individuals ar found in previously existing records and/or documents, Unless otherwise indicated, such information is presumed to be reliable. However, no warranty, either express or implied, is given by the appraiser for the accuracy of such information and the apln-aiser assumes no responsibility for information relied upon later found to have been inaccurate. The appraiser reserves the right to make such adjustments to the analyses, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available. 4. No opinion as to title of the subject property is rendered. Title is assumed to be marketable and free and clear of all liens-encumbrances, easements and restrictions except those specifically discussed in thereport. The property is appraised assuming _it to be under responsible ownership and competent management, and available for its highest and best use. 5. This appraisal should not be considered a report on the physical items that are a part of this property. Although the appraisal may contain information about the physical items being appraised (including their adequacy and/or condition), it should be clearly understood that this information is only to be used as a general guide for property valuation and not as a complete or detailed physical 5 `-- report. The appraiser is not a construction or engineering expert, and any opinion given on these matters in this report should be considered preliminary in nature. ~ It is assumed that there are no hidden or unapparent conditions of the property, sub-soil, or structures, which would render it more or less valuable. No responsibility is assumed for any such conditions or for any expertise or for arranging any engineering, surveys, soil studies, ternvte inspections or other special inspections or studies. Since no such tests, studies, or inspections were made, no liability is assumed for matters relating to engineering, architectural, structural, mechanical, or soil conditions which may be required to discover such factors. The structures were not checked for building code violations and it is assumed tUat all buildings meet the building codes unless so stated in the report. Because no detailed inspection was made, and because such knowledge goes beyond the scope of this appraisal, any observed condition comments given in this appraisal report should not be taken as a guarantee that a problem does not exist. Specifically, no guarantee is made as to the adequacy or condition of the foundation, roof, exterior walls, interior walls, floors, heating system, air conditioning system, plumbing, electrical service, insulation, soils or sub soils. The presence of radon gas, hazardous waste, asbestos or any toxic and potentially dangerous materials and conditions have not been considered and such conditions may or may not be present. If any interested party is concerned about the existence, condition or adequacy of any particular item or condition, it is strongly suggested that the proper expert be hired for a detailed investigation. 6. Unless otherwise stated, the-subject property is appraised assuming it to be in full compliance with all applicable zoning and land use regulations and,iestrictions. The property is appraised assuming that all required licenses, pemvts, certificates, consents or other legislative and/or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based. No analysis or survey to determine if the property is in compliance with the Americans with Disabilities Act (ADA) has been provided the appraiser or made by the appraiser. Possible 6 noncompliance with ADA was not considered in estimating the value. No responsibility is assumed for determining whether the property is in conformity with the various detailed requirements of the ADA. 7. No engineering survey has been made by the appraiser. Except as specifically stated, data relative to size and area of the subject property was taken from sources considered reliable and no encroachment of the subject property is considered to exist. 8. No opinion is expressed as to the value of subsurface oil, gas, water or mineral rights or whether the property is subject to surface entry for the exploration or removal of such materials, except as is expressly stated. 9. Maps, plats and exhibits included in this report are for illustration only to serve 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 the report. 10. 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. 11. Possession of this report, or a copy of it, does not carry with it the right of publication. Without the written consent of the appraiser, this report may not be used for any purpose by any person other than the party to whom it_~s addressed. In any event, this report may be used only with proper written qualification and only in its entirety for its stated purpose; provided however, this report may . be reproduced in its entirety in the official statement or similai offering document for the sale of the proposed bonds of the District. 12. The property, which is the subject of this appraisal, is within a geographic area prone to earthquakes and other seismic disturbances. Except as specifically indicated in the report, no seismic or geologic studies have been provided to the appraiser concerning the geologic and/or seismic condition of the subject property. The appraiser assumes no responsibility for the possible effect on the subject property of seismic activity and/or earthquakes. 13. Testimony or attendance in court or at any other hearing is not required by reason of rendering this appraisal, unless such arrangements are made a reasonable time in advance of said hearing. Further, unless otherwise indicated, separate. arrangements shall be made concerning compensation for the appraiser's time to prepare for and attend any such hearing. 14. The liability of KERN APPRAISAL COMPANY, its employees, and independent contractors under agreement is limited to the client only and to the fee actually received by the appraiser. Further, there is no accountability, obligation, or liability to any third party. If this report is placed in the hands of anyone other than the client, the client shall make such party aware of all assumptions and limiting conditions of the assignment and related discussions. The appraiser is in no way to be responsible for any costs incurred to discover or correct any deficiencies of any type present in the property; physically, financially, and/or legally. Data use subject to license, r" Scale 1:1,600,000 M ©2004 DeLorme. Street Atlas USA~2005. xxtus•Er -- ~~ ° u °° www.delorme.com ° a " °d 1" = 25.25 mi a Data Zoom 7-0 8 AREA ANALYSIS Location Bakersfield is situated in the center of Kem County, which is located at the southern end of the San Joaquin Valley. It is 112 miles north of Los Angeles and 288 miles south of Sacramento. The valley floor is relatively flat and is surrounded by mountain ranges. Bakersfield is the county seat and the metropolitan area includes 60% of the total county population of approximately 753,000 as of January 2005. ' Accessibility and Transnortation Roadway access is provided by Interstate 5 and Freeway 99, major north-south traffic routes that connect to State Route 58 and other east-west highways. Bus and rail services are available to the community. Air passenger service is available at Meadows Field, located four miles northwest of downtown Bakersfield. National and regional airlines provide air service to major airline hubs. General aviation usage is available at Bakersfield Airpark located about two-and-one-half miles southeast of downtown. Economic Base Oil, natural gas and mineral extraction combine with agriculture to form the backbone of Kem County's $10 billion economic base. Output of 185 million barrels in 2004 represented approximately 75% of the oil produced in the state. Kem County natural resources production including natural gas, petroleum, and other minerals (boron, gypsum, etc.} total over $6 billion annually, easily outdistancing other industries as the largest export commodity. The Midway-Sunset crude oil price started 2005 at $29.25 pei barrel At the current price level, oil companies increase investment in exploration and production, which has a ripple affect through the local economy. During 2004 the price ranged from $26.75 to $43.00 per barrel. The history of crude oil prices is illustrated in the graph on the following page. The graph indicates oil prices have been on a generally upward trend since 1999 with a large spike in the commodity price in 2004. 9 CRUDE OIh POSTED PRICES MIDWAY-SUNSET FiE~D* 50 45 ab W ~~ GC >r ~ ~ ~ 25 °y~ ff ~ za 15 5 10 -~T~saurxce crtertm,usx urz s>uaeaaphvB6vuBu~ `67et6mJUne7, 4--b,tha graph rm7aCis iM prfygaPfgiNrrg-Suet 33desuea lrPf ga+Atpcrudeod;-Kemtirrerisiea5 ~a~na fan~,er,m~I~abie. -ir---i f' i i i i { t I E.. -F #-~ ~ i~ ~ 1_ t i-~-„-~-1 Hi 82 83 -88 H5 86 87 88 H9 40 94 92 9J 94 95 96 97 98 99 i10 Oi p? 03 Od 0`. Hai.6°pp,. Sfate eri and Cas supervis°r Division of Oi{,: Gas,. and Geotherma{ Resources Kern County has ranked third or fourth in the nation for agricultural production for many years. A wide variety of commodities are grown locally including vegetables; fruits and nuts; field and seed crops; nursery and flower crops; and livestock, poultry and apiary. Total farm revenue was $3.1 billion in 2004. Production is gravitating toward fruit and nut crops, which now top $1 billion in revenue and away from field crops. This shift in crop type is making agricultural employment slightly less seasonal because of the year-round care given to the permanent plantings. Government, construction, and retail sales aze other leading components in the local economic base. Government includes education and military personnel. 1~s discussed later in this section, construction activity is at all-time highs. Taxable retail sales increased 8.8°/- in 2003 (most recent available). It was the seventh annual increase in a row. to The non-farm employment graph that follows displays the monthly change in total non-farm employment as compared to the same month in the previous year. The number of people employed increased from May 1994 through June 2003 pointing to nine years of sustained growth for the local economy. Non-farm employment declined during July 2003. Cutbacks in local government and educatian jobs were primarily responsible for the decline. Construction and fmancial services such as insurance, real estate, and lending, are leading the way in new job creation in 2005. Nonfarm Employment Kern County Through June 2005 6 5 ..............._ p, C 4 3 - _ . 0 1996 t99T 1998 Y999 2000 200'1 source: ein 1 2002 2003 2004 2005 p Oyment Davolopment D¢pertment Economic growth reduced the unemployment rate in the county. The seasonal nature of agricultural employment causes the unemployment rate to fluctuate but in September 2000, the rate dropped to 6.4% - a 20-year low. _The number of unemployed has gradually increased since 2000. The county's unemployment rate is double that of the state. This is typical of counties with a large agricultural employment base. Efforts by the government to place welfare recipients into jobs, have been more successful in the local economy than in other azeas of the state. This success is due to the unemployment rate being above the state average and the number of low-skill jobs available. The state budget crisis ($25 to $35 billion deficit through June 2004) has negatively impacted employment. Schools have reduced staff. The opening of a state prison under construction in Delano was delayed unti12005. Several state-funded highway construction projects have been I1 placed on hold. City and county government are reducing expenditures to offset losses in funding from the state. Unemployment Rate Kern County Through June 2005 i8 t6 i4 12 V _ _ _ _ _ m c 10 ~ 9 T _ _ _ _ _ _ _ _ _ _ _ _ 6 ~ T 0 1 2 0 1$ ~~ 1a 19B zoao zoos zaoz zoos zoaa zoos Sauce: fm po yn ent Decio~n ent ^eprtm ant Local government entities are offering incentives to attract new industry to the area and help diversify the economic base. The Kem County Board of Supervisors is offering sales tax rebates on equipment purchases and property tax forgiveness on increases in assessed value over the first five years to new businesses creating jobs. Eligibility is open to non-retail companies that generate a net revenue to the county of $10,000 a year, or $50,000 over five years, and create at least 10 full-time permanent jobs. Local cities offer enterprise zones and industrial parks financed with federal grants to entice new industrial development in their community at a very reasonable cost. An obstacle to economic growth in the San Joaquin Valley is air pollution. The U.S. Environmental Protection Agency has rated the valley an "extreme nonattainment" area for ozone and particulate pollution. The area is facing sanctions that will bring steeper permitting costs for polluting businesses and a loss of federal highway funding. Agriculture has been exempt from pollution control rules but is likely to have dust control measures imposed. EPA ruled last year that as many as half of the emission reduction credits held by businesses may be invalid. These credits are used 12 by new or expanding businesses to offset their expected emissions. A ban on wood burning fireplaces in new homes is likely to be enacted within the next few years along with restrictions on use in existing homes.. Population - According to the Kem Council Of Governments, population for Metropolitan Bakersfield was estimated to be 431,092 as of January 2003 (most recent available)., Historical and projected population figures for greater Bakersfield are shown on the chart below. The figures indicate an estimated average annual growth rate of 2.3% between 1990 and 2000. This compares very favorably with the estimated growth rate for the entire state of 1.3% over the same time period. The highest growth areas over the next two or three years are expected to be Northwest and Southwest Bakersfield. Construction Activity The chart that follows indicates the valuation of construction permits issued since 1995 for the City of Bakersfield. These figures are for the City of Bakersfield and do not include the entire Metropolitan Bakersfield area. The 2004 valuation total was $853,355,443. This represents a 19% increase from 2003. Over the last two years the valuation of construction permits has increased 56%. Single-family residences accounted for $654,227,038 or 77% of the total in 2004. t 13 Construction Permits Valuation City of Bakersfield 2ooa 2003 2002 2001 2000 1999 1998 1997 1996 1995 200 400 600 800 1000 Millions Conclusion The energylminerals and agricultural commodities are the main exports of the area making these industries the foundation of the economic base. Commodity prices for oil and farm products can be volatile and are difficult to forecast. An increase in new jobs and a declining unemployment rate have sustained economic growth for over ten years in Kern County. Economic growth in 2005 is dependent on commodity prices continuing at a profitable level. The area's population is growing faster than the state as a whole. A significant influx of commuters from Southern California and people looking for lower cost housing has prompted population growth. Residential construction activity and increases in taxable retail sales are a result of population growth. Sustained economic growth in recent years has strengthened real estate values. Most property values have increased in recent years as vacancy rates declined and rental rates increased. The--residential and retail market sectors are expected to lead in new real estate development in 2005. 14 i~ NEIGHBORHOOD ANALYSIS • Neighborhood Boundaries ', The neighborhood for this report is Northeast Bakersfield. Bluffs north of Panarama Drive provide a physical barrier for a boundary an the north. The end of development sets the eastern boundary. The south and west boundaries are less obvious but tend to be Highway 178 and College Avenue on ', the south and Union Avenue and Mt. Vernon Avenue on the west. New residential development and annexations to the City continue to push the boundaries northeast. The neighborhood encompasses an estimated l5 square miles, of which approximately half is in the incorporated area. Land Use Characteristics The neighborhood topography has rolling hills, which has affected the layout of development. It has developed over a period of 50 years and is protected from inharmonious land uses by planned zoning through the City of Bakersfield and County of Kem Planning Deparhnents. The neighborhood is approximately 60% built-up. Freeway 178 provides convenient access to the area. Bakersfield College is located at the southwest comer of Panorama Drive and Mt. Vernon Avenue. The East Hills Center is located at the southwest corner of Highway 178 and Oswell Street. Retail development in the neighborhood over the last seven years has been focused at the East Hills Center. The East Hills Center is a 100-acre regional retail development with over 825,000 square feet of building improvements. The regional mall opened in 1988 and is anchored by Gottschallc's, Mervyn's, Harris, and a multiplex theater. Since the opening, other major stores including Wal-Mart, Target, Big Lots Michael's, Pier One Imports, and Vons have located stores at East Hills Center:' Family Fitness and Kaiser Permanente are non-retail entities also within the center. Mercy Hospital completed tenant improvements for a medi-center in August and a second multiplex theater was recenfly completed on Bernard Street. Conversely, the Olive Garden Restaurant recently closed and the mall was foreclosed on in the first quarter of 1995. Most of the older retail developments are situated along Columbus Street and Bernard Street. '(6°FR ~~~~~ ~ffi~ o z e~~~ g~', ~ w~Qw ~~ aaozy 0 ~ ~ ~ ~ ~ ~ ~~~ 6~ c a ~ a~~ ~ ~~~~~ d ~ ~~~ z " ~ ~~~ a ~ ~ ~~ ~ ~~~ u i C~d s q 3 ~~ ~ ~:~1 mo g~Ul FH M s~ ~~~ ° ~ ~~C ~ ~ a 4~ Rg a ~ ~ `~ ~ ~ ~~~ ~y3 ~ ~~~% g.~~s~ ~~ 4:x5 ~~ ~~ q3 h g ~ ~.~ p & ~ G E ~~ m N~ © h'~':"'~ M: ao ~ e g 0 y~ ~~> y m =.0 ,. ~l ~*7 ~ ~ if g~~~~€ ~ $ ~e o~ x~ y \'`~ N a ~ hil ~'sp ~ b S} \ ~. p0 K ~ ~ ,~\ N ~ ~i Yn~'. C4 '. $'aP m ~ t' O~ ~ ra ® y° s~T, 1 ~~ `$, ~ o yo _ Uti~ ~ D~ 4M ~. n ~ 4 ~. ~.. ap a`.v bo 0 obi. °~ ~ ~ y~ - --.:, _ _ :~ :.~ ~o i a z F~ !Yi ~ m pq v a WF,^o~ (Y.m`~ m" N ~~ ~~~~ way °- W ~x ~~vw~ [.. o z~ w~ m o ~ V O v a~l5 ~~ h`-ar: ~,~ x~ i.~ 3,' ~s, e` ~. ly°~ Ps 4 9L !L ~: ~ is ~~ ~~~ °8s$ m.u W ~' iS ~ ~' $ °~ ~ ~ 5 0 > °z ~ € i ~4 C gg ~y ~~ ~P~~ffi5 a~9o 5§~ ~ t~ Obq "d ma ~nm ~~' ~ Woeo o~~ ~•, S ~ ke ~ ~ w o0¢¢00tt 0gg ~' ~. ~ ~. 0. y3 ~3a ~\ ddM~ ~ ~ 5 'y 5 ~ ~~. - ; 8& ~ g ~~e ~€ a ~~°~ ~ = 6 i~a 8: ~ o ~s' biro t ~ ~~ Ii i I ~I! 15 Mesa Marin Raceway, a quarter mile oval automotive race track, located across Highway 178 to the south from the subject reportedly is being purchased for dernolifion and conversion to a single- family residential use according to the seller, Marion Collins. Residential development ranges from tract type construction ranging from 15 to 50 years old and $200,000 to $500,000 in price to custom homes around the Rio Brauo and Bakersfield Country Club golf courses and along Panorama Drive. These range from new to 45 years old and typically run $550,000 to $1,500,000 in price. New single family construction is primarily near Panorama Drive, east of Fairfax Road and the Rio Bravo area. Extension of utilities along Highway 178, east of Morning Drive has spurred new residential construction in the Rio Bravo area. Multi-family development ranges from fourplex to 224 unit complexes and 10 to 30 years old. Original multi- family development was near the community college with newer complexes along Fairfax Road and Highway 178. Neighborhood Demograahics Population ~~ 2000 2004 2009 Locale Census Estimate Proiection Northeast 40,279 43,587 47,643 Metro Bakersfield 407,598 447,729 497,784 Source: stdbonliue.com Between 2000 and 2004 the neighborhood grew 8.21%, which equates to a 2.05°lo average annual rate. This compares to the metropolitan area as a whole during the same time period growing 9.85% or at a 2.46°lo average annual rate. Lack of public utilities -in the Rio Bravo area; rolling terrain increasing land development costs; and the newest business districts being in southwest Bakersfield; all contributed to a low level of residential development. With the installation af.public utilities and dramatically increasing land values in other areas of the metropolitan area, the northeast has become a viable residential development area. Several new projects are underway and planned as discussed later in this report. 16 According to the 2004 estimate, the median household income for the neighborhood was $43,166. 1 This figure is approximately 9°lo higher than the metropolitan area ($34,486}, which indicates above average purchasing power for the neighborhood residents. 'j Conclnsion I~ Northeast Bakersfield is a mature area of Bakersfield with a slower than average growth rate. Most new residential development is occurring in the northeast portion of the neighborhood. Retail development is focused at East Hills Center. The area has a higher than average median household income. This neighborhood is in the stability stage of its life cycle characterized as a period of equilibrium without marked gains or losses. These factors indicate a varying degree of support for real estate values in the neighborhood with the eastern half generally stronger than the western. 17 SINGLE-FAMII.Y RESIDENTIAL MARKET OVERVIEW Single-family residence permits issued the last six years have been the highest in two decades. Demand far new homes is forecast to remain strong for the next 12 months. Several factors creating demand include: • Bakersfield was the second most affordable market in California in 2004 according to a study conducted by Coldwell Banker Real Estate Corporation. The Home Price Comparison Index (HPCI) compares the prices of similar homes sold in typical, middle-management transferee neighborhoods. The price of a 2,200 square foot dwelling with four bedrooms, two and a half baths, and two-car garage was $313,750 compared to La Jolla with the highest price at $1,708,333. • Home prices in the major metropolitan areas of the state have escalated in recent years This gives people a chance who want to sell and take their equity to a less expensive market for retirement or a higher standard of living. The affordable home prices in Bakersfield will attract some of these buyers. • Interest rates are expected to remain low to moderate. The NA.HB is forecasting an average fixed interest rate of 6.8% for 2005 and 7.1% fox 2006. • New home permits were at a two decade high in 1998 through 2004 which provides momentum. Affordable prices, an increase in the non-farm employment over the last nine years, an influx of people from metropolitan areas, low interest rates, and a high level of construction activity in recent years, point to above average demand for new homes. Permits for 4,997 homes were issued in 2004 compared to 4,328 in 2003 based upon a report prepared by Ticor Title. This represents a I S% increase in construction activity in the metropolitan area of Bakersfield versus the previous year. The same Ticor Title report year-to-date through August 2005 reported 4,220 permits, indicating construction activity continues to increase. The City of Bakersfield issued permits for 4,222 homes in 2004 versus 3,626 for 2003, a 16% increase. The 18 graph on the following page plots permit activity for Metropolitan Bakersfield. Historically, the permit activity breaks down approximately 85% in the city and 15°lo in the unincorporated area of Metropolitan Bakersfield {2010 General Plan azea}. The graph illustrates the rise in pernuts in recent years. sooo Single-Family Housing Permits Metropolitan Bakersfield 4500 4000 3500 ~Q00 2500 ~~~~~~~~~- zoao 1500 1000 soo 0 1945 1996 1997 1998 1999 2000 2001 2002 2003 2004 The average valuation per single-family residence permit (structure only) in 2004 was $154,957. This low average value is due to the continued construction of homes in the entry level price range. According to the California Association of Realtors the average price of a new home in Bakersfield for 2004 is $260,000. - .__ ___ _ _ According to the Bakersfield Association of Realtors Multiple Listing Service, a total of 6,430 homes were sold by members in 2004. This number is an 21°lo increase over 2003. The median home sale price in the Bakersfield Multiple Listing Service was $147,000 in 2003. It rose to $190,000 in 2004, a 29% {2.4%{month) increase. The median average days on the market in 2004 was 12 days. Many agents complain of a lack of sufficient listings. The lack of supply has pushed more homebuyers toward the new home market. One reason for the lack of supply is the large ,, , ~', _i Active Tentative Tracts 19 number of homeowners refinancing their mortgages with lower interest rates. It will take several months to recoup their refinance costs through lower moodily payments. ', Developers have become more willing to purchase large parcels of land with the increase in sales ,;'~ activity. Lot prices have been increasing the last four years typically ranging from $10.00 to $15.00 per square foot, depending on size and location. The increase in new home construction activity in recent years has placed upward pressure on finished lot and undeveloped land prices. The facing page map shows the location of active tentative tracts and those pending action in a one mile radius of the subject. Tracts in the dark check shaded areas are active with no recorded phases (2,125 lots). These are future developments that may be constructed in a time period that competes with the subject. The lightly shaded tract is active with recorded phases (one existing ~' development). The map was updated August 1st by the City of Bakersfield Planning Department. As the map illustrates, the four tract maps in the assessment district are located in an area with limited active residential development but a significant amount of residential ', development is planned. Typically, these tracts will be developed in phases as demand warrants ' construction. No oversupply of finished residential lots in the subject area is likely during the next two years. 20 DEVELOPMENT AREA (Vesting Tentative Tract No. 6444) Vesting Tentative Tract No. 6444 is bound by Paladino Drive on the north, Masterson Street on the east, Panorama Drive on the south, and Vineland Road on the west. The tract map is divided into five phases and will be mazketed as ape arrive adult residential development with a minimum age ' '4 requirement of 55 years. Common area improvements including a 14,000 square foot recrearionlelubhouse, junior Olympic swimming pool, and bocce ball and tennis courts are proposed. The common area is included in the District boundaries but not assessed. It will be a gated community. Identification Of Property Tract No. 6444 was not recorded on the effective date of appraisal. The property is legally described as Lots 1, 2, 3, and 4 of Lot Line Adjustment OS-0480 in the City of Bakersfield, County of Kern, State of California. All of the area in Tract No. 6444 is included in the District and identified as Assessment Parcels 1, 2, 3, and 4. i It is further described as Assessor's parcel numbers 531-010-40, 41, 42, and 43. The census tract number is 0009.10. Thomas Guide map reference is 2404-B,C7. Ownership Iiistorv Of Property According to public records and information provided the appraiser, the current owner of Assessment Parcels 1, 3 and 4 is Regent Land Investment, LLC. The current owner of Assessment Parcel 2 is K. Hovnanian's Four Seasons At Bakersfield, LLC. K. Hovnanian Companies of Southern California, Inc. entered into an option agreement to purchase the properly encompassed by Tract No. 6444 from Mountain View Bravo, LLC effective June 7, 2004 for $120,000 per acre plus assumption of bonded indebtedness related to the District. Terms of sale were all cash to the seller and included an approved tentative tract map for 752 lots. The seller is responsible for backbone improvements including the major arterial streets through the ', development and providing utilities to the site. In addition, the seller is responsible for development 21 of two public parks in the larger subdivision saving the park land fees that the buyer would otherwise be responsible far to the City of Bakersfield. Mountain View Bravo, LLC had owned the property for over five years prior to October 2005. K. Hovnanian's Four Seasons At Bakersfield, LLC closed escrow on the first takedown in the option agreement on October 27, 2005. Mountain View Bravo, LLC sold their interest in the remainder of the property subject to the existing option agreement for $8,900,000 onNovember 2, 2005 to Regent Land Investment, LLC. Terms of sale were all cash to the seller. Seller is responsible for assessments due to bonded indebtedness related to the District and for supervision of construction on nnprovements funded by the District. Assessed Value And Taxes The property is assessed by the Kern County Assessor's office and is identified as Assessor's Parcel Numbers: 531-010-40, 41, 42, and 43. The 2005-2006 general tax rate is 1.083338% of the assessed value. Applicable special assessments are AD-NE Sewer 93-1A. According to the Engineer's Report for City of Bakersfield Assessment District No. OS-1 (the "Engineer's Report"} prepared by Wilson & Associates, assessment engineer, dated October 25, 2005, the existing assessment payoff costs will be funded as a part of the AD 05-1 proceedings. According to Article XIII A of the California State Constitution {Proposition 13), the sale or transfer of the property will result in reassessment by the Kem County Assessor at its market value at the time of sale. Site Analysis Physical Characteristics -According to the Engineer's Report the net site size and number of proposed buildable lots for the development area are as follows. Assessment Parcel 1 Assessment Parcel 2 Assessment Parcel 3 Size in Acres # of Proposed Lots 59.79 302 Lots 55.82 210 Lots 32.35 173 Lots 22 Assessment Parcel 4 16.89 67 Lots The natural topography is undulating and has a slope down to the east. Considered as a whole, the property is trapezoidal but each assessment parcel is irregular in shape. The development area has one mile of frontage along the south line of Paladino Drive and the north line of Panorama Drive. Assessment Parcel 1 has 2,152 lineal feat of frontage along the east line of Vineland Road. Assessment Parcel 4 has 9601ineal feet of frontage along the west line of Masterson Street. According to the Federal Emergency Management Agency's flood insurance rate map community- panelnumber 060077 OO11B dated May 1, 1985, the subject property is situated in zone C. Zone C is defined as being outside the 500-year flood plain and is not considered a flood hazard zone Tract No. 6444 -The site has an approved vesting tentative tract map (6444) containing five phases (Assessment Parcel boundaries do not match phase lines). A total of 752 buildable lots are planned. Phase 1 contains 113 lots that range from 3,613 to 11,043 square feet with a median lot size of 6,919 square feet. Phase 2 contains 212 lots that range from 3,513 to 10,988 square feet with a median lot size of 5,250 square feet. Phase 3 contains 1871ots that range from 3,569 to 15,161 square feet with a median lot size of 6,214 square feet. Phase 4 contains 98 lots that range from 3,521 to 10,099 square feet with a median lot size of 3,963 square feet. Phase 5 contains 142 lots that range from 3,366 to 18,023 square feet with a median lot size of 6,300 square feet. None of the phases were recorded as of the valuation date. Soil and Seismic Conditions= .The northeast area has a higher than typical clay and rock content in the soil for the l~akersfield area. Moisture can cause the_clay to expand and the rock to settle. Both conditions are detrimental to improvements built on top of the soil. These conditions have caused settlement problems in the area such as excessive cracking in concrete flatwork and stucco exterior walls; door and window frames shifting out of shape; and large cracks developing in concrete foundations and slab floors. Soil conditions and topography have caused the grading cost to be significantly (as much as approximately 3 to 5 times) higher than competing areas west of Highway 99. Horne construction is 23 also more expensive due to measures taken to ensure the concrete foundation and slab do not experience excessive cracking. No responsibility is accepted for evaluating subsoil or discovery of unapparent or unusual conditions, as I am not an expert in this field. A portion of Assessment Parcel 4 is located in an Alquist-Priolo seismic special studies zone. Services -Public utilities available to the site include: gas (PG&E}, electricity (PG&E), telephone (SBC), water (California Water Service), sewer (City of Bakersfield), cable television (Bright House Networks) and storm drainage (retained in drainage basins). On/Off--Site Improvements -Existing off-site improvements consist of two lanes of old asphalt paving on Paladino Drive and Masterson Street. Panorama Drive was graded with underground utilities and concrete curb and gutter in place. Vineland Road was rough graded and had underground utilities in place. Existing on-site improvements consist of partial rough grading of Phases 1, 2, and 3 of Tract No. 6444. Planned off-site improvements iuclude widening Paladino Drive and Masterson Street from 30' to 55' of right-of--way from the center line; construction of one half width (55') on Vineland Road and full width (90') on Panorama Drive. All four perimeter arterial streets will be asphalt paved with center medians; concrete curb, gutter, and sidewalk; setback landscaping; 6' concrete block wall; and street lighting. Planned on-site improvements in addition to the common area amenities mentioned at the beginning of this section include gated entry; asphalt paved streets; concrete curb, gutter, and sidewalk; underground utilities; and street lighting. The cost of developer°s improvements to the land is estimated after consultation with Pinnacle Civil Engineering's preliminary cost estimates for rough grading and J. R. Mossier, project manager for K. Hovnanian. The rough grading estimated cost for each of the first three phases of Tract No. 6444 is $187,000. The estimated percentage completed was 20% or $37,400 for Phases 1 and 2 and 10% complete for Phase 3 or $18,700. Phases 1 and 2 are approximately half in Assessment Parcel l and half in Parcel 2. Phase 3 is all in Assessment Parcel 2. The developer's improvements to the land are $37,000 rounded ($18,700 + $18,700) for Assessment Parcel 1 and $56,000 rounded ($18,700 + $18,700 + $18,700} for Assessment Parcel 2. 24 Easements and Surface Restrictions - A preliminary title report prepared by First American Title, dated as of Mazch 11, 2005, was provided. A physical inspection of the site and review of the title ~~ document, Parcel Map 11013, and Vesting Tentative Tract No. 6444 did not reveal any adverse ' easements encroachments or surface restrictions. Residents' a e will be restricted to 55 ears and > > g Y older. Typical dedication of public utility and street right-of--way easements are listed. ', Environmental Issues -Upon visual inspection, it did not appear that there were any hazardous materials in or around the subject. I, however, am not qualified to detect such substances or materials. Any comment that might suggest the possibility of the presence of such substances should not be taken as confmnation of the presence of hazardous waste andlor toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. ~ The presence of hazardous materials may affect the value of the property. The value opinion is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. Descriptions and resulting comments are the result of the routine observations made during the appraisal process. Zoning -According to the City of Bakersfield Planning Department the current zoning is P.U.D., Planned Unit Development zone. This zone is intended to allow for innovative design and diversification in the relationsliip of various uses, buildings, structures, lot sizes and open space while ensuring=substantial compliance with the GeneraT'Plati and the intent of the Municipal Code. The minimum area for a P.U.D. zone is one acre. The zoning ordinance allows latitude with respect to minimum lot size, building setbacks, and parking requirements but all plans must be approved by the Planning Commission. , Current Use - On the date of inspection, the property was undeveloped with rough grading in progress. The site is well suited for the planned improvements. DEVELOPMENT AREA (Vesting Tentative Tract No. 6498) 25 Tract No. 6498 is bound by Panorama Drive on the north, Masterson Street on the east, future alignment of State Highway 178 on the south, and City Hills Drive and future Tract No. 6452 on the west. The tract map is divided into two phases and will be marketed as one residential development. There is one public park site (493,185 squaze feet), and nine landscape or recreation area lots that are included in the District but not assessed. The landscape lots are connected and provide an open greenbelt north-south near the center of the development that has access from several cul-de-sac streets. A community swimming pool is planned. Identification Of Property Tract No. 6448 was not recorded on the effective date of appraisal. The property is legally described as Lots 1 and 2 of Lot Line Adjustment OS-0550 in the City of Bakersfield, County of Kem, State of California. All of the area in Tract No. 6498 is included in the District. It is further described as portions of Assessor's parcel numbers 531-010-45, 46, and 47. The census tract number is 0009.10. Thomas Guide map reference is 2404-C7. Ownership History Of Property According to public records and information provided the appraiser, the current owner of Assessment Parcel 5 is Regent Land Investment, LLC. The current owner of Assessment Parcel 6 is K. Hovnanian At Rosemary Lantana, LLC. K. Hovnanian Companies of Southern California, Inc. entered into an option agreement to purchase the property encompassed by Tract No. 6498 from Mountain View Bravo, LLC effective September 24; 2004 for $132,000 per acre plus assumption of bonded indebtedness related to the District. Terms of sale are all cash to the seller. The seller is responsible for backbone improvements including the major arterial streets through the development and providing utilities to the site. In addition, the seller is responsible for development of two public parks in the larger subdivision saving the pazk land fees that the buyer would otherwise be responsible for to the City of Bakersfield. 26 Mountain View Bravo, LLC had owned the property for over five yeazs. K. Hovnanian At Rosemary Lantana, LLC closed escrow on the first takedown in the option agreement (Assessment Parcel 6) on August 3, 2005, according to the first amendment to option agreement and joint escrow instructions. The grant deed did not record at that time because the lot line adjustment outlining the legal description did not record until October 24, 2005. Reportedly, the only issue holding up recording of the grant deed as of the transmittal date of this appraisal was the recordation of the master development covenants, conditions, and restrictions. Mountain View Bravo, LLC sold their interest in the remainder of the property (Assessment Parcel 5) subject to the existing option agreement for $5,000,000 on November 2, 2005 to Regent Land Investment, LLC. Terms of sale were all cash to the seller. Seller is responsible for assessments due to bonded indebtedness related to the District and for supervision of construction on improvements funded by the District. Assessed Value And Taxes The property is assessed by the Kern County Assessor's office and is identified as portions of Assessor's Parcel Numbers: 531-010-45, 46, and 47. The 2005-2006 general tax rate is 1.083338°/u of the assessed value. Applicable special assessments are AD-NE Sewer 93-1A. According to the Engineer's Report, the existing assessment payoff costs will be funded as a part of the AD OS-1 proceedings. According to Article XTIf f~of the California State Constitution (Proposition 13), the sale or transfer of the property will result in reassessment by-the, Kern County Assessor at its market value at the time of sale. Site Analysis Physical Characteristics -According to the Engineer's Report the net site size and number of proposed buildable lots for the development area are as follows. z7 Size in Acres # of Proposed Lots Assessment Parcels 51.64 254 Lots* Assessment Parcel 6 31.21 lfi6 Lots *Engineer's Relwrt shows 255 lots however, a recent change to the map reduced the buildable lots by one. The natural topography is undulating and has a slope down to the east. Considered as a whole or by assessment parcel, the property is hregulaz in shape. The development area has approximately 2,480 lineal feet of frontage along the south line of Panorama Drive between City Hills Drive and Masterson Street and approximately 2,400 lineal feet of frontage along the north line of the Specific Plan alignment for Highway 178 (not constructed). Assessment Parcel 5 has 1,720 lineal feet of frontage along the east line of City Hills Drive. Assessment Parcel 6 has approximately 550 lineal feet of frontage along the west line of Masterson Street. According to the Federal Emergency Management Agency's flood insurance rate map community- panel number 060077 0011B dated May 1, 1985 the subject property is situated in zone C. Zone C is defined as being outside the 500-year flood plain and is not considered a flood hazard zone. Tract No. 6498 -The site has an approved vesting tentative tract map (6498) containing two phases {Assessment Parcels 5 and 6 boundaries match phase lines). A total of 420 buildable lots are planned. Phase 1 {Assessment Parcel 6) contains 166 lots that range from 4,000 to 11,052 square feet with a median lot size of 5,238 square feet. Phase 2 (Assessment Parcel 5) contains 254 lots that range from3;947 to 10,867 square feet with a median lot size of 5,649 square feet. Neither of the phases were recorded as of the valuation.date. Soil and Seismic Conditions -The northeast area has a higher than typical clay and rock content in the soil for the Bakersfield azea. Moisture can cause the clay to expand and the rock to settle. Both I conditions are detrimental to improvements built on top of the soil. These conditions have caused settlement problems in the area such as excessive cracking in concrete flatwork and stucco exterior walls; door and window frames shifting out of shape; and large cracks developing in concrete " foundations and slab floors. 2s Soil conditions and topography have caused the grading cost to be significantly (as much as approximately 3 to 5 times) higher than competing areas west of Highway 99. Home construction is ~ also more expensive due to measures taken to ensure the concrete foundation and slab do not experience excessive cracking. No responsibility is accepted for evaluating subsoil or discovery of unapparent or unusual conditions, as I am not an expert in this field. The subject is not located in an Alquist-Priolo seismic special studies zone. Services -Public utilities available to the site include: gas (PG&E), electricity (PG&E), telephone (SBC), water (Califamia Water Service), sewer (City of Bakersfield), cable television (Bright House Networks) and storm drainage (retained in drainage basins). On/Off--Site Improvements -Existing off-site improvements consist of two lanes of old asphalt paving on Masterson Street. Panorama Drive was graded with underground utilities and concrete curb and gutter in place. City Hills Drive was rough graded and had underground utilities in place. The Specific Plan alignment for Highway 178 was undeveloped. There were no existing on-site nmprovements. Planned off-site improvements include widening Masterson Street from 30' to 55' of right-of--way from the center line; construction of full width (90') on City Hills Drive and Panorama Drive. All three perimeter arterial streets will be asphalt paved with center medians; concrete curb, gutter, and sidewalk; setback landscaping; 6' concrete block wall; and street lighting. Planned on-site improvements include asphait paved streets; concrete curb, gutter, and sidewalk; underground utilities; and street lighting. Easements and Surface Restrictions - A preliminary title report prepared by First American Title, dated as of March 11, 2005, was provided. A physical inspection of the site was conducted. The title document, Parcel Map 11013, and Vesting Tentative Tract No. 6498 were reviewed. Typical dedication of public utility and street right-of--way easements are listed. Assessment Parcel 6 has an abandoned oil well with a 10-foot radius building setback. The setback will not prevent construction of a residence on any of the affected lots according to the layout. of the tentative tract map. A 29 telephone line easements passes east-west through both assessment parcels. It will be rerouted and placed underground according to Trent Miller of Pinnacle Engineering. Anew alignment for Highway 178 is reserved along the south boundary of a portion of both assessment parcels. Construction will take place many years in the future. Environmental Issues -Upon visual inspection, it did not appear that there were any hazardous materials in or azound the subject. I, however, am not qualified to detect such substances or materials. Any comment that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste andtor toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. The presence of hazardous materials may affect the value of the property. The value opinion is predicated on the assumption that there is no such material on or in the- property that would cause a loss in value. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. Descriptions and resulting comments are the result of the routine observations made during the appraisal process. Zoning -According to the City of Bakersfield Planning Department the current zoning is P.U.D., Planned Unit Development zone. This zone is intended to allow far innovative design and diversification in the relationship of various uses, buildings, structures, lot sizes and open space while ensuring substantial compliance with the General Plan and the intent of the Municipal Code. The minimum area far a P.U.IS zone is one acre. The zoning ordinance allows latitude with respect to minimum lot size, building setbacks, and parking requirements but all plans must be approved by the Planning Commission. Current Use - On the date of inspection, the property was undeveloped. The site is well suited for the planned improvements. 30 DEVELOPMENT AREA (Vesting Tentative Tract No. b452) Vesting Tentative Tract No. 6452 is bound by City Hills Drive on the north, Vesting Tentative Tract No. 6498 on the east, future alignment of Highway 178 on the south, and Canteria Drive and Lot C of LLA OS-118$ on the west. A 7.06 acre drainage basin at the northwest corner of Canteria Drive and the future alignment of Highway 178 is included in this development area and the District but not part of the tract map. The tract map is divided into three phases and will be marketed as one residential development. It will be a planned unit development with gated entrances, private streets, and nine landscape lots. These common area features are included in the District but not assessed. Identification Of Property Tract No. 6452 was not recorded on the effective date of appraisal. The property is legally described as Lot "D" of Lot Line Adjustment OS-1188 in the City of Bakersfield, County of Kem, State of California. All of the area in Tract No. 6452 is included in the District. It is further described as portions of Assessor's parcel numbers 531-010-45, 46, and 47. The census tract number is 0009.10. Thomas Guide map reference is 2444-B,C 1. Ownershia History Of Property According to public records and information provided the appraiser, the current owner of Assessment Parcel 7 is Mountain View Bravo, LLC. They have owned the property for over five years. Assessed Value And Taxes The property is assessed by the Kem County Assessor`s office and is identified as portions of Assessor's Parcel Numbers: 531-010-45, 46, and 47. The 2005-2006 general tax rate is 1.083338% of the assessed value. Applicable special assessments are AD-NE Sewer 93-1A. According to the Engineer's Report, the existing assessment payoff costs will be funded as a part of the AD OS-1 proceedings. 31 According to Article XIII A of the California State Constitution {Proposition 13), the sale or transfer of the property will result in reassessment by the Kern County Assessor at its market value at the time of sale. Site Analysis Physical Characteristics -According to the Engineer's Report the net site size and number of proposed buildable lots for the development area aze as follows. Size in Acres # of Proposed Lots Assessment Parcel 7 57.01 181 Lots The natural topography is undulating and has a slope down to the southwest. The property is irregular in shape. The development area has approximately 1,500 lineal feet of frontage along the south line of City Hills Drive, 1,370 lineal feet of frontage along the- east line of Canteria Drive, approximately 7501ineal feet along the west line of Canteria Drive, and approximately 3,0201ineal feet of frontage along the north line of the Specific Plan alignment for Highway 178 (not constructed). Accordmg to the Federal Emergency Management Agency's flood insurance rate map community- panel number 060077 OO11B dated May 1, 1986; the subject property is situated in zone C. Zone C is defined as being outside the 500-year flood plain and is not considered a flood hazazd zone. Tract No. 6452 -The site has an approved vesting tentative tract map {6452} containing three phases. A total of 181 buildable lots are planned. Phase,contains 571ots that range from 6,118 to 29,936 square feet with a median lot size of 8,399 square feet. Phase 2 contains 43 lots that range from 6,000 to 20,025 square feet with a median lot size of 8,102 square feet. Phase 3 contains 81 lots that range from 6,003 to 16,177 square feet with a median lot size of 7,839 square feet. None of the phases were recorded as of the valuation date. Soil and Seismic Conditions -The northeast azea has a higher than typical clay and rock content in the soil for the Bakersfield area. Moisture can cause the clay to expand and the rock to settle. Both 32 conditions are detrimental to improvements built on top of the soil. These conditions have caused settlement problems in the area such as excessive cracking in concrete flatwork and stucco exterior walls; door and window frames shifting out of shape; and large cracks developing in concrete foundations and slab floors. ,a ,~ Soil conditions and topography have caused the grading cost to be significantly (as much as I! approximately 3 to 5 times) higher than competing areas west of Highway 99. Home construction is also more expensive due to measures taken to ensure the concrete foundation and slab do not experience excessive cracking. No responsibility is accepted for evaluating subsoil or discovery of unapparent or unusual conditions, as I am not an expert in this field. The subject is not located in an Alquist-Priolo seismic special studies zone. Services -Public utilities available to the site include: gas {PG&E}, electricity (PG&E), telephone (SBC}, water (California Water Service), sewer (City of Bakersfield)y cable television (Bright House Networks) and storm drainage (retained in drainage basins). On/Off--Site Improvements -Existing off-site improvements consist of Canteria Drive graded with underground utilities and concrete curb and gutter in place. City Hills Drive was rough graded and had underground utilities in place. The Specific Plan alignment for Highway 178 was undeveloped. The drainage basin was graded. There were no existing on-site improvements. Planned off-site improvements include construction of full width {90') on City Hills Drive and Canteria Drive. Both penm~eY arterial streets will be asphalt paved with center medians; concrete curb, gutter, and sidewalk; setback landscaping; 6' concrete block wall; and street lighting. Planned on-site improvements include two private gates; asphalt paved streets; concrete curb, gutter, and sidewalk; underground utilities; landscaped common lots, and street lighting. Easements and Surface Restrictions - A preliminary title report prepared by Chicago Title ', Company, dated as of May 17, 2005, was provided. A physical inspection of the site was conducted. I The title document, Parcel Map 11013, and Vesting Tentative Tract No. 6452 were reviewed. Typical dedication of public utility and street right-of--way easements are listed. A telephone line 33 easements passes east-west through the north portion of the site. It will be rerouted and placed underground according to Trent Miller of Pinnacle Engineering. Anew alignment for Highway 178 is reserved along the south boundary of the site. Construction will take place many years in the future. Environmental Issues -Upon visual inspection, it did not appear that there were any hazazdous materials in or around the subject. I, however, am not qualified to detect such substances or materials. Any comment that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste ancUor toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. The presence of hazardous materials may affect the value of the property. The value opinion is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. Descriptions and resulting comments are the result of the routine observations made during the appraisal process. Zoning -According to the City of Bakersfield Planning Department the current zoning is R-1, One Family Dwelling zone. The purpose of this zone is to designate areas suitable for single-family residential development. The minimum lot area is 6,000 square feet. A 25-foot front setback and 5- foot side yard setback are required. The rear yard setback is 25 feet or 20% of the depth of the lot, whichever is less; providerhowever, the rear yard may be reduced to 5 feet if not more than 45% of the lot is covered`by buildings or structures. Current Use - On the date of inspection, the property was undeveloped. The site is well suited for the planned improvements. 34 DEVELOPMENT AREA (Vesting Tentative Tract No. 6406) Vesting Tentative Tract No. 6406 is bound by Panorama Drive on the north, City Hills Drive on the east and south, and Vineland Road on the west. The tract map is divided into eight phases and will be marketed as one residenfial development. The tract map includes two park sites that are included in the District but not assessed. Identification Of Property Tract No. 6406 was not recorded on the effective date of appraisal. The property is legally described as Lot "A" of Lot Line Adjustmant OS-0427 and Parcel 5 of Parcel Map 11013 in the City of Bakersfield, County of Kern, State of California. All of the area in Tract No. 6406 is included in the District. It is further described as Assessor's parcel number 531-010-44 and a portion of 531-010-39. The census tract number is 0009.14. Thomas Guide map reference is 2444-B 1. Ownership History Of Property According to public records and information provided the appraiser, the current owner of the property is D. R. Horton Los Angeles Holding Company, Inc. "Horton". Horton entered into an option agreement July 16, 2004 to purchase the property from Mountain View Bravo, LLC. Horton purchased Parcel 2 of Parcel Map 11013 on February 1, 2005 from Mountain View Bravo, LLC for a reported price of $132,000 per acre. The legal description was amended to Lot A of LLA OS-0427 on September 9, 2005 when the lot line adjustment was recorded. Horton purchased Parcel 5 of Parcel Map ll03 on October 19, 2005 from Mountain View Brava, LLC for a reported price of $132,000 per acre. Terms of sale for both purchase transactions were all cash to the seller and assumption of bonded indebtedness related to the District. Mountain View Bravo, LLC had owned the property for over five years. 35 Assessed Value And Taxes The property is assessed by the Kem County Assessor's office and is identified as Assessor's Parcel Numbers: 531-010-44 and a portion of 531-010-39. The 2005-2006 general tax rate is 1.083338% of the assessed value. Applicable special assessments are AD-NE Sewer 93-1A. According to the Engineer's Report, the existing assessment payoff costs will be funded as a part of the AD OS-1 proceedings. According to Article XIII A of the California State Constitution (Proposition 13), the sale or transfer of the property will result in reassessment by the Kern County Assessor at its market value at the time of sale. Site Analysis Physical Characteristics -According to the Engineer's Report the net site size and number of proposed buildable lots for the development area are as follows. Size in Acres # of Proposed Lots Assessment Parcel 8 Assessment Parcel 9 32.23 121 Lots 65.48 269 Lots The natural topography is undulating and has a slope down to the east. Considered as a whole or by assessment parcel the property is irregular in shape. The development area has approximately 2,470 lineal feet of frontage along the south line of Panorama Drive between Vineland Road and City Hills Drive, approximately 1,52D lineal feet of frontage along the east line of Vineland Road between Panorama Drive and City Hills Drive, and approximate)-y 3,800 lineal feet of frontage along the north and west line of City Hills Drive. According to the Federal Emergency Management Agency's floafl insurance rate map community- panel number 060077 OO11B or 0009B dated May 1, 1985; the subject property is situated in zone C. Zone C is defined as being outside the 500-year flood plain and is not considered a flood hazard zone. 36 Tract No. 6406 -The site has an approved vesting tentative tract map {6406} containing eight phases. A total of 396 buildable lots are planned. Phase 1 contains 691ots that range from 6,000 to 11,979 square feet with a median lot size of 7,025 square feet. Phase 2 contains 37 lots that I range from 7,150 to 9,559 square feet with a median lot size of 8,686 square feet. Phase 3 contains 38 lots that range from 6,000 to 19,994 square feet with a median lot size of 8,736 square feet. Phase 4 contains 58 lots that range from 6,418 to 9,592 square feet with a median lot size of 7,573 square feet. Phase 5 contains 58 lots that range from 6,185 to 9,669 square feet with a median lot size of 6,449 square feet. Phase 6 contains 71 lots that range from 6,248 to 16,771 square feet with a median lot size of 7,716 square feet. Phase 7 contains 31 lots that range from 6,756 to 11,410 square feet with a median lot size of 8,274 square feet. Phase 8 contains 34 lots that range from 7,972 to 12,474 square feet with a median lot size of 8,904 square feet. None of the phases were recorded as of the valuation date. Soil and Seismic Conditions -The northeast area has a higher than typical clay and rock content in the soil for the Bakersfield area. Moisture can cause the clay to expand and the rock to settle. Both conditions are detrimental to improvements built on top of the soil. These conditions have caused settlement problems in the area such as excessive cracking in concrete flatwork and stucco exterior walls; door and window frames shifting out of shape; and large cracks developing in concrete foundations and slab floors. Soil conditions and topography have caused the grading cost to be significantly (as much as approximately 3 to 5 times) higher than competing azeas west of Highway 99. Home construction is also more expensive diie fmmeasures taken to ensure the concrete foundation and slab do not experience excessive cracking. No responsibility is accepted for evaluating subsoil or discovery of unapparent or unusual conditions, as I am not an expert in this field. The subject is not located in an Alquist-Priolo seismic special studies zone. Services -Public utIlities available to the site include: gas (PG&E), electricity (PG&E}, telephone (SBC), water (California Water Service), sewer (City of Bakersfield), cable television (Bright House Networks) and storm drainage (retained in drainage basins}. 37 On/Off--Site Improvements -Existing off-site improvements consist of Panorama Drive graded with underground utilities and concrete curb and gutter in place. Vineland Road~and City-Hills Drive were rough graded and had underground utilities in place. There were no on-site improvements. Planned off-site improvements include construction of one half width on Vineland Road and full width on Panorama Drive and City Hills Drive. All three perimeter arterial streets will be asphalt paved with center medians; concrete curb, gutter, and sidewalk; setback landscaping; 6' concrete block wall; and street lighting. Plarmed on-site improvements include asphalt paved streets; concrete curb, gutter, and sidewalk; underground utilities; and street lighting. The centrally located local street (identified as Manchester Lane on tentative tract map) will be 16 feet wider than typical with the extra width developed as a landscaped median. Easements and Surface Restrictions - A preliminary title report .prepared by Chicago Title Company, dated as of May 17, 2005, was provided. A physical inspection of the site was conducted. The title document, Parcel Map 11013, and Vesting Tentative Tract No. 6406 were reviewed. Typical dedication of public utility and street right-of--way easements are listed. Assessment Parcels 8 and 9 each have three abandoned oil wells with a 10-foot radius building setback. The setback will not prevent construction of a residence on any of the affected lots according to the layout of the tentative tract map. Environmental Issues -Upon visual inspection, it did not appear that there were any hazazdous materials in or around th`e-snliJect. I, however, am not qualified to detect such substances or materials. Any-comment that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste andlor toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. , The presence of hazardous materials may affect the value of the property. The value opinion is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any environmental conditions, or for any expertise or 38 engineering knowledge required to discover them. Descriptions and resulting comments are the result of the routine observations made during the appraisal process. Zoning -According to the City of Bakersfield Planning Department the current zoning is R-1, One Family Dwelling zone. The purpose of this zone is to designate areas suitable for single-family residential development. The minimum lot azea is 6,000 square feet. A 25-foot front setback and 5- foot side yard setback are required. The rear yard setback is 25 feet or 20% of the depth of the lot, whichever is less; provided, however, the rear yard maybe reduced to 5 feet if not more than 45% of the lot is covered by buildings or structures. Current Use - On the date of inspection, the property was undeveloped. The site is well suited for the planned improvements. 39 DEVELOPMENT AREA (Future Tract No. 6696) Future Tract No. 6696 is bound by the extension of City Hills Drive on the north, Vineland Road on the east, the existing alignment of Highway 178 on the south, and undeveloped land to the west. The vesting tentative tract map has been submitted but not yet approved by the City of Bakersfield. It will be marketed as a residential development. Identification Of Property Tract No. 6696 was not recorded on the effective date of appraisal. The property is legally described as Lots "A" and "B" of Lot Line Adjustment OS-1188 in the City of Bakersfield, County of Kem, State of California. All of the area in Tract No. 6696 is included in the District. It is further described as Assessor's parcel number 531-010-29, 34, and 35. The census tract number is 0009.10. Thomas Guide map reference is 2444-A1. Ownership Ristorv Of Property According to public records and information provided the appraiser, the current owner of Assessment Parcels 10 and 11 is Mountain View Bravo, LLC. S & J Alfalfa, Inc. quitclaimed their interest in Assessment Parcel 11 to Mountain View Bravo, LLC recording November 9, 2005. There had been no change of ownership in over five years except for this quitclaim deed which is reportedly between related parties. The property is currently offered for sale at $165,000 per acre plus assumption of bonded indebtedness related to the District. Assessed Value And Taaes___ _ The property is_assessed by the Kem County Assessor's office and is identified as Assessor's Parcel Numbers: 531-010-29, 34, and 35. The 2005-2006 general tax rate is 1.108887% of the assessed value. Applicable special assessments are AD-NE Sewer 93-1A. According to the Engineer's Report, the existing assessment payoff costs will be funded as a part of the AD 05-1 proceedings. 40 According to Article XIII A of the California State Constitution (Proposition 13), the sale or transfer of the property will result in reassessment by the Kern County Assessor at its market ' value at the time of sale. Site Analysis Physical Characteristics -According to the Engineer's Report the net site size and number of proposed buildable lots for the development area aze as follows. _ Size in Acres # of Proposed Lots Assessment Parcel 10 26.89 117 Lots Assessment Parcel 11 19.17 83 Lots The natural. topography is undulating and has a slope down to the southeast. Considered as a whole the development area is rectangular but eaoh assessment parcel is irregular in shape. The development area has approximately 1,320 lineal feet of frontage along the south line of the future extension of City Hills Drive, approximately 1,630 lineal feet of frontage along the west line of the future extension of Vineland Road, and approximately 1,320 lineal feet of frontage on the north line of the existing alignment for Highway 178. According to the Federal Emergency Management Agency's flood insurance rate map comrnunity- panel number 060077 OOllB dated May 1, 1985 the subject property is situated in zone C. Zone C is defined as being outside the 500-year flood plain and is not considered a flood hazard zone. Tract No. 6696 -The vesting tentative tract map was not approved by the City of Bakersfield as of the date of valuation. The lots aze reported to be in the 4,500 to 5,000 square feet size range and a total of 200 buildable lots are planned. Soil and Seismic Conditions -The northeast area has a higher than typical clay and rock content in the soil for the Bakersfield area. Moisture can cause the clay to expand and the rock to settle. Both conditions are detrimental to improvements built on top of the soil. These conditions have caused settlement problems in the area such as excessive cracking in concrete flatwork and stucco exterior walls; door and window frames shifting out of shape; and lazge cracks developing in concrete foundations and slab floors. 41 '. Soil conditions and topography have caused the grading cost to be significantly (as much as approximately 3 to 5 times) higher than competing areas west of Highway 99. Home construction is also more expensive due to measures taken to ensure the concrete foundation and slab do not experience excessive cracking. No responsibflity is accepted for evaluating subsoil or discovery of unapparent or unusual conditions, as I am not an expert in this field. The subject is not located in an Alquist-Priolo seismic special studies zone. Services -Public utilities available to the site include: gas (PG&E}, electricity (PG&E}, telephone (SBC), water (California Water Service), sewer (City of Bakersfield), cable television (Bright House Networks) and storm drainage (retained in drainage basins). On/Off--Site Improvements -Existing off-site improvements consist of Vineland Road graded with underground utilities in place from the north boundary 6641ineal feet south. The existing alignment for Highway 178 was developed with two lanes of asphalt paving. There were no existing on-site improvements. I Planned off-site improvements include construction of the full width (110'} of Vineland Road from the north boundary 664 lineal feet south. This perimeter arterial street will be asphalt paved with center medians; concrete curb, gutter, and sidewalk; setback landscaping; 6' concrete block wall; and street lighting. Typical on-site improvements include asphalt paved streets; concrete curb, gutter, and sidewalk; underground utilities; and street lighting. Easements and Surface_Restrictions - A preliminary title report prepazed by Chicago Title Company, dated as of May 17, 2005, was provided. A physical inspection of the site was conducted. The title document and Parcel Map 11013 were reviewed. Typical dedication of public utility and street right-of--way easements aze listed. A telephone line easements passes east-west through the site. It will be rerouted and placed underground according to Trent Miller of Pinnacle Engineering. Adjacent but south of the north line of Section 19 is a 30-foot wide Southern California Edison Company transmission easement. At the south boundary of Assessment Pazcel 11 is a 50-foot wide ', Mojave Pipeline and Kern River Gas Transmission Company gas pipeline easement. The owner also entered into a restrictive covenant with the City of Bakersfield reserving a 50-foot "non- 42 j buildable" easement area lying 50 feet on each side of the existing centerline of the gas pipeline easement. Environmental Issues -Upon visual inspection, it did not appear that there were any hazardous materials in or around the subject. I, however, am not qualified to detect such substances or materials. Any comment that might suggest the possibility of the presence of such substances ', should not be taken as confirmation of the presence of hazardous waste andlor toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment The presence of hazardous materials may affect the value of the property. The value opinion is predicated on the assumption that there is no such material an or in the property that would cause a loss in value. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. Descriptions and resulting comments are the ', result of the routine observations made during the appraisal process. Zuniug -According to the City of Bakersfield Planning Department the current zoning is R-l, ()ne Family Dwelling zone. The purpose of this zone is to designate areas suitable for single-family residential development. The minimum lot area is 6,000 square feet. A 25-foot front setback and 5- foot side yard setback aze required. The rear yazd setback is 25 feet or 20°l0 of the depth of the lot, whichever is less; provided, however, the rear yard may be reduced to 5 feet if not more than 45% of the lot is covered by buildings or structures. The owners have filed an-application for a General Plan amendment to change the current LR, Low Density Residential, designation to LMR, Low Medium Density Residential. This change will allow an increase from 7.26 to 10 dwelling units per net acre and a zone change to P.U.D., Planned Unit Development. Current Use - On the date of inspection, the property was undeveloped. The site is well suited for the planned improvements. 43 AD OS-1 IMPROVEMENT ACQUISITIONS The AD OS-1 Improvement Acquisitions include the construction and installation as separate improvement systems of certain City-owned infrastructure improvements, of certain utility improvements to be owned and operated by regulated public utility companies, and incidental work described below. The Improvement Acquisitions are to be constructed in accordance with plans and specifications prepared by the AD OS-1 Design Engineer anal as approved by the City Engineer. In Section I of the Engineer's Report, the plans and specifications for all of the Improvement Acquisifions had not been completed and/or finally approved by the City Engineer at the time the Engineer's Report was prepared. Accordingly, the following description of work is based on schematic, preliminary, and/or approved plans, quantities, and estimates that have been prepared by the AD OS-1 Design Engineer. The Improvement Acquisitions to be made pursuant to the AD OS-1 proceedings are described below. In addition, the map in Engineer's Report Exhibit E shows and describes the general location of the several improvement projects, which together comprise the Improvement Acquisitions that are to be financed by AD OS-1. An itemized cost estimate and a detailed listing of all AD OS-1 Improvement Acquisitions are presented in the Engineer's Report Exhibit B, Table B-II-B: City Hills Drive (entire street, east portion): Construction of City Hills Drive (entire street) from Canteria Drive to Panorama Drive, including grading, paving, curb, gutter, meandering sidekualk, handicap ramps, streets signs, median curb, street lighting and conduits and pull boxes for street lighting, subdivision block wall, sanitary sewer pipeline with manholes, storm drain pipeline with manholes and catch basins, and traffic signal at the intersection of City Hills Drive and Panorama Drive. Also included in the scope of work for this portion of City Hills Drive are incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and Metro Bakersfield Habitat Conservation and Protection ("MBHCP") fee. 44 City Hills Drive (entire street, west portion): Construction of City Hills Drive (entire street) from Canteria Drive to Vineland Road, including grading, paving, curb, gutter, meandering sidewalk, handicap ramps, street signs, median curb, street lighting and conduits and pull boxes for street lighting, subdivision block wall, storm drain pipeline with u~anholes and catch basins, and traffic signal at the intersection of City Hills Drive and Vineland Road. Also included in the scope of work for this portion of City Hills Drive are incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and MBHCP fee. Panorama Drive (entire street): Construction of Panorama Drive (entire street) from Vineland Road to Masterson Street, including grading, paving, curb, gutter, meandering sidewalk, handicap ramps, street signs, median curb, street lighting and conduits and pull boxes for street lighting, subdivision block wall, sanitary sewer pipeline with manholes, and swan drain pipeline with manholes and catch basins. Also included in the scope of work for Panorama Drive are incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and MBHCP fee. Vineland Road (east side, north portion): Construction of the east side of Vineland Road from Paladino Drive, to Panorama Drive including grading, paving`,-cn'rb, gutter, sidewalk, handicap ramps, street signs, street lighting and conduits and pull boxes for street lighting, subdivision block wall, storm drain pipeline with manholes and catch basins, traffic signal at the intersection of Vineland Road and Panorama Drive, traffic signal at the intersection of Vineland Road and Paladino Drive, and median deposit. Also included in the scope of work for this portion of Vineland Road are incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and MBHCP fee. 45 Vineland Road (east side and entire street, south portion}: Construction of the east side of Vineland Road from Panorama Drive to 664 feet south of City Hills Drive {south 664 feet full width), including grading, paving, curb, gutter, sidewalk, handicap ramps, streets signs, street lighting and conduits and pull boxes for street lighting, subdivision block wall, storm drain pipeline with manholes and catch basins, and median deposit. Also included in the scope of work for this portion of Vineland Road are incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and MBHCP fee. Masterson Street (west side and entire street): Construction of the west side of Masterson Street from Paladino Drive to the existing Highway 178 (south 1514 feet full width}, including grading, paving, curb,. gutter, sidewalk, handicap ramps, street signs, street lighting and conduits and pull boxes for street lighting, subdivision block wall, storm drain pipeline with manholes and catch basins, traffic signal at the intersection of Masterson Street and the future alignment of Highway 178, and median deposit. Also included in the scope of work for Masterson Street are incidental expenses for, but not limited to, dust control, street maintenance, slope protection, MBHCP fee. Paladino Drive (south side): Construction of the soutl`i -side-of Paladino Drive from Vineland Road to Masterson Street, including grading; paving, curb, gutter, sidewalk, street lighting and conduits and pull boxes for street lighting, subdivision block wall, and median deposit. Also included in the scope of work for Paladino Drive are incidental expenses for, but not limited to, dust control, street maintenance, slope protection, and MBHCP fee. , 46 ~:;) ~ Canteria Drive: Construction of storm drain pipeline with manholes and catch basins and sanitary sewer pipeline with manholes. Also included in the scope of work for Canteria Drive are incidental expenses for, but not limited to, MBHCP fee. On-site Storm Drain: Construction of a complete storm drain sump located at the northwest corner of the intersection of Highway 178 and Canteria Drive, including excavation, outlet structures, fence with redwood slats and curb, and access gate. City of Bakersfield Facilities Fees: The planned City facilities fees funded as a part of the Improvement Acquisitions include the City Park Land In-Lieu and Development Fees for Ten. TR G498 only. Also included in the City in the Hills Area Improvement Acquisitions are the District Proponent's incidental costs, including, but not limited to the design engineering, improvement bonds, construction staking, soils and materials analysis and testing, plan check fees, inspection fees, dust control expenses, slope protection and erosion expenses, and MBHCP fees, all as itemized in Table B-II-B in Engineer's Report Exhibit B and as generally shown on the map in Engineer's Report Exhibit-lv- Note: certain components of the Improvement Acquisitions approved by Resolution of Intention No. 1384 have been. "zeroed out" on the Engineer's Report Exhibit B, Table B-II-B, to achieve a certain level of assessment amounts desired by the District Proponent. However, all Improvement Acquisitions originally approved by Resolution of Intention No. 1384 are listed and described in the Engineer's jteport, in order to allow for their acquisition and payment by the City in the event that the averall fmal (as-built) AD OS-1 Improvement Acquisitions costs and/or costs of any of their components end up below the estimates shown in Exhibit B, Table B-II-B. 47 HIGHEST AND BEST USE Highest and best use as taken from the third edition of The Dictionary of Real Estate A nraisal by the Appraisal Institute is "The reasonably probable and legal use of vacant land or an improved properly, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal pemussibility, physical possibility, financial feasibility, and maximum profitability". Highest and Best Use as Vacant Legal permissibility -The subject properly is zoned R-l, C)ne Family Dwelling zone and P.U.D., Planned Unit Development. The purpose of these zones is to designate areas suitable for single- family residential development. The most likely use for the site is single-family residential. A zone change is not likely because the current zoning is consistent with surrounding land uses. Physical possibility -Public services availability, topography, shape, soil conditions and size of the site are suitable far all allowable land uses. Financial feasibility -The subject neighborhood has a demand for single-family housing as evidenced by new home developments in northeast Bakersfield having lists of potential homebuyers waiting for an opportunity to purchase a new home. Land development and home construction have not kept pace with demand. The active tentative tracts map in the market overview section illustrates that the subject property in the assessment district are located in an area with active residential development. As District proponents plan phased development of the lots, no oversupply of lots is forecast. It appears that development to single-family lots is financially feasible. Maximum profitability -Maximum profit is achieved in subdivision development by selling all lots for a reasonable price in the shortest absorption period possible. Maximum profitability would be achieved by preselling the lots to a home builder or an owner/6uilder developing the lots for his own single-family project. 48 In my opinion, the highest and best use as vacant is development to single=family residential-lots for presale to a builder or by an ownerPouilder. Hia6est and Best Use as Proposed Legal pernussibility - As discussed in the site analysis, single-family lots are under construction or proposed in five difference tentative tract rnap areas four of which have already been approved by the City of Bakersfield. This residential use is legally pernussible. - Physical possibility -Public services, soil conditions, size, shape, and topography are suitable for the proposed improvements. Financial feasibility - As previously discussed, there is significant demand for single-family residences in the subject area. Conversion to another use other than single-family residential would not be fmancially feasible. Maximum profitability -Upon completion of the improvements, they will be new finished residential lots and not suffer from depreciation. Maximum profitability would be achieved by constmeting single-family residences on the finished lots. In my opinion, the highest and best use as proposed is to construct single-family residences. 49 VALUATION PROCEDURE The cost, income capitalization, and sales comparison approaches have been considered in developing an opinion of mazket value for the subject property in fee simple estate. To apply the cost approach, the depreciated replacement cost of the improvements is added to the value of the land as though vacant to arrive at a value opinion. This approach is most reliable when the improvements are new or nearly new and represent the highest and best use of the site. In this appraisal the developer's improvements to the land to date and the acquisition improvements of the assessment district are added to the undeveloped or "raw" land value. Using the sales comparison approach, an indication of value is derived by comparing recent transactions involving similar, competitive properties on the basis of a common unit of comparison. This approach is not applicable for direct comparison because the subject has partially completed improvements. Sales comparison has been used in the cost approach to develop an opinion of value for the undeveloped land. In the income capitalization approach, potential gross income is estimated by analyzing recent finished lot sales to amve at an individual value for each lot. Market conditions are evaluated to arrive at a forecasted sellout period. After deducting development costs, expenses and profit, the net sales proceeds are capitalized into an indication of value by yield capitalization using a discount rate. This approach is not applicable because as of the date of appraisal no tract maps have been recorded creating the individual lots. Cost Approach In applying the cost approach in this appraisal, I have estimated the cost to construct a replacement for the existing site improvements and assessment district improvement acquisitions, and then deducted all accrued depreciation in the property being appraised from the replacement cost of the site improvements as of the effective appraisal date. No depreciation is applicable to the subject because the improvements are new and represent the highest and best use of the site. When the 50 value of the site is added, the result is an indicaton of value for the property at the current stage of development. -- The principle of substitution is basic to the cost approach. This principle affirms that no prudent buyer would pay more for a property than the cost to acquire a similar site and construct improvements of equal desirability and utility without undue delay. Land Valuation -The sales comparison approach has been used to value the land as undeveloped or "raw". This method is preferred when compazables sales are available. To apply this technique, sales of similar parcels of land are analyzed, compared, and adjusted to provide a value indication for the land being appraised. In the comparison process the similarity or dissimilarity of the parcels is considered. Elements of comparison include property rights, legal encumbrances,. financing terms, conditions of sale (motivation), market conditions (sale date), location, physical characteristics, available utilities, zoning, and highest and best use. Adjustments are made for any significant differcnccs with the subject. This process involves the appraiser's judgment as to the degree of comparability. The development areas are located within close proximity of each other at the edge of development in northeast Bakersfield. Four of the five development areas have tentative tract maps. They all have similaz soil conditions, topography, and availability of utilities. These properties are considered together in the discussion of raw land value. My investigation of the subject area has revealed nine-sales considered to be similar to the subject property. The unit of comparison utilized in this analysis is the sales price per acre. Specific information regarding each sale is provided in the addenda. The sales information is summarized in the table below followed by a comparison with the subject and reconciliation of the data into a final value conclusion. The comparables selected are recent land sales in northeast Bakersfield purchased for development of single-family lots. They have similar tax rates and highest and best use as the subject. The sales t 3 ~ d{} `pt.____ o ~ ~ ~ f f~ ,~ ,,-,'6 mate fi(~-~ ate` t ~ ~'~ ~ ` ~ --. _ .5 Sate 7~ ,~- ~ ~, , ~, ~~ ~~ ~ -'f"' Sale 3 ~ ? 4 t `,7s _ ~,r'°` ~ Sate S ~~~ ~ ~ ~ ~. _ ~~' ~' ~ ., w-~ ~~~~ ~ ~ ,~ ~ t""3~ ' ,ih'` ~ '~ ~ ~Sa~ to 2±_ ~ r __.... Subject ra S ~--~ Sate t e-° ~ Sale 4 .,.,~ E~t ~ `~", _` r~ ~ ~ ~ ~~ E ` .,.....9.. ' ~ s ,ta4 - ~ ~ ~ ~ .,.,,~,~~___d._~_ i ~ ~ ~~ 3 ~ 'rir~. n+ Scale i :50,000 Data use subject to license. _ y ,h ©2004 DeLortne. Street Atlas USAO) 2005. ~ ~• r+~.ae~ - a --" e a ~, www.delorme.com 1" = 4 766 7 ft Data Znnm 79-(i 51 utilized are considered the most comparable available. Although similar, there are characteristics of these sale properties that differ from the subject and cause the prices paid to vary. These silriiiarities and differences ate discussed as follows. Summary Of Undeveloped Residential Land Sales Sale Sale Sale Size Price Per No. Location Date Price Acres Z°°1Og Acre Remarks 1 East Terminus of 09130104 $1,OOQ000 5.97 R-1 $167,504.19 Tract map recorded prior to sale. Rough Highland Knolls Dr graded 15 - 20 years ago, will require Tract 5696 re-grading and compaction. 2 SE Quadrant Casa Club 01107105 $4,699,000 22.34 R-1 $210,340.20 Purchase of Rio Vista Tract No. 5997 Dt & Anacapa Dr. at tentative map stage. Borders golf course on two sides. 3 West Side City Hills Dr, 02101105 $6,256,800 47.40 R-1 $132,OOO.QO Located in City in the Hills master _ North of H 178 planned development. 4 NEC Mesa Maria Dr & 02104105 $1,011,500 6.09 R-I $166,041.95 Tract map recorded and site rough Chase Ave (Tract 5984} graded prior to sale. Most improvement lens were done. 5 NEC Paladino Dr & 04118105 $11,935,000 119.09 R-1 $100,218.32 Adjacent to north boundary of City in Valley Ln - the Fh11s development. Included tentative tract ma with 346 lots. 6 North Side Hwy 178, 05103105 $11,979,000 92.86 R-1 $129,000.65 Hillside parcel across Hwy 178 from West of Miramonte Dr Rio Bravo Golf Course. Included tentative tract ma with 361 lots. 7 NWC Hwy 178 & Alfred 06(03105 $7,420,000 76.21 R-1 $97,362.55 Parcel has a steep upslope at north end Harrell Hwy of site. Fuhue Paladino Drive is north boundary. Did not have tentative tract tna at sale. 8 SWC Paladino Dt & 06/2$(05 $5,22Q000 40.00 R-1 $130,500.00 Adjacent to west boundary of City in Vineland Rd the Hills development Included tentative tract ma with 168 lots. 9 NWC Morning Dr & 07/11/05 $13,250,000 247.02 R-I & $53,639.38 Hilly terrain severely impacted by College Ave R-2 electrical tower Ime easements. Did not have tentative tract ma at sale. Sales 1 and 4 are infill projects more similar to the subject with the improvement acquisitions in place but superior to the raw or undeveloped land value:~Most of the engineering plans were completed. The tract maps were recorded. The sites were rough graded with adjacent off-site improvements completed. Sale 2 has a superior view amenity being adjacent Rio Bravo Golf Course. Access to the site is . through security gates on a private street. The sale included a tentative tract map for 50 estate-size lots. The buyer owned an adjacent parcel and may have paid a premium. 52 Sales 3, 5, 6 and 8 are recent sales in close proximity to the subject that were entitled with tentative tract maps. Sale 3 is part of the District and the only parcel to transfer prior to the date of value. Sale 5 is located adjacent to the north boundary of the District. Sale 8 is adjacent to the west boundary of the District. Both properties are not situated in a planned development. Sale 6 is a hillside parcel approximately two miles east of the District. Sales 7 and 9 are the lowest unit value indicators per acre due to hilly topography and not being entitled with a tentative tract map. The buyer of Sale 1 paid a $420,000 commission in addition to the purchase price of $7,000,000 for total consideration of $1,420,000. The buyer is working on a tentative tract map with 185 estate-size lots. Sale 9 is encumbered with several electrical tower line easements covering most of the west half of the site. It is the least reliable indicator in this appraisal. Sales 3, 5, 6 and 8 are recent sales in close proximity to the subject that were entitled with tentative tract maps similar to four of the subject development areas. They are given greatest weight in assigning a unit value for development azeas Tentative Tract Nos. 6444, 6498, 6452, and 6406 of $132,000 per acre. Development area Future Tentative Tract No. 6696 does not have an approved tentative tract map on the effective date of appraisal and is assigned a lower unit value than the other development areas of $120,000 per acre. Improvements to the Land -Site development was in progress on the effective date of appraisal for development-area Tentative Tract No. 6444 only. -The status of constmction is discussed for each assessment parcel earlier in the report along with an estimate of the developer's cost of improvements as of the appraisal date. The District improvement acquisitions are discussed as well. The assessment lien for these improvements is provided in the Engineer's Report Exhibit C. The following table provides a summary of the cost approach for property at the stage of development as of the effective date of appraisal and subject to the District improvement acquisitions being in place. 53 _ SUMMARY OF COST APPROACH LAND VALUE W17N PRESENT RAW DEVELOPER'S IMPROVEMENT AD FINANCED NET VALUE/ LAND IMPROVEMENTS ACOUISRION INFRASTRUCTURE DEVELOPMENT AREA DESCRIPTION ACRES ACRE VALUE TO LANG COST IN PLACE Lot 1 in Lot line Adjustment No. 05- "Super' Lot 0480 {Portions of Parcels 8 and 9 in {Portion ofTTM Parcel Ma No. 11013 No. 6444 59.79 732,000 7,892,280 37,000 1,917,831.59 9,847,112 Lot 2 in Lol Line Adjustment No. 05- "Super" Lot 048D (Portions of Parcels 8, 9 and 10 (Portion of TfM in Parcel Ma No. 11013 No. 6444 55.82 132,000 7,368,240 56,060 7,302,933.30 8,727,173 Lot 3 in Lot Line Adjustment No. 05- "Super" Lol 0480 (Portions of Parcels 16 and 11 (Ponian of TTM in Parcel Ma No. 71013 No. 6444 32.35 132,000 4,27Q200 0 ~ 648,146.31 5,118,346 lot 4 in Lot Line Adjustment No. OS- "Super' Lot 0480 (Portons of Parcels 10 and 17 (Portion of TTM in Parcel Ma No. 77013 No. 6444 16.89 732,000 2,229,480 0 571,775.55 2,801,256 TOTALlAVERAGE FOR FUTURE TR ACT NO. fi944 COVERING ASSESSMENTS N OS.1-4 164,$5 132,000 21,7602110 93,D00 4,634,686.75 26487,887 Lot 1 in Lot Line Adjustment No. 05- "SUpef Lol 0550 (Portions of Parcels 3, 6 and 7 (Phase 2 of in Parcel Ma No. 71073 7TM No. 6498 51.64 132,000 fi,816,480 0 1,716,853.86 8,533,334 Lot 2 in Lof Line Adjustment Na. OS- "Super" Lot 0550 (Portions of Parcels 6 and 7 in (Phase 1 of Parcel Ma No. 11613 Tract No. 6498 31.21 132,000 4,119,720 0 7,777,638.19 5,237,358 TOTAUAYERAGE FOR FUTURE TRACT NO.6498 COVERING ASSESSMENTS NOS.586 82.85 132,000 10,936,200 0 2,834,492.05 13,770,692 Lot D in Lot Line Adjustment No. 05- 7188 (Portions of Parcels 3, 6 and 7 "Super" Lot in Parcel Ma No. 11613 TTM No. 6452 57.01 732,000 7,525,320 0 1,602,817.60 9,128.132 TOTAIJAVERAGE FOR FUTURE TRACT N0.8452 COVERING ASSESSMENT ND.7 57.01 132,000 7,525,3211 0 1,602,811.60 9,128,132 LotA in LOl Line Adjustment NO. 05- "SUper'Lal 0427 (Portions of Parcel 2 in Parcel {PorOon of TTM Ma Na. 11013 No. 6406 32.23 132,000 4,254,360 0 881,006.25 5,135,366 "Super° Lot {Portion of TTM Parcel 5 in Parcel Ma No. 11013 No. 8406 65.48 132,000 6,643,360 0 1,866,068.33 10,509,428 TOTAL/AVERAGE FOR FUTURE TR ACT NO.6006 COVERING ASSESSMENTS N OS.889 97.71 [32,000 12,897,720 2,747,074.5$ 15,644,795 Lot A in Lot Line Adjustment No. OS- Unemitled 7188 (Portions of Parcels 7 and 4 in Residential Parcel Ma No. 71013 Land 26.69 12D,000 3,226,800 0 t57,549.88 3,984,350 Lo[ B in Lot Line Adjustment No. OS- - ~'Unentitled 1788 (Portions of Parcel 4 in Parcel Residential Ma No. 11013 Land 79.77 120,000 2,300,400 0 537,407.74 2,837,807 TOTAL/AVERAGE FORfUTURE TRACT N0.6696 COVERING ASSESSMENTS NOS. 10811 46.06 120,000 5,527,200 ~" 0 1,294,957 6,822,157.02 TOTALS/AVERAGE FOR ENTIRE AD OS-1 448.48 130,7611 56,646640 93,000 13,714,022.00 71,853,662 54 RECONCILIATION AND FINAL VALUE CONCLUSION The cost approach estimates the replacement cost new of the improvements and then deducts an appropriate allowance for depreciation. The land value as though vacant is then added to reach a value opinion. Estimating depreciation requires considerable judgment and is difficult. Consequently, the cost approach is most reliable on newer properties where there is a minimum of depreciation. The subject has construction in progress. A reliable cost estimate was made based upon cost information provided by the property owner's civil engineer; cost estimates on similar tracts in the appraiser's files; and Marshall Valuation Service. Phased construction of large subdivisions with expensive up front off-site costs can skew the cost figures for an individual phase of a particular tract. It is a reliable indicator in this appraisal because there aze no recorded tract maps and the improvements amount to a small percentage of the overall value. The sales comparison approach was used to value the raw or undeveloped land which is the bulk of the value. It is coon in the local market for buyers and sellers to added the cost of improvements under construction when determining the price of a property partially completed like the subject. The cost approach is considered a reliable approach to value. As a result of my investigation and analyses presented in this report, it is my opinion that the market value "as is", assuming the improvements as a result of AD OS-1 are installed, subject to the assumptions and limiting conditions set forth in this report, as of October 1, 2005 were as shown in the following table along side ate assessment lien and value to lien ratio. 55 Value Opinions -Assessment District 45-1 LAND VALUE WRH AD ASMT FINANCED VALUE NO INFRASTRUCTURE IN ASSESSMENT TO LIEN DEVELOPMENT AREA DESCRIPTION PLACE LIEN RATIO Lot 1 in Lot Line Adjustment No. OS-0480 (Portions "Super" Lot (Portion of TTM 1 of Parcels 8 and 9 in Parcel Ma No. 11013 No. 6444 9,841,112 2,307,432.43 4.26 Lot 2 in Lot Line Adjustment No. 05-0480 {Portions "Super" Lot (Portion of TTM 2 of Parcels 8, 9 and 10 in Parcel Ma No. 11013 No. 6444 8,727,173 1,572,539.43 5.55 lot 3 in Lot Line Adjustment No. 05-0480 (Portions "Super" Lot (Portion of TTM 3 of Parcels 10 and 11 in Parcel Ma No. 11013 No. 6444 5,118,346 1,023,646.79 5.00 Lot 4 in Lot Line Adjustment No. 05-0480 (Portions "Super" Lot (Portion of TTM 4 of Paroels 10 and 11 in Parcel Ma No. 11013 No. 6444) 2,801,256 690,088.74 4.06 TOTALS! AVERAGE FOR FUTURE TRACT NO. 6444 COVERING ASSESSMENTS NOS. 1 THROUGH 4 : 26,467,887 5,593,707.39 4.74 Lot 1 in Lot Line Adjustment No. 05-0550 (Portions "Super" Lot (Phase 2 of TTM 5 of Parcels 3, 6 and 7 in Parcel Ma No. 11013 No. 6498 8,533,334 2,067,501.71 4.13 Lot 2 in Lot Line Adjustment No. 05-0550 {Portions "Super" Lot (Phase 1 of Tract 6 of Parcels 6 and 7 in Parcel Map No. 11013 No. 6498 5,237,358 1,345,903.06 3.89 TOTALS/ AVERAGE FOR FUTURE TRACT N0.6496 COVERING ASSESSMENTS NOS. 5 AND 6 : 13,770,692 3,413,404.77 4.03 Lot D in Lot Line Adjustment No. 05-1188 (Portions o 7 Parcels 3, 6 and 7 in Parcel Ma No. 11013 "Su r" Lot TTM No. 6452 9,128,132 1,934,469.27 4.72 TOTALS/ AVERAGE FOR FUTURE TRACT N0.8452 COVERING ASSESSMENT N0.7: 9,128,132 1,934,469.27 4.T2 Lot A in Lot Line Adjustment No. 05-0427 {Portions of "Super" Lot (Portion of TTM 8 Parcel 2 in Parcel Ma No. 11D13 No. 6406 5,135,366 1,063,306.20 4.83 "Super" Lot (Portion of TTM 9 Parcel 5 in Parcel Ma No. 11013 No. 6406 10,509,428 2,252,199.71 4.67 TOTALS/ AVERAGE FOR FUTURE TRACT N0.6406 COVERING ASSESSMENTS NOS. 8 AND 9 : 15,644,795 3,315,505.91 4,72 Lot A in Lot Line Adjustment No. 05-1188 (Portions 10 of Parcels 1 and 4 in Parcel Map No. 11013) Unentitled Residential Land 3,984,350 914,303.95 4.36 Lot B in Lot Line Adjustment No. OS-1188 (Portions 11 of Parcel4 in Parcel Map No. 11013 Unentitled Residential Land 2,837,807 648,608.71 4.38 TOTALS! AVERAGE FOR FUTURE TRACT N0.6696 COVERING ASSESSMENTS NOS. 10 AND 11 : 6,822,157 1,562,912.66 4.37 TOTALSI AVERAGE FOR ENTIRE AD 05-1: ' 71,SS3,662 15,820,000.00 4.54 56 Marketing Time Subdivision properties can have considerable variation in marketing times. This is often due to market conditions at time of sale, available financing, property appeal, and the reasonableness of the listing price. Marketing times of the comparable sales range from not openly marketed to approximately one year with one to six months being typical. Based upon current trends in the market, interviews with real estate brokers experienced in this property type, and my analysis of mazketing times for comparable properties, a marketing tune of six months appears reasonable for any assessment parcel. 57 CERTIFICATION I certify that, to the best of my ktowledge and belief .. . • The. statements of fact contained in this report are taste and correct. • Randall Franz has made a personal inspection of the property that. is the subject of this report. • The reported analyses, opinions, and conclusions are limited only. by the reported assumptions and limiting conditions, and are my persona], impartial, and unbiased professional analyses,opinians, and conclusions. + I have no present or prospective: interest in the property that is the subject of this report, and no personal interest with respect to the parties involved. • 1 have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. • My engagement in this assignment was not contingent upon developing or reporting predetermined results. • My compensation for completing this assignment is not contingent upon the development or reporting ofa predetermined value or direction in valuetharfavors'the cause ofthe client, the amount ofthe value opinion, the attainment of a stipulated result, or the occunence of a subsequent event directly related to the intended use. of this appraisal. + My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards. of Professional .Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice. • The use of this report is subject to the requirements of the Appraisal Institute relating to review by their duty authorized representatives. • As of the date of-this report, I, Randall Franz, have completed the requirements under the continuing education program ofthe Appraisal Institute. • No one provided significant real property appraisal assistance to the person sign~g this certification. • I have the knowledge and experience necessary to complete this assignment competently. Please refer to my appraisal qualifications attached vvith,this report. ~~`~~ .Randall Franz;.MAI, SRA Certified General #: AG004309 CA Expiration: 12tO5I2006 ADDENDUM W W J 0 f V N_ 2 W g h W N Q 0 K r2 N j W U N O O A O ~ ~ m N a J~ Y b V < < O V } 0 i c n o ~ r h r W f M N ° m O ° N 0 c i a ° 1 m Vi ° m ° m u o ° 2 w W P m h m M n N ~ O M v V ~ V ~ n to ° [ti m N ~ c < m O NJ _ m O ~ N O C I V _ A O N M Vp 0 N a ~ n m ° ~ C w~U $ ~ r m N_ °? ~ m ~ '^o ° °' ~ m mj m g ° ~. m m V Z e Qa h OS 1° h N m 7 N Q d '~ W t A ~ 2 D p a4W J ? 11-- 22 N M fJ N A m2 w O p t0 N m N m Q {y ° O ~O~' ~ m P h U ~ iD d ' O O ~ O p p p q O m CQLt M ~ in ° ~ m ~ n m r '+ n ei g Q mh wwG LL ~ z °° ~• o °° ~ o ° ° e m 0 0 0 c m o~g ho w Dg +y o~ 4 Q J n W N O °~ ° °N ° a mO R e rv V M N V o .`4i n ~" °w °e p o h g 3 ~ J~ m N N 9 ~O N N _ N _ vN l _ _ N ~ ZU O O O O O O O O p O O p ° ° p O O O O N W~ m N M _ p e V W .N pp N ~ J 6 a } N W K m m W 1° O rv o z Q v°'i m u> `~ n m h iy °i e ~ ~ N ° N e ° ° ^' m ~° `° h m m ° ~ w w n n a W Z ~ O Cv 8~ O 'Ce °~ O Y< °~ O`., 'E oe N Nm ~ r f mm ~ G O 'Cd O 0~ p a a a m a~ °.~ a~ S <°° a °m °z° ~z° _ sz° ~z° ~z °Z ~ od od ~ N 0 ~ ~ 8~ w~ aG m~ ak `"~ ~k _y `C °C `'~ aF "M °`° i~ aG m~ °G do `m a w d'°o l_9 ~. f! ~.. - ° N •~ N .~ O N` N`a > N2 NO N`b J~ , 7K O pr _ h9 O- 0 O O ` i i O3 p U ` w z°O~ z°~' m Z~ z°~ z°~ Zq m °m da z 6v z° 6 za ~ ° w Yn -w-~..`o ~$"M ~~m E~ro E~m oN ~~i Z Eooi ~ S ~ ,a° "dam a'¢.° Na° '-ao o ^o ?LLma "'d ~ ~'~~ ~ ° ° r ° , P .. cu id ._ ~m~ j ° c o coo coo _ mho c~M ° °'DO °i ,°,w ~ oZ ~o oz ~ ~az =,oz Gin oz Goo n. ~o¢ jo° W U SL dS` OCR d ~ J. d~ n OL d~ OY d OY 6~ O~ R~' Ors O't O't~ d c q -9 c a NO a c m ~ c <O V < C r sOU c N ~ N c V N c6 QRa NN cd~ Q c Wm Od M ~OC P J06 m J06 b= JOR ~ ~OO. y y m fm ~R b OVA ` 6 O b 9w ~d 4 ~m~ 0~ N U U U U ~ U ~- p ZJ t-O e 2~ < 2 2'~ °' 2~ UZ y r U2 D ~- U h UZ HO 2 0 0 ~ Q o 9 ~^ I- ,~ @ V yaps F N `m 4z t Qm F ~ e o U m m P 1- C ° e v ~ m » ~ v h ° ~~ ~D ~ ~ 0 Yo 0 o ~ f 2 4o o F 2 0 ~ f G 2 i n 2 ~ 2 F' K ~' W ° 4 Cf O LLN h 4 O ~% LL F O = LL M ° N LL F N M m LL F W O h u"i `u3 n n O 6' W " ' " Q' W n O N• 'L E `~ g y+ Z '° '° w U Z E O ` LL~ u i ~ ~g q LL N u i ~ LL ~ a O p O W q O ~ W y O % W y j ~ w ~ W ~ ~} N W W W O O o c 4 N CW a o ' Q y K tlf ~ 4 N (q ~ ~ ' W ~ [ q ° ? o j y ' W Q d g a a° >a ai a n o a w4 <z o a Sua ai ~ u m m LL w4 ci ~- ,~ _ . `u3 6 w4 a C w O ~ i ~-' j C' f A K N 6 C! a tZ/ 6' q ~ O a'! m J a} h a') W Q W O O ~ 4 W Q w a QO U QO U p0 U ~ ' DU ~ ' D ~U f' ~ F F ~ „ ~~ LAND SALE 1 GENERAL INFORMATION ' Item Vacant Land Sale ' Type Single-Family Residential '-~" i, ~ ~+!~~ ~~ se=--~4 z.e~as, rz~ ~„o,~D,sr. r~<,._~, eK t-f$J 7 .LS2 ,l F /83 Address East Terminus of Highland ~~~--~~ R <e r~ r r , ,ar Knolls Dr. (Tract 5696) raacr S ar7r~osr ra,~~a~recsz _^, e City, County Bakersfield -Kern #C t '~"` d mgr rs "'"` ; _ .. x i. Parcel No. 434-010-29 ` ~ " ' - ' ~ ~ Map Page 2443-G2 } ~ tz~ ~~ i "` ~v~~ ~I {^ P Property Rights Fee Simple ~ ' r~ _ ~„ ~ v°,,,r I r ~ PROPERTY INFORMATION .~ - - --- i. w ,a a I : last r~ -~ __ Q~A 1`s Size (SF) 260 053 C?=~ ~ "` ~°'~ +(, (AC) 5 97 ~ i ^~~, 1~ nxn ' Frontage 330'+/- Highland Knolls '~ ° ~ - ' ~ ~ ~"~ ~ inner sods i ~~ x~ mi,cc y iaw Shape Irregular ~ !°" '~~ ~ t ' ~ ~ r ~, .~„ { ~ Zonfng R 1 _w._a.w.. r ad ,. Topography Undulating -~°°~-~~ Utilities Eleotricity, Gas, Sewer, Water Street Paved to Property Line SALE DETAILS Seller COKER ELLSWORTH, INC. Buyer JEFFREY D. & MELISSA THORN Sale Date 8(4!2004 Price/SF $3.85 Sale Price $1,000,000 Pdce/Acre $167,504.19 Adjustment Adjusted PricetSF Adjusted Sale Pdce Adjusted Price/Acre RECORDING/CONFIRMATION Date 9/30/2004 By Agent Document No. 237885 With McKinzie Real Estate COMMENTS The property is located three blocks east of Fairfax Road adjacent to 15 to 18 year old homes. It was purchased for development of a residential subdivision. The tract map (#5696) wasrecorded prior to the sale and consisted of 20 lots (10,000 +/- sf}. The site was rough graded approximately 15 to 20 years ago with some terracing of lots. The buyer will be required to re-grade and compact the lots. High tension electric tower lines are located along the east boundary. Terms of sale were all cash to the seller. LAND SALE 2 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address SEO of Casa Club Dr. and Anacapa Dr. City, County Bakersfield - Kem Parcel No. 387-010-45 387-010-48 (portion) Map Page 2444-H1 Property Rights Fee Simple PROPERTY INFORMATION Size (SF) 973,130 (AC) 22.34 Frontage nta Shape Irregular Zoning R-1 Topography Undulating Utilities Electricity, Gas, Sewer, Water Street Paved to Property Line ^ ~` '"' gi ~ _ r °"° ~ „ ~ {{ ~ p; ~ i I " ~ - .pI f v rt ~ ~ t ~~ °~ ~ ~ ..9. fa 1 _ y __ , .k l ~ I ,~ :~ a F._._ y ~ . . LYA54S wx c ~+~ ? ..., - .~ ~.-. .~ - ~ SALE DETAILS Setter RIO BRAVO DEVELOPMENT COMPANY LLC Buyer PULTE HOME CORPORATION I Sate Date 1 211 2/2 0 0 4 PricelSF $4.83 Sale Price $4,699,000 PdcelAcre $210,340.20 Adjusfinent Adjusted PricelSF Adjusted Sale Price Adjusted Price/Acre RECORDING/CON FI RM ATI O N Date 1/7/2005 By Confidential Document No. 005222 Wdh COMMENTS The property is located within the gated area of Rio Bravo Golf Course in northeast Bakersfield. It was purchased for residential subdivision development. The sale included a tentative tract map (#5997) for 50 buildable lots. The parcels fronts the golf course on two sides. Terms of sale were all cash to the seller. The seller obtained title in July 2004 when they exercised an option negotiated several years ago. The price was not disclosed. LAND SALE 3 ~ GENERAL INFORMATION ' Item Vacant Land Sale I • Type Single-Family Residential -.{t• ~.'.~-„~ ~_, _ - Address West Side City Hills Dr ~ ~,,,, i ``c`-'~'`~"`" a. i ~'~- u~`~nc r, j~ ` iI-`` North of Hiohwav 178 ~ City, County Bakersfield -Kern '~ ,~ ~ Parcel No. 531-010-39 i ~ is ' ;~ '~` i ,~ I I ~ Map Page 2444-B1 ~ . 1' ,.~ l ~ ' °,mE ~ n.'~ ~~~~ Property Rights Fee Simple ;~,„~~ ~ - --- PROPERTY INFORMATION ~ JI, ~ ~, / r.~' ~~_~ `~"' ~;' I (,, /r~ Size (SF} 2,064,744 ~ I -v-~ ~ - ~ ~,/ (AC) 47.40 ~'* ~ ~ 1,,.'" ~ .,. j ,~ Frontage +1-1,300' City Hills Dr ~ ~ ] ~ r^ ~"' ` ~'~,'^ 600+1- Panorama Dr ~ ~ ~ ~~~ ~ 4~ j~"~/` ~~ ~,. Shape Irregular --"-~',;,~-A,~ ~?R,,~ .,~Xw ,~~,~~;.'___----"2r Zoning R-1 ""`., ,..---~r-_ .r-"'`.~ t~e~~rrce ,-. Lsm.:~ Topography Undulatin ~ ~~ ~ ~' ~" ` Utilities 9 ~NDEx `~'"~ Electricity, Gas, °` I' ~ ~~ Sewer, Water Street Asphalt Paved SALE DETAILS Seller MOUNTAIN VIEW BRAVO, LLC Buyer D. R. HORTON LOS ANGELES HOLDING i CO., INC. Sa/eDafe 2!1/2005 Price/SF Sale Price $6,256,800 Price/Acre $132, 00.00 Adjustment Adjusted Price/SF Adjusted Sale Price Adjusted PriceJACre RECORDING/CONFIRMATION Date 2/1!2005 By Document No. 024610 With Confidential COMMENTS The property is located in the Rio Bravo area of northeast Bakersfield. Mesa Marin Speedway is situated one half mile south. An entire section of land {Section 17) is being master planned as the City in the Hills development. This transaction represents the frst of three takedowns involving a total of 119:09 acres. The sale includes a tentative tract map {#6406) with 397 lots. The seller is responsible for backbone improvements including the major arterial streets through the development and providing utilities to the site. Terms of sale were all cash to the seller. The grant deed states that escrow instructions were dated July 16, 2004. LAND SALE 4 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address NEC Mesa Marin Dr & ,~ ~ ____yV Chase Ave ; City, County Bakersfield -Kern f ~ Parcel No. 387-430-01 to 24 ~ 4u Map Page 2444-C2 Property Rights Fee Simple PROPERTY INFORMATION ~ _-T ~ - s Siza (SF) 265,280 ' ~ (AC) 6.09 i Frontage 283' Mesa Marin Dr .= i 922' Chase Ave ! Shape Rectangular ~ Zoning R-1 ' ~ Topography Level ~ Utilities Electricity, Gas, Sewer, Water Street Asphalt Paved SALE DETAILS V ~~ ~~ ____~ ~~~ ~-- -riFiei- ~ as ..__..____ ~ ,_ ? ~ 9Y~~ ~ r~ ~ r ,w " -4` ~~ Seller JASON L. & MONICA L. MARTIN, ET AL Buyer R S & B LAND DEVELOPMENT Sate Date 213/2005 PrtcelSF $3.81 Sate Price $1,011,500 PdcelACre $166,091.95 Adjustment Adjusted PricetSF Adjusted Sale Price Adjusted PricetAcre RECORDING/CONFIRMATION Date Document No. COMMENTS 2!4/2005 By 29059 Wdh Confidential The property is located in the Rio Bravo Valley area of northeast Bakersfield. It is adjacent to Cesar Chavez elementary school. Mesa Marin Speedway is situated one half mi{e north. Tract Map No. 5989 with 24 lots was recorded prior to close of escrow. The site was rough graded for the future subdivision and most improvement plans were done. Terms of sale were all cash to the seller. ,.. ~' i s~~.~t ~;" ,~~ ' ~ ~., I 5 dLNSC S 'T"~ ~ ~. ~ i ~0~ . xdYl VUY y ~, ' _ t `i LAND SALE 5 GENERALINFORMATION ' ttem Vacant Land Sale Type Single-Family Residential ~r as.. r2gs. iisaE. ,.o, Address NEC Paladino Dr & Valley " ~ City, County Bakersfield -Kern ~ Parcef No. 386-040-12, 14 R 26 j~ ' ~ ~. e l~~ ~ ,i~ Map Page 2404-G6 g; ~' ~ ~ - - - i Property Rights Fee Simple .~ ~ "-t ~ ,~, ~$~ ~ „m is! a ~ PR ~ ~ -~0 ~ ; ~ OPERTY INFORMATION Size (SF) 5,183,640 '~' 1 " ~ ~ ~` ~ (AC) 119.00 Frontage 1,320' Paladino Dr m ` „~°'.n i~ Shape Rectangular ~ `'" Zoning R-1 ~~ Topography Generally Level Utilities Electricity, Gas, Sewer, Water Street SALE DETAILS SeOer PALADINO PARTNERS Buyer BARCELONA LLC Safe Date 4(18!2005 Price/SF $2.30 Sale Price $11,935,000 PdcelAcre ' $100,294.12 Ad ustmenf i Adjusted Price/SF Adjusted Safe Price Adjusted Pricet,4cre RECORDINGJCON FIRMATION Date 4J21/2005 BY Document No. 99914 With COMMENTS This data represents an April 2005 transaction involving three tandem 40-acre parcels with frontage on the north line of Paladino Drive about 114 mile east of Morning Drive in Northeast Bakersfield. The buyer intends to improve with a phased subdivision development with a total of 346-lots. LAND SALE 6 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address North Side Hwy 178 West of Miramonte Dr City, County Bakersfield -Kern ~, Parcel No. 386-050-09 387-020-18 Map Page 2404-G6 Property Rights Fee Simple ~ PROPERTY INFORMATION Size (SF) (AC) Frontage 4,044,982 92.86 3,000' +/- (Hwy 178} , } Shape Irregular ~, ~qq~ ,~,W„L~ "~ "°` Zoning R-1 ~ ~~a t,~ ' .. ~ ~h ~ 'ti" Topography Undulating Terrain ~ ~~ a~ ? ~~ I Utilities Water, Gas, °' cf Electricity, Sewer ', Street Paved SALE DETAILS I Seller LDC MIRAMONTE INVESTORS, LP Buyer MONTE CARLO, LLC Sate Date 5/3/2005 PricetSF $2.96 Sale Price $11,979,000 Price/Acre $129,000.65 Adjustment Adjusted Price/SF Adjusfed Sale Price Adjusted PrrcelAcre RECORDINGlCONFIRMATION Date 5!5/2005 By Agent Document No. 114926 with NAI Capital Commercial COMMENTS The property is located in the Rio Bravo area of Northeast Bakersfield. It was purchased for development of single-family residences. The price includes a tentative tract maR j6182} comprised of 361 lots. The tract map provides for an approximately 2-acre drill site. Rio Bravo Golf Courseis located nearby diagonally to the southeast across Highway 178. New subdivisions are under construction on the adjacent parcel to the west and across Highway 178 to the south. Terms of sale were all cash to the seller. The property previous sold for $1,000,000 recording December 2003 after several escrow extensions. The property was in escrow three times in 2004 at or near the asking price of $10,83Q000 but each buyer backed out. r LAND SALE 7 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address NWC Highway 178 & Alfred Harrell Hwy City, County Bakersfield -Kern Parcel No. 387-020-07 Map Page 2404-D7 Properly Rights Fee Simple PROPERTY INFORMATION Size (SF) 3,319,708 (AC) 76.21 Frontage NIA Shape Rectangular Zoning R-1 Topography Undulating to Hilly Utilities Electricity, Gas, Sewer, Water Street Paved to Property Line SALE DETAILS ffi-u ~c~s~,s rms „,.az Setter APPELBAUM BAKERSFIELD, LLC Buyer PALADINO HILLS LLC Sale Date 6!3/2005 Price/SF $2.11 Sale Price $7,000,000 PricelAcre $91,$51.46 Adjustment $420,000 Adjusted Price/SF $2.24 Adjusted Sale Price $7,420,000 Adjusted Price/Acre $97,362.55 RECORDINGlCON FIRMATION Date 6/1 4120 0 5 By Bu er Y Document No. 152370 Wrth Dewey Hinds COMMENTS The property is located northwest of the intersection of Highway 178 and Alfred Harrell Highway in northeast Bakersfield. It was purchased for development of single-family lots_ The buyer is paying for a tentative tract map with 185 estate-size lots. The terrain slopes up to the north boundary (future Paladino Drive alignment). Terms of sale were $400,000 cash to the seller, $6,600,000 note and deed of trust from a private party, and the buyer paid a commission of $420,000. The Salvadore and Cynthia A. Giumarra Revocable Trust sold the parcel to AD Properties, LLC, Appelbaum Bakersfield, LLC, and Scottalan, LLC in September 2004 for an undisclosed price. AD Properties, LLC and Scottalan, LLC sold their 2/3rd interest to Appelbaum Bakersfield, LLC recording the same day as this transaction for a reported price of $3,600,000. ~,~W ~: caem a qiv LAND SALE 8 GENERAL INFORMATION Item Vacant Land Sale ~~._ ,.M., Type Single-Family Residential H " ' Address SWC Paladino Dr & '1 4 Vineland Rd City, County Bakersfield -Kern "~- Parcel No. 531-010-05 ~~ ` ' I Map Page 2404-67 I ) -~ PropertyRtghts Fee Simplo ~l' ~~ ~`"' '~" PROPERTY INFORMATION Size (SF) 1,742,400 ~ ~ ~ (AC) 40.00 ' ~~ ~ Frontage 1,320 Paladino Dr , , 1,320 Vineland Rd s~--y -~ Shape Square Zoning R-1 •~ ,-~"~~'- Topography Level iM6Ex Utilities Electricity, Gas, Sewer, Water Street Paladino Dr. -Paved `~. 1 ~~ J, ,,-~`-~'-~~` P ~ ~ >~. 3 I m'~ ~ [[~~JJ ~P~ ~ ~ ~, - - =f ' t s?di t~~,,i~ E~ ~ ^" I rr~`~r mow: --~r-~ _ s.~v~~;ra tea. ~`>`°f;-~u ec s. ,a . ~ ~ , ~~, I $IR69t"iDF l_- ~. ^ «rcx4: ~. ~~, ,,., r ii I~-_ ~"" wd Yi ',,-, r'~~ r<~La,~ i ,,:~- !! SALE DETAILS Seller TITUS INVESTMENT, LLC Buyer GMAC MODEL HOME FINANCE, INC Sale Date 6/28/2005 PricelSF $3.00 Sate Price $5,220,000 PricelAcre $130,500.00 Adjusfinent Adjusted Price/SF Adjusted Sale Price Adjusted PricelAcre RECORDING/CONFIRMATION Date 6/29!2005 ey Confidential Document No. 167051 With COMMENTS The property is located in a developing area of northeast Bakersfield adjacent to the west of the City in the Hills subdivision. It was purchased for development of single-family rs~dences. The sale included a tentative tract map (6338) for 174 lots. KB HOME recorded a memorandum of purchase agreement May 5, 2005. GMAC is land banking the property for them. Terms of sale were all cash to the seller. Titus Investments, LLC reportedly purchased the property from multiple sellers for a total price of $471,000 in April 2004. ~'"``~~{ LAND SALE 9 GENERAL INFORMATION Ol ~ M1Wf 4W'S£GE6 T2Y50.2£ IFP LdE ,~„~; ~ Item Vacant Land Sale ~ ~` °' ".~~§tej?[rl Type Single-Family Residential "" ~ €~`>~ ±;,. , , Address NWG Morning Dr & College ~; ~ »»~ i o- ~ ~ ,m ' Ave ~ ~ °' ~ ~, City, County Bakersfield -Kern ~ ~ __ ' Parcel No. 434-010-07 thru 11 ~ a.fa { ~ ~` "`' 435-010-7,8,10,28,29 _ _ ~ ,~ ~" ' Map Page 2443-G2 ~ rw Property Rights Fee Simple - -- - ~ .~. Li ..:ems ~~.. ',i PROPERTY INFORMATION `~~ ,~, ~° °°~' ~~ ~, ~i Size(SF) 10,760,191 ~ "' `"~~-"" "" (AC) 247.02 ~~ ; ~,.. ~~ ~,~i Frontage NlA ~ ~ ~'~° ~ ~ "` ~.. -_. Shape Irregular ` r ,~ 1 ~ ~` Zoning R-1 Topography Hilly ° ~, ~ Utilities Electricity, Gas, ~F.~. I Sewer, Water Street Not improved along site frontage ~'~. SALE DETAILS Seller ADAVCO, INC., ET AL Suyer MORNING 178, LLC Sate Date 7!1112005 PricetSF $1.23 Sale Price $13,250,000 Price/Acre $53,639.38 Adjusfinent Adjusted Price/SF Adjusted Sate Pdce Adjusted Pdce/Acre RECORDING/CONFIRMATION Date 7/15(2005 By Confidential Document No. 183142 With COMMENTS The property is situated at the edge of development in northeast Bakersfield. It was purchased for subdivision into single-family residential kits. The hilly terrain will affect density of development and grading costs. Six electrical tower lines pass through the site affecting the west half. There was no tentative tract map at time of sale. A 7.5-acre park site was not included in the purchase. Terms of sale were all cash to the seller. This property was purchased from Sterling Oaks Investment East, LLC in January 2005 for $6,000,000. It is a portion of 308.02 acres purchased in August 2004 for $4,200,000 from East Niles Community Services District. APPRAISAL QUALIFICATIQNS OF ' RANDALL FRANZ EXPERIENCE Independent Real Estate Appraiser(Owner, KERN APPRAISAL COMPANY, Real Estate Appraisal Services, Bakersfield, ;1 California,lf93-Present. Real Estate Appraiser and Analyst, DALLIS HIGDON & ASSOCIATES, Real Estate Analysts and Appraisers, Bakersfield, ', California, 9182 - 12/92. STATE CERTIFICATION State of California: Certified General Real Estate Appraiser OREA Appraiser Identification Number: AG004309 Expiration: 12/5/2006 PROFESSIONAL AFFILIATIONS Appraisal Institute Awazded MAI (Member Appraisal Institute) Designation 1989 Awazded SRA (Senior Residential Appraiser) Designation 1989 Bakersfield Chapter President (Society of Real Estate Appraisers} 1990 Bakersfield Association of Realtors Multiple Listing Service Member -Awarded California Real Estate Broker`s License, 1992 EDUCATIONAL ACTIVITIES Awarded B.A, degree in Business Administration from Fresno Pacific College, Fresno, California, 1977 Successful completion of the following real estate courses: American Institute of Real Estate A raisers Real Estate Appraisal Principles 3/88 Basic Valuation Procedures 3188 Standards of Professional Practice 5188 Capitalization Theory and~cTinique Part A 6/87 Capitalization Theory and Technique Part B 6187 Case StudieSin Real Estate Valuation 10187 Valuation Analysis and Report Writing 6(88 Society of Real Estate Ap rap 1SerS Course 101-Introduction to Appraising Real Property 12/83 Course 102 -Applied Residential Property Valuation 2184 Appraisal Institute Standards of Professional Practice Parts A & B 6/91, 9/97 Standards of Professional Practice Part C, 11!99 National Uniform Standards of Professional Appraisal Practice Course 6104 College Courses Real Estate Practice -Fresno City College 12/77 Real Estate Appraisal I -Bakersfield College 12/83 Real Estate Appraisal II -Bakersfield College 12/84 Real Estate Law -Bakersfield College 5/84 Real Estate Princigles -Bakersfield College 5187 Real Estate Finance -Bakersfield College 12189 Seminars (Since 19981 Expert Witness Seminar -Appraisal Institute 6198 Trends In Real Estate Debt and Equity Markets -Appraisal Institute 8198 ', The Technical Inspecfion of Commercial Real Estate -Appraisal Institute 8198 Valuation Of Detrimental Conditions In Real Estate -Appraisal Institute 3199 ', Internet Sources For California Appraisers -Appraisal Institute ?/99 Attacking & Defending An Appraisal In Litigation -Appraisal Institute 8199 Commercial Real Estate Finance For The 2151 Century -Appraisal Institute 8149 The Economics OfRight-Of--Way Appraisal -Appraisal Institute 8199 Real Estate Fraud & The Appraiser's Role -Appraisal Institute 3100 Appraisal Of Nonconfornung Uses -Appraisal Ins"tote 5/00 Technology and the Appraisal Process, New Tools for Appraisers -Appraisal Institute - 9101 35s' Annual Litigation Seminaz -Appraisal Institute 11101 Highest and Best Use Applications-Appraisal Institute-6/02 Scope of Work -Appraisal Institute - 4/04 COURT QUALIFICATIONS Testified as expert witness in Superior Court of Kern County, California. Qualified as expert witness for Federal Bankmptcy Court, Fresno, California and Federal Tax Court, Los Angeles, California. SCOPE OF EXPERIENCE Commercial Office buildings, shopping centers, motels, restaurants, convenience stores, banks, retail stores, medical offices Industrial Warehouses, shops, office/warehouses, self-storage facilities, industrial subdivisions Residential Single family, condominiums, _ planned unit developments, apartments, mobile home/recreational vehicle parks, subdivisions Special Purpose Churches, airplane hangars (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX C FORM OF OPINION OF BOND COUNSEL Closing Date, 2005 City Council City of Bakersfield 1501 Truxtun Avenue Bakersfield, CA 93301 Ciry of Bakersfield Assessment District No. OS-1 (City in the Hills) Limited Obligation hnarovement Bonds (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the City of Bakersfield (the "Issuer") of $15,595,000 aggregate principal amount of the City of Bakersfield Assessment District No. OS-1 (City in the Hills) Limited Obligation improvement Bonds (the "Bonds") pursuant to the provisions of the Municipal Improvement Act of 1913 and the Improvement Bond Act of 1915 and Resolution No. 251-05; adopted by the City Council on November 9, 2005 (the "Resolution"). Capitalized terms not otherwise deemed herein shall have the meanings ascribed to them in the Resolution. In such connection, we have reviewed the Resolution, 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 Resolution, the Tax Certificate and other relevant documents may be changed and certain actions (including, without ]imitation, 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. The opinions expressed herein aze based on an analysis of existing laws, regulations, mlings 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 afte`iiGe date hereof. We have not undertaken to determine, or to inform any person, whether any such actions aze taken or omitted or events do occur. Our engagement with respect to the Bonds has concluded with then- issuance, and we disclaim any obligation rQ 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, referzed 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 (wiiitout limitation} covenants and agreements campliance 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 Resolution and the Tax Certificate may be subject to baulauptcy, insolvency, reorganization, arzangement, 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 cities in the State of California. ca 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 accwacy 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 and certain funds held under the Resolution. 2. The Resolution has been duly adopted and constitutes a vahd 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 minnnum taxes, although we observe that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income. We express no opinion regazding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLC per C-2 APPENDIX D ASSESSMENT DIAGRAA'I D-1 (THIS PAGE INTENTIONALLY LEFT)3LANK} }~{ p ~ ~ 3 ~ G ~~D'~~C ~ s ~~ 1 E~i I6 ~ o .~+ ~ Sts ~ Y"99 ~ R 3g ~ $$ a ~S$$ ~ o a F m ~ ~ ~ ~ 5~~~ ~ ~ 4~~~ ~ r ~ fi~ ~ _ ~ ~ W ~ $ & ~ c, ~ lWfi s ~ ~ «~ ~N' ~ ~~~ ~~~ ~ ~ ~ x Q v N €~ ~ ~ g~".y~ ~ E ~ ~ ~°c W u~i y [T] ~ Q g 3C~ ~ye~&$~~ ag~~ 71 9~~~ in m~ ~ a a ~~ ~II 3~~~~o ~ ~ r ~ $g3 E- o < ~ ~ _ .a> ~gg~ v u ~os{,"+r'd~°P,g ~ sS' gggg ~S fit`, 3~5~~~5 ~ 1st ~ $158$ V ~© ~ ~ ~ ~w~ae , ~ ~ ~~g3 ~~ .-.~ y~ &8 _y8 ~~ ~"~" ~e~~v ~a `1: ~~ gv~ s ~~ S~ ~~ ~~3 ,W4 g g ~ ~~ ~ ~ ~ ~~~~< ~~~a a ~V ~ ~ e::, ~ ~€ ~€~=> ~ ~ :a ~~s g~ $$111 « ., $$_$~^ _~~,s~ 50~~~ m ~&~$_~ -a °ss3a~~ __ mms o 9 35,5 ._. QpY OII'$9r ~ ~ .~ aPy ~av~~s2 Q 'gds°~e~s' ." 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The Bonds aze being issued pwsuant to a resolution authorizing issuance of the Bonds, being Resolution No. 251-OS (the "Resolution"}, adopted by the City Council of the City on November 9, 2005. The City covenants and agrees as follows: Section 1. Purpose of the Discloswe Certificate. This Discloswe Certificate is being executed and delivered by the Ciry for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participathtg Underwriter in complying with Secwities and Exchange Commission Rule 15e2-12(b)(5), as amended. Section 2. Definitions. In addition to the definitions set forth above and in the Resolution, which apply to any capitalized term used in this Discloswe Certificate, unless otherwise defined in this section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Discloswe Certificate. "Beneficial Owner" shall mean any person who has the power, drrectly or indirectly, to vote or consent with respect to, w to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories, or other intermediaries). "Dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Fiscal Yeaz" shall mean the 12-month period beginning on July 1 and ending on the next following June 30, unless and until changed by the City. "Holder" shall mean either the registered owner of any Bond, or, if the Bonds aze registered in the name of DTC or another recognized depository, any Beneficial Owner or applicable participant in its depository system. "Listed Events" shall mean any of the events listed in Section 5(a} of this Discloswe Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The current National Repositories aze listed on the Securities and Exchange Commission website at httpaJwwwsec.govtinfolmunicipaUnrmsir.htm. "Official Statement" shall mean the final Official Statement, dated December 7, 2005, pertaining to the Bonds. "Participating Underwriter" shall mean Stone & Youngberg LLC, and any other original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. F-1 "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Renorts I {a) The City shall, or shall cause the Dissemination Agent to, not later than nine {9) months after the i end of the City's Fiscal Year (i.e., currently not later than April 1 of each yeaz), commencing with the report for the 2005-06 Fiscal Yeaz, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as sepazate documents comprising a package, and may include by reference other information as provided in Section 4 of this ~ Disclosure Certificate; provided that the audited fmancial statements of the City may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not ~; available by that date. The Annual Report may be filed using the SEC-Approved Electronic Transmission Facilities ' provided by the Texas Municipal Advisory Council at website http:flwww.disclosureusa.org. If the City's Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) Not later than fifteen (15) Business Days prior to the date required in subsection (a), the City shall provide the Annual Report to the Dissemination Agent (if other than the City}. If the City is unable to provide to each Repository an Annual Report by the date required in subsection (a), the City shall send to each Repository a notice in substantially the fotm attached hereto as Exhibit A. (c) The Dissemination Agent shall: {i) determine each year, prior to the date for providing the Annual Report, the name and address of each Repository, and file the Annual Report with each Repository, and (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following: (aj The audited financial statements of the City for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City's audited fmancial statements aze not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited fmancial statements in a format similar to the fmancial statements contained in the final Official Statement, and the audited fmancial statements shall be filed in the same manner as t$~ Annual Report when they become available. Notwithstanding the foregoing, each Annual Report or other filing containing the City's fmancial statements may include the following or other similar statement: THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED SOLELY TO COMPLY WITH THE SECURITIES AND EXCHANGE COMMISSION STAFF'S INTERPRETATION OF RULE 15c2-12. NO FUNDS OR ASSETS OF THE CITY OF Bt1KERSFIELD (OTHER THAN THE ASSESSMENTS LEVIED TN THE ASSESSMENT DISTRICT) ARE REQUIl2ED TO BE USED TO PAY DEBT SERVICE ON THE BONDS, AND THE CITY IS NOT OBLIGATED TO ADVANCE AVAILABLE FUNDS FROM `1TID CITY TREASURY TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE CITY IN EVALUATING WHETHER TO BUY, HOLD, OR SELL THE BONDS. F-2 (b) The following information with respect to the City for the Fiscal Year to which the Annual Report relates, which information may be provided by its inclusion in the audited financial statements of the City for the prior Fiscal Year described in subsection (a) above: (i} The principal amount of Bonds outstanding, including principal amounts and years of maturity of Bonds, if any, called for redemption in advance of maturity. (ii} The balances as of the end of such Fiscal Year in each of the following funds established ~I pursuant to the Resolufiom {A} the Improvement Fund; (B} the Redemption Fund; and (C) the Reserve Fund. -1 ', (iii) Identification of each parcel for which any installment of the unpaid assessment is delinquent, together with the following information respecting each such parcel; (A) the amount delinquent (exclusive of late charges and monthly penalties for reinstatement); (B) the date {December 10 or April LO) of the first delinquency; (C} in the event a foreclosure complaint has been filed respecting such delinquent parcel and such complaint has not yet been dismissed, the date on which the complaint was filed in the Kem County Superior Court; and (D) in the event a foreclosure sale has occurred respecting such delinquent parcel, a summary of the results of such foreclosure sale. (iv) A current statement of the status of completion or progress toward completion of the public improvements described in the Official Statement under the subheading "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Assessment District and the Improvements." (v} A current statement of the land-secured public financing information summarized in the Official Statement under the subheading "THE BONDS -Priority of Lien:' ~ (vl) A current statement of the parcel information set forth in Columns 5 through 9, inclusive, i of APPENDIX E m the Official Statement, for both existing and future parcels. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Boazd. The City shall clearly identify each such other document so included by reference. Section 5. Reoortine of Significant Events. (a} Pursuant to the provisions of this Section 5, the Ciry shall give, or cause to be given, notice of the occurrence of any of the following events (each, a "Listed Event") widen respect to the Bonds, if material: (i} principal and interest payment delinquencies; (ii} non-payment related defaults; (iii) modifioations to rights of Bond Holders; e (iv} optional, contingent, or unscheduled Bond calls; (v} defeasances; (vi) rating changes; F-3 ~i (vii) adverse tax opinions or events adversely affecting the tax~xempt status of the Bonds; (viii) unscheduled draws on the debt service reserves reflecting financial difficulties; {ix) unscheduled draws on credit enhancements reflecting financial difficulties; (x) substitution of credit or liquidity providers, or their failure to perform; or (xi) release, substitution, or sale of property securing repayment of the Bonds. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible detemtine if such event would be material under applicable Federal securities law. {c) If the City detemvnes that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall promptly file a notice of such occurrence with either (i) the Municipal Securities Rulemaking Board and the State Repository or (ii) the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(iv) and (v) need not be given under this subsection any earlier than the notice {if any) of the underlying event is given to Holders of affected Bonds pursuant to the Resolution. Section 6. Termination of Reportine Obli ag tion. The City's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption, or payment in full of all of the Bonds. if such tetminaGon occurs prior to the fmal maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Aeent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. ', Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions aze satisfied: (a) if the amendment or waiver relates to the provisions of Section 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, haue complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and_ (c) the proposed amendment or waiver either (i) is approved by Holders of the Bonds in the manner provided in the Resolution for amendments ro dme Resolution with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially unpair the interests of the Holders or Beneficial Owners of the Bonds. If the annual fmancial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual fmancial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the' impact of the change in the type of operating data or fmancial information being provided. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the F~ reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation} of financial information or operating data being presented by Ure.City. If,an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements ar information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of dte change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate dre ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this I Discloswe Certificate or any other means of communication, or including any other information in any Annual !, Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. Sf the City chooses to include any information in any Annual Report or notcce of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Discloswe Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section L0. Default. lrt the event of a failure of the City to comply with any provision of this Discloswe Certificate any Holder or Benefcial Owner of the Bonds may take such actions as maybe necessary and appropriate, including seeking mandate or specific performance by court arder, to cause the City to comply with its obligations under this Discloswe Certificate. A default under this Discloswe Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failwe of the City to comply with this Discloswe Certificate shall be an acfion to compel performance. Section 11. Duties Immunities. and Liabilities of Disseminafion A ent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees, and agents, hamtless against any losses, expenses, and liabilities which it may incw arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees} of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries This Discloswe Certificate shall inwe solely to dte benefit of the City, the Dissemination Agent, the Participating Underwriter, and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: [Closing Date] CITY OF BAKERSFIELD Finance Director F-5 EXHIBIT A NOTICE OF FAILURE TO FH,E ANNUAL REPORT Name of Issuer: City of Bakersfield, California Name of Bond Issue: Assessment District No. OS-1 (City in the Hills) Limited Obligation Improvement Bonds Date of Issuance: [Closing Date] NOTICE IS HEREBY GNEN that the Ciry of Bakersfield, California (the "City}, has not provided an Annual Report with respect to the above-named Bonds as required Section 4(a} of the Continuing Disclosure Certificate executed by the City on [Closing Date]. The City anticipates that the Annual Report will be filed by Dated: CITY OF BAKERSFIELD By: Finance Director F-6 CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. DS-1 (CITY IN THE HILLS} ~ LIMITED OBLIGATION IMPROVEMENT BONDS LANDOWNER CONTINUING DISCLOSURE CERTIFICATE (MOUNTAIN VIEW BRAVO, LLC) This Continuing Disclosure Certificate (the "Disclosure CertiScate") is executed and delivered by Mountain View Bravo, LLC, a California limited liability company (the "Disclosure Representative"), on behalf of itself and Regent Land Investment, LLC, a Delawaze limited liability companytogether with the Disclosure ', Representative, the "Landowners"), in connection with the issuance by the City of Bakersfield (the "City") of ', $15,595,000 in aggregate principal amount of the above-referenced bonds (the "Bonds") for Assessment Distict No. 05-1 (City in the Hills} (the "Assessment District"). The Bonds are being issued pursuant to a resolution authorizing issuance of the Bonds, being Resolution No. 251-OS (the "Resolution"), adopted by the City Council of the City on November 9, 2005. The Disclosure Representative covenants and agrees as follows: SECTION I. Purpose of the Disclosure Certificate This Disclosure Certificate is being executed and delivered by the Disclosure Representative on behalf of the Landowners for the benefit of the City, Stone & Youngberg LLC, as the underwriter of the Bonds (the "Underwriter"), and the Holders and Beneficial Owners (each as defined below) of the Bonds in order to assist the Underwriter in complying with Securities and Exchange Commission Rule ISc2-12(b){5), as amended. SECTION 2. Definitions. In addition ttr the definitions set forth above and in the Resolution, which apply to any capitalized term used in this Disclosure Certificate, unless otherwise defined in this section, the following capitalized terms shall ~ have the following meanings: "Affiliate" of another Person shall mean (a} a Person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of such other Person, (b) any Person 5% or more of whose outstanding voting securities are directly or indrrectly owned, controlled, or held with power to vote by ', such other Person, or (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person. For purposes hereof, "control" means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. - "Assumption Agreement" means an agreement or certificate by a Successor Landowner, containing terms substantially similar to this Disclosure Certificate, whereby such Successor Landowner shall agree to provide Semi- - Annual Reports and notices ofLisled Events with respect to the property in the Assessment District owned by such Successor Landowner and its Affiliates, if any. `Beneficial Owner" shall mean any person who has the power,'directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond or Bonds, including persons holding Bonds through nominees, depositories, or other intermediaries. "Development Plan" shall mean the specific improvements any Landowner intends to make, or causes to be made, in order for the property in the Assessment District owned by such Landowner to reach the Planned Development Stage, the time frame in which such unprovements aze intended to be made, and the esthnated costs of such improvements. Such Landowner's Development Plan, as of the date hereof, is described in the Official I Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ~ ASSESSMENT DISTRICT." F-7 "Disclosure Period" shall mean the six-month period beginning on July 1 or January I and ending on the next following June 30 or December 31, as applicable. , "Dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. ', "Event of Banlmtptcy" shall mean, with respect to a Person, that such Person files a petition or institutes a proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such act or acts, either as a banlo-upt or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby such Person asks, seeks, or prays to be adjudicated a banlmtpt, or is to be discharged from any or all of such Person's debts or obligations, or offers to such Person's creditors to effect a composition or extension of time to pay such Person's debts or obligations, or asks, seeks, or prays for reorganization or to effect a plan of reorganization, or for a readjustment of such'Person's debts, or for any other similar relief, or if any such petition or any such proceedings of the same or similar kind or chazacter is filed or instituted or taken against such Person and the same shall remain undismissed for a period of 60 days, or if a receiver of the business, property, or assets of such Person is appointed by any court, or if such Person makes a general assignment for the benefit of such Person's creditors. "Financing Plan" shall mean the method by which any Landowner intends to finance its Development Plan, including specific sources of funding for such Development Plan. Such Landowner's Financing Plan, as of the date hereof, is described in the Official Statement under the heading "OWNERSFBP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." "Financial Statements" shall mean, for any Landowner, the full financial statements, special purpose financial statements, project operating statements, or other reports reflecting the financial position of such Landowner's parent company or, if such financial statements are prepared separately far such Landowner, reflecting the Financial position of such Landowner; provided that, if such financial statements or reports are otherwise prepared as atulited financial statements or reports, [hen "Financial Statements" means such audited Fnancial statements or reports. The Financial Statements for any Landowner or its pazent company shall consist of a balance sheet, an income statement, and a statement of cash flows, all prepazed in accordance with generally accepted accounting principles. "Holders" shall mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. "Listed Event" shall have the meaning given to such term in Section 5 of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The current National Repositories are listed on the Securities and Exchange Commission website at httpafwwwsec_goT~linnnicipaUnrmsir.htm. "Official Statemenf' shall mean the final Official Statement dated December 7, 2005, pertaining to the Bonds. "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a limited liability company, a trust, any unincorporated organization, or a government or a political subdivision thereof. "Planned Development Stage" shall mean, with respect to any property in the Assessment District owned by any Landowner or of such Landowner's Affiliates, the stage of development to which such Landowner or Affiliate intends to develop such property, as described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." "Repository" shall mean each National Repository and each State Repository. F-8 "Rule" shall mean Rule 15c2-12(b)(5} adopted by the Securities and Exchange Commission under the 1 Securities Exchange Act of 1934, as the same may be amended from time to time. "Semi-Annual Report" shall mean any Semi-Annual Report provided by the Disclosure Representative pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. ', "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. "Successor Landowner" shall mean any property owner, other than the Landowners or their respective ', Affiliates, which purchases property in the Assessment District for the purpose of developing the property and not merely as an end-user. ' SECTION 3. Provision of Semi-Anttual Reports (a) So long as the Disclosure Representative is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, the Disclosure Representative shall provide, or shall cause the Dissemination Agent to provide, not later than three (3) months after the end of each Disclosure Period (i.e., not later than September 30 or March 31 of each yeaz, as applicable), commencing with the report for the Disclosure Period ending June 30, 2.006, to each Repository aSemi-Annual Report relating to the immediately preceding Disclosure Period that is consistent with the requirements of Section 4 of this Disclosure Certificate. The Semi-Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided, however, that if audited Financial Statements are required to be provided, such audited Financial Statements may be submitted i sepazately from the balance of the Semi-Annual Report, and later than the date required above for the filing of the ~ Semi-Annual Report, if not available by That date. The Semi-Annual Report may be filed using the SEC-Approved Electronic Transmission Facilities provided by the Texas Municipal Advisory Council at website http://www.disclosureusa.org. (b) So long as the Disclosure Representative is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, not later than fifteen (IS} business days prior to the date required in subsection (a} hereof, the Disclosure Representative shall provide the Semi-Affiual Report to the Dissemination Agent. If the Disclosure Representative is unable to provide, or cause to be provided, to each Repository aSemi-Annual Report by the date required in subsection (a) hereof, the Dissemination Agent shall, fast, confum that the Disclosure Representative's obligation hereunder has not been terminated pursuant to Section 6 of this Disclosure Certificate, and, if the Disclosure Representative is still obligated hereunder, the Dissemination Agent shall send to each Repository a notice in substantially the form attached hereto as Exhibit A. (c) The Dissemination Agent shall (i) determine each year, prior to the date for providing the Semi-Annual Report, the name and address ofeach-Repository, and file the Semi-Annual Report with each Repository, and (ii) following the filing of the Semi-Annual Report with each Repository, file a certificate with the City and each Landowner certifying that the Semi-Annual Report has been Sled with each Repository pwsuant to this Disclosure Certificate, stating the date on which the Semi-Annual Report was filed, and listing each Repository (byname and address} with which it was filed. F-9 SECTION 4. Content of Semi-Annual Reports So long as the Discloswe Representative is obligated hereunder and said obligation has not been terimiinated pwsuant to Section 6 of this Discloswe Certificate, the Discloswe Representative shall provide aSemi-Annual Report for the preceding Discloswe Period with respect to property within the Assessment District owned by a Landowner or its Affiliates, if any, which Semi-Annual Report shall contain or incorporate by reference the ~~~ following information with respect to each Landowner that owns property within the Assessment District and such ProPwh'~ (a) The Discloswe Representative shall provide a general description of progress made in the Development Plan of each Landowner or its Affiliates, and any significant changes in the Development Plan, Financing Plan, or zoning with respect to each Landowner's development since the prior Discloswe Period. The Discloswe Representative shall track actual absorption relative to projected absorption according to the framework ', described in the Official Statement under the heading "OWNERSFIiP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESS~+IENT DISTRICT." The Discloswe Representative shall identify any material deviations in actual versus expected sale prices, and identify zoning changes, if any. The Discloswe Representative shall also include information concerning the recordation of final maps, if applicable, and information concerning the sale or transfer of property to Persons that aze not Affiliates of the applicable Landowner. (b) The Discloswe Representative shall describe any significant changes in the Financing Plan for the development project of a Landowner including, without limitation, changes in status of the Landowner's credit line (or the credit line of any Affiliates of the Landowner that own property within the Assessment District), if applicable. (c} The Discloswe Representative shall describe (i) any change in the legal structwe of a Landowner or of any of its Affiliates that own property within the Assessment District; (ii) any previously undisclosed amendments to the land use entitlements or environmental conditions or other governmental conditions that are necessary to complete such Landowner's Development Plan; or (iii) any previously undisclosed legislative, administrative, orjudicial challenges to such Development Plan, if known. (d) Each fiscal year, one Semi-Annual Report shaft make reference to the quarterly and annual Financial Statements of the Landowner's pazent company or the Landowner, as applicable, on file with the Securities and Exchange Comtnissipn (if applicable). All such references may contain the following caveat: The quarterly or annual reports provided with this Semi-Annual Report are referred to for informational purposes only. In the event of a failwe to pay any installment of assessments, and after depletion of the Reserve Fund, the real property in the Assessment District is the sole security for the Bonds. The obligation of a Landowner to pay the unpaid assessment installments does not constitute a personal indebtedness of the Landowner for which the funds or assets (other than the property in the Assessment District} of the Landowner may be required, by operation of law or otherwise, to be used to pay debt service on the Bonds. It should not be inferred from the reference to the quarterly oranpual reports provided with this Semi-Annual Report that the funds or assets (other than the property in the Assessment District) aze available to cwe any delinquencies in the payment of assessments. (e) To the extent that Financial Statements aze prepmed sepazately for a Landowner, Financial Statements prepared in accordance with generally accepted accounting principles, as in effect from time to time, shall be provided. To the extent that audited Financial Statements are prepared separately for a Landowner, if audited Financial Statements are required to be provided and such audited Financial Statements are not available by the time the applicable Semi-Annual Report is xequued to be provided pwsuant to Section 2{a) of this Discloswe Certificate, the applicable Semi-Annual Report shall contain unaudited 'Financial Statements, and the audited Financial Statements shall be filed in the same manner as the applicable Semi-Annual Report when they become available. Such Financial Statements shall be for the most recently ended fiscal yeaz far the entity covered thereby.. . To the extent that audited Financial Statements of a Landowner aze prepazed, the Disclosure Representative shall include such audited Financial Statements in the applicable Semi-Annual Report. To the extent that the provisions of this subsection (e) become applicable, the provisions of subsection (d) above shall cease to be applicable. All such audited Financial Statements of the Landowner, if any, may contain the following caveat: F-10 The audited financial statements of the Landowner aze included for informational purposes only. In the event of a failure to pay any installment of assessments, and afrer depletion of the Reserve Fund, the real property in the Assessment District is the sole security for the Bonds. The obligation of the Landowner io pay the unpaid assessment installments does not constitute a personal indebtedness of the Landowner for which the funds or assets (other than the property in the Assessment District) of the Landowner may be required, by operation of law or ', otherwise, to be used to pay debt service on the Bonds. It should not be inferred from audited financial statements j of the Landowner that the funds or assets (other than the property in the Assessment District) aze available to cure '.. any delinquencies in the payment of assessments. (f) 1n addition to any of the information expressly required to be provided under this Section, the Disclosure Representative shall provide such fisther information, if any, as may be necessary to make the ', specifically required statements, in the light of the circumstances under which they.aze made, not misleading. ', The Disclosure Representative may file a single Semi-Annual Report covering itself and all Landowners. Any or all of the items listed above may be included by specific reference to other documents that have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Disclosure Representative shall cleazly identify each such other document so included by reference. SECTION 5. Renortinpof SienificantEvents (a} So long as the Disclosure Representative is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, pursuant to the provisions of this Section 5, the Disclosure Representative shall promptly give, or cause to be given notice of the occurrence of any of the following events (each, a "Listed Event"} with respect to each Landowner and any of its Affiliates that own property within the Assessment District: (i) Any conveyance by a Landowner or any of its Affiliates to a Successor Landowner or its Affiliates, if any, of property that, when aggregated with all other property in the Assessment District then-owned by such Successor Landowner and its Af~iliates,rf any, is subject to the lien of greater than twenty percent (20%) of the ~ annual assessment securing payment of the fonds. (ii) Any failure of a Landowner or any of its Affiliates to pay when due general property taxes, special taxes, or assessments with respect to its property within the Assessment District. (iii) Any termination of a line of credit or loan, any termination of, or uncured material default under, any line of credit or loan, or any other loss of a source of funds that could have a material adverse affect on a Landowner's most recently disclosed Financing Plan or Development Plan, if any, or on the ability of such Landowner or any of its Affiliates to pay assessment installments with respect to the Assessment District when due. {iv) The occurrence of an Event of Bankruptcy with respect to a Landowner or any of its Affiliates that could°have a material adverse affect on such Landowner's most recently disclosed Financing Plan or Development Plan, if any, or on the ability of such Landowner or any of its Affiliates to pay assessment installments with respect to the Assessment District when due. {v} Any significant amendments to land use entitlements for the properiynf a Landowner or its Affiliate in the Assessment Dishict, if material. ', (vi) Any previously undisclosed governmentally-imposed preconditions to commencement or ', continuation of development on the property of a Landowner or its Affiliate in the Assessment District, if material. (vii) Any previously tndisclosed legislative, administrative, or judicial challenges to development on the property of a Landowner or its Affiliate in the Assessment District, if material. F-11 {viii} Any changes in the alignment, design, or likelihood of completion of significant public improvements, including major thoroughfazes, sewers, water conveyance systems, and similar facilities, that could materially adversely affect the ability of a Landowner or its Affiliates to complete the development of its property in the Assessment District as planned ar in a timely manner. (ix) The assumption of any obligations by a Successor Landowner pwsuant to Section 6 of this Discloswe Certificate. (b) Whenever a Landowner obtains knowledge of the occurrence of a Listed Event, the Discloswe Representative shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pwsuant to subsection (c} below. (c) If the Dissemination Agent has been instmeted by the Discloswe Representative (or any Landowner) to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with either {i) the Municipal Securities Rulemaking Board and each State Repository or (ii) the Repositories, with a copy to the Participating Underwriter. SECTION 6. Termination of Discloswe Representative's Renortin¢ Oblieation. The Disclosure Representative's continuing obligation to provide aSemi-Annual Report and notices of material Listed Events will terminate upon the eazlier of (1) the legal defeasance, prior redemption, or payment in full of all of the Bonds, or (2} the date upon which the Landowners and its Affiliates, if any, cease to own property in the Assessment District that, when aggregated with all other property in the Assessment District then-owned by 'I the Landowners and their Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds; provided, however, for purposes- of determining the Landowners' ownership of properly in the Assessment District, it shall be assumed that the Landowners own all property for which the Landowners and their Affiliates, if any, hold an exercisable option to pwchase such property, whether or not such option has been exercised, or (3) when the property of a Landowner or its Affiliates within the Assessment ~,' District has reached the Planned Development Stage. If the Landowners convey to a Successor Landowner property in the Assessment District prior to the time at which such property reaches the Planned Development Stage, and such property conveyed, when aggregated with all other property in the Assessment District then-owned by such Successor Landowner and its Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds, then the Discloswe Representative shall require a Successor Landowner to enter into an Assumption Agreement, but only to Ute extent and upon the terms, if any, required by the Rule. SECTION T. Dissemination Anent The City may, firm time to time, appoint or engage a Dissemination Agent to assist the Disclosure Representative in carrying out its obligations under this Discloswe Certificate, and the City may dischazge any such Dissemination Agent, with w~w-ithoutappointing a successor Dissemination Agent. SECTION- $. Amendment: Waiver. Notwithstandingany other provision of this Discloswe Certificate, the Discloswe Representative may amend this Discloswe Certificate, and any provision of this Discloswe Certificate may be waived, provided that the City agrees in writing and the follow3rtg conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 3{a), 4, or 5, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, natwe, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretafions of the Rule, as well as any change in circumstances; and F-12 .~ (c) the proposed amendment or waiver either (i) is approved by Holders of the Bonds in the manner provided in the Resolution for amendments to the Resolution with the consent of Holders, or {ii) does not, in the ~ opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. Tf the annual financial information or operating data to be provided in the Semi-Annual Report is amended pwsuant to the provisions hereof, the fast annual financial information filed pwsuant hereto containing the amended operating data or fmancial information shall explain, in narrative forzn, the reasons for the amendment and the impact of the change in the type of operating data or fmancial information being provided. !, In the event of any amendment or waiver of a provision of this Discloswe Certificate, the Discloswe Representative shall describe such amendment in the next Semi-Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on'the type {or, in the case of a j change of accounting principles, on the presentation) of fmancial information or operating data being presented by the Discloswe Representative on behalf of a Landowner. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing fmancial statements, the annual fmancial information for the year in which the change is made shall present a comparison between the fmancial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the fmancial information, in order to provide information to investors to enable them to evaluate the ability of a Landowner to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5. SECTION 9. Additional Information. Nothing in this Discloswe Certificate shall be deemed to prevent the Discloswe Representative from disseminating any other information using the means of dissemination set forth in this Disclosure Certificate or any other means of communication or including any other information in any Semi-Annual Report or notice of occurrence of a Listed Event, in addifion to that which is required by this Discloswe Certificate. If the Discloswe Representative chooses to include any information in any Semi-Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Discloswe Certificate, the Discloswe Representative shall have no obligation under this Discloswe Certificate to update such information or include it in any futwe Semi-Annual Report or notice of occurrence of a Listed Event. SECTION 1Q. Default. In the event of a failwe of the Discloswe Representative to comply with any provision of this Discloswe Certificate, the Underwriter, the City, or any Holder or Beneficial Owner of outstanding Bands may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Discloswe Representative--to-comply with its obligations under this Disclosure Certificate. A default under this Discloswe Certificate shall not be deemed to be an event of default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failwerof the Discloswe Representative to comply with this Discloswe Certificate shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Dissemination Arent The Dissemination Agent shall Lave only such duties as are specifically set forth in this Discloswe Certificate, and the Discloswe Representative agrees to indemnify and save the City, the Dissemination Agent, and their respective officers, directors, employees, and agents, harmless against any losses, expenses, and liabilities which either or both of them may incw arising out of or in the exercise or performance of the Disclosure Representative's powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the City's or the Dissemination Agent's negligence or willful misconduct. The obligations of the Discloswe Representative under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. F-]3 SECTION 12. Beneficiaries This Disclosure Certificate shall be binding upon the Disclosure Representative and shall inure solely to the benefit of the Disclosure Representative, the Dissemination Agent, the Underwriter, the Ciry, and the Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: [Closing Date] MOUNTAIN VIEW BRAVO, LLC, a California limited liability company F-14 EXHIBIT A I NOTICE TO REPOSITORIES OF FAILURE TO FILE SEMI-ANNUAL REPORT Name of Landowner: MOUNTAIN VIEW BRAVO, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY Name of Bond Issue: CITY OF BARERSFIELD, CALIFORNIA ASSESSMENT DISTRICT NO.OS-1 (CITY IN THE HILLS) LIMITED OBLIGATION IMPROVEMENT BONDS Date of Issuance: [Closing Date] ' NOTICE IS HEREBY GNEN Utat Mountain View Bravo, LLC, a California limited liability company (the "Discloswe Representative"), has not provided aSemi-Annual Report with respect to the above-named Bonds as required by Section 3 of the Landowner Continuing Discloswe Certificate, dated [Closing Date]. The Disclosure Representative anticipates that the Sethi-Annual Report will be filed by Date: CITY OF BAKERSFIELD, as Dissemination Agent, on behalf of Mountain View Bravo, LLC, a California limited Ifabiliry company By: Finance Director cc: Discloswe Representative F-15 CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO.OS-I (CITY IN THE HILLS} LIMITED OBLIGATION IMPROVEMENT BONDS LANDOWNER CONTINUING DISCLOSURE CERTIFICATE {D.R. HORTON LOS ANGELES HOLDING COMPANY, INC.) This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by D.R. Horton Los Angeles Holding Company, Inc., a California corporation (the "Landowner"), in connection with the issuance by the City of Bakersfield (the "City"} of $15,595,000 in aggregate principal amount of the above- referenced bonds (the "Bonds"} for Assessment District No. OS-1 (City in the Hills} {the "Assessment District"). The Bonds are being issued pursuant to a resolution authorizing issuance of the Bonds, being Resolution No. 251-OS (the "Resolution"), adopted by the City Council of the City on November 9, 2005. The Landowner covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Landowner for the benefit of the City, Stone & Youngberg LLC, as the underwriter of the Bonds (the "Underwriter"}, and the Holders and Beneficial Owners (each as defined below) of the Bonds in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5), as amended. SECTION 2. Definitions In addition to the definitions set forth above and in the Resolution, which apply to any capitalized term used in this Disclosure Cerificate, unless otherwise defined in this section, the following capitalized terms shall have the following meanings: "Affiliate" of another Person shall mean (a} a Person duectly or indirectly owning, conffolling, or holding with power to vote, 5°fo or more of the outstanding voting securities of such other Person, (b} any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by such other Person, or (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person. For purposes hereof, "control" means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Assumption Agreement" means an agreement or certificate by a Successor Landowner, containing terms substantially similaz to this Disclosure Certificate, whereby such Successor Landowner shall agree to provide Semi- Annual Reports and notices of Listed Events with respect to the properly in the Assessment District owned by such Successor Landowner and its Affiliates, if any. `Beneficial Owner" shall mean any person who has the poyver, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond or Bonds, including persons holding Bonds through nominees, depositories, or other intermediazies. "Development Plan" shall mean the specific improvements the Landowner intends td make, or cause to be made, in order for the property in the Assessment District owned byr the Landowner to reach the Planned Development Stage, the time frame in which such improvements are intended to be made, and the estimated costs of such improvements. The Landowner's Development Plan, as of the date hereof, is described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE. ASSESSMENT DISTRICT" "Disclosure Period" shall mean the six-month period beginning on July 1 or January 1 and ending on the next following June 30 or December 31, as applicable. F-16 "Dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by j the City and which has filed with the City a written acceptance of such designation. "Event of Bankruptcy" shall mean, with respect to a Person, that such Person files a petition or institutes a proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such act or acts, either as a bankrupt or as an insolvent, or as a debtor, or in ., any similar capacity, wherein or whereby such Person asks, seeks, or prays to be adjudicated a battlaupt, or is to be discharged from any or all of such Person's debts or obligations, or offers to such Person's creditors to effect a i composition or extension of time to pay such Person's debts or obligations, or asks, seeks, or prays for reorganization or to effect a plan of reorganization, or for a readjustment of such Person's debts, or for any other similar relief, or if any such petition or any such proceedings of the same or similar kind or character is filed or I instituted or taken against such Person and the same shall remain undismissed.for aperiod of 60 days, or if a receiver of the business, property, or assets of such Person is appointed by any coitrt, or if such Person makes a i general assignment for the benefit of such Person's creditors. "Financing Plan" shall mean the method by which the Landowner intends to finance its Development Plan, including specific sources of fitnding for such Development Plan. The Landowner's Financing Plan, as of the date hereof, is described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." "Financial Statements" shall mean the full financial statements, special purpose financial statements, project operating statements, or other reports reflecting the financial position of the Landowner's pazent company or, if such financial statements are prepared separately for the Landowner, reflecting the financial position of the I Landowner; provided that, if such financial statements or reports are otherwise prepazed as audited financial statements or reports, then "Financial Statements" means such audited financial statements or reports. The Financial Statements for the Landowner or its parent company shall consist of a balance sheet, an inwme statement, and a ~ statement of cash flows, all prepared in accordance with generally accepted accounting principles. "Holders" shall mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, aay Beneficial Owner or applicable participant in its depository system. "Listed Event" shall have the meaning given to such term in Section 5 of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The current National Repositories are listed on the Securities and Exchange Commission website at http:tlwww.sec.govtinfotmunicipaUnrmsir.htm. "Official Statement" shall mean the final Official Statement dated December 7, 2005, pertaining to the Bonds. "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a limited liability company, alrust, any unincorporated organization, or a gov'etrtnfent or a political subdivision thereof. "Planned Development Stage" shall mean, with respect to any property in the Assessment District owned by the Landowner or its Affiliates, if any, the stage of development to which the Landowner or its Affiliate intends to develop such property, as described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." As of the date hereof, the Landowner's Planned Development Stage is to develop its property in the Assessment District to the point at which all final subdivision maps have been recorded, including providing the infrastructure required in connection therewith, and to construct single family homes thereon. "Repository" shall mean each National Repository and each State Repository. F-17 "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Semi-Annual Report" shall mean any Semi-Annual Report provided by the Landowner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. "Successor Landowner" shall mean any property owner, other than the Landowner or its Affiliates, which purchases property in the Assessment District for the purpose of developing the property and not merely as an end- user. SECTION 3. Provision ofSemi-Annual Reports _ (a} So long as the Landowner is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, the Landowner shall provide, or shall cause the Dissemination Agent to provide, not later than three (3) months after the end of each Disclosure Period {i. e., not later than September 30 or March 31 of each year, as applicable), commencing with the report for the Disclosure Period ending Sune 3Q 2006, to each Repository aSemi-Annual Report relating to the immediately preceding Disclosure Period that is consistent with the requirements of Section 4 of this Disclosure Certificate. The Semi-Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided, however, that if audited Financial ~ Statements aze required to be grovided, such audited Financial Statements may be submitted sepazately from the balance of the Semi-Annual Report, and later than the date required above for the filing of the Semi-Annual Report, if not available by that date. The Semi-Annual Report may be filed using the SEC-Approved Electronic I, Transmission Facilities provided by the Texas Municipal Advisory Council at website http:/lwww.disclosureusa.org. (b} So long as the Landowner is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, not later than fifteen (15} business days prior to the date required in subsection (a) hereof, the Landowner shall provide the Semi-Annual Report to the Dissemination Agent. If the Landowner is unable to provide, or cause to be provided, to each Repository a Semi-Annual Report by the date required in subsection (a) hereof, the Dissemination Agent shall, first, confum that the Landowner's obligation hereunder has not been terminated pursuant to Section 6 of this Disclosure Certificate, and, if the Landowner is still obligated hereunder, the Dissemination Agent shall send Yo each Repository a notice in substantially the form attached hereto as Exhibit A. (c} The Dissemination Agent shall: {i} deternune each year, prior to the date for providing the Semi-Annual Report, the name and address of each Repository, and file the Semi-Annual Report with each Repository, and (ii) following the filing of the Semi-Annual Report with each Repository, file a certificate with the City and the Landowner certifying that the Semi-Annual Report has been filed with each Repository pursuant to this Disclosure Certificate, stating the date on which the Semi-Annual Report was filed, and listing each Repository (by name and address} with which it was filed. F-18 SECTION 4. Content of Semi-Annual Reports So long as the Landowner is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, the Landowner shall provide aSemi-Annual Report for the preceding Disclosure Period with respect to property within the Assessment District owned by the Landowner or its Affiliates, if any, which Semi-Annual Report shall contain or incorporate by reference the following:. I (a} The Landowner shall provide a general description of progress made in the Development Plan, ,; ;,{ and any significant changes in the Development Plan, Financing Plan, or zoning since the prior Disclosure Period. The Landowner shall track actual absorption relative to projected absorption according to the framework described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." The Landowner shall identify any material deviations in actual versus expected sale prices, and identify zoning changes, if any. The Landowner shall also include I information concerning the recordation of final maps, if applicable, and information concerning the sale or transfer of property to Persons that are not Affiliates of the Landowner. (b} The Landowner shall describe any significant changes in the Financing Plan for its development project including, without limitation, changes in status of the Landowner's credit line {or the credit line of any Affiliates of the Landowner that own property within the Assessment District}, if applicable. (c) The Landowner shall describe (i} any change in the legal structure of the Landowner or of any of its Affiliates that own property within the Assessment District; (ii) any previously undisclosed amendments to the land use entitlements or environmental conditions or other governmental conditions that aze necessary to complete its Development Plan; or {iii} any previously undisclosed legislative, administrative, or judicial challenges to the Development Plan, if known. (d) Each fiscal year, one Semi-Annual Report shall make reference to the quarterly and annual Financial Statements of the Landowner's parent company or the Landowner, as applicable, on file with the Securities and Exchange Coaunission (if applicable). All such references may contain the following caveat: ', The quarterly or annual reports provided with this Semi-Annual Report are referred to for informational purposes only. 1n the event of a failure to pay any installment of assessments, and after depletion of the Reserve Fund, the real property in the Assessment District is the sole security for the Bonds. The obligation of the Landowner to pay the unpaid assessment installments does not constitute a personal indebtedness of the Landowner for which the funds or assets (other than the property in the Assessment District} of the Landowner may be required, by operation of law or otherwise, to be used to pay debt service on the Bonds. It should not be inferred from the reference to the quarterly or annual reports provided with this Semi-Annual Report that the funds or assets (other than the property in the Assessment District) are available to cure any delinquencies in the payment of assessments. (e} To the extent that Financial Statements are prepared separately for the Landowner, Financial Statements prepazed in accordairce-with-generally accepted accounting principles, as in effect from time to time, shall be provided. To the extent that audited Financial Statements are prepared separately for the Landowner, if audited Financial Statements are required to be provided and such a~7dited Financial Statements aze not available by the time the applicable Semi-Amual Report is required to be provided pursuant to Section 2(a) of this Disclosure Certificate, the applicable Semi-Annual Report shall contain unaudited Financial Statements, and the audited Financial Statements shall be filed in the same manner as the applicable Semi-Annual Report when they become available. Such Financial Statements shall be for the most recently ended fiscal year for the entity covered thereby. To the extent that audited Financial Statements of the Landowner aze prepared, the Landowner shall include such audited Financial Statements in the applicable Semi-Annual Report. To th'e extent that the provisions of this subsection (e) become applicable, the provisions of subsection (d) above shall cease to be applicable. All such audited Financial Statements of the Landowner, if any, may contain the following caveat: The audited financial statements of the Landowner are included for informational purposes only.. In the event of a failure to pay any installment of assessments, and after depletion of the Reserve Fund, the real property in the Assessment District is the sole security for the Bonds. The obligation of the Landowner to pay the unpaid assessment instalhnents does not constitute a personal indebtedness of the Landowner for which the funds or assets F-19 (other than the property in the Assessment District) of the Landowner may be required, by operation of law or otherwise, to be used to pay debt service on the Bonds. It should not be inferred from audited financial statements of the Landowner that the funds or assets (other than the property in the Assessment District) are available to cure any delinquencies in the payment of assessments. (f) In addition to any of the information expressly required to be provided under this Section, the Landowner shall provide such farther information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they aze made, not misleading. j Any or all of the items listed above may be included by specific reference to other documents that have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Boazd. The Landowner shall clearly identify each such other document so included by reference. SECTION 5. Landowner's Report of Listed Events (a} So long as the Landowner is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, pursuant to the provisions of this Section 5, the Landowner shall _ promptly give, or cause to be given nonce of the occurrence of any of the following events (each, a "Listed Event") with respect to Landowner and any of its Affiliates that own property within the Assessment District: (i} Any conveyance by the Landowner or any of its Affiliates to a Successor Landowner or its Affiliates, if any, of property that, when aggregated with all other property in the Assessment District then-owned by such Successor Landowner and its Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds. (ii) Any failure of the Landowner or any of its Affiliates to pay when due general property taxes, special taxes, or assessments with respect [o its property within the Assessment District. (iii} Any termination of a line of credit or loan, any termination of, or uncured material default under, any line of credit or loan, or any other loss of a source of funds that could have a material adverse affect on the Landowner's most recently disclosed Financing Plan or Development Plan, if any, or on the ability of the Landowner or any of its Affiliates to pay assessment installments with respect to the Assessment District when due. (iv} The occurrence of an Event of Bankruptcy with respect to the Landowner or any of its Affiliates that could have a material adverse affect on the Landowner's most recently disclosed Financing Plan or Development Plan, if any, or on the ability of the Landowner or any of its Affiliates to gay assessment installments with respect to the Assessment District when due. (v) Any sggnificant amendments to land use entitlements for the property of the Landowner or its Affiliate in the Assessment District, if material. (vi} Any previously undisclosed governmentally-imposed preconditions to commencement or continuation of development on the property of the Landowner or its Affiliate in the Assessment District, if material. (vii) Any previously undisclosed legislative, administrative, or judicial challenges to development on the property of the Landowner or its Affiliate in the Assessment District, i£material. (viii) Any changes in the alignment, design, or likelihood of completion of significant public improvements, including major thoroughfares, sewers, water conveyance systems, and similar facilities, that could materially adversely affect the ability of the Landowner or its Affiliates to complete the development of its properly in the Assessment District as planned or in a timely manner. F-20 {ix) The assumption of any obligations by a Successor Landowner pursuant to Section 6 of this Disclosure Certificate. , (b) Whenever the Landowner obtains knowledge of the occurrence of a Listed Event, the Landowner shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (c) below. (c) If the Dissemination Agent has been instmcted by the Landowner to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with either (i} the Municipal Securities Rulemaking Board and each State Repository or (ii) the Repositories, with a copy to the Participating Underwriter. SECTION 6. Temtination of Landowner's Reportine Obliea6on. j The Landowner's continuing obligation to provide aSemi-Annual Report and notices of material Listed ', Events will terminate upon the earlier of (1) the legal defeasance, prior redemption, or payment in full of all of the Bonds, or (2) the date upon which the Landowner and its Affiliates, if any, cease to own property in the Assessment District that, when aggregated with all other property in the Assessment District then-owned by the Landowner and its Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds; provided, however, for purposes of determining the Landowner's ownership of property in " the Assessment District, it shall be assumed that the Landowner owns all property for which the Landowner and its Affiliates, if any, hold an exercisable option to purchase such property, whether or not such option has been exercised, or (3) when the Landowner's property within the Assessment District has reached the Planned Development Stage. If the Landowner conveys to a Successor Landowner property in the Assessment District prior ~~,! to the time at which such property reaches the Planned Develapment Stage, and such property conveyed, when aggregated with all other property in the Assessment District then-owned by such Successor Landowner and its Affiliates, if any, is subject to the lien of greater than twenty percent {20%) of the annual assessment securing payment of the Bonds, then the Landowner shall require a Successor Landowner to enter into an Assumption Agreement, but only to the extent and upon the terms, if any, required by the Rule. SECTION 7. Dissemination Agent. ', The City may, from time to time, appoint or engage a Dissemination Agent to assist the Landowner in carrying out its obligations under this Disclosure Certificate, and the City may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. SECTION 8. Amendment: Waiver. Notwiffistanding any other provision of this Disclosure Certificate, the Landowner may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be i waived, provided that the City agrees in writing and the following conditions aze satisfied: (a) if the amendment or waiver relates to the provisions of Section 3{a), 4, or 5, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and , (c) the proposed amendment or waiver either (i) is approved by Holders of the Bonds in the manner provided in the Resolution for amendments to the Resolution with the consent of Holders, or (ii} does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. F-21 If the annual financial information or operating data to be provided in the Semi-Annual Report is amended pwsuant to the provisions hereof, the fast annual financial information filed pwsuant hereto containing the-amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the Landowner shall ', describe such amendment in the next Semi-Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or opemting data being presented by the Landowner. If an amendment is made to the undertaking specifying the accounting principles to be followed in prepazing financial statements, the annual financial information for the yeaz in which the change is made shall present a compazison between the financial statements or information prepazed on the basis of the new accounting principles and those prepazed on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the Landowner to meet its obligations. To the extent reasonably feasible, the comparison shall be -- quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5. SECTION 9. Additional Information. Nothing in this Discloswe Certificate shall be deemed to prevent the Landowner from disseminating any other information using the means of dissemination set forth in this Discloswe Certificate or any other means of communication or including any other information in any Semi-Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Discloswe Certificate. If the Landowner chooses to include any information in any Semi-Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Discloswe Certificate, the Landowner shall have no obligation under this Discloswe Certificate to update such information or include it in any future Sarni-Annual Report or notice of occurrence of a Listed Event. SECTION 1Q. Default. In the event of a failwe of the Landowner to comply with any provision of this Discloswe Certificate, the Underwriter, the City, or any Holder or Beneficial Owner of outstanding Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Landowner to comply with its obligations under this Discloswe Certificate. A default under this Disclosure Certificate shall not be deemed to be an event of default under the Resolution, and the sole remedy under this . Discloswe Certificate in the event of any failwe of the Landowner to comply with this Discloswe Certificate shall be an action to compel performance. SECTION 11. Duties. Immunities and Liabilities of Dissemination Avent The Dissemination Agent shall have only such duties 'as are specifically set forth in this Discloswe Certificate, and the Landowner agrees to indemnify and save the City, the Dissemination Agent, and their respective officers, directors, employees, and agents, harmless against any losses, expenses, and liabilities which either or both of them may inew arising out of or in the exercise or performance of the Landowner's powers and duties hereunder, - including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the City's or the Dissemination Agent's negligence or willful misconduct. The obligations of the Landowner under this Section shall survive resignation or removal of the Disseminafion Agent and payment of the Bonds. F-22 SECTION 12. Beneficiaries. This Disclosure Certificate shall be binding upon the Landowner and shall inure solely to the benefit of the Landowner, the Dissemination Agent, the Underwriter, the City, and the Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: [Closing Date] D.R. HORTON LOS ANGELES HOLDING COMPANY, INC., a California corporation F-23 EXHIBIT A _ NOTICE TO REPOSITORIES OF FAILURE TO FILE SEMI ANNUAL REPORT Name of Landowner: D.R. HORTON LOS ANGELES HOLDING COMPANY, INC., A CALIFORNIA CORPORATION Name of Bond Issue: CITY OF BAKERSFIELD, CALIFORNIA ASSESSMENT DISTRICT NO.OS-I {CITY IN TIC FIILLS) LIMI`T'ED OBLIGATION IMPROVEMENT BONDS Date of Issuance: [Closing Date] NOTICE IS HEREBY GIVEN that D.R. Horton Los Angeles Holding Company, Inc., a California corporation (the "Landowner"}, has not provided aSemi-Annual Report with respect to the above-named Bonds as required by Section 3 of the Landowner Continuing Disclosure Certificate, dated [Closing Date]. The Landowner anticipates that the Semi-Annual Report will be filed by Date: CITY OF BAhERSFIELD, as Dissemination Agent, on behalf of D.R. Horton Los Angeles Holding Company, Inc., a California corporation By: cc: Landowner Finance Director F-2A CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO.OS-I (CITY IN THE HILLS) LIMITED OBLIGATION IMPROVEMENT BONDS LANDOWNER CONTINUING DISCLOSURE CERTIFICATE (K. HOVNANIAN'S FOUR SEASONS AT BAKERSFIELD, L.L.C.) This Continuing Disclosure Certificate (the "Disclosure Certificate"} is executed and delivered by K. Hovnanian's Four Seasons at Bakersfield, L.L.C., a California limited liability comgany (the "Disclosure Representative"), on behalf of itself and K. Hovnanian at Rosemary Lantana, Z.L.C., a California limited liability company (together with the Disclosure Representative, the "Landowners"), in connection with the issuance by the Ciry of Bakersfield (the "City") of $15,595,000 in aggregate principal amount of the above-referenced bonds (the "Bonds") for Assessment District Na. OS-1 (City in the Hills) (the "Assessment District"}. The Bonds aze being issued pursuant to a resolufion authorizing issuance of the Bonds, being Resolution No. 251-OS (the "Resolution"), adopted by the City Council of the City on November 9, 2005. The Disclosure Representative covenants and agrees as follows: SECTION I. Pumose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Disclosure Representative on behalf of the Landowners for the benefit of the City, Stone & Youngberg LLC, as the underwriter of the Bonds (the "Underwriter"}, and the Holders and Beneficial Owners (each as defined below) of the Bonds in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-1Z(b)(5), as amended. SECTION 2. Definitions. In addition to the definitions set forth above and in the Resolution, which apply to any capitalized term used in this Disclosure Certificate, unless otherwise defined in this section, the following capitalized terms shall have the following meanings: "Affiliate" of another Person shall mean (a) a Person drectly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of such other Person, (b) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by such other Person, or (c) any Person directly or indirectly controlling, connolled by, or under common control with, such other Person. For purposes hereof, "control" means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Assumption Agreement" means an agreement or certificate by a Successor Landowner, containing terms substantially similar to this Disclosure Certificate, whereby such Successor Landowner shall agree to provide Semi- Annual Reports and notices of Listed Events with respect to the property in the Assessment District owned by such Successor Landowner and its Affiliates, if any. "Beneficial Owner" shall mean any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond or Bonds, including persons holding Bonds through nominees, depositories, or other intermediaries. "Development Plan" shall mean the specific improvements any Landowner intends to make, or causes to be made, in order for the property in the Assessment District owned by such Landowner to reach the Planned Development Stage, the time frame in which such improvements are intended to be made, and the estimated costs of ', such improvements. Such Landowner's Development Plan, as of the date hereof, is described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRiCT." F-25 "Disclosure Period" shall mean the six-month period beginning on July 1 or January 1 and ending on the next following June 30 or December 31, as applicable. , `dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by ~ . the City and which has filed with the City a written acceptance of such designation. "Event of Bankruptcy" shall mean, with respect to a Person, that such Person files a petition or institutes a proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such act or acts, either as a bankrupt or as an insolvent, or as a debtor, or in any similaz capacity, wherein or whereby such Person asks, seeks, or prays to be adjudicated a battlQUpt, or is to be discharged from any or all of such Person's debts or obligations, or offers to such Person's creditors to effect a composition or extension of time to pay such Person's debts or obligations, or asks, seeks, or prays for reorganization or to effect a plan of reorganization, or for a readjustment of such Person's debts, or for any other similar relief, or if any such petition or any such proceedings of the same or srmilaz kind or chazacter is filed or insfituted or taken against such Person and the same shall remain undismissed for a period of 60 days, or if a receiver of the business, property, or assets of such Person is appointed by any wort, or if such Person makes a general assignment for the benefit of such Person's creditors. _ "Financing Plan" shall mean the method by which any Landowner intends to finance its Development Plan, including specific sources of funding for such Development Plan. Such Landowner's Financing Plan, as of the date hereof, is described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." "Financial Statements" shall mean, for any Landowner, the full financial statements, special purpose financial statements, project operating statements, or other reports reflecting the financial position of such Landowner's parent company or, if such financial statements are prepared separately for such Landowner, reflecting the financial position of such Landowner; provided that, if such financial statements or reports are otherwise prepared as audited financial statements or reports, then "Financial Statements" means such audited financial statements or reports. The Financial Statements for any Landowner or its parent company shall consist of a balance sheet, an income statement, and a statement of cash flows, all prepared in accordance with generally accepted accounting principles. "Holders" shall mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Tmst Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. "Listed Event" shall have the meaning given to such term in Section 5 of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The current National Repositories aze listed on the Securities and Exchange Commission website at http:(/wwwsec.govTinto`lmunicipaUnrmsh.htm. "Official Statement" shall mean the final Official Statement, dated December 7, 2445, pertaining to the Bonds. "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a limited liability tympany, a bust, any unincarporated organization, or a government or a political subchvision thereof. "Planned Development Stage" shall mean, with respect to any property in the Assessment District owned by any Landowner or of such Landowner's Affiliates, the stage of development to which such Landowner or Affiliate intends to develop such property, as described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." "Repository" shall mean each National Repository and each State Repository. F-26 i "Rule" shall mean Rule 15c2-12(6)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Semi-Annual Report" shall mean any Semi-Annual Report provided by the Disclosure Representative pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. i "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recogvzed as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. i "Successor Landowner" shall mean any property owner, other than the Landowners or their respective Affiliates, which purchases property in the Assessment District for the purpose of developing the property and not merely as an end-user. SECTION 3. Provision of Semi-Annual Renorts. (a} So long as the Disclosure Representative is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, the Disclosure Representative shall provide, or shall cause the Dissemination Agent to provide, not later than three (3) months after the end of each Disclosure Period (i.e., not later than September 30 or March 31 of each year, as applicable), commencing with the report for the Disclosure Period ending June 30, 2006, to each Repository aSemi-Annual Report relating to the immediately preceding Disclosure Period that is consistent with the requirements of Section 4 of this Disclosure Certificate. The Semi-Annual Report may be submitted as a single document or as sepazate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided, however, ~ that if audited Financial Statements aze required to be provided, such audited Financial Statements maybe submitted sepazately from the balance of the Semi-Annual Report, and later than the date required above for the filing of the Semi-Annual Report, if not available by that date. The Semi-Annual Report may be filed using the SEC-Approved ~~ Electronic Transmission Facilities provided by the Texas Municipal Advisory Council at website httpa/www.disclosureusa.org. (b} So long as the Disclosure Representative is obligated hereunder and said obligation bas not been i terminated pursuant to Section 6 of this Disclosure Certificate, not later than fifteen (15} business days prior to the date required in subsection (a) hereof, the Disclosure Representative shall provide the Semi-Annual Report to the Dissemination Agent. If the Disclosure Representative is unable to provide, or cause to tie provided, to each Repository aSemi-Annual Report by the date required in subsection (a) hereof, the Dissemination Agent shall, first, confirm that the Disclosure Representative's obligation hereunder bas not been terminated pursuant to Section 6 of this Disclosure Certificate, and, if the Disclosure Representative is still obligated hereunder, the Dissemination Agent shall send to each Repository a notice in substantially the form attached hereto as Exhibit A. (c) The Dissemination Agent shall: (i).. determine each year, prior to the date for providing the Semi-Annual Report, the name and address of eacfiltepository, and file the Semi-Annual Report with-each Repository, and {ii) following the filing of the Semi-Annual Report with each Repository, file a certificate with the City and each Landowner certifying that the Semi-Annual Report has been filed with each Repository pursuant to this Disclosure Certificate, stating the date on which the Semi-Annual Report was filed, and listing each i Repository (by name and address} with which it was Sled. P-27 SECTION 4. Content of Semi-Annual Reports. So long as the Disclosure Representative is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, the Disclosure Representative shall provide aSemi-Annual Report for the preceding Disclosure Period with respect to property within the Assessment District owned by a Landowner or its Affiliates, if any, which Semi-Annual Report shall contain or incorporate by reference the following information with respect to each Landowner that owns property within the Assessment District and such property: (a) The Disclosure Representative shall provide a general description of progress made in the Development Plan of each Landowner or its Affiliates, and any significant changes in the Development Plan, Financing Plan, or zoning with respect to each Landowner's development since the prior Disclosure Period. The Disclosure Representative shall track actual absorption relative to projected absorption according to the framework described in the Official Statement under the heading "O'WNERSFIIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." The Disclosure Representative shall identify any material deviations in actual versus expected sale prices, and identify zoning changes, if any. The Disclosure Representative shall also include information conceming the recordation of final maps, if applicable, and information concerning the sale or transfer of property to Persons that are not Affiliates of the applicable Landowner. (b) The Disclosure Representative shall describe any significant changes in the Financing Plan for the development project of a Landowner including, without limitation, changes in status of the Landowner's credit line (or the credit line of any Affiliates of the Landowner that own property within the Assessment District), if applicable. (c) The Disclosnre Representative shall describe (i) any change in the legal stmcture of a Landowner or of any of its Affiliates that own property within the Assessment District; (ii} any previously undisclosed amendments to the land use entitlements or environmental conditions or other governmental conditions that aze necessary to complete such Landowner's Development Plan; ox (iii} any previously undisclosed legislative, administrative, or judicial challenges to such Development Plan, if known. {d) Each fiscal year, one Semi-Annual Report shall make reference to the quarterly and annual Financial Statements of the Landowner's parent company or the Landowner, as applicable, on file with the Securities and Exchange Commission (if applicable). All such references may contain the following caveat: The quarterly or annual reports provided with this Semi-Annual Report are referred to for informational purposes only. In the event of a failure to pay any installment of assessments, and after depletion of the Reserve Fund, the real property in the Assessment District is the sole security for the Bonds. The obligation of a Landowner to pay the unpaid assessment installments does not constitute a personal indebtedness of the Landowner for which . the funds or assets (other than the property in the Assessment District} of the Landowner may be required, by operation of ]aw or otherwise, to be used to pay debt service on the Bonds. It should not be inferred from the reference to the quarterly orr annual-reports provided with this Semi-Annual Report that the funds or assets (other than the property in the Assessment District) are available to cure any delinquencies in the payment of assessments. {e) To the extent that Financial Statements are prepazed separately For a Landowner, Financial Statements prepazed in accordance with generally accepted accounting principles, as in effect from time to time, shall be provided. To the extent that audited Financial Statements are prepared separately for a Landowner, if audited Financial Statements are required to be provided and such audited Financial Statements are not available by the time the applicable Semi-Annual Report is required. to be provided pursuant to Section 2(a) of this Disclosure Certificate, the applicable Semi-Annual Report shall contain unaudited Financial Statements, and the audited Financial Statements shall be filed in the same manner as the applicable Semi-Annual Report when they become available. Such Financial Statements shall be for the most recently ended fiscal year for the entity covered thereby. To the extent that audited Financial Statements of a Landowner are prepared, the Disclosure Representative shall include such audited Financial Statements in the applicable Semi-Annual Report. To the extent that the provisions of this subsection (e} become applicable, the provisions of subsection (d) above shall cease to be applicable. All such audited Financial Statements of the Landowner, if any, may contain the following caveat: F-28 The audited financial statements of the Landowner are included for informational purposes only. In the ii event of a failure Yo pay any installment of assessments, and after depletion of the Reserve Fund, the real property in the Assessment District is the sole security for the Bonds. The obligation of the Landowner to pay the unpaid assessment instalhnents does not constitute a personal indebtedness of the Landowner for which the funds or assets • (other than the property in the Assessment Dishict) of the Landowner may be required, by operation of law or ', otherwise, to be used to pay debt service on the Bonds. It should not be inferred from audited financial statements ', of the Landowner that the funds or assets (other than the property in the Assessment District) are available to cure '~, any delinquencies in the payment of assessments. (fj In addition to any of the information expressly required to be provided under this Section, the Disclosure Representative shall provide such further information, if any, as may be necessary to make the ', specifically required statements, in the light of the circumstances under which they are,made, not misleading. I The Disclosure Representative may file a single Semi-Annual Report covering itself and all Landowners. Any or all of the items listed above may be included by specific reference to other documents that have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a fmal official statement, it must be available from the Municipal Securities Rulemaking Board. The Disclosure Representative shall cleazly identify each such other document so included by reference. SECTION 5. Reportin of Sienificant Events. (a) So long as the Disclosure Representative is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, pursuant to the provisions of this Section 5, the Disclosure Representative shall promptly give, or cause to be given notice of the occurrence of any of the following events (each, a °`Listed Event") with respect w each Landowner and any of its Affiliates that own property within the Assessment District: (i) Any conveyance by a Landowner or any of its Affiliates to a Successor Landowner or its Affiliates, if any, of property that, when aggregated with all other property in the Assessment District then-owned by such Successor Landowner and its Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds. (ii) Any failure of a Landowner or any of its Affiliates to pay when due general property taxes, special takes, or assessments with respect to its property within the Assessment District. (iii) Any termination of a line of credit or loan, any termination of, or uncured material default under, any line of credit or loan, or any other loss of a source of funds that could have a material adverse affect on a Landowner's most recently disclosed Financing Plan or Development Plan, if any, or on the ability of such Landowner or any of its Affiliates to pay assessment installments with respect to the Assessment District when due. (iv). The occurrence of an Event of Bankruptcy with respect to a Landowner or any of its Affiliates that could Have a material adverse affect on such Landownbr'svmost recently disclosed Financing Plan or Development Plan, if any, or on the ability of such Landowner or any of its Affiliates to pay assessment installments with respect to the Assessment District when due. (v) Any significant amendments to land use entitlements for the property of a Landowner or _ its Affiliate in the Assessment District, if material. , (vi} Any previously undisclosed governmentally-imposed preconditions to commencement or continuation of development on the property of a Landowner or its Affiliate in the Assessment District, if material. (vii) Any previously undisclosed legislative, administrative, or judicial challenges to development on the property of a Landowner or its Affiliate in the Assessment District, if material. F-29 (viii) Any changes in the alignment, design, or likelihood of completion of significant public improvements, including major thoroughfares, sewers, water conveyance systems, and similar Facilities, that could materially adversely affect the ability of a Landowner or its Affiliates to complete the development of its property in the Assessment District as planned or in a timely manner. (ix} The assumption of any obligations by a Successor Landowner pwsuant to Section 6 of this Discloswe Certificate. (b} Whenever a Landowner obtains knowledge of the occurrence of a Listed Event, the Discloswe Representative shall promptly notify the Dissemination Agent in writing. Such notice shall instinct the Dissemination Agent to report the occurrence pursuant to subsection (c) below. (c) If the Dissemination Agent has been instructed by the Discloswe Representative (or any Landowner} to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with either (i} the Municipal Securities Rulemaking Board and each State Repository or (ii) the Repositories, with a copy to the Participating Underwriter. SECTION 6. Termination of Discloswe Representative's Reporting Obli ag tion. The Discloswe Representative's continuing obligation to provide aSemi-Annual Report and notices of material Listed Events will terminate upon the earlier of (1) the legal defeasance, prior redemption, or payment in full of all of the Bonds, or (2} the date upon which the Landowners and its Affiliates, if any, cease to own property in the Assessment District that, when aggregated with all other property in the Assessment District then-owned by the Landowners and their Affiliates, if any; is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds; provided, however, for purposes of determining the Landowners' ownership of pmperty in the Assessment District, it shall be assumed that the Landowners own all property for which the Landowners and their Affiliates, if any, hold an exercisable option to pwchase such property, whether or not such option has been exercised, or (3) when the property of a Landowner or its Affiliates within the Assessment District has reached the Planned Development Stage. If the Landowners convey to a Successor Landowner property in the Assessment District prior to the time at which such property reaches the Planned Development Stage, and such property conveyed, when aggregated with all other property in the Assessment District then-owned by such Successor Landowner and its Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds, then the Discloswe Representative shall require a Successor Landowner to enter into an Assumption Agreement, but only to the extent and upon the terms, if any, required by the Rule. SECTION 7. Dissemination Agent The City may, from time to time, appoint or engage a Dissemination Agent to assist the Discloswe Representative in carrying out its obligations under this Discloswe Certificate, and the City may dischazge any such Dissemination Agent, with or withou{appointing a successor Dissemination Agent. SECTION 8. Amendment: Waiver. Notwithstanding airy-other provision of this Discloswe Certificate, the Discloswe Representative may amend this Discloswe Certificate, and any provision of this Discloswe Certificate may be waived, provided that the City agrees in writing and the fallowing conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 3(a), 4, or 5, it may only be made in connection with a change in circumstances that arises from a change ig legal requirements, change in law, or . change in the identity, natwe, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and F-30 (c) the proposed amendment or waiver either (i) is approved by Holders of the Bonds in the manner provided in the Resolution for amendments to the Resolution with the consent of Holders, or {ii,) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. If the annual fmancial information or operating data to be provided in the Semi-Annual Report is amended pursuant to the provisions hereof, the first annual fmancial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. lu the event of any amendment or waiver of a provision of this Disclosure Certificate, the Disclosure Representative shall describe such amendment in the next Semi-Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type {or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Disclosure Representative on behalf of a Landowner. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the yeaz in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepazed on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors m enable them to evaluate the ability of a Landowner to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Reposimries in the same manner as for a Listed Event under Section 5. SECTION 9. AddiuonalInformafion. Nothing in this Disclosure Certificate shall be deemed to prevent the Disclosure Representative from disseminating any other information using the means of dissemination set forth is this Disclosure Certificate or any other means of communication or including any other infomtation in any Semi-Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Disclosure Representative chooses to include any information in any Semi-Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Disclosure Representative shall have no obligation under this Disclosure Certificate to update such information or include it in any future Semi-Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. hm the event of a failure of the Disclosure Representative to comply with any provision of this Disclosure Certificate, the Underwriter, the City, or any Holder or Beneficial Owner of outstanding Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Disclosure Representanve fo comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed to be an event of default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of-tl~e Disclosure Representative to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 11. Duties. Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Disclosure Representative agrees to indemnify and save the City, the Dissemination Agent, and their respective officers, directors, employees, and agents, harmless against any losses, expenses, and liabilities which either or both of them may incur arising out of or in the exercise or performance of the Disclosure Representative's powers and dufies hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the City's or the Dissemination Agent's negligence or willful misconduct. The obligations of the Disclosure Representative under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. F-31 SECTION 12. Beneficiaries This Disclosure Certificate shall be binding upon the Disclosure Representative and shaII inure solely to the benefit of the Disclosure Representative, the Dissemination Agent, the Underwriter, the City, and the Holders and Beneficial Owners from-time to time of the Bonds, and shall create no rights in any other person or entity. Date: [Closing Date] K HOVNANIAN'S FOUR SEASONS AT BAKERSFIELD, L.L.C., a California limited liability company By: Name: Title: F-32 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE SEMI-ANNUAL REPORT Name of Landowner: K. HOVNANIAN'S FOUR SEASONS AT BAKERSFIELD, Z.L.C., A CALIFORNIA LIMITED LIABILITY COMPANY Name of Bond Issue: CITY OF BAKERSFIELD, CALIFORNIA ASSESSMENT DISTRICT NO.OS-1 (CITY iN THE HILLS) LIMITED OBLIGATION IMPROVEMENT BONDS Date of Issuance: [Closing Date] NOTICE IS HEREBY GIVEN that K. Hovnanian's Fow Seasons at Bakersfield, L.L.C., a California limited liability company (the "Disclosure Representative"), has not provided aSemi-Annual Report with respect to ' the above-named Bonds as required by Section 3 of the Landowner Continuing Disclosure Certificate, dated [Closing Date]. The Disclosure Representative anticipates that the Semi-Annual Report will be filed by Date: CITY OF BAKERSFIELD, as Dissemination Agent, on behalf of K. Hovnanian's Four Seasons at Bakersfield, L.L.C., a California limited liability company Finance Director cc: Disclosure Representative r F-33 (THIS PAGE INTENTIONALLY LEFT BLANK}