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04-3 Official Statement
NEW ISSUE -BOOB-ENTRY ONLY SYSTEM NO RATING In the opinion of Orrck, Herrington & Sutclijj-e LLP, Bond Counsel, interest on the Bonds is exernpt from State of California personal Income /axes. Interest on the Bonds is rzot excluded from gross income for federal income tax purposes. Bond Counsel expresses no opiniart regarding any other federal or state tax consequences relating to the ownership or disposition oJ, or the attract or receipt of Interest on, the Bonds. See "TAX MATTERS" $3,380,000 CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. 04-3 (SOLERA/RIO VISTA) LIMITED OBLIGATION IMPROVEMENT BONDS {TAXABLE) Dated: Date of Delivery Due: September 2, as shown below The Bonds described herein (the "Hands") are special, limited obligation bonds being issued by the City of Bakersfield, Califomia (the °Ciiy"), to finance the acquisition of certain public utility improvements pertaining to the City's Assessment District No. 04-3 (Sclera/Rio Vista) (the "Assessment District"). The Assessment District was formed and the acquisition of [he improvements w01 be undertaken as authorized under [he provisions of [he Municipal Improvement Act of 1913 (Division 12 of the Califomia Streets and Highways Code) and Section 13.08.070 of [he Municipal Code of the City. The Bonds are being issued pursuant to the provisions of the Improvement Bond Act of 1915 (Division 10 of the Califomia Streets and Highways Code) (the "1915 Aat"). The Bonds aze issuable only as fully registered Bonds N 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 to the Bonds will 6e payable upon presentation and surrender thereof at the corporate tmst office of U.S. Bank National Association, [he paying agent, registrar, and transfer agent for the Honds (the "Paying Agent"), in St. Paul, Minnesota. Interest on the Bonds (other than the final payment of interest, which is payable upon sumnder oC [he Bonds) will be payable from their date of delivery, commencing September 2, 2005, and thereafter semiannually on March 2 and September Z {each an "Interest Payment Date") in each year by check of the Paying Agent mailed on each Interest Payment Date to the persons in whose names such Honds are registered at the close of business on the fiheenth day of the calendar month immediately prior to an Interest Payment Date (or, in the case of an owner of at least $1,000,000 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 in book-entry only form through the book-entry system of The Depository Tmst Company, New York, New York. See "BOOK-ENTRY ONLY SYSTEM." The Bonds are subject to redemption on any Interest Payment Date in advance oC maturity at the option of the City upon giving at (east thirty (30) days prior notice and upon payment of the principal thereeF and interest accrued thereon [o the date of redemption, plus any applicable redemption premium, as more fully described herein. Further development of parcels within the Assessment District, transfers ofproperty 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 [he Bonds prior to Ihev stated maturities. Underthe provisions of the 1915 Act, installments olprincipal and interest sufficient to meet annual debt service requirements with respect to the Bonds shall be included on the regular Kem County [ax 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 Bonds is to be paid into the Redemption Fund, to be held by the Finance Dvecior, and wHl be used to pay debt service on the Bonds as it becomes due. To provide funds for payment of the Bonds and the interest thereon as a result of any delinquent assessment installments, the City wi6 establish a Special Reserve Fund and deposit therein Bond proceeds in the original amount of $309,989. Additionally, the City has covenanted [hat, under certain circumstances, by no later titan October I in any year, it will file an action in superior court to foreclose the Tien on each delinquent assessment, as more particularly described herein. IF 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 [S CONTINUING DURING THE PERIOD OF DELINQUENCY, ONLY TO THE EXTENT OF FUNDS AVAILABLE FROM THE SPECIAL RESERVE FUND, [JNTIL 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. THUS, IF, DURING THE PERIOD OF DELINQUENCY, THERE ARE INSUFFICIENT AVAILABLE FUNDS, A DELAY MAY OCCUR [N PAYMEMS TO THE OWNERS OF THE BONDS. [N ACCORDANCE WITH SECTION 8769(6) OF THE 1915 ACT, THE CITY HAS DETERMINED THAT IT WILL NOT OBLIGATE ITSELF TO ADVANCE FUNDS FROM ITS TREASURY TO CURE ANY DEFICIENCY IN THE REDEMPTION FUND. This cover page contains certain information For quick reference only. It is no[ a summary of the issue. Investors must read the enthe Official Statement to obtain information essential to [he making of an informed investment decision. MATURITY SCHEDULE -- -~- Maturity Principal Interest Maturity Prinp}ral Interest (September 2) Amuunt Rate Rice CUSIPi'~ No. (September 2) Amount Rate Price CUSIP10 No. 2006 $ 95,000 '4:430% 100.00°k 057510 ZG7 2011 $120,000 5.280°!0 100.00% 057510 ZM4 2007 1OQ000 4.770 100.00 057510 ZHS 2012 13Q000 5.290 100.00 057510 ZN2 2008 105,000 4.940 100.00 0575(0 ZJl 2013 135,000 5.440 100.00 057510 ZP7 2009 110,000 5.080 100.00 057510 ZKS 2014 145,000 5.620 100.00 057510 ZQS 2010 L15,0OD 5?10 100.00 057510 ZL6 2015 15Q000 5.670 100.00 057510 ZR3 $2,175,000 6.820% Term Bond Due September 2, 2025 -Price: 100.00% (CUS[Ptrl No. 057510 ZSI) (t) Copyright 2005, American Bankers Association. CUSIP data herein is provided by Standard ffi Poor'a CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP services. 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"), pR ANY OTHER POLITICAL SUBDIVISION OF THE STATE, AND NEITHER THE CITY, NOR THE COUNTY, NOR THE STATE, NOA ANY OTHER POLITICAL SUBDIVISION OF THE STATE HAS PLEDGED ITS FULL FAITH AND CREDIT FOR THE PAYMENT OF THE BONDS. The Bonds are being oJjered when, as, and if issued by the City and received by the Underwriter, subject to prior sale arsd to the approval of validity, by Orrick Herrington & Sutcliffe LLP, San Francisco, Catiforxia, Borsd Counsel, arsd the approval of certain matters for the City by the Ci[y Allarney of the City of Bakersfield. Certain other legal matters will be passed on by Pillsbury Winthrop Shaw Pi[[man LLP, Century Ciry, California, as disclosure counsel to the Cily. I[ is expected that the Bonds in definitive form will be available for delivery in New Yark, New York, on or about June 18, 2005. STONE &YOUNGBERG LLC The date ofthis Official Statement is June 9, 2005 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 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 of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts, or matters of opinion, whether or not expressly described herein, aze intended solely as such and are not to be construed as representations of fact. The information set forth herein has been obtained from the City and other sources which are believed to be reliable, but it is not guazanteed as to accuracy or completeness, and it is not to be construed as a representation by the City. 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 Assessment District since the date hereof. The Underwriter has pmvided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. 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 HAVE 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 BAKERSFIELD Mayor and Citv Council Harvey L. Hall, Mayor Im~a Carson, Councilmember First Ward Susan M. Benham, Councilmember Second Ward Mike Maggard, Vice Mayor, Councihnember Third Ward David R. Couch, Councilmember Fourth Ward Harold Hanson, Councilmember Fifth Ward Jacquie Sullivan, Councilmember Sixth Ward Zack Scrivner, Councilmember Seventh Ward City Staff Alan Tandy, City Manager Virginia Gennaro, City Attorney Pamela A. McCarthy, City Clerk Raul M. Rojas, Public Works Director Gregory J. Klimko, Finance Director BOND COUNSEL Omck, Hemngton & Sutcliffe LLP San Francisco, California ASSESSMENT ENGINEER Wilson & Associates Fresno, California PAYING AGENT, REGISTRAR, AND TRANSFER AGENT U.S. Bank National Association Los Angeles, Califomia __ _ PROPERTY APPRAISER Kern Appraisal Company Bakersfield, Califomia DISCLOSURE COUNSEL Pillsbury Winthrop Shaw Pittman LLP Century City, Califomia ~ `~ ' s act, k, ~a5 ~4EFtEV ~ tdTY S`{~' ,,~;BaketasfJelei ''°--s ' ~~ The City of Bakersfield, California, - the county seat of the County of - _ Kam, is located at the southern end - - of California's San Joaquin Valley. ~ l~~R Bakersfield is approximately 110 _. miles north ~of Los Angeles and #~eidiaa 240 miles south of San Francisco. - ,} r '-^. TABLE OF CONTENTS Page INTRODUCTORY STATEMENT .......................................................................................... .....................................1 The Bonds ................................_................................................................................._.... .....................................1 The Assessment District .................................................................................................... ..................................... l Property Ownership ........................................................................................................... ..................................... I Improvements .................................................................................................................... ..................................... 2 '~. Assessments ........................................................................................................._.._........ .._.................................2 ' Appraisal ........................................................................................................................... .....................................2 I Security for the Bonds ....................................................................................................... .....................................2 '. Special Reserve Fund ........................................................................................................ .....................................3 Foreclosure ........................................................................................................................ .....................................3 Assessment Delinquencies ................................................................................................ .....................................3 Book-Entry Only System .................................................................................................. .....................................4 Continuing Disclosure ............................................................................................_......... ._..................................4 Forw rd L ki St t t - a oo ng a emen s ................................................................................._..............................................4 Miscellaneous ................................................................................___.........._ __ --..._.._.....__.................... .....4 ' ESTIMATED SOURCES AND USES OF FUNDS ................................................................................................ .....5 ' THE BONDS ............................................................................................................................................................ .....5 i Purpose of the Bonds ......................................................................................................................................... .....5 Authority for Issuance ....................................................................................................................................... ..... 5 General .............................................................................................................................................................. ..... 6 Transfer and Exchange of Bonds ....................................................................................................................... .....6 Bonds Mutilated, Destroyed, or Lost ................................................................................................................. .....7 Redemption ....................................................................................................................................................... .....7 Effect of Redemption; Defeasance .................................................................................................................... .....B 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 Foreclosure ........................................................................................ ...11 ~ Priority of Lien .................................................................................................................................................. ... l l Debt Service Schedule ....................................................................................................................................... ...12 BOOK-ENTRY ONLY SYSTEM ..._ ....................................................................::..::.:.".::_......_........................... ...12 THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS ....................................._................................... ...14 General .............................................................................................................................................................. ...14 Description of the Community Areas and the Improvements ........................................................................... ...15 ', Estimated Improvement Costs ........................................................................................................................... ...17 Method of Assessment Spread .......................................................................................................................... ...18 ', OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT... ...19 ' Ownership of Property in the Assessment District ............................................................................................ ...19 Pulte Home Corporation .................................................................................................................................... ...19 Development and Financing Plans ..........................................................................................:......................... ...20 Assessment Ro1L ............................................................................................................................................... ...21 Utilities .............................................................................................................................................................. ...21 Flood and Earthquake Zones._ .......................................................................................................................... ...22 '~~ Zoning ..................................._.......................................................................................................................... ...22 Tax Delinquencies ................._............................................................................................:............................. ...22 Environmental Issues Affecting Assessment District Property ........................_............................................... ...22 Bulk Value-to-Assessment Lien Ratio ............................................................................._............................... ...22 Direct and Overlapping Debt ............................................................................................................................. ...24 ~I SPECIAL RISK FACTORS ..........................................................................................._........ ...................................25 General .............................................................................................................................. ...................................25 Risks of Real Estate Secured Investments Generally .............................._........................ ...................................25 Concentration of Ownership .............................................................................................. ...................................25 li Property Values .............................................................................._..... ......................... ...................................26 Availability of Funds to Pay Delinquent Assessment Installments .........._ ....................... ...................................26 Hazardous Substances ....................................................................................................... ........_.........................26 Endangered and Threatened Species ................................................................................. ...................................27 Factors Which May Affect Land Development ................................................................. ...................................27 Private Improvements; Increased Debt .............................................................................. ...................................28 Subordinate Debt; Payments by FDIC and other Federal Agencies .................................. ...................................28 Tax Delinquencies ............................................................................................................. ...................................29 Limited Obligation of the City Upon Delinquency ............................................................ ..................................29 Bankruptcy and Foreclosure ............................................................................................... ..................................29 Economic, Political, Social, and Environmental Conditions ......................................_...... ..................................30 Articles XIIIA and XIIIB of the California Constitution .................................................... ..................................31 Articles XIIIC and XIIID of the California Constitution .................................................... ..................................32 Future lnitiatives ................................................................................................................. ..................................33 Covenant to Commence Superior Court Foreclosure ......................................................... ..................................33 ~ Price Realized Upon Foreclosure ....................................................................................... ~ ..................................34 Priority of Lien ................................................................................................................... ...........34 ...................... j Refunding Bonds ..................................................................................................._...._..... ..................................35 ~ Absence of Market for Bonds ............................................................................................. ..................................35 ENFORCEABILITY OF REMEDIES ...................................................................................... ..................................35 NO LITIGATION............ ~ ........................................................................_........................... ..................................35 CERTAIN INFORMATION CONCERNING THE CITY ......................................._._...__.... ..................................35 TAX MATTERS .........._.._.._ _____ .._......_..........__._._ ....................................................... ..................................35 Tax Status of the Bonds ...................................................................................................... ..................................36 Sale and Exchange of Bonds .............................................................................................. ..................................36 APPROVAL OF LEGALITY ................................................................................................... ..................................37 UNDERWRITING .................................................................................................................... ..................................37 NO RATING ............................................................................................................................. ..................................37 CONTINUING DISCLOSURE ......................................................................._........................ ..................................37 MISCELLANEOUS ....................................................................._........................................... ..................................38 APPENDIX A -CITY OF BAKERSFIELD ECONOMIC, FINANCIAL, AND DEMOGRAPHIC INFORMATION ............ _ ................................................. ...............................A-1 APPENDD~ B -APPRAISAL .................................................................................................... ...............................B-1 APPENDIX C -FORM OF OPINION OF BOND COUNSEL ...............................~.::.:.:......... ...............................C-1 APPENDIX D -ASSESSMENT DIAGRAM ............................................................................ ...............................D-1 APPENDIX E -ASSESSMENT ROLL AND VALUE-TO-LIEN DATA ................................ ...............................E-I APPENDIX F -CONTINUING DISCLOSURE CERTIFICATES........_ ................................. ............................... F-1 OFFICIAL STATEMENT $3,380,000 CITY OF BAKERSFIELD ASSESSMENT DISTRICT N0.04-3 (SOLERAJRIO VISTA) LIMZTED OBLIGATION IMPROVEMENT BONDS (TAXABLE) 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 OFFERING OF THE BONDS TO POTENTIAL INVESTORS IS MADE ONLY BY 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 (Che "City"), of $3,380,000 in principal amount of its City of Bakersfield Assessment District No. 04-3 (SoleratRio Vista) Limited Obligation Improvement Bonds (Taxable) (the "Bonds"), for Assessment District No. OA-3 (Solera/Rio Vista) (the "Assessment District"). The Bonds are issued pursuant to the Improvement Bond Act of 1415, being Division 10 of the California Streets and Highways Code (the "1915 Act"), the Charter and Municipal Code of the Ciry, and Resolution No. 115-05 adopted by the City Council of the City (the "City Councif') on May 25, 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 filed by Pulte Home Corporation, a Michigan corporation ("Pulte"), as the owner at the date of the filing thereof of more than 60% of the assessable land within the Assessment District. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." The Assessment District is comprised of two sepazate community areas in northeast Bakersfield that are identified as (i} the "Solera Area" and (ii) the "Rio Vista Area" (collectively, the "Community Areas"). The - Assessment District boundaries are shown on the assessment diagram, a copy of which is attached hereto as APPENDIX D. For a further description of the Assessment District and the Community Areas, see "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -General." Property Ownership Pulte owned 100% of the assessed property in the Assessment District at the time the petition to form the Assessment District was filed with the City and, as of May 1, 2005, Pulte owned 100°ro of the assessed property in the Assessment District. Each of the two Community Areas within the Assessment District is involved in various stages of the land development, entitlement, or site development process. Upon the issuance of the Bonds, the Community Areas will, together, bear 100% of the total assessment lien. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT-Development and Financing Plans" for a description of the planned development of the respective Community Areas. Improvements Proceeds from the sa]e of the Bonds issued pursuant to the Assessment District proceedings will be used to finance (i) the acquisition of certain public utility improvements (collectively, the "Improvements") perfaining to the Assessment District, which Improvements will be owned, operated, and maintained by the California Water Service Company {"Cal-Water"}, and {ii) the payment of certain incidental costs and expenses related to the acquisition of the Improvements, the Assessment District proceedings, and the Band issuance, including the establishment of a Special Reserve Fund for the Bonds and the funding of capitalized interest on the Bonds through September 2, 2005. For a further description of the Community Areas and the Improvements, see "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Community Areas and the Improvements." The Improvements are proposed to be financed by the City and owned by Cal-Water, in accordance with the terms and conditions of a Reimbmsement and Disclosure Agreement, dated May 26, 2005, by and between the City and Pulte (the "Reimbursement Agreement"}, which Reimbursement Agreement incarporates (i) the form of an Agreement identified as "Proj. No. BK-12653," dated May 26, 2005, by and between Pulte and Cal-Water prior to the issuance of the Bonds (the "Cal-Water Agreement No. 1 "), and (ii) the form of an Agreement identified as "Prof. No. BK-12139," dated May 25, 2005, by and between Pulte and Cal-Water (the "Cal-Water Agreement No. 2"}. Upon their completion, the Improvements are proposed to be acquired by Cal-Water using, in part, Bond proceeds disbursed by the City. Assessments The land within the Assessment District specially benefited by the Improvements has been assessed to pay the estirrtated cost of the Improvements and certain financing costs related thereto. See "THE ASSESSMENT DISTRICT ANLt THE IMPROVEMENTS -Estimated Improvement Costs." The City Council, pursuant to Resolution No. 111-05, adopted on May 25, 2005, confirmed the amount of assessments for the Assessment District in the aggregate amount of $3,380,000. 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. Appraisal Kern Appraisal Company, Bakersfield, California (the "Appraiser"}, has prepared an appraisal dated as of May 19, 2005 (the "Appraisal"}, appraising, as of May 1, 2005, the property within the Assessment District that is subject to the lien of the assessments. Based on the Appraisal, the ratio of the aggregate Bulk Value of the Assessment District property to the aggregate assessment lien is 10.83:L See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Bulk 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 are discussed under the heading "SPECIAL RISK FACTORS." Neither the City 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 each assessed parcel Yo the amount of the assessment lien against such parcel. The appraised vaiues 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 Community Areas and the Improvements" and "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT" for a description of Pulte's development plan for the property within the Assessment District. Security for the Bonds The Bonds 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 parcels. 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 year 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 establish a Special Reserve Fund (the "Special Reserve Fund") in the amount of $309,989 from Bond proceeds, which amount will be transfeaed 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 parcels with assessment delinquencies, in an amount equal to the least of (i) 10% of the proceeds of the Bands, (ii) Che maximum annual debt service on the Bonds, or (iii} I25% 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"). 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 year and (ii) the amount in the Special Reserve Fund is less titan the Reserve Requirement See "TIC BONDS -Covenant to Commence Svperiar Court Foreclosure" and "SPECIAL RISK FACTORS - CavenanT 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, until reinstatement, redemption, or sale of the delinquent property. There is no assurance 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. I. As authorized by the 1915 Act, the City has elected not to obligate itself to advance available funds from its treasury to cure any deficiency which may occur in the Redempfion Fund by reason of the failure of a property owner to pay an assessment installment when due. If there are additional 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, New York, New York ("DTC"). Payment of principal of and interest on the Bonds to the Beneficial Ou=Hers (as defined below) will be made in accordance with the procedures of DTC, described below. See "BOOK-ENTRY ONLY SYSTEM." Continuing Disclosure The City and Pulte have each covenanted in its respective Continuing Disclosure Certificate for the benefit of Bondholders to provide an annual or semi-annual report, as applicable, containing certain financial 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. Pulte's obligations under its Continuing Disclosure Cerfifieate may terminate, as more fully described in such Continuing Disclosure Certificate. The form of each of the City's and Pulte's Continuing Disclosure Certificate is attached hereto as "APPENDIX F - CONTINIIlNG DISCLOSURE CERTIFICATES." These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule ISc2-12{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°I°) or more of the annual assessment securing payment of the Bonds, such owtter 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 "forward-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 forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materie0y from those contemplated in such forward-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 Community Areas, the Improvements, the City, the Bond Resolution, Pulte, and certain other matters. Such descriptions and the discussions and information contained herein do not purport to be comprehensive or defutitive. All references in this Official Statement to documents, the Bonds, and the Assessment District proceedings are 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 Truxtun Avenue, Bakersfield, California 93301, Attention: Finance Director; telephone number (661) 326-3030. [Remainder of Page Intentionally Left Blank] ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the sale of the Bonds will be deposited with the Finance Director in tmst 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 finance the Improvements, to pay certain costs and fees associated with the Improvements, 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, 2005, will be deposited into the Redemption Fund. The estimated sources and uses of funds for the Bonds are summarized as follows: Sources of Funds Principal Amount of Bonds $3,380,000.00 Less: Underwriter's Discount (37,180.00) Total $3,342,820.00 Uses of Funds Improvement Fundtt~ $2,995,268.16 Special Reserve Fund 309,989.00 Redemption Fundt~t 37562.84 Total $3,342,820.00 (7) Includes costs of issuance of ®pproximntely$251,662.16. (2) Represents capitalized interest on the Bo^ds fromtheir dated date to September 2, 2005. THE BONDS Purpose of the Bonds Proceeds from the sale of the Bonds will be used to finance (i) the acquisition of the Improvements, which are comprised of certain public utility improvements pertaining to the Assessment District, and which Improvements will be owned, operated, and maintained by Cal-Water, and (ii) the payment of certain incidental costs and expenses related to the acquisition of the Improvements, the Assessment District proceedings, and the Bond issuance, including the establishment of a Special Reserve Fund for the Bonds and the funding of capitalized interest on the Bonds through September 2, 2005. See "THE ASSESSMENT DISTRICT AND TIIE IMPROVEMENTS - Description of the Community Areas and the Improvements." Authority for Issuance The Assessment District proceedings are being conducted pursuant to the 1913 Act, Section 13.08.070 of the Municipal Codeofthe City, and a Resolution of Intention No. 1368, adopted by the City Council of the City on January 26, 2005. 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 Bond issue. Pulte 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 Pulte, the owner of more than b0% of the assessable land within the Assessment District at the time of such filing, initiated the proceedings for the Assessment Distciet. The property owner petition was accepted by Resolution No. 028-05, adopted by the City Council on January 26, 2005. After the proceedings were initiated, Wilson & Associates, Fresno, California (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 TTY IMPROVEMENTS -Method of Assessment Spread.") The Assessment Engineer's written report was filed with the City Clerk on April I5, 2005, and was approved by the City Council in preliminary form on April 27, 2005. The Assessment Engineer's written report in final Form was filed with the City Clerk on May 13, 2005. The public hearing required by law was held on May 25, 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 XIIID 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 XIIIC and XIiLD of the California Constimtion." Upon conclusion of the hearing, the City Council tabulated the ballots and adapted its resolution confirming the assessments and ordering the acquisition of improvements. The assessments confirmed by the City were based on the improvement costs 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 May 26, 2005, and in the Office of the County Recorder on May 31, 2005. No cash payments were made by the property owners. General The Bonds will be issued in fully registered form, without coupons, 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 September 2, 2005, and thereafter semiannually on March 2 and September 2 (each an "Interest Payment Date"). Principal, interest at maturity ox upon euliex 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, registrar, and transfer agent (the "Paying Agent"), in St. Paul, Minnesota, upon presentation and surrender of the Bonds. Interest (other than at maturity orupon earlier redemption) on the Bonds will be payable by check of the Paying Agent mailed on each Interest Payment Date to the owners of record at 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 $1,000,000 in principal amount of the 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). 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 transferor exchange to pay any tax or other governmental charge required to be paid with respect to such transfer or 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 surrender 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 destruction 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 ]ost or destroyed. The owner must pay all costs of issuance of the new Bond. Redemption Ontional Redemption and Prepayment 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 par value of Bonds being redeemed) as set forth in the following table: Redemption Dates Redemption Premium September 2, 2005, through September 2, 2014 39% March 2, 2015 and September 2, 2015 2.0°f° March 2, 2016 and September 2, 2016 1.0% March 2, 2017 and thereafter 0.0°f° 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 in the 1915 Act. In accordance with the 1915 Act, trite Finance Director will select Bonds for redemption 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"), are 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 years and in the folTowmg principal amounts, together with interest accmed on such amounts to the date fixed for redemption, and shall be without premium: Year Principal Amount 2016 $16Q000 2017 170,000 2018 180,000 2019 195,000 2020 205,000 2421 220,000 2022 235,000 2023 250,000 2024 270,000 2025 (maturity) 290,000 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 paymeut dates set forth above shall be modified by deducting the principal amount of the Bonds redeemed in $5,000 increments as proportionally as practicable from the principal amounts set forth above. Effect of Redemption; Iefeasance Erom 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 bear 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. Defeasance of any Bond may result in a reissuance thereof, in which event an owner will recognize taxable gain or loss equal to the difference between the amount realized from the sale, exchange, or retirement (less any accrued qualified stated interest which will be taxable as such) and the owner's adjusted tax basis in the Bond. See "TAX MATTERS." Refunding Bonds Pursuant to the Refunding Act of 1984 for 1915 Improvement Act Bonds {Division 11.5 of the California Streets and Righways 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 Cify Council finds 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 within the Assessment District. Any amount added to the annual installments on the reassessment due to a delinquency in payment on the original assessment need not be considered in this calculation; (B) The number of years to maturity of all refunding bonds is not more than the number of years to the last maturity of the Bonds; and {C} The principal amount of the reassessment on each subdivision of land within the Assessment District is less than 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. 1 Upon issuing refunding bonds, the City Council could require that the Bonds be exchanged for refunding j bonds on any basis which the City Council detemunes 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 Che Improvement Fund after 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 1913 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 applicable City investment policies, subject to State law governing the investment of 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 he deposited into an Investment Earnings Fund, to be established and maintained by the Finance Director. To the extent that the balance in the Special Reserve Fund is less than the Reserve Requirement, a transfer will be made from the Investment Earnings Fund to the Special Reserve Fund. The balance, if any, in the Investment Earnings Fund will be transfesed, 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. Security for the Bonds The Bonds are issued upon and secured by the unpaid assessments against the property in the Assessment DistricC, 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 Redemption 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 ate payable exclusively out of the Redemption Fund. The assessments and each installment thereof and any interest and penalties thereon constitute a lien against the parcels of land on which the assessments are levied until the same are paid. Such 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 created pursuant to the "Mello-Roos Community Facilities Act of 1982" (being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California) {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 other special assessment lien created under the 1913 Act or any special tax lien created under the Mello-Roos 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 full faith and credit for the payment thereof. Although the unpaid assessments constitute 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 owner will continue to own all or any of its parcels. The unpaid assessments will be collected in annual installments, together with interest on the declining balance, on the County tax roll on which general taxes on real property are 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 general 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 axe properties far nonpayment of general taxes. The 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 Yhey 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 Fnnd Out of ffie pmeeeds of the sale of the Bonds, the City Council will set aside into a Special Reserve Fund the amount of $309,989. The Special Reserve Ftmd 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 Bands, 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 maturing 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. In 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 wdl be dependent upon reimbursement of the Special Reserve Fund. (b) If any assessment or any portion thereof is prepaid prior to the final 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 bears to the total original amount of unpaid assessments originally 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. The 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 depositedirito the Investment Earnings Fund. See "THE BONDS -Investment of Bond Proceeds." (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 upon the retirement of the Bonds. (e) In the event that the balance in the 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 $1,000, 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 in its total depletion prior to reimbursement from resales of property or delinquency redemptions. In that event, there could be a default in io payments to owners of the Bonds, the curing of which would be dependent upon reimbursement of the Special Reserve Fund. Redemption Fund Deficiencies 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 accruing to the owners of the Bonds, the City will pay to the owners of the Bonds a proportionate share 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, similar proportionate payments will be made to the owners of the Bonds, all in accordance with the procedures 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 Director is required to direct the Paying Agent to pay matured 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: (1) all matured interest payments shall be made before the principal of any Bonds is paid; (2) interest on Bonds of earlier maturity shall be paid before interest on Bonds of later maturity; {3) within a single mamrity, 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 Bonds are presented for payment. This procedure 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 foreclosure sale of the property having the delinquent assessment installments. Covenant to Commence Superior Court Foreclosure The 1915 Act provides that in the event any assessment or installment thereof or any intereat thereon is not paid when due, the City may order the institution of a court action to foreclose 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 foreclosure sale procedure is not mandatory. However, in the Bond Resolution, the City 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 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 year, and (ii) the amount in the Special Reserve Fund is less than the Reserve Requirement. In the event such Superior Court foreclosure or foreclosures are necessary, there may be a delay in payments to Bond owners pending prosecution of the foreclosure 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. See "SPECIAL RISK '. FACTORS -Covenant to Commence Superior Court Foreclosure." Priority of Lien Each assessment {and any reassessment) and each installment thereof, and any interest and penalties 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 over all fixed special assessment liens that may thereafter be created againsf 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 Mello-Roos Act, whenever created against the property. None of the property in the Assessment District is subject to any other special assessment lien created under the 1913 Act or any special tax lien created under the Mello-Roos Act. tt Debt Service Schedule Set forth below is the debt service schedule for the Bonds. Annual Bood Debt Serviee Period Ending Principal Total Bond (Sentembcr2l Maturine Interest Debt Service 2005 $ - $37,562.84i~t $ 37,562 .84 2006 95,000 211,291.00 30b,291 .00 2007 SOQ,000 207,082.50 307,082 .50 2008 105,000 202,312.50 307,312 .50 2009 710,000 197,125.50 307,125 .50 2010 115,000 ]91,537.50 306,537. 50 2011 120,OD0 185,546.D0 305,546. 00 2DI2 130,000 179,210.00 309,210. 00 2013 135,000 172,333.00 307,333. 00 2014 145,000 164,989.00 309,989. 00 2015 150,000 156,840.00 306,840. 00 2016 160,000 148,33S.DD 308,335. 00 2017 170,000 137,423.00 307,423. 00 2D18 180,000 125,829A0 305,829. 00 2019 195,000 113,553.00 308,553. 00 2020 205,000 100,254.00 305,254. 00 2021 220,000 86,273.00 306,273. 00 2022 235,000 71,269.00 306,269. 00 2023 250,000 55,242,00 -~ 305,242. 00 2024 270,000 38,192.00 308,192. 00 2D25 290.000 19.778.00 309.778. 00 Totals $3,380,000 $2,801,977.84 $6,181,977. 54 (t) Capitalized interest on the Bonds has been funded through September 2, 2005. Source: Stone & Youngberg LLC 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., as nominee of DTC, as registered owner of all the Bonds. The following description of DTC and its book-entry system has been grovided by DTC and has not been verified for accuracy or completeness by the City, and the City shall have no liability in respect thereof. 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 trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "cleating 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 two million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from over 85 countries that DTC's participants (`Direct Participants"~ deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' aocounts. 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 Tmst & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number.of Direct Participants of DTC and Members of the National Securities Clearing Corporation Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as weIl as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and tz the Natioual 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"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of the Bonds under the D`I'C system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner"} is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant tluough which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers,, all Bouds deposited by Direct Participants with DTC are registered ur the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Duect Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as maybe in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with. respect to the Bonds, such as 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 PAYING 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 DII2ECT PARTICIgANT 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 Direct 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 rights 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 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 City or the Paying Agent, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in Beazer 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 and interest to Cede & Co. (or 13 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 Beneficial Owners is the responsibiliiy of Direct and Indirect Participants. DTC may discontinue providing its services with respect to the Bonds at any time by giving reasonable notice to the City of 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 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 TO DTC PARTICIPANTS OR THAT PARTICIPANTS 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. THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS The information under this heading as taken primarily from the Engineer's Report for the Assessment District prepared by Wilson & Associates, Fresno, California, which Engineer's Report is on.~te with the City, and from information provided by Putte. 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 Pulte who, at the time the petition was filed, was the owner of over 60°l° of the assessable land within the Assessment District. The petition was accepted by Resolution No. 028- 05, adopted by the City Council on January 26, 2005, and the petition is on file with the City Clerk of the City. The Assessment District is comprised of two separate Community Areas in northeast Bakersfield totaling approximately 215.6 acres, and generally described as (i) the Solera Area, containing approximately 174.7 acres located south of State Route 178, east of Alfred Harrell Highway, and west of Miramante Drive, and also identified as Tract No. 6149, and (ii) the Rio Vista Area, containing approximately 40.9 acres located east of Miramonte Drive, and also identified as Vesting Tentative Tract No. 5997 ("Tract No. 5997") and Tract No. 5998. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." ~, The two irregularly shaped Community Areas are located within a rectangular section of northeast Bakersfield that has anorth-to-south dimension of approximately one mile as measured from the north end of the Solera Area to the south end of the Rio Vista Area and awest-to-east dimension of approximately one and one-half miles as measured from the westerly boundary of the Solera Area to the easterly boundary of the Rio Vista Area. Each of the two Community Areas is involved in various stages of the land development, entitlement, or site development process. I The Assessment District boundaries are shown on the assessment diagram, consisting of five sheets, entitled "ASSESSMENT DIAGRAM OF CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. 04-3 (SOLERAlRIO VISTA), 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 acquisition of the Improvements, which are comprised of certain public utility improvements pertaining to the property within the Assessment District, which Improvements will be owned, operated, and 14 maintained by Cal-Water, and (ii) the payment of certain incidental costs and expenses related to the acquisition of the Improvements, the Assessment District proceedings, and Che Bond issuance, including the establishment of a Special Reserve Fund for the Bonds and the funding of capitalized interest on the Bonds through September 2, 2005. The Improvements are proposed to be financed by the City and owned by Cal-Water, in accordance with the terms and conditions of the Reimbursement Agreement, which Reimbursement AgreemenC incorporates the Cal- Water Agreement No. 1 and the Cal-Water Agreement No. 2. Upon their completion, the Improvements are proposed to be acquired by Cal-Water using, in part, Bond proceeds disbursed by the City. The Improvements axe required or are expected by Pulte to be required to be completed as conditions of final subdivision within the two Community Areas. The costs financed by the Assessment District for the acquisition of the Improvements have been allocated to parcels that are located within the Assessment District served by those Improvements. Bond proceeds are not expected to be used for the acquisition of land, easements, or rights-of--way. Description of the Community Areas and the Improvements The information under this subheading has been provided by the Engineer's Report or Pulte, as applicable, and has not been verifced far- 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 respective Community Areas within the Assessment District are subject to change. Furthermore, the current plans are subject, in large part, to the financial resources and construction and marketing eapabilifies and efforts of Pulte and the other builders or persons, if any, 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 Solera Area I The Solera Area encompasses an approximately 174.7-acre block of land, also identified as Tract No. 6149, which land is planned for subdivision into a combined total of 558 R-1 lots (as defined in the section entitled i "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT - Zoning"), one private recreation center lot, one public park lot, five private park lots, and two storm drain sump lots ~, pursuant to Vesting Tentative Tract No. 6149. Pulte Is the subdivider of Tract No. 6149. Pulte intends to subdivide Tract No. 6149 into nine phases. Pulte has recorded with the Kern County Recorder three subdivision tract maps. Phase I includes 17 R-1 lots, one public park lot, and two storm drain sump lots. Phase 2 includes 61 R-1 lots and one private park lot. Phase 3 includes 110 R-1 lots and one private recreation center lot. Pulte has informed the City that the other phases of Tract No. 6149 will not be recorded with the K_em County Recorder prior to the issuance of the Bonds. I The Rio Vista Area The Rio Vista Area encompasses an approximately 40.9-acre block of land, also identified as Tract No. 5997 and Tract No. 5998, that is approved for subdivision into a combined total of 44 R-1 lots, pursuant to Vesting Tentative Tract No. 5947 (with respect to 50 R-1 lots), and Vesting Tentative Tract No. 5498 (with respect to 44 R-I lots). Pulte is the subdivider of Tract No. 5997 and Tract No. 5998. Pulte has recorded Tract No. 5998 with the Kem County Recorder. Pulte has informed the City that Tract No. 5497 will not be recorded with the Kem County Recorder prior to the issuance of the Bonds. The Improvements The Improvements for both the Solera Area and the Rio Vista Area include the constmction and installation as sepazate systems of: (i) approximately 2,530 feet of 36-inch diameter water line with appurtenances in Paladino Drive from the waterline stub at Valley Lane, easterly to a new booster pump station located approximately 500 feet east of the intersection of Masterson Street and Paladino Drive (an the north side of Paladino Drjve) (the " 36-inch 15 Line"), (ii) approximately 5,680 feet of 24-inch diameter water line with appurtenances in Paladino Drive (from the ', booster station westerly approximately 500 feet to Masterson Street) and in Masterson Street (from Paladino Drive southerly approximately 5,180 feet to State Route 178) (the " 24-inch Lme"}, (iii} approximately 2,010 feet of 18- inch diameter water line with appurtenances in State Route 178 from Masterson Street northeasterly to Vista Finestra (the "18-inch Line', and (iv) a booster pump station generally located approximately 500 feet east of the intersection of Masterson Street and Paladino Drive (on the north side of Paladino Drive} (the "Pump Station"). ', Also included in the scope of the Improvements are incidental costs for design and engineering, Cal-Water contract administration, construction monitoring and overhead, compaction testing, and perrttits. Pursuant to the Cal-Water Agreement No. 1, Puke shall construct and install the 36-inch Line, the 24-inch Line, and the 18-inch Line. Pursuant to the Cal-Water Agreement No. 2, Pulte has subcontracted to Cal-Water for the construction and installation of the Pump Station, and has paid $1,254,500 to Cal-Water in connection therewith. Pulte and Cal-Water '. have not yet initiated the construction and installation of any part of the Improvements. The total cost of the constmction of the Improvements, and expenses incidental thereto, is estimated to be approximately $3,670,500. The assessment for the Assessment District will fund approximately 74.75% of the estimated total cost of constuction of the Improvements. Pulte will pay the remaining 25.25% of estimated total cost of constmction of the Improvements from its own funds. Pulte previously delivered to Cal-Water a letter of credit (the "Letter of Credit") issued by SunTrust Bank for the benefit of Cal-Water. The Letter of Credit was issued in the aggregate amount of $3,670,500, and may be drawn upon by Cal-Water for payment of the cost of construction of the Improvements in the event that Pulte has failed to construct the Imgmvemeats. After the deposit of the Letter of Credit, Pu1te paid Cal-Water $1,254,500 for construction of the Pump Station. Pulte intends to deposit a performance bond in the approximate amount of $2,416,000.00 (the "Performance Bond"). After deposit of the Performance Bond, Pulte expects Cal-Water to release the Letter of Credit. [Remainder of Page Intentionally Lefr Blank] 16 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 Report. A copy of the Engineer's Report is on file with the City. ENGINEER'S ESTIMATE OF TOTAL COST ANll ASSESSMENT City of Bakersfield Assessment District Na. 04-3 (Solera/Rio Vista) ACTIVITY DESCRIPTION CONFIRMED ASSF,SSMENT ', 1. COST OFIMPROYEMENTS AND INCIDENTALS A. IMPROVEMENTS $3,040,000.00 B. INCIDENTALS $ 630 S00 00 C. TOTAL COST OF IMPROVEMENTS AND INCIDENTALS $3,670,500.00 2. DEVELOPER'S CONTRIBUTION TO TOTAL COST OF IMPROVEMENTS AND INCIDENTALS A. IMPROVEMENTS ($767,677.00} B. INCIDENTALS ($159,217.00) C. TOTAL DEVELOPER'S CONTRIBUTION TU TOTAL COST OF IMPROVEMENTS AND INCIDENTALS ($926,894.00) 3. TOTAL COST OF IMPROVEMENTS AND INCIDENTALS AFTER DEVELOPER'S CONTRIBUTION A. SOLERA AREA $2,324,7 (t 34 B. RIO VISTA AREA 5418,894.66 C. TOTAL COST OF IMPROVEMENTS AND INCIDENTALS AFTER DEVELOPER'S CONTRIBUTION 52,743,606.00 4. ESTIMATED ASSESSMENT DISTRICT PROCEEDING COST ANll EXPENSE A. SOLERA AREA 5212,494.22 B. RIO VISTA AREA $38,289.78 C. TOTAL ESTIMATED ASSESSMENT DISTRICT PROCEEDING COST AND EXPENSE $250,7R4.OU 5. SUBTOTAL COST TO ASSESSMENT A. SOLF.RA AREA $2,537,205.56 i B. RIO VISTA AREA $457,784.44 C. SUBTOTAL COST TO ASSESSMENT 52,994,390.00 ' 6. UNDERlVRI'1'ER'S DISCOUNT, CAPITALIZED INTEREST, AND RESERVE FUND A. SOLERA AREA $369,100.91 8- RIO VISTA AREA __ $66,509.09 C. TOTAL UNDERWRITER'S DISCOUNT, CAPITALIZED INTEREST, AND RE:SERYE FUND 5435,610.00 7. TOTAL AMOUNT ASSESSED 53,430,000.00 ALLOCATION OF TOTAL AMOUNT ASSESSED TO EACH DEVELOPMENT AREA L SOLFRA AREA $2.906,306.47 2. RIO VISTA AREA $523,693.53 Sou rce: Engineer's Rcport prepucd by Wilson & Associates. 17 Method of AssessmenC Spread Spread of the Assessaent District Costs to Benefited Parcels Section 10204 of the 1913 Act requires that the assessments must be levied in gxoportion 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 with the 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, which 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 a8er hearing all testimony and evidence presented at the public hearing. Upon the conclusion of the public hearing, the City Council must take final action in determining the proportionality of the benefits received by the properties assessed. The financed costs will be spread to the assessed parcels 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 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 parcels of land in proportion to the estimated benefit each parcel can be expected to receive from the work and improvement covered by the assessment. Murrioipal Code Section 13.08.070 authorizes tho "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 cost benefit 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 parcel assessment amounts shown on APPENDIX E have been calculated or 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 Pulte. 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. Reallocation Spread Method In accordance with Municipal Code Section 13.08.070, Pulte has submitted a proposed alternate method and rate of assessment. Further, Pulte has stated that, as of the date of the approval of the alternate method and rate of assessment, it is the owner of all the property proposed to be reallocated a share of the assessment and, as of such date, it has 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 cost is first spread among the developed and undeveloped subdivisions within the Assessment District in direct proportion to the total number of 1-inch diameter and I-inch diameter equivalent (2 inch service = 3.2 times 1-inch service) water services to be installed for the development of each subdivision, and then to each planned or existing R-1 lot within those developed and undeveloped subdivisions as an is equal per R-1 lot cost share. There are no exceptions in the Solera Area and the Rio Vista Area to the equal cost share per existing or planned R-1 lot Reallocation Spread Method. OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT Ownership of Property in the Assessment District Pulte owned 100°l0 of the assessed property in the Assessment District prior to the recording of the notice of assessment and, as of May 1, 2005, owned 100% of the assessed property in the Assessment District. As of May 2005, sales contracts were signed and escrows were opened for 100 Homes in the Solera Area. In the Rio Vista ', Area, sales of 44 homes started in June 2005. Escrows from the Solera Area are expected m start closing by the first '.. week in June 2005, and in the Rio Vista Area in October 2005. Pulte estimates that homes in the Solera Area will ', close escrow at a rate of approximately 20 homes per month, and the homes in the Rio Vista Area will close escrow ', at a rate of agproximately 8 homes per month.. ~, Neither Pulte nor 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 Pulte or any other Property Owner will be able to pay the assessment installments or that Pulte or any other Property Owner will 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 Pulte or any other Property Owner will have moneys available to complete or improve the development of the land within the Assessment District {othee than the Improvements) in the manner described herein. Accordingly, no Property Owner's financial statements are included in this Official Statement. Pulte Home Corporation The information under dhis subheading has been provided by Pulte and has nat been verified fnr accuracy or completeness by the City or the Underwriter, and the City and the Underwriter shall have no liability in respect thereof Pulte is a Michigan corporation, and is wholly owned by its parent corporation, Pulte Hornes, Inc., a Michigan corporation (°Pulte Homes"). Pulte Homes is based in Bloomfield Hills, Michigan, and is a FORTUNE 250 company with operations in 45 markets. In 2004, Pulte Homes closed 3$,612 domestic home sales and generated revenues of $11.7 billion. During its 55-year history, Pulte Homes has constructed more than 408,000 homes. Under its Del Webb brand, Pulte Homes is the nation's leading builder of active adult communities for people age 55 and older. In 2004, J.D. Power and Associates named PuICe Homes the inaugural recipient of its Platinum Award for Excellence in Customer Service among the nation's leading homebuilders. J.D. Power ranked Pulte Homes No. I in eustamer satisfaction in 14 U.S. markets, and among the top TFiree homebuilders in 23 of 25 markets surveyed. Pulte Mortgage LLC is a nationwide lender and offers customers of Pulte Homes a wide variety of loan products and superior customer service. [Remainder of Page Intentionally Lefr Blank] 19 A representative sampling of projects recently or cuaently under active development by Pulte Homes and its related entities or affiliates (including Pulte) in California's Central Valley is summarized in the chart below. Pulse Homes' development plan for each project listed below is to constmct residential lots and homes and sell and convey such homes to individual homeowners. Number of Average Square ~ Project Location Homes Footace Avers e Price Solera Bakersfield 558 1,800 $300,000 Oakmont Bakersfield 108 3,000 400,000 ', Rio Vista Bakersfield 94 3,000 52Q000 Quartz Hill Lancaster 116 3,200 500,000 Madeline Place Palmdale 348 2,700 450,000 Ashton Place Lancaster 200 2,804 425,000 Vista Verde Bakersfield 39 2,500 450,000 Homes in Escrow as of Mav 1, 2005 100 25 40 70 39 Pulte Homes is a publicly traded company, with its stock listed on the New York Stock Exchange under the symbol "PHM." Pulte Homes is subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files periodic financial and other information with the Securities and Exchange Comtrtission (the "Commission") on a regular basis, including but not limited to its annual report on Form 10-K and its quarterly reports on Form 10-Q. Such filings are available for inspection at the Commission's public reference rooms and can be accessed over the Internet at the Commission's web site at http://wwwsec.gov. Tiais Internet address is included for reference only, and the information on this internet sate is not a part of this Off ~ctat St¢tement and is not incorporated by reference into this O~ciUl Statement. Development and Financing Plans The current development plan and financing plan of Pu-te for the development of the property within the Assessment District are subject to change. Furthermore, the current development plan and financing plan envisioned for the Assessment District are subject, in large part, to the financial resources and construction and marketing capabilities and efforts of Pulte and any other merchant builders and other persons to whom 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 Pulse and has not been verified for accuracy or completeness by the City or the Underwriter, and neither the City nor the Underwriter shall have any liability with respect thereto. Pulse Development Plan The Rio Vista Area and the Solera Area collectively encompass approx'unately 215.6 acres. Pulte is developing the Rio Vista Area. With respect to the Solera Area, Pulte intends to construct, under its Del Webb brand, 558 age-restricted single-family homes on R-1 lots, to be built in nine phases. The portion of the Pulte project within the boundaries of the Rio Vista area will include 94 single-family homes in a gate guarded, golf course community to be built in two phases. Constmction of homes in the Solera Area began in June 2004, with full build-out expected by November 2007. Construction of homes in the Rio Vista Area began in January 2005, with full build-out expected by October 2006. The three model homes in the Solera Area opened in May 2005. The model homes for the Rio Vista Area are expected to open in August 2005. The Solera Area has been mass graded, with infrastmcture and finish grading activities in process. Wet utilities (sewer, storm drains, and water) have been installed in Phases 1 and 2, with Phases 3, 4, 5 and 6 currently under construction. Dry utilities (electricity, gas, cable, and phone} have been installed in Phase 1, with Phases 2, 3, 4, 5, and 6 currently under consimction. Curbs and gutters have been installed in Phases 1 and 2, and sidewalks have been installed in Phase 1. Paving will be installed in May 2005 for Phases 1 and 2. Block walls are currently under constmction in Phases ]and 2, including three ornate entry monuments symbolizing the neighborhood. No construcfion activities have been commenced in Phases 7, 8, and 9. 20 In the Rio Vista Area, grading is completed, and curbs, gutters, and wet and dry utilities are currently being installed in Phase 1. Grading has commenced in Phase 2. Homes in the Solera Area are expected to range in size from approximately 1,600 to 2,300 square feet, and ~'~, prices are expected to range from $280,900 to $321,500. Homes in the Rio Vista Area aze expected to range in size from approximately 2,600 to 3,000 square feet and prices are expected to range from $520,000 to $600,000. Puite Financing Ptan Pulte financed the purchase of the Solera Area and the Rio Vista Area with available cash provided by its parent corporation, Pulte Homes. The development of completed homes in the Solera Area and the Rio Vista Area will be financed with available cash, also to be provided by Pulte Homes. No loans or lines of credit are expected to be used for the financing of the development for the Solera Area and the Rio Vista Area. Pulte has estimated the Cotal budget for consttvction of the Solera Area development is approximately $147,475,396, which includes approximately $51,495,b13 for land and land development. As of May 2005, Pulte ltad expended approximately $25,000,000 on such costs. Putte has estimated the total budget for constmction of the Rio Vista Area development is approximately $37,975,561, which includes approximately $16,545,401 for ]and and land development. As of May 2005, Pulte had expended approximately $9,500,000 on such costs. Pulte has represented that the funding sources described above will be sufficient to complete the ', development of the Solera Area and the Rio Vista Area as described herein. There is no assurance, however, that ~ amounts necessary to finance any outstanding development costs will be available from Pulte or Pulte Homes, or any other source when needed. None of Pulte, Pulte Homes, or any of their affiliated entities is under any legal obligation of any kind to expend funds for the development of the Solera Area and the Rio Vista Area. Any contributions by Pulte or Pulte Homes to fund the costs of such development are entirely voluntary. Notwithstanding available sources of financing, neither Pulte nor Pulte Homes is under any obligation to apply such sources to the completion of development within the Solera Area and the Rio Vista Area. Assessment Roll Set forth in APPENDIX E is the assessment roll, including Bulk Value (as defined herein) 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 cost of the proposed Improvement acquisition, constmction and incidental cost that is assessed upon each of the lots and pazcels within the Assessment District based upon the alternate method and rate of assessment permitted under Section 13.48.070 of the Municipal Code of the City. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Method of Assessment Spread" above. The assessment numbers that appear on the assessment roll correspond to the assessment numbers shown on the assessment diagram, attached hereto as APPENDIX D. Utilities Por each Community Area, all utilities, including gas, water, electricity, sewer, storm drains, telephone service, and cable television service aze or will be installed in the streets within the Community Area and will connect to existing facilities in the surrounding streets. Natural gas service is provided by PG&E; water service is provided by Cal-Water; sewer service is provided by the City; electricity service is provided by PG&E; telephone service is grovided by SBC; and cable television is provided by Bright House Networks. z~ Flood and Earthquake Zones Pursuant to the Appraisal, according to the maps prepared by the Federal Emergency Management Agency, the Community Areas are 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. An R-1 zoning designation allows single-family residential lazed uses, with a minimum lot size of 6,000 square feet for each dwelling unit {referred to herein as "R-1 lots"). Tax Delinquencies The City reports that, based upon the records of the office of the Kern County Tax Collector, there are no delinquent taxes or penalties owed against the parcels in the Assessment District. Pulte 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 Califoruia Enviromnental 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 April 7, 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 each Community Area. Pulte has reported that, to its knowledge, there are no additional environmental issues affecting its property within the Assessment District that would impede the development of such property as described in this Official Statement. Bulk Value-to-Assessment Lien Ratio An Appraisai of the property within the Assessment District that is subject to the lien of the assessments has been prepared for the City by the Appraiser. The Appraisal, subject to the v_a_rious limitations and assumptions set forth therein, provides an estimate of the as-is market value (designated in the Appraisal as the "Bulk Value of Recorded Lots and Land" and defined herein as the "Bulk Value") of each parcel of property within the Assessment i District. The "Aggregate Finished Lot Value When Complete" is described in the Appraisal as the value of each parcel assuming the completion of the Improvements and taking into account the value added by existing improvements, a recorded subdivision map, and the "Completion Costs," which are defined herein as the costs associated with the developer-funded improvements necessary to develop such pazcel as a fmished lot available for improving with new housing units. The Completion Costs were presumed by the Appraiser to include direct and indirect casts for each lot, property taxes and special assessments, profits, commissions; administrative and miscellaneous expenses, and the time value of money. See "APPENDLY B -Appraisal. For a discussion of liens encumbering the Assessment District property other than khe assessments, see "Direct and Overlapping Debt" below and "TFIE BONDS -Priority of Lien" herein. Based on the Appraisal, the ratio of the aggregate Bulk Value of the Assessment District property to the aggregate assessment lien is 10.83:1. The following table sets forth the Bulk Value of the Assessment District property and the applicable Bulk Value-to-assessment lien ratios. 22 APPRAISED VALUES AND BULK VALUE-TO-ASSESSMENT LIEN RATIOS CITY OF BAKERSFIELD ASSESSMENT DISTRICT N0.04-3 (SOLERA/RIO VISTA) Bulk Value-fo- Assessment Assessment Lien Assessment NoJDescription Net Acres t" Bolk Yalue''' Lien Ratio SOLERA AREA 1-17/Tract b10.9-Phase 1, Lots 1-17 7.53 1,220,000 88,54331 13.78 18/I'reet 6149-Phase 1, Lot 18 n/a tUa 0.00 n!a 19/Tract fi 149-Phase 7, Lot A n/a nla 0.00 n!e 20-22/Traci 6149-Phase 1, Lots B, C and D n/a nfa 0.00 Na 23-20.fpract 6149-Phase 1, Lots E and F n!a nta 0.00 n/a 25-85frract 6149-Phase 2, Lots 1-bl ]3.74 5,879,000 317,714.23 18.50 86l17act 6149-Phase 2, Lot A n/a nla 0.00 nla 87/Tract 6149-Phase 2, Lo[ B n!a n/a 0.00 n/a 88(f ract 6149-Phase 2, Lot C n/a nta 0.00 n/a 89JFrae[ 6149-Phase 2, Lot D nla nla 0.00 n/a 90-199/Tract 6149-Phase 1, Lots l-110 27.9 5,359,000 572,927.30 9.35 200/Tract 6149-Phase 3, Lot I1 I n/a nta 0.00 nla 201ITrect 6149-Phase 3, Lot A n/a n/a 0.00 n/a 202/ Remainder of Lot 20 Tract 6149-1 101.01 14,452,676 1,427,721.b3 7.5 {Future Tract b 149 Phases 4, 5, 6, 7, 8 & 9) SUBTOTALS SOLERA AREA (TR 6149} 150.18 26,910,676 2,906,306.47 9.26 RIO VISTA AREA 203-246/Tract 5998, Lots 1-44 18.57 S,d69,000 262,809.45 20.81 247/Tract 5998, Lot A n/a nta 0.00 n/a 248-252/Tract 5998, Lots B-F n/a nla 0.00 n/a SUBTOTALS TRACT N0.5998 18.57 5,469,000 262,809.45 20.81 253/Parcel A LLA No. Q3-1333 22.34 4,756,677 26Q,8$4.08 1823 (Future Tract 5997, Lots 1-50) SURTOTALS TRACT' N0.5997 (FUTURE) 22.34 4,756,677 260,884.08 18.23 SUBTOTALS RIO VISTA AREA {TR 5997 AND TR 5998) 40.9] 10,225,677 823,69353 19.53 ASSESSMENT DISTRICT TOTALS 791.09 37,136,353 3,430,000.00 70.83 The reader may note some discrepancies due to rounding (]) Nee Acres does not include offsite streets, drainage way lots, storm drain sump lots, and private and pu blic park lots. (2) Includes contributory value of Louses under oonstmetion. --- Source: Appraisal 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 APPENDIX 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 City makes no representations as to the accuracy or completeness of the Appraisal. Certain considerations relating to the Appraisal are discussed under the heading "SPECIAL RISK FACTORS:' NO REPRESENTATIONS ARE MADE REGARDING THE APPRAISED VALUATIONS QUOTED IN APPENDD{ B OR E, AND PROSPECTIVE PURCHASERS ARE CAUTIONED NOT TO RELY ON THE VALUATIONS IN DETERIvffNING 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. 23 Direct and Overlapping Debt 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 City by California Municipal Statistics, Inc., as of May 1, 2005. Neither the City nar the Underwriter has independently verified the information in the Direct and Overlapping Debt ', Table and neither the City nor the Underwriter guarantees its completeness or accuracy. ', Direct and Overlapping ,Debt ', City of Bakersfield Assessment District No. 04-3 (Solera/Rio Vista) 2004-OS Local Secured Assessed Valuation: $2,075,566 DTRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Ap hu 'cable Debt 511/OS Kem Community College District School Facilities Improvement District No. 1 0.005% $ 3,667 Kem High School District 0907 5,958 Bakersfield City School District 0.035 8,711 Ciry of Bakersfield 0.015 311 Kem Community College District Assessment District 0.005 356 City of Bakersfield Asaessment District No. 04-3 100.000 - t0 TOTAL GROSS DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $19,003 Less: City of Bakersfield water bands 311 TOTAL NET DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $18,692 OVERLAPPING GENERAL FUND OBLIGATION DEBT Kem County General Fund Obligations 0.004% $ 3,650 Kem County Pension Obligations 0.004 79,839 Kern County Board of Education Certificates of Participation 0.004 3,864 Kern Community College District Certificates of Participation 0.004 3,440 Kem High School District General Fund Obligations 0.007 6,677 Bakersfield City School District Certificates of Participation 0.037 1,719 City of Bakersfield Certificates of Participation 0.015 5 020 TOTAL OVERLAPPING GENERAL FUND OBLIGATION DEBT $44,203 GROSS COMBINED TOTAL DEBT $63,206 ai NET COMBINED TOTAL DEBT $62,895 (1) Excludes 1915 Act bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, m _x allocation bonds and non-bonded ortgage revenue and ta capita] lease obligations. _ Ratios to 2004-OS Assessed Valuation: DirectDebt .............:.::::......................................................................... .......... - °!o Total Gross Direct and Overlapping Tax and Assessment Debt ............ .......... 0.42% Total Net Direct and Overlapping Tax and Assessment Debt ................ .......... 0.90°!° Gross Combined Total Debt .................................................................. .......... 3.05% Net Combined Total Debt ...................................................................... .......... 3.03% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6!30104: $0 Source: California Municipal Statistics, htc. 24 SPECIAL RISK FACTORS General Under the provisions of the 1915 Act, assessment installments, from which funds for the payment of annual installments of principal and interest with respect to the Bonds are derived, will be billed to properties against which there are unpaid assessments on the regular property tax bills sent to owners of such properties. Such assessment installments are due and payable, and bear 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 Yax 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. In order to pay debt service on the Bonds, it is necessary Yhat unpaid installments of assessments on land within the Assessment District are paid in a Timely manner, Should the instaIlrnents not be paid on time, the City has established a Special Reserve Fund in the initial amount of $309,989 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 aze 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 paroels to pay installments of assessments when due, depletion of the Special Reserve Fhnd, 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 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 fall 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 Holders 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 [he vicinity of the Assessment District, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings and/or sites in the event of sale or foreclosure; (ii) changes in real estate tax rate and other operating expenses, governmental Hiles {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 May 1, 2005, Pulte owned 100% of the assessed property in the Assessment District. As of May 1, 2005, sales contracts were signed and escrows were opened for 100 homes in the Solera Area. In the Rio Vista Area, sales of 44 homes started in May 2005. Escrows from the Solera Area are expected to start closing by the first week in Tune 2005, and in the Rio Vista Area in October 2005. Although Pulte has indicated its intention to improve all of its Assessment District property and to sell homes to individual homeowners, there can be no assurance that such sales will occur as plaimed. Thus, there is no assurance of any degree of further diversiFcation of ownership of the assessed property. Also, unless and until such ownership is further diversified, the inability or refusal of Pulte to pay its assessment installments when due could result in the rapid total depletion of the Special 2s Reserve Fund prior to reimbursement thereof from foreclosure proceedings. Under such circumstances, there would be insufficient moneys with which to pay principal of and/or interest on the Bonds. Failure of any future property owners to pay installments of assessments when due could also result in a default in paytnent of the principal of and interest on the Bonds prior to the resales of foreclosed property or detinquency 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 OE THE ASSESSMENT DISTRICT -Bulk Value-to-Assessment Lien Ratio" for a summary of the value of the property within each of the two respective Community Areas in the 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 parcel to the amount of the assessment lien against such parcel. No assurance can be given that this appraised value to lien ratio will nor 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 pay such delinquent installments (plus costs and penalties). The 1915 Act provides thaC a parcel be sold for the delinquent installments} 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 Pulte), in order ro derive the aggregate valuation estimate of the property within the Assessment District to be assessed. See APPENDIX B for an explanation of methodology and a statement of contingent and limiting conditions and assumptions used by the Appraiser to derive the aggregate 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 Ciry 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 $309,989, 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. 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 detinquency 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 are insufficient funds in The Special Reserve Fund to pay all delinquent installments, a delay may occur in payments to the owners of the Bonds. Hazardous Substances Although governmental taxes, assessments, and chazges are a cotnnaon claim against the value of an assessed parcel, other less common claims may be relevant. One of the most serious in temts of the potential reduction in the value that may be realized to pay the unpaid assessments is a claim with regard to hazardous substances. In general, the owners and operators of parcels within the Assessment District may be required by law to remedy condifions of the parcels related to the releases or threatened releases of hazardous substances. The federal Comprehensive Enviromnental Response, Compensation, and Liability Act of 1980, sometimes refeaed to as "CERCLA" or the "Superfund Act," is the most well-known and widely applicable of these laws, buY California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or 26 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 parcel within the Assessment District be affected by a hazardous substance, would be to reduce the marketability and value of the parcel 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 hazardous 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 uot, unless expressly noted, take into account the possible reduction in marketability and value of any of the parcels by reason of the possible liability of the owner {or operator) for the remedy of a hazardous substance condition of the parcel. Pulte has represented to the City that it is not aware of any current liability for hazardous substances with respect to any of its parcels 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 the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. 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 Review." Endangered and Threatened Species No threatened or endangered species (or their respective habitats) have been identified in any of the Community Areas. 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 could be severely limited. In such an event, the then-current landowner's willingness or ability to pay assessment installments could be adversely affected. The property within the Assessment District is subject to the Metropolitan Bakersfield Habitat Conservation Plan ("MBHCP'~, a 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 pemvts 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 are generally located outside the metropolitan Bakersfield area. In exchange fox the MBHCP mitigation fee, the applicant is relieved of the obligafiari 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. Factors Which May Affect Land Levelopment The amount to be financed by the assessments will not be sufficient to pay for the entire cost of the Improvements. Pulte is 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 Community Areas and the Improvements.° -' Future development in the Assessment District may be affected by changes in the genera] economic conditions, fluctuations in the real estate market, 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, land use, zoning, and other matters. Although no such delays are anticipated, failure to meet any such future regulations or obtain any such approvals in a timely mariner could delay or adversely affect any proposed development in the Assessment District. The development of property within the Assessment District 27 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 both 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 propemes 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 acquisition of the Improvements, the City intends to include as a part of such levy an annual assessment upon each parcel of land in the Assessment 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 arutual assessment installments levied against their property. Subordinate Debt; Payments by FDIC and other Federal Agencies Pulte has reported that none of its property 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 additional loans 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 Federal Deposit Insurance Corporation {"FDIC") or if a lien is imposed on the property by the Drug Enforcement Agency, the Internal Revenue Service, or other similar 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 June 4, 1991, the FDIC issued a Statement of Policy Regarding the Payment of State and Local Property Taxes (the "1991 Policy Statement"}. The 1991 Policy Statement was revised and superseded by new Policy Statement effective January 9, 1997 {the "Policy Statement"). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real properly taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they became due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration off'-ihe institution's affairs, unless abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest} on FDIC owned property are secured by a valid lien (in effeLt before ffie property became owned by the FDIC}, the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent Jn addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent. The Policy Statement 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, includutg special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. , The 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 wlrich the FDIC has or obtains an interest, although 28 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. Holders 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 on the Bonds. Based on the secured tax roll as of May 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. Tex Delinquencies Assessment installments, from which funds necessary for the payment of annual installments of principal of and interest on the Bands are to 6e 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 parcels of property in Kern County can be made separately from regular property tax payments for such parcels. Property tax payments will not be accepted, however, unless the assessment installments for such parcels 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 County Tax Collector, none of the parcels in the respective Community Areas within the Assessment District shows delinquencies in the payment of fiscal year 2001-02, 2002-03, 2403-04, or 2004-OS property 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 Specie] Reserve Fund and to undertake, under certain circumstances, judicial foreclosure proceedings to recover such delinquencies. See "THE SONDS- 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 will be available for this propose 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 afrer exhaustion of funds in the Special Reserve Fund, the City is not obligated to transfer into the applicable Redemption Fund the amount of such delinquency out of any other available moneys of the City. THE CITY'S LEGAL RESPONSIBILITIES WITH RESPECT TO SUCH DELINQUENT INSTALLMENTS ARE LIMFIED TO ADVANCING THE AMOUNT THERlOF SOLELY FROM ANY 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 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. 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 IN 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 entitled "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. 29 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 instmments, 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 dte Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Indrrsaries. In Yhat case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed 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, payable 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 tiA the court's mling, as administrative expenses, past-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 our of the bankruptcy estate (through foreclosure or otherwise) it would at that time become subject to current ad valorem taxes. Glasply is controlling precedent an bankmptcy courts in the State of Calffornia. Pursuant to statute, the lien date for general ad valorem property taxes levied in the State of California is the January 1 preceding the fiscal year for which the taxes are levied. Therefore, under Glasply, a bankuptcy petition filing would prevent the lien for general ad valorem property taxes levied in subsequent fiscal years from attaching so long as the property was a part of the estate in bankruptcy. Under current law, the lien of an assessment, unlike the lien for general ad valorem property taxes, attaches upon recordation of [he notice of assessment. The notice of assessment for the Assessment District assessments was recorded in the Official Records of the County on October 22, 2004. Thus, before applying Glasply to a banlmrptcy situation involving assessments rather than general ad valorem property taxes, a oourt 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 bankmptcy, 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 banFattptcy 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 heated like ad valorem taxes for this purpose. _ "" 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 the Bonds, and the possibility that delinquent assessment installments might not be paid in full. Economic, PoliHeal, Social, and Environmental Conditions Prospective investors are encouraged to evaluate current and prospective economic"political, social, and environmental conditions as part of an informed inveshnent decision. Changes in economic, political, social, or environmental conditions on a local, state, federal and/or international level may adversely affect investment risk generally. Such changes may also adversely affect the value of property within the Assessment District and/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 war or terrorism, environmental damage, and natural disasters. 30 Articles XIIIA and XIIIB of the California Constitution On June 6, 1978, California voters approved an amendment to the California Constitution, commonly known as Proposition 13 (the Jarvis/Gann Initiative) which added Article XIIIA to the California Constitution. The effect of Article XIIIA is to linut 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 property as shown on the 1975-76 tax bill under `full cash value' or, thereafter, the appraised value of real property when purchased, newly constmcted, or a change in ownership has occtured after the 1975 assessment" The "full cash value" is subject to annual adjustment to reflect increases, not to exceed 2% per year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destmetion or other factors. Article XIIIA exempts from the I% tax limitafion any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and allows local governments to raise their property tax rates above the constitutionally mandated 1% ceiling for the purpose of paying off certain new general obligation debt issued for the acquisition or improvement of real property and approved by two-thirds of the votes cast by the qualified electorate. Article XIIIA requires a vote of two-thirds of the qualified electorate to impose special taxes on real property, while otherwise generally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. In addition, Article XIIIA requires the approval of two-Thirds of all members of the State Legislature to change any State laws resulting in increased tax revenues. Enactment of Article XIIIA has reduced the amount of general property tax revenues that may be collected by Kern County, and, consequently, the amount received by the City. This reduction in such revenues makes it less likely that the City will have surplus funds, other than the Special Rescrvc Fund, with which to advance funds to make any payments or to cure any deficiency in the Redemption Fund, should the City, in the exercise of its discretion, choose to do so. If there are additional delinquencies after exhaustion of fimds in the Special Reserve Fund, the City has no obligation to transfer into the Redemption Fund the amount of any such delinquencies out of any surplus moneys of the City. On July 2, 1974, the Fifth District Court of Appeal rendered a 3-0 decision in the case of CoLmty of Fresno v. Malmstrom (94 Cal. App. 3d 1974) that determined that special assessments are not subject to the limitations of Article XIIIA (Proposition 13). The Court held the one percent tax limitation imposed by California Constitution Article XIIIA on ad valorem taxes does not apply to special assessments levied pursuant to the hnprovement Act of 1911 (Streets and Highways Code, Section 5000 et seq., the relevant portions of which are incorporated in the 1915 Act) and the 1913 Act. The Court further held that because special assessments pursuant to such acts era not within the definition of "special taxes" in Article XIIIA, the Constitution does not require the levy of assessments and the issuance of bonds to be approved by atwo-thirds vote of the qualified electors in an 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 year, as adjusted For changes in the cost of living, population and services rendered by the governmental entity. The "base year" for establishing such appropriation limit is the fiscal year 1978-79 and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies. Appropriations 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 Yaxes, benefit payments from retirement, unemployment insurance and disability insurance funds. "Proceeds of taxes" include, but are not limited 3] to, all tax revenues and [he 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. I On December 17, 1980, the Third District Court of Appeal rendered a 3-0 decision in the case Countv of i Placer v. Corin (113 Cal. App. 3d 443} that determined that 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 legislafive 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 Yo meet delinquencies, but not to exceed ten cents on each $100 of assessable property within the City in any one year) if other funds are not available to cover delinquencies. In early 1990, the U.S. Supreme Court stmck down as a violation of equal protection certain property tax assessment pracrices in West Virginia, which had resu]ted in vastly different assessments of similaz properties. Since Article XIIIA provides that property may only be reassessed up to 2°Jo, per year, except upon change of ownership or new construction, recent purchasers may pay substantially higher property taxes than long-time owners of comparable property in a community. The Supreme Court in the West Virgiiua case expressly declined to comment in any way on the constitutianality of Article XIIIA. Based an this decision, however, property owners in California brought three suits challenging the acquisition value assessment provisions of Article XIIIA. Two cases involved residential property and one case involved commercial propcriy. In all three cases, State trial and appellate courts 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 hear 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 Nordlin er v. Lynch (112 U.S. 2326), the U.S. Supreme Court affirmed 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 w_il_I have on the City's revenues or on the State's financial obligations to local governments. Articles XIIIC and XIIID of the California Constitution Propositian 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 XIIID 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 1, 1997, the proceedings for the 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 charge upon real property for a special benefit conferred upon the real property. Article XIIID additionally provides that in levying "assessments" a local government must separate the "general benefits" from the "special benefits" conferred on a parcel and may not impose on any parcel an assessment which exceeds the "reasonable 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 32 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 XIIID 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, Yhat the initiative power shall "not be prohibited or otherwise limited in matters reducing or repeating any ... assessment" of the City. Thus, 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 XII1D (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 furore, approve initiatives that repeal, reduce, or prohibiC the future imposition or increase of any assessments. In 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 Kern County Auditor to post installments on account of the unpaid assessments to the Kern 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 XIIIC have not been interpreted by the courts, the Ciry believes that the initiative power cannot be used to reduce or repeal the unpaid assessments that are pledged as security fox payment of the Bonds or to otherwise interfere unth the mandatory, statutory duty of the City and the Kern 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 discussed above, and it is not possible at this time to predict with certainty the outcome of such determittation. 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 time to time other initiative measures could be adopted, which may affect the ability of the City to levy and maintain assessments. Covenant to Commence Snperior 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 mandatary. 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 October I in any year, file an action in the Superior Court of Kern County to foreclose the lien on each delinquent assessment if (i) the sum of uncured assessment delinquencies for the preceding fiscal yoar exceeds 5% of the assessment installmems 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 foreclosures are necessary, there may be a delay in payments to the owners of the Bonds, pending prosecution of the foreclosure proceedings and receipt by tho 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 lunited 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 parcel of land covered by an assessment or reassessment before the sale of such pazcel can be given. Furthermore, if the purchaser at the sale is the judgment creditor, %e., the City, an action may bo commenced by the delinquent property owner within ninety (90) days after the date of sale to set aside such sale. 33 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 the amount equal to the delinquent installments of principal and interest on the assessment or reassessment, together with all interest, penalties, costs, fees, charges 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 introduced at the required hearing, any of the following: (A) Sale at the lesser Minimum Price or without a Minimum Price will not result in an ultimate loss Yo 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°10 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 li funds to cure a deficiency {the City made such a detemunation 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 proceeduig is nol practicable, or has in good faith endeavored to accomplish a reassessment 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 owtters. {5) No other remedy acceptable to owners of 75°10 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 petnilt participation by the Bond owners in its consideration of the petition as necessary to its detemdnations. _ 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 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 Each assessment (and any reassessment) and each installment thereof, and any interest and penalties 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 over 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 for 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 other special assessment lien created under the 1913 Act or any special tax lien created pursuant to the Mello-Roos Act. See "THE BONDS -Priority of Lien." 34 Refunding Bonds Pursuant to the Refunding Act of 1984 for 1915 Improvement Act Bonds (Division 11.5 of the Califomia 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 "THE 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 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 prenuum thereon. Absence of Market for Sonds 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 market conditions and the financial condition or market position of firms who may make the secondary market. 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 are often subject to discretion and delay. Under existing eonstitutianal and stammry 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 banlmtptcy, reorganization, insolvency, or 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 of Califomia. 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 effect will be famished to the purchaser at the time of the original delivery of the Bonds. The City is not aware of any litigation pending or threatened questioning the political existence of the Ciry 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 City Attorney, the aggregate amount of liability that the City might inwx as a result of adverse resolutions in such cases would likely be covered under the City's insurance policies or self-htsurance program. CERTAIN INFORMATION CONCERNING THE CITY '. Certain general information concerning the City is included in APPENDIX A hereto. THE GENERAL I FUND OF THE CITY IS NOT LIABLE FOR THE PAYMENT OF THE BONDS OR THE INTEREST TIIEREON, 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 Orrick, Herrington & Sutcliffe LLP, Bond Counsel, interest on the Bonds is exempt from State of Califomia personal income taxes. Interest on the Bonds is not excluded from gross income for federal income tax purposes. Bond Counsel expresses no opinion regazding any other federal or state tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. The proposed form of opinion of Bond Counsel is contained in Appendix C "PROPOSED FORM OF OPIIQION OF BOND COUNSEL " 35 The following is a summary of certain of the United States federal income tax consequences of the ownership of the Bonds as of the date hereof. Each prospective investor should consult with its own tax advisor regarding the application of United States federal income tax laws, as well as any state, local, foreign or other tax laws, to its particular situation. This summary is based on the Internal Revenue Code of 1986 (the "Code"}, as well as Treasury regulations and administrative and judicial rulings and practice. Legislative, judicial and administrative changes may occur, possibly with retroactive effect, that could alter or modify the continued validity of the statements and conclusions set forth herein. This summary is intended as a general explanatory discussion of the consequences of holding the Bonds generally and does not purport to furnish information in the level of detail or with the investor's specific tax circumstances that would be provided by an investor's own tax advisor. For example, it generally is addressed only to original purchasers of the Bonds that are "U.S. holders" (as defined below}, deals only with Bands held as capital assets within the meaning of Section 1221 of the Code and does not address tax consequences to holders that maybe relevant to investors subject to special rules, such as individuals, trusts, estates, tax-exempt investors, foreign investors, cash method taxpayers, dealers in securities, currencies or commodities, banks, thrifts, insurance companies, electing large partnerships, mutual funds, regulated investment companies, real estate investment trusts, FASITs, S corporations, persons that hold Bonds as part of a straddle, hedge, integrated or conversion transaction, and persons whose "functional currency" is not the U.S. dollar. In addition, this sumrttary does not address alternative minimum tax issues or the indirect consequences to a holder of an equity interest in a holder of Bonds. As used herein, a "U.S. holder" is a "U.S. person" that is a beneficial owner of a Bond. A "non-U.S. investor" is a holder (or beneficial owner) of a Bond that is not a U.S. person. For these purposes, a "U.S. person" is a citizen or resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or any political subdivision thereof (except, in the case of a partnership, to the extent otherwise provided in Treasury regulations), an estate the income of which is subject to United States federal income taxation regardless of its source or a trust if (i) a United States court is able to exercise primary supervision over the tmst's administration and (ii) one or more United States persons have the authority to control all of the Yrust's substantial decisions. Tax Status of the Bonds The Bonds will be treated, for federal income tax purposes, as a debt instrument. Accordingly, interest will be included in the income of the holder as it is paid (or, if the holder is an accrual method taxpayer, as it is accmed) as interest Holders of the Bonds that allocate (which generally will include all initial holders of the Bonds) a basis in the Bonds that is greater than the principal amount of the Bonds should consult their own tax advisors with respect to whether or not they should elect to amortize such premium under section 171 of the Code. If a holder purchases the Bonds for an amount that is less than the principal amount of the Bonds, and such difference is nat considered to be de minimis, then such discount will represent market discount that ultimately will constitute ordinary income (and not capital gain). Further, absent an election to accme market discount currently, upon a sale or exchange of a Bond, a portion of any gain will be ordinary income to the extent it represents the amount of any such market discount that was accrued through the date of sale. In addition, absent an election to accme market discount currently, the portion of any interest expense incurred or continued to carry a market discount band that does not exceed the accmed market discount for any taxable year, will be deferred. Although the Bonds are expected to trade "flat," that is, without a specific allocation to accrued interest, for federal income tax purposes, a portion of the amount realized on sale amibuted to the Bonds will be treated as accrued interest and thus will be taxed as ordinary income to the seller (and will not be subject to tax in the hands of the buyer). Sale and Exchange of Bonds Upon a sale or exchange of a Bond, a holder generally will recognize gain or loss on the Bonds equal to the difference between the amount realized on the sale and its adjusted tax basis in such Bond. Such gain or 3b loss generally will be capital gain (although any gain attributable to accrued market discount of the Bond not yet taken into income will be ordinary). The adjusted basis of the holder in a Bond will (in general) equal its original purchase price decreased by any principal payments received on the Bond In general, if the Bond is held for longer than one year, any gain or loss would be long term capita] gain or loss, and capital losses are subject to certain limitations. See also, "THE BONDS-Effect of Redemption; Defeasance." APPROVAL OE LEGALI`T'Y The validity of the Bonds and certain other legal matters aze 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 APPENDDi C hereto and is printed on the Bonds. Bond counsel undertakes no responsibility For the accuracy, completeness, 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, California, as disclosure counsel to the City. UNDER WRITING Pursuant to a Band Purchase Contract between the City and the Underwriter, the Bonds are being purchased by the Underwriter at a purchase price equal. to the principal amount of Bonds being issued less an Underwriter's discount of $37,180.00. The Bond Purchase Contract provides that the Underwriter will purchase all of the Bonds 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 Ciry has not made and does not contemplate making application to any rating agency for the assignment of a rating to the Bonds. CONTINI)ING DISCLOSURE The City and Pulte have each covenanted for the benefit of Bondholders to provide an annual or semi- annual report, as applicable, containing certain financial 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 sgecific nature of the information to be contained in each annual ox semi-aanual report, as applicable, or each notice of material events, if any, and the applicable deadlines, are sot forth in the respective Continuing Disclosure Certificates, the forms of which are attached hereto as "APPENDIX F -CONTINUING DISCLOSURE CERTIFICATES" These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5), as amended (the "Rule"). Each of the City and Pulte has represented that it has never failed to comply with any previous undertaking to provide annual or semi-annual reports, as applicable, and notices of material events_ Pulte's obligations under its Continuing Disclosure Certificate may terminate, as more fully described in such Continuing Disclosure Certificate. 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. 37 MISCELLANEOUS I~ The foregoing summaries or descriptions of provisions of the Bonds, the Bond Resolution, and all references to other materials nor 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. I Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The 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! Greeorv 7. Klimko Gregory J. Klimko Finance Director 38 APPENDIX A CITY OF BAKERSFIELD ECONOMIC, FINANCIAL AND DEMOGRAPHIC INFORMATION General The City is located at the southern end of the San Joaquin Valley, approximately 110 miles north of Los Angeles and 290 miles south of San Francisco. The City includes over 116 square miles of land and an additional 76 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 praducYS, 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 Che 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 Kern 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 a council/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 City 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 Valuafion of Taxable Property The Kem 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. Accordingly, unsecured taxes are 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 Febmary 1 and becomes delinquent April 10. A ten percent 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 are subject to a redemption penalty of one and one-half percent {1-1/2%) of the tax due, charged from July 1 following the date on which the property became tax-defaulted Co the date of redemption, plus a penalty for every subsequent tax year (i. e., July 1 tluough June 30} in which the property remains tax-defaulted, at a rate of one and one-half percent (1-1t2%} of the Yax due for each such tax year. Properties may be redeemed under an installment plan by paying cuffent taxes, plus 20% of delinquent taxes each year for five pears, with interest accruing at one and one-half percent (I-1/2%) per month on the 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.thereafter be conveyed to the County Tax Collector as provided by law. A-I The table below summarizes the City's properly tax levies, the current amounts delinquent, and total collections for fiscal years 1994-45 through 2003-04. Table A-1 City of Bakersfield I Property Tax Levies and Delinquencies {~~ Fiscal Years 1994-95 through 2003-04 Fiscal Total Total Tax Percent of Levy Percent of Current Year Tax Lew Collections Collected Taxes Collected 1994-45 $16,349,776 $16,239,085 96.7% 99.3% 1995-96 16,856,805 16,975,278 96.4 100.7 1996-97 17,175,495 17,464,195 97.5 101.7 1997-98 17,289,200 17,430,365 97.4 100.8 1998-99 17,864,445 20,488,683 111.7 114.7 _ 1999-00 18,554,717 19,123,448 99.5 103.1 2000-01 19,093,149 18,199,926 92.9 95.3 - 2001-02 20,121,528 20,675,415 99.4 102.8 2002-03 21,301,453 23,523,106 107.4 110.4 ~ 2003-04 22,742,274 23,186,177 101.7 105.0 '~. Q} Excludea redevelopment tax increment revenues. Source: City Compre hensive Annual Financial Report for Piscal Year Gnded Lune 30, 2004. 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) Percent Total Assessed Increase Fiscal Year Secured Unsecured Utility Value {Decrease) 1994-95 $7,662,423,762 $342,662,118 $14,097,810 $8,019,183,690 -- 1995-96 8,068,506,294 356,616,991 13,232,785 8,438,356,070 5.23% 1996-97 8,213,247,086 350,499,835 13,971,013 8,577,717,934 1.65 1997-48 $,407,516,746 374,446,012 15,497,196 8,797,459,954 2.56 1998-49 8,628,532,571 453,535,838 17,719,409 _9 Q99,787,818 3.44 1999-04 9,268,459,616 423,862,659 19,424,138 9,711,746,413 6.72 2000-01 4,809,567,800 432,049,903 19,039,560 10,260,657,263 5.65 2001-02 .10,111,103,449 462,192,054 18,851,231 10,592,146,734 3.23 2002-03 10,320,926,790 481,183,430 18,614,866 11,320,725,086 6.88 2003-04 11,947,359,805 483,752,532 26,993,919 12,458,106,256 10.05 Source: City Comprehensive Annual Financial Report for Piscel Year Bnded June 30, 2004. A-2 The table below shows the assessed valuations of the principal taxpayers in the City as of June 30, 2004. Table A-3 City of Bakersfield Assessed Valuation of Principa l Taxpayers (June 3Q, 2004) 2002-03 Assessed Percentage of Total Taxnaver (1) Tvae of Business Valuation Assessed Valuation Castle & Cooke Comm. Ina Real Estate Development $ 136,181,708 1.09% Bakersfield Mall LLC Shopping Center 115,620,887 0.93 Ice Cxeam Partners, USA Manufacturing 66,359,323 0.53 State Farm Insurance Company Insurance 60,782,568 0.49 Bear Mountain Limited Cogeneration 53,804,041 0.43 Chevron USA Inc. Oil Company 47,975,958 0.39 Albertsons Inc. Groceries 3Q840,700 0.25 Cox Communications Bakersfield Cable 24,115,674 0.19 Hopper Properties Limited Real Estate Development 20,323,638 0.16 Partnership Nakanogumi Corporation SBD Real Estate Development 12,500,000 0.10 ' Group Inc. Total taxable assessed value of ten (10) largest taxpayers $ 568,504,447 4.56 Total taxable assessed value of other taxpayers 11,889,601,754 95_44 Total taxable assessed value of all taxpayers $12,458,106.256 100.00% (I) Related parties grouped together on [fie original source document (County's IisC of assessed valuations) are included in the total assessed valuation amount for each taxpayer cited. Unitary and operating nonunitary are excluded as valuation by parcel is no longer available. ~ Sauree: City Comprehensive Annual Fi nancial Report for Fiscal Ycar Ended June 30, 2004, citing HDL Coren & Cone and Kern County Assessor 2003/04 Combined Tax Rells. Demographic Statistics i The following table sets forth various demographic data regarding the City, including population, estimated median household income, elementary school enrollment, and estimated unemployment rata, from fiscal year 1994- '. 95 through 2003-04. Table A-0 City of Bakersfield Demographic Statistics __.___ - ~ (~isca l Years 1994-95 through 2003-04) ' Elementary Estimated Estimated Median School Unemployment Fiscal Year Population Household Income Enrollment Rate 1994-95 207,472 $37,449 26,350 12.8% 1995-96 212,715 31,852 2b,903 12.4 1996-47 214,554 31,888 27,126 11.4 1997-98 221,689 33,339 27,370 10.9 1998-99 230,771 33,754 27,668 -11.0 1999-00 237,222 34,343 27,783 12.5 2000.01 254,368 37,573 28,099 10.4 2001-02 257,914 35,153 28,267 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 Junc 30, 2004. A-3 Employment The County's total labor farce, the number of persons who work or are available for work, is estimated to be 317,100 for February 2005, an increase of 0.63% over the preceding year. The number of emp]oyed workers in the labor force is estimated to be 284,000 for the same date. The following table sets forth information regarding 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-S Employment -Averages Calendar Years 2000 - 2005 2000 2001 2002 2003 2004 Kern County Labor Force (QOOs) 287.1 292.0 299.1 305.4 315.1 Employment (OOOs} 254.7 260.9 264.0 267.9 284.5 Unemployment Rate 11.3% 10.6% 11.7% 12.32% 9.7% State of California Labor Force (OOOs) 16,884.2 17,182.9 17,404.6 17,629.3 17,627 Employment (OOOs) 16,048.9 16,260.1 Ib,241.8 16,455.4 16,630 Unemployment Rate 4.9% 5.4% 6J% 6.7% 5.7% United States Labor Force {OOOs} 142,583 (I) 143,734 144,863 146,510 (1) 147,$77 Employment(OOOs} 136,891 (I) 136,933 136,485 137,736 14Q278 Unemployment Rate 4.0% 4.7% 5.8% 6.0% 5.1% (I) Not strictly comparable with datfl far 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 2003. Table A-6 C ITY OF BAKERSFIELD Principal Employers (As of July 2003) FIRM PRODUCT/SERVICE EMPLOYEES County of Kern Govemment 9,400 Grimmway Enterprises Agriculture 5,000 Giumarra Farms Agriculture 4,000 Wm. Bolthouse Farms Agriculture _ _ _ 2,400 Bakersfield Memorial Hospital Hospital 1,350 City of Bakersfield Govemment 1,275 Aera Energy LLC Oil and Gas Production 1,150 MercyHospiCa]s - Hospital 1,100 State Farm Insurance Insurance 1,003 California Stare University Bakersfield Education ],003 ChevronTexaco Oil and Gas Production 1,000 Pandol & Sons Agriculture 1,000 San Joaquin Community Hospital Hospital 455 ACS Call Center 800 Frito-Lay Inc. Food Production '800 Kaiser Petmaneute Health Care 729 Sears Logistics Logistics 650 B.A.RC. Non-Profit 560 Paramount Cifrus Association Agriculture 550 Bakersfield College Education 400 Source: City of Bakersfield. Feb 2005 317.1 284 10.4% 17,714 16,625 6.1% 147,649 139,100 5.8% A-4 Building Activity 95. The following table summarizes the City's total annual building permit valuations since Fiscal Year 1994- Table A-7 CITY OF BAKERSFIELD Property Value, Construction, and Bank Deposits {1) Fiscal Years 1994-95 through 2003-04 Commercial Residential Construction Construction Fiscal Number of Number of Year Units Va e Units Value 1994-95 39 $65,891 1,571 $150,429 1995-96 50 26,287 1,909 179,127 1996-97 102 42,352 1,352 132,785 1997-98 147 49,241 1,983 197,773 1998-99 213 78,]99 2,088 223,57b 1999-00 140 51,251 ],890 218,656 2000-01 123 38,113 2,012 261,522 2001-02 ]43 70,874 2,445 311,639 2002-03 ]41 56,694 2,981 428,534 2003-04 130 82,003 3,677 568,413 Q) Property values and bank deposits are reported in thousands Sources: City Finance ^epartment. Commercial Activity Other Total Construction Construction Number of Bank Value Units Value Deposits $37,167 1,610 $253,487 $1,563,075 41,962 1,959 247,376 1,678,075 4Q,459 1,454 215,596 2,310,008 67,281 2,130 3]4,295 2,438,004 36,958 2,301 338,733 2,464,202 34,438 2,030 304,245 2,454,280 48,067 2,135 347,702 2,730,107 57,983 2,588 440,496 2,865,985 62,172 3,122 547,340 3,179,623 65,878 3,807 716,294 (not nveilable) Consumer spending in calendar year 2003 resulted in approximately $4,164,067,000 in taxable sales in the City, 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 2000 2001 2002 2003 Apparel stores $ 97,207 $ 109,847 $ 117,059 $ 126,267 $ 129,457 General merchandise stores 564,971 598,519 633,892 667,344 699,810 Food stores 162,505 176,986 181,300 196,060 215,506 Eating and drinking places 266,476 287,815 304,643 330,061 362,907 Home furnishings and appliances 113,435 123,510 126,841 142,019 154,731 Building materials and farm implmts. 217,197 244,146 256,506 286,088 340,528 Automobile dealers and auto supplies 623,868 716,804 845,904 850,3b4 913,717 Service stations 179,011 209,649 187,497 178,716 210,459 OUter retail stores 342,586 372,930 384,538 413,285 464,338 Total Retail Outlets 2,567,256 2,840,206 3,043,180 3,190,204 3,491,453 All Other Outlets 629.476 657,574 70L212 637,989 672,614 Total All Outlets $3,196,732 $3,497,780 $3,744,392 $3,828,193 $4,164,067 Source: California State Baard of Equalization A-5 There are three major shopping centers in the City. Major departmenT stores with local outlets include Robinsons-May, Macy's, Mervyns, J.C. Penney, and Sears. 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 perrrtits issued and the valuation of taxable transactions for the years 1999 through 2003 is presented in the following table. Table A-9 CITY OF BAKE1tSFIELD Number of Permits and Valuation of Taxable Transactions 1999-2003 Retail Stores Total All Outlets Year No. of Pemdts Taxable Transactions No. of Pemvts Taxable Transactions 1999 2,955 2,567,256 5,887 3,196,732 2000 3,163 2,840,206 5,961 3,497,780 2001 3,422 3,043,180 6,213 3,744,392 2002 3,552 3,190,204 6,359 3,828,193 2003 3,899 3,491,453 6,709 4,164,067 Source: State of California, Board otEqualization. Transportation 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 railroads traverse the area. 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 Empire Transit provides local bus transportation. Meadows Field {Kern County Airport) adjoins the City to the north. Regatarlp 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 supp]ied by Pacific Gas and Electric Company. This company, along with Southern California Gas Company, also supplies natural gas. Telephone service is by SBC. Fifreen private water companies serve the City. Sewer service is provided by the City. Education Public education in the City through the secondary grades is provided by a number of elementary school districts, including the Bakersfield City School District and Kem High School District. There are 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 wel] as academic courses designed to equip the student for transfer to afour-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 ht 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. ' ,I The newest campus in the University of Califomia system, UC Merced, is scheduled to open in 2005. UC Merced will serve the entire San Joaquin Valley, with the main campus located in the Gity of Merced and satellite ', centers located in the City (which satellite center has already opened) and the Cities of Fresno and Modesto. Financial Services Statewide banking systems serving the City include Bank of America, Washington Mutual Bank, Sanwa Battk Califomia, Union Bank, Rabobank, and Wells Fargo Bank. Their services are supplemented by local and regional banks, and various 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. Kem 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. Bakersfield has twenty radio stations, four television stations and three cable TV companies. The City has 47 public parks, covering a total of 395 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. Cultural advantages of the City include a community theater, the Bakersfield Symphony orchestra, a community concert group, and Cunningham Art Gallery. Bakersfield College and Califomia State University, Bakersfield, sponsor plays, concerts, lectures, and special events throughout the year___ _ A-7 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX B APPRAISAL s-i COMPLETE APPRAISAL SUMMARY REPORT OF Assessment District 04-3 Various locations in the City of Bakersfield known as: Solera -Tract No. 6149 Rio Vista -Tract Nos. 5997 & 5998 For CITY OF BAKERSFIELD 1501 Truxtun Avenue Bakersfield, CA 93301 As Of May 1, 2005 Prepared By Randall Franz, MAI, SRA KERN APPRAISAL COMPANY Rea( Estate Appraisal Services 5401 Business Park South, Suite 103, Bakersfield, CA 93309 s~Frat~ F ~n~ n€~~~~t~faal_ r~v~~:~~ ~~ ~ ~;~€~o~.€~t~ t=E-ar~.r~W c,~~s ~~an ~4Fr~ i9,'~t~QS kY C}27F iiti~4`iE=lst~ T!f?. ~,~c{`f ~-~j{}'i. I~IC: e%SC~T4 ~'u `<a~sa'tfilf <~1ss~nt ~inance,T~ite~tsar ~°TT'~r t)#a i3Aii~RSiiILI~ t5t~1 fiinxtrxcz ti~c~%i~ar; ksieid, C~ ~.i3{31 Subieptt Cxtrapi~ t~ ta% St~rratnary Reir€it`t Assessrxat I~iatr%ci ,3 C'ulte F~+~dxxc Cisspcaxaticm's i~~sidentiat ,dxTdvia%tsn~: ~Id9 '`~'3SSJ °- Tt'tYL`1CY.+. ~~+~ s~:'_4'd}'`-j$i 'a~fi€'CS~IL"~f~, {..~tl~'C}rFtI~ ~ In c~rrxpi~tic~rd c~€"~,~r a~€caxe ~~ t>:~ifined %n the consczlt~~nf's a~re~~nr~:t c~~tcd I~ebruarc fi, ?fsUi. l c~rta gailea~ .~ lransi~ iha fi;~lla~w^%st~* ('axng}$ate tLp~x`aisai aunasatsr~F Fta~tart, fF~ This retrtrat, trey 'pinacra of mttr3c sahu. is axtxre~ec3 fur the #"ee sin~pl~ i~tiet~st e?f tlxe real prccrty a;s3stn~ of ', xs°sidvntitid s~txiay assc}n~ xnctotied in f~sse:;snxent iJistrioc t8~t-3 lceatcd in 9~3a1z~rsli~ld. C~tifis~a. ', The i~sg~ctzan s~~_ ~ m~r3c far tk~e purps~se, art~l.~s giait a~!" ttac~ gr~}v, of cle~cicstrs tinians ~ v~iu I t'ce~ #h~ ~ta~j€~t ~ °r~., of 1~;,' 1, 2CdU5. Tho ua axfeiniuhs rc~aed €dre° q~aszdi~et% by ctctan ctafitrita<scas, lien%tii~~ ec~nditicsns ancE ~~rt%ficat~o> ~lx€ch sat f€sFtia i~a ihis'te~pe~rt ', As a ces~lt of rn}° anxi~sis, 13rav~ tcasarier3 an ~}ia%ninn that die nxar35et_l~c~ ~`a.~ zs"` assuraiii y thu scnprovem~~nds as ~ x~.sule 'off AI3 i~x3 are installed {a.~, d4f`snesi ic~'th rscarti. %eet to the eie~anitic,.rerfi~'d~iucxns, ~n~ laatin~ sc~radz'BZans se# fartl~ in ~a~ attaehc~ci report, wire as teff~~.4u1 %n i3de " S+a3i~a t`~pinarsns -- rlss~xxent t~iet~ i ~" s.~tale b~fnr~ pAge 3. d °'Suznsr~ s~fi f~sstnerik ', ~istrirt~'t-~ Valuis'~ spread feet in the~addandr~: specsigt tax li~zi ~f Ass~ssptesit I"i~tslct (k#-3 Tkiis :s ~ raaxrpt~ ~pisrais<~T p~rtmrtxa~i uisdec Standard t crt? ti€~ Urtiios~aa S ~ nf. ~nxfxaz~nat pr~i ~'racti 5~) The r~rt de~u~exi as a urry ~hggrais~s3 ;e~srrrt, wErich is irF#~ndel ~c1 ermpdv w~tlr tlic xepartirr~; regcairesn~ists sit farikt u~ad?Tr 6aadasii ~ry~([x} of 615~AI' eR"eatare<Jasutar~* f, ?dl~S ~`~ir a Sdtmniarv ~pp~ai~ti Reprttt. It has atsc~ tarert ~~liten ict ~alafar%t~a l~a~bt arsd Tnv~stent ~~ivgry t::arnnrssitrn ataniards rc~ised ~ulv ~4l(~. such, st c~uexs~nts s1 ~tasin PartC utkr; ;uit~ ~Cfl3 ~ Saki~riekf, ~~tif~vnin 9 '~, ~4r. 2vi^Is~?n ls... ~iYh CITY £7T ~3.~I~~:3ZSI~"l~I.F'3 Y~s~~ ^~~ ass6t saamrny iiiscus~ar~ns ~rf tl~e d~tu rc~a~~~ng, an{3 an~tyses a~! were as5e~3 i~ the ~~~r~tisal ~ru~t,~~ a~ d~v~ia~? Bxc Arai Kes-`s tt~inior~ tr#`vREue. ~tiP dc~~timentateaca csat„rrain tT~e ciat~, cea~ci~tait~;, d lg>~ is a~t~€ttcd i~ the ~r~pxai~~a s ate: `~ d~gst9t ~sf clsctt~sin~ ctttt~in~~ an this F~~p~rt 3~ spc;~ i~t< ki'i~ tt~> cs~ the ~Iierst. T7Y~ aTa~rxiser i;; naat tes~v~ssii~i~ ~+ar ~tucsthc~za~s xtsc.~ ref Ehas ~ist~rt. TiF~ ii~te€sdet3 ~ c?f' rhea x~~ tee; £;ity aF ak~sheld, its .~fi"I~at~s, ck~czasates d a~s~ine~~; r~ti~~ a~~n~ie~, txsnd l~c~lil~ss nit }~r~sp~ctive bc~n~3 iialti„ Ott ~ ~3~1y~ ~t~thas~zt~l ~"ip~arai~il :lr~sti~ate peer n view c€sxt~mitt: `T°~c ~iap~ai~~r $s ~e~d _r~taissic~ uEsl~h this ~psrrziv~ai itt the ~1f~ii~iai ,~aC~sa~t~~t aaii csan~t€ ~~r ate rt. isa tn~r3teiss~ csf 6ha< rts~an~~tc T?s'sttict [AT-31>c}a~,3~. ', 'T'han Etter ~st'traa~ssttsittai is cif the aitactaeai rz~oti, t~1~i~h ~et~ fa_,~th the d~ka~ std ~lr~°se-s ug ~c£htch rnv trTszt~ican cfvalts~ isr Tn T~~srt. ~redicstcci, iztcerel~,=, TABLE OF CONTENTS INTRODUCTION Value Opinions-Assessment District 04-3 Aerial View of Subject Area PURPOSE AND INTENDED USE ................................................ PROPERTY RIGHTS APPRAISED .............................................. SCOPE OF WORK .......................................................................... VALUE DEFINITIONS .................................................................. ASSUMPTIONS AND LIMITING CONDITIONS ...................... AREA ANALYSIS .......................................................................... NEIGHBORHOOD ANALYSIS .................................................... SINGLE-FAMILY RESIDENTIAL MARKET OVERVIEW ..... SOLERA AREA ............................................................................... RIO VISTA AREA .......................................................................... AD 04-3 IMPROVEMENT ACQUISITIONS ............................... HIGHEST AND BEST USE ........................................................... VALUATION PROCEDURE ......................................................... Cost Approach ..................................................................... Income Capitalization Approach ......................................... RECONCILIATION AND FINAL VALUE CONCLUSION...... CERTIFICATION ............................................................................ ADDENDUM Summary of Assessment District 04-3 Values Land Sales Data Sheets Cash Flow Analysis Qualifications Value Opinions -Assessment District 04-3 BULK VALUE OF RECORDED VALUE LOTS AND ASSESSMENT TO LIEN ASMT NO ATNIDESCR[PTION LAND L[EN RATIO SOLERA AREA I-17 Tract 6149-Phase I, Lots 1-17 1,220,000 88,543.31 ]3.78 " 18 Tract 6149-Phase 1, Lot 18 nta 0.00 n/a 19 Tract 5149-Phase I, Lot A nta 0.00 t>!a 20-22 Tract 6149-Phase I, Lots B, C and D rJa 0.00 n/a 23-24 Tract 6149-Phase 1, Lots E and F rJa 0.00 n/a 25-R5 Tractbl49-Phase 2, Lotsl-61 5,890,000 317,714.23 18.54 86 Tract 6149-Phase 2, Lot A n/a 0.00 n/a 87 Tract 6149-Phase 2, Lot B n!a 0.00 n/a 88 Tract 6 ] 49-Phase 2, Lot C nta 0.00 n/a 89 Tract 6149-Phase 2, Lot D n1a 0.00 nla 90-199 Tract b149-Phase 3, Lots I-110 5,359,000 572,927.30 9.35 200 Tract 6149-Phase 3, Lot I I 1 nta 0.00 n/a 201 Tract 6144-Phasa 3, Lot A nta - 0.00 n/a RemaSnder of Lot 20 Tract 6149-1 202 (Future Tract G749 Phases 4, 5, 6, 7, 8 & 9) 14,452,676 1,927,121.63 7.50 TOTALSI AVERAGE FOR SOLERA AREA: 26,921,676 2,906,306.47 9.26 RIO VISTA AREA 203-246 Tract 5998, Lots 1-44 5,469,000 262,809.45 20.81 247 Tract 5998, Lot A n/a 0.00 n/a 248-252 Tract 5998, Lots B-F n/a 0.00 n/a SUBTOTALS TRACT N0.5948: 5,469,000 262,804.45 20.81 Parcel A LLA No. 03-1333 253 (Future Tract 5997, Lots 1-50) 4,756,677 260,884.08 18.23 SUBTOTALS TRACT N0.5997 (FUTURE): 4,756,677 260,884.08 18.23 SUBTOTALS RIO VISTA AREA (TR 5997 AND TR 5998): 10,225,677 523,693.53 19.53 ASSESSMENT DISTRICT TOTALS 37,147,353 3,430,000.00 10.83 The reader may note some discrepancies due to rounding *lncludes contributory value of houses under construction t~~~nc~ py~,, yl:{d ..I'J'.~iy: ~k~~~. ~?~"~ a?:lEGi=1 d, Pt'n Y 4a'~Y ~~ f „„..22~~ yyt]~.~SOUA'uMb. trV ..YoJf ~°.:i ~ &i~ik~n F A.f ~~ ry y ~ AJ'.I V4~rrO{ ~~f,Y6~~A 1~~J~H*~'i~S~R'K ~~ d 3v++~lJi?i~I. Frl>IiT "trip@. ?:.vmSi ~'aL'.'dtvilJ~ SUBJECT PHOTOGRAPHS Highway 178 Facing East Toward Intersection with Alfred Harrell Highway Tract Na. 6149 at Far Right Highway 178 Facing West Near Miramonte Drive Tract No. 6149 at Left SUBJECT PHOTOGRAPHS Tract No. 6149 Facing Southeast From Near The Northwest Corner Tract No. 6149 Facing South Frorn Highway 178 SUBJECT PHOTOGRAPHS Miramonte Drive Facing North Tract Na. 6149 at Left Tract No. 6149 Facing West From Miramonte Drive SUBJECT PHOTOGRIPHS Anacapa Drive Facing South Toward Tract Nos. 5997 & 599$ from Casa Club Drive Tract No. 599$ Facing South From Anacapa Drive SUBJECT PHOTOGRAPHS Future Tract No. 5997 Facing South Along 13`h Fairway Watar Hazard at 12`x' Fairway Facing South With Future Tract No. 5997 Beyond SUBJECT PHOTOGRAPHS Future Tract No. 5997 Facing East Tract No. 5998 Facing North SUBJECT PHOTOGRAPHS Tract No. 5998 Facing East From 14'x' Fairway Donaldo Street Facing Northwest from the 18`h Fairway Tract No. 5998 at Right 1 PURPOSE AND INTENDED USE The purpose of this appraisal is to develop an opinion of the market value of the real property, subject to assumptions and limiting conditions shown herein, as of May 1, 2005. The intended use of this report is to assist in the underwriting for proposed bond fmancing. The report is intended for use only by: City of Bakersfield, its affiliates, designates and assignees, the underwriter of the proposed bond financing, rating 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 Appraisal 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 ethics of the Appraisal Institute. It is also my opinion that the report is in accordance with .the appraisal standards for land-secured financings (revised July 2004) of the California Debt and Investment Advisory Commission. 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 land sales and single-family residential lot sales have been collected, verified and analyzed. The z ', search for applicable market data was limited to Metropolitan 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 I addenda to this report for additional. infornlation about the appraiser's education and work experience. VALUE DEFINITIONS Market Value "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.Zf reads as follows: "'Market 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 defuution ' is the consurr~rnation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and acririg 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 financial arrangements comparable thereto; and e. the price represents normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." 3 AEgre~ate Retail Value Aggregate retail value is defined as the sum of the retail ]ot values. It does not reflect any appropriate deductions and discotmts from the disposition of "for sale" type development properties over time. Bulk Sale Value The most probable price, in a sale of all parcels within a tract or development project, to a single purchaser or sales to multiple buyers, over a reasonable absorption period discounted to present value, as of a specific date, in cash, or in terms equivalent to cash, for which the property rights should sell after reasonable exposure, in a competitive market under all conditions requisite to a fair j sale, with buyer and seller each acting prudently, knowledgeably, and for self-interest, and assurnin.g that neither is under undue sires. The bulk sale is executed in lieu of the seller proceeding with development andlar marketing of the individual parcels or tracts to end users or merchant builders over amarket-oriented absorption period for the type of project. 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 market prior to the hypothetical consrunmation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming 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 LIMITING CONDITIONS Standards Rule ("S.R.") 2-1(e) of the "Standards of Professional Appraisal Practice of the Appraisal Foundation" requires the appraiser to "clearly and accurately disclose all assumptions, extraordinary assumpfions, hypothetical conditions, and limiting condition used in the assignment." In interpreting this report, such assumptions and limiting conditions are set forth as follows: 4 Extraordinary Assumptions 1. AD 04-3 will confirm an assessment that will fund 74.75% of the estimated total cost of the AD 04-3 improvement acquisitions and Pulte Home Corporation will pay 25.25% of that estimated total cost. A special assumption of this appraisal is that Pulte Home Corporation will make a developer's contribution equal to 25.25% of the improvement acquisitions cost. Hvaothetical Conditions 1. The market values "as is" in this appraisal are made assuming the improvements as a result of AD 04-3 are installed in a good workmanlike manner. 2. The properties are appraised subject to the assessment lien of AD 04-3 and assumes all improvements to be funded by AD 04-3 are in place. General Assumptions and Limiting Condifions 1. 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 or 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 appraiser 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. 5 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 the report. 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 andlor 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 report. The appraiser is not a constriction 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, termite 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 Cade violations and it is assumed that 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 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 restrictions. The property is appraised assuming that all required licenses, permits, certificates, consents or other legislative andlor 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 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 is 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 similar offering document for the sale of the proposed bonds of AD 04-3. 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 limifing conditions of the assignment and related discussians. 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, ancUor legally. 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 Transportation 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°l0 of the ail 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 per 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 $43.00 per barrel. The history of crude oil prices is illustrated in the graph on the following page. The graph indicates ail prices have been on a generally upward trend since 1999 with a large spike in the commodity price in 2004. 9 CRUDE OIL POSTELD PRICES MIDWAY-SUhISET FIELD` sc ,_er _.._ .__ __...- __ _F _ __b. _.....,. _ ~___~e e_ .__ __. _ _..____ _ _.a-. a~> ao ~ ;3W. u~ a m 3t7 w a 25 m I 2D 75 To c J ffaraSOURt'E-Ghevmn4~S,fi.ltxc c;°de a4Tptica b°peirrrti _ '-6SR[]i8sdk+Aa'1,24Qb.9tie'9i2F1h S~IBCLC teE prfC2wlfP&6~¢»64AIS8t1345t4t`;4Pi ~xh7M Mtldf ~: KemClwEt T~0's eeetto i!541'I°-r.TM311dbta. 8~ 82 -8:4 &} 85 8fi 87 88 89 9° 31 92 93 90 9i 56 5l 9a 95 0° °S 02 D3 Ot q5 4ta48°p}>, space on ana Gas$upsiviaor Diuisian of OiI, Gas, and Geatherinal f3esouroes 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 $2.6 billion in 2002 (most recent available). Production is gravitating toward fruit and nut crops, which now top $1 billion in revenue and away from field erops~-This shift in crop type is making agricultural employment slightly less seasonal because of the year-round care given to the permanent plantings. Government, construcrion, and retail sales are other leading components in the local economic base. Government includes education and military personnel. As 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. 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 10 employed increased from May 1994 through March 2003 pointing to nine years of sustained ', growth for the local economy. Non-farm employment declined during the second quarter and the month of December in 2003. Cutbacks in local government and education jobs were primarily responsible for the decline. Construction and financial services such as insurance, real estate, and lending, are leading the way in new job creation in 2005. Nonfarm Employment Kern County TM1rougb December 2004 8 5 4 3 2 0 -2 .~~~WIWYI~I~~tit~ SouCC®: EmploymanC nawlopmOUt Oapartnont Economic growth reduced the unemployment rate in the county. The seasonal nature of agricultural employment causes the unemployment rate to fluctuate but in August 2001, the rate dropped to 8.1 - a 20-year low. The number of unemployed has gradually increased since 2001. 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 areas of the state. This success is due to the unemployment rate being above the state average and the number oflow-sid11 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 until 2005. Several state-funded highway construction projects have been placed on hold. City and county government are reducing expenditures to offset losses in fiunding from the state. __ 11 ............... ~~~~~~~W 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 properly 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 perrnitting 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 by new or expanding businesses to offset their expected emissions. A ban on wood burning I fireplaces in new homes is likely to be enacted this year along with restrictions on use in existing ', homes. 12 Population According to the Kem Council Of Governments, population for Metropolitan Bakersfield was estimated to be 400,000 as of January 2000. 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°fo 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 N orthwest 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 valuaton_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. 13 Construction Permits Valuation City of Bakersfield 2004 2003 2002 10 I I 2001 2000 1999 II 1998 111111~1111~~ 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 sigruficant 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. A growing economy will have a positive effect on real estate values in the area. An ominous cloud is state budget cuts. County and city governments are working to find ways to lessen the impact of reduced funding without major reductions in their workforce and necessary services. An increase in local government fees for services is likely. 14 NEIGHBORHOOD ANALYSIS Neighborhood Boundaries The neighborhood for this report is Northeast Bakersfield. Bluffs north of Panorama Drive provide a physical barrier for a boundary on 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 12 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 Kern Planning Departments. The neighborhood is approximately 60°lo built-up. The subject (see location map of proposed boundaries of Assessment District No. 04-3 in this section) is located in an area commonly known as Rio Bravo. This suburban area is divided from the urban portion of the northeast neighborhood by two miles of undeveloped land. Development in the Rio Bravo area is focused around recreational resources including Lake Ming, Kem River, Foss Kem River Golf Course, and Rio Bravo Golf Course. Residential development outside of those areas has typically been on half acre to 10-acre home sites. With the introduction of public water and sewer services in this area, smaller more traditional lot sizes are appearing. Solera is located across Miramonte-Drive to the west of Rio Bravo Country Club and Rio Vista is located within the country club area adjacent the golf course. The entrance to the Kern River Canyon is three miles east of the subject. Foss Kern River Golf Course and Lake Ming are located two miles northwest. Downtown is situated approximately ten miles west. The surrounding land uses are single-family residences, speculative undeveloped residential land and agricultural with grazing land dominant. Highway 178 provides convenient access to the area. Within the neighborhood, Bakersfield College is located at the southwest corner of Panorama Drive and Mt. Vernon Avenue. The East Hills Center is located at the southwest corner of Highway 178 and Orwell Street. Retail development in `a- ~~~; ~~ w ./ ("-', {~` '~• iIJ ~ ~ ;51 ~ W V7 (~» «~' ~? ~ ~` ,vy. ~"' ,~ CT' ,'~,., .~ ~: G, G, ~` .°'~ ~ w _ ~ c; ~' ~a ~- E ~ = F Y 3 d ~~ `r i .,. f J ~ ry ~~ ~}j . +'3''~ zs ~ u~ . 9 s~ K `~ ~ ` n.. ,'ia a ,~a~s `?? ~ ~ ~ h . ~ . a as 3 ~ ~ a s~ ` ~ 1 }~, ~. _ ~ I .~s I3( `:~- ~ li 4 a kt { w J[ ~ F k.. x VYY ~[ ~~ I 1[€ t ( E ~,~~~ -__._ ~ (3.vta2 x1t~1H~d Ye ~ _ _ ~. ~~,d ,e ~,.,,x~ ~a'W''~.~._,-'~'., 4~\4.\ S[ nom' _. y. uJ ~ `~ z. 4z~~ w Z ..mss. ~ ,~ v,1 ;& z i ~~ ~' ~ € ~~ F 1. ~.~~ i ~. ~ ~ `.~ 3 3 p 4 f ' y ~~ C \f ~.' _.~.~.~... ....__._,...... .t,~~6~ m5 Sri f ~; j \\ 3 l.~ p ~ S~ ~ y~~t~ ~' € .p.-~ ¥I33eii~a..iH~d71.'Y~33 ( ! 1 b Y~~ ~' g ~g ;44Srg F% Lv `~ ~~~~=mar ~~. .T~ A! u ~s { ~ i v`~ t=. ~ ~ a,' iq~ ~. i fi 15 the neighborhood over the last 17 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 Gottschalk's, Mervyn's, Harris, and a multiplex theater. Since the opening, other major stores including Wal-Mart, Target, Big Lots, Michael's, and Pier One Imports have located stores at East Hills Center. Family Fitness and Kaiser Permanente are non-retail entities also within the center. The Home Depot opened a new store west of East Hills Center in 2002 and is the anchor of a new shopping center. Most of the older retail developments are situated along Columbus Street and Bernard Street. 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 Bravo 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_ Rio Bravo Counlrv Club The club features a championship 18-hole golf course designed by Robert Muir Graves. It stretches 7,018 yards from the championship tees. The clubhouse has a pro shop,-restaurant and lounge, and dining room. Other amenities include a driving range and practice putting green. The club and golf course are privately owned and not open to the public The entrance has a manned guard house and electric gates. Green fees are approximately $50 for guests. Currently, there are approximately 270 members. Equity membership fees cost $12,000. Ill33)i=~. I.<i 1;~~S (t:t^iUf 7;1I1€Y7 iS~1S SOLERA I C:~~si`~7~t Gq f''#3( `a ~'R.'5` ii #;.SL~tFF:a a- ~ ~ S" ~, ;"! VISTA {'~ DEL LAGO ~i4)~lE`C't ~'IL€1P t,Y Y":lY'C_4 *7 ~ ~. TRACT 5516 Neighborhood Demographics Locale Northeast Metro Bakersfield Sowrz: Kern COG 16 Population 1980 1990 1998 32,970 39,321 43,514 248,706 331,147 385,662 Between 1990 and 1998 the neighborhood grew 1 I%, which equates to a 1.27% compound annual rate. This compares to the metropolitan area as a whole during the same time period growing 16.5% or at a 1.92% compound annual rate. Despite available vacant land, it was one of the slowest growing sections of the metropolitan area. 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 comn`buted to a low level of residential development. With the installation of 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. According to the 1990 U.S. Census, the median household income for the neighborhood in 1990 was $33,643. This figure is approximately 10% higher tlran the metropolitan area ($30,538), which indicates above average purchasing power for the neighborhood residents. Conclusion 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 and the pace of construcfion is forecast to accelerate as projects in the development pipeline come to fruition. 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. The construction of new infrastructure in the Rio Bravo area has spurred plans for several new residential developments. 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-FAMILY RESIDENTIAL MARKET OVERVIEW Single-family residence permits issued the last six years have been the highest in two decades. Demand for 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 i $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 NAHB is forecasting an average fixed interest rate of 6.8% for 2005 and 7.1 % for 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 15% increase in construction activity in the metropolitan area of Bakersfield versus the previous year. The City of Bakersfield issued-permits for 4,222 homes in 2004 versus 3,626 for 2003, a 16% increase. The graph below plots permit activity for Metropolitan Bakersfield. Historically, the permit activity breaks down approximately 85% in the city and 15% in the unincorporated area of Metropolitan Bakersfield (2010 General Plan. area}. The graph illustrates the rise in permits in recent years. °xe.e~ r~€~~' ~~~~. ~. 1 ~ ~~~s~r rss,~'; y5 ~ ~,o 18 Single-Family Housing Permits Metropolitan Bakersfield sooo asoo - anon . - - - ssoo - ~3000 zsoo - zaao -- ---- sooo -.- soo o - 1945 1996 1997 1998 1999 2000 2001 2002 2003 20DA The average valuation per single-Family residence pemut (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 a 21% 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°folmonth} 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 number of homeowners refinancing their mortgages with lower interestiates. It will take several months to recoup their refinance costs through lower monthly 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 $8.00 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 the immediate area of the subject. Tracts in the dark check shaded areas are pending action (1,325 lots) or active with no recorded phases (1,6441ots). These are future developments that may be 19 constructed in a time period that competes with the subject. The lightly shaded tracts are active with recorded phases (existing development). The map was updated April 15`h by the City of Bakersfield Planning Department. As the map illustrates, the three tract maps in the assessment district are located in an area with active residential development. No oversupply of residential lots in the subject area is likely during the next two years. 20 SOLERA AREA The Solera Area is being developed with one tract map containing nine phases. It is planned as an active adult community with a minimum age requirement of 55 years. Common area improvements including a clubhouse, surimming pool, and tennis courts are proposed. The common area is I included in the District boundaries but not assessed. Identification Of Property Solera is situated at the southwest comer of Highway 178 and Minnnonte Drive in Bakersfield, California. Ultimately the development area will be divided into nine phases of Tract No. 6149. On the effective date of appraisal three phases (1, 2, & 3} were recorded. Six phases (4 - 9) were at the tentative tract map stage and consist of one pazcel identified as the remainder of Lot 20 Tract No. 6149 Phase L All of the area in Tract No. 6149 is included in the District. Solera is further described as Assessor's Parcel Numbers: 387-020-49 and 387-360-02, 03, 04 & 08. As of the date of this appraisal, the Assessor's plat maps had not been updated to reflect the creation of Tract No. 6149 Phases 1, 2, and 3 therefore, they do not conform to current phase boundaries but do entail the entire site. The census tract number is 0051.04. Thomas Guide map reference is 2404- Gb&G7. f Ownership History Of Property j According to public records and information provided the appraiser, the current owner is Pulte Home Corporation. A grant deed recorded March 31, 2004, transferring ownership from 7PMP- ', Sage Bakersfield, LLC to Pulte Home Corporation. The purchase price was $13,869,000 with terms of all cash to the seller. The grant deed was dated March 24, 2004. The seller, JPMP-Sage Bakersfield, LLC purchased the subject in May 2003 from Kem River Partners LLC when they exercised an option negotiated several years ago. The option price was $1,750,000 with terms of all cash. There have been no other sales of the subject in the last three years. Assessed Value And Taxes The property is assessed by the Kem County Assessor's office and is identified as-Assessor's Parce] Numbers: 387-020-49 and 387-360-02, 03, 04 & O8. The 2004-2005 general tax rate is 1.121163% of the assessed value. Applicable special assessments are AD-NE Sewer 93-1A. 21 According to the Engineer's Report for City of Bakersfield Assessment District No. 04-3 (the "Engineer's Report") prepared by Wilson & Associates, assessment engineer, dated May 12, 2005, Pulte paid the remaining balance and associated fees prior to confirmation of the AD 04-3 assessment. 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. The taxes utilized in the income capitalization approach of this report are the estimated taxes in the event of sale at the estimated market value shown in this report. Site Analysis ', Physical Characteristics -According to the Engineer's Report the site size and number of proposed buildable lots for the development area are as follows, Size in Acres # of Pronosed Lots Tract 6149-Phase 1, Lots 1-17 7.53 Acres 17 Lots I Tract 6149-Phase 2 13.74 Acres 61 Lots Tract 6149-Phase 3 27.90 Acres 110 Lots Remainder of Lot 20 Tract 6149-Ph 1 101.01 Acres 370 Lots (Future Phases 4 - 9) The natural topography has a slope down to the southwest. The terrain was rough graded for a future subdivision with some terracing between lots. Considered as a whole, the property is trapezoidal but each phase is irregular in shape. The tract has 4,1801ineal feet of frontage along the south line of Highway 178 divided between future Phases 7, 8, and 9. It has 2,210 lineal feet of frontage along the west line of Miramonte Drive divided between Phases I , 2, and 7. According to the Federal Emergency Management Agency's flood insurance rate map commwrity- panel number 060077 0013 B, not printed, 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. 6149 -The site has an approved tentative tract map (Tract No. 6149) containing rune phases. A total of 558 buildable lots are planned. Phase 1 lots range from 7,920 to 14,237 square 22 feet with a median lot size of 8,640 square feet. Phase 21ots range from 6,Q01 to 12,197 square feet with a median lot size of 7,091 square feet. Phase 3 lots range from 6,025 to 14,340 square feet with a median lat size of 7,440 square feet. Phases 4 - 9 are not recorded but the tentative tract maps reflect similar lot sizes to the three phases that are recorded. Soil and Seismic Conditions -The Rio Bravo 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 wails; door and window frames shiftnrg 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 8 to 10 times) higher than competing areas west of Highway 99. Other off-site development costs impacted in the Rio Bravo area include some builders adding a 6" aggregate base under the concrete curb and gutter and adding extra sand in all trenches. Home construction is also more expensive due to measures taken to ensru-e 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 1 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), electrtcity {PG&E), telephone (SBC), water (California Water Service), sewer (City of Bakersfield), cable television (Bright House Networks) and storm drainage (retained in drainage basins). a OnJOff--Site Improvements -Planned off-site improvements include widening Highway 178 and Miramonte Drive; landscape setbacks, perimeter 6' concrete block walls, and extension of underground utilities. Typical on-site improvements include rough grading; underground ufilities; concrete curb, gutter, and sidewalk; asphalt paned streets over an aggregate base; and street lighting. Miscellaneous site improvements include private electric entry gates; median and private park landscaping; concrete block walls around drainage basins. 23 On the date of inspection the onloff--site improvements were being completed in stages. No off-site improvements were completed for Highway 178. Miramonte Drive had substantial off-site improvements completed including rough grading; underground utilities; and concrete curb, gutter, and sidewalk. Phase 1 on-site improvements were nearly finished. Items remaining to be completed included asphalt paving, street signs, street lights, and miscellaneous site improvements (private entry gate, concrete block walls, and median landscaping). Phase 2 on-site improvements were completed except for street signs, street lights, perimeter concrete block wall, and miscellaneous landscaping. Phase 3 on-site improvements completed included rough grading, partial sewer and storm drain, and partial concrete curb and gutter. Phases 4 - 9 were rough graded only. The cost of developer's improvements to the land is estimated after consultation with their engineer McIntosh & Associates at $800,000 for Phase 1, $1,386,000 for Phase 2, $787,000 for Phase 3, and $790,000 for future Phases 4 - 9. In addition to the site improvements, Phase 1 had three single-family residences under construction as of the date of value. These houses will be models for each of the floor plans and range in size from 1,687 to 2,374 square feet with an average building area of approximately 2,000 square feet. As of the date of value, these residences were nearly completed A conservative estimate would be that construction was 90% complete. Houses of this size and quality typically cost $100 per square foot to construct. Utilizing this information I have formed an opinion that the contributory value of the these improvements is $540,000 (2,000 sf x $100 x 90°lo x 3}. This amount is added to the developer's improvements to the land above and to the discounted cash flow in the income capitalization approach. The average finished lot value has been increased $30,000 to reflect the contributory value of these improvements when developing the aggregate finished lot value when complete. Phase 2 had 46 single-family residences under construction as of the date of value. These houses range in size from 1,687 to 2,374 square feet with the smallest plan dominant. An average building area of approximately 1,900 square feet is estimated. As of the date of value the stage of construction for these structures ranged from a concrete slab to a second coat of stucco exterior, concrete the roof, and drywall interior (approximately 75% complete}. A conservative estimate would be that construction on average was 20% complete. Utilizing this information I have formed an opinion that the contributory value of the these improvements is $1,748,000 {1,900 sf x $100 x 24 20% x 46}. This amount is added to the developer's improvements to the land above and to the discounted cash flow in the income capitalization approach. The average finished ]ot value has been increased $28,500 to reflect the contributory value of these improvements when developing the aggregate finished lot value when complete. Easements and Surface Restrictions - A preliminary title report prepared by First American Title Company, dated September 21, 2004, was provided. A physical inspection of the site and review of the title document and final/tentative tract maps did not reveal any adverse easements or surface restrictions. Residents age will be restricted. to 55 years and older. 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 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 I 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 ]ot 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; 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. Current Use - On the date of inspection, the property had subdivision improvements under construction as described above. The site is well suited for a residential subdivision. zs RIO VISTA AREA The Rio Vista Area is being developed with two separate tract maps and will be marketed as one residential development. Development Area (Tract No. 5998) will be completed first and Development Area (Tract No. 5997} will come after. The two development areas are discussed separately in this section. DEVELOPMENT AREA (Tract No. 5997) Identification Of Property The subject is situated in the southeast quadrant of Casa Club Drive and Anaeapa Drive at Rio Bravo Country Club in Bakersfield, California. It is legally described as Parcel A of Lot Line Adjustment 03-1333, as per that certain Certificate of Compliance recorded June 28, 2004 as Instrument Number 0204147980 of Official Records, in the City of Bakersfield, County of Kern, State of Califomia. All of the area in Parcel A (Future Tract No. 5997} is included in the District. It is further described as Assessor's Parcel Numbers: 387-010-45 and a portion of 387-010-48. The census tract number is 0051.04. Thomas Guide map reference is 2444-J 1. "Optional Design" Tentative Tract No. 5997 has been approved by the City of Bakersfield and this tract map will be recorded prior to completion of subdivision improvements. Ownershia History Of Property According to public records and information provided the appraiser, the current owner is Pulte Home Corporation. A grant deed recorded January 7, 2005, transferring ownership from Rio Bravo Development Company LLC to Pulte Home Corporation. The purchase price was $4,699,000 with terms of all cash to the seller. The grant deed was dated December 12, 2004. The seller, Rio Bravo Development Company LLC, purchased the subject in July 2004 from A & E Union Inc when they exercised an option negotiated several years ago. The option price was not disclosed. There haue been no other sales of the subject in the last three years. 26 Assessed Value And Taxes The property is assessed by the Kern County Assessor's office and is identified as Assessor's Parcel Numbers: 387-010-45 and a portion of 387-010-48. The 2004-2005 general tax rate is 1.086924°l0 of the assessed value. Applicable special assessments are AD-NE Sewer 93-IA. According to the Engineer's ReporC, Pulte paid the remaining balance and associated fees prior to confirmation of the AD 04-3 assessment. 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. The taxes utilized in the income capitalization approach of this report are the estimated taxes in the event of sale at the estimated market value shown in this report. Site Analysis Physical Characteristics -According to the Engineer's Report the site contains 22.34 net acres. It is irregular in shape. The terrain is undulating with a slope down to the west. Rough grading for a future subdivision was approximately half completed on the effective date of value. The 12tH Fairway of Rio Bravo Golf Course forms the north boundary and the 13`x' Fairway abuts the west boundary. The 14`h Tee is adjacent to the southwest corner. Access will be provided from Anacapa Drive via Casa Club Drive to the north. A secondary access street is planned in the southwest corner. The golf course clubhouse is situated one block north of the site. According to the Federal Emergency Management Agency's flood insurance rate map community- panel number 060077 0013 B, not printed, 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. Tentative Tract No. 5997 -The site has an approved "optional design" tentative tract map (Tract No. 5997) containing one phase. A total of 50 buildable lots are planned with a median lot size of 13,131 square feet. Approximately 26 fitture lots will border the golf course. Soil and Seismic Conditions -The Rio Bravo 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 27 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 8 to 10 times) higher than competing azeas west of Highway 99. Other off-site development costs impacted in the Rio Bravo area include some builders adding a 6" aggregate base under the concrete curb and gutter and adding extra sand in all trenches. Home construction is also more expensive due to measures taken to ensure the concrete foundation and slab do not experience I excessive cracking. No responsibility is accepted for evaluating subsoil or discovery of unappazent or unusual conditions, as 1 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 (within the golf course development). Off-Site Improvements -Planned off-site improvements include extension of Anacapa Drive from Casa Club Drive to tract boundary (approximately 450 lineal feet). Typical on-site improvements include rough grading; underground utilities; concrete roll-top curb; asphalt paved streets over an aggregate base; and street lighting. Miscellaneous site improvements include private electric entry gates; median landscaping; and concrete block walls at entrances. __ __ On the date of inspection rough grading was in progress and approximately 50°f° completed. The cost of developer's improvements to the land is estimated at $80,000 in consultation with SmithTech*USA licensed land surveyor for the project. Easements and Surface Restrictions - A preliminary title report from First American Title Company dated as of April 5, 2005 was provided. A physical inspection of the site and review of the title document and tentative tract map did not reveal any adverse easements. -or surface restrictions. A 2.14-acre drill site easement is shown for Lots 47 - 50 on the tentative tract map but a waiver for the surface right of entry has been obtained from the mineral rights owners/lessees. 28 Covenants, conditions, restrictions, and easements provide for orderly development within the country club development. All streets will be private and maintained by Rio Bravo, a master planned community. Environmental Issues -Upon visual inspection, it did not appear that there were any hazardaus I 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 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 far 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°to 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 had subdivision improvements under construction as described above. The site is well suited for a residential subdil~ision. DEVELOPMENT AREA (Tract No. 5998) identification Of Proaerty The subject is situated in the southwest quadrant of Casa Club Drive and Anacapa Drive at Rio Bravo Country Club in $akersfield, California. It is legally described as Lots 1 through 44 in Tract 29 No. 5998 being a division of Parcel 2 of Parcel Map No. 10800 in the City of Bakersfield, County of Kern, State of California. All of the area in Tract No. 5998 is included in the District. It is further described as Assessor's Parcel Number: 387-010-59. The census tract number is 0051.04. Thomas Guide rnap reference is 2444-J1. Ownershin History Of Property According to public records and hrformation provided the appraiser, the current owner is Pulte Home Corporafion. A grant deed recorded October 6, 2004, transferring ownership from Fairway Associates LLC to Pulte Home Corporation. The purchase price was $3,801,000 with terms of all cash to the seller. The grant deed was dated October 5, 2004. The seller, Fairway Associates LLC, acquired the property from a related party, Rio Bravo Development Company, LLC, on March 24, 2004. Rio Bravo Development Company, LLC had purchased the subject on the same date from A & E Union Inc when they exercised an option negotiated several years ago. The option price was not disclosed. There have been no other sales of the subject in the last three years. Assessed Value And Taxes The property is assessed by the Kern County Assessor's office and is identified as Assessor's Parcel Number: 387-010-59. The 2004-2005 general tax rate is 1.086924% of the assessed value. Applicable special assessments are AD-NE Sewer 93-IA. According to the Engineer's Report, Pulte paid the remaining balance and associated fees prior to confirmation of the AD 04- 3 assessment. According to Article XIII A of the California State Constitution (Preposition 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. The taxes utilized in the income capitalization approach of this report are the estimated taxes in the event of sale at the estimated market value shown in this report. Site Analysis Physical Characteristics -According to the Engineer's Report the site contains 18.57 net acres. The natural topography has a slope down to the southwest. The terrain was rough graded for a future subdivision with some terracing between lots. The site has a triangular shape and is bordered on all three sides by the golf course (13`x', 14th, & 18th Fairways}. Access will be provided from 30 Anacapa Drive (under construction) via Casa Club Drive to the north and from Donaldo Street (existing} in the southwest corner. The golf course clubhouse is situated one block north of the site. According to the Federal Emergency Management Agency's flood insurance rate map community- panel number 060077 0013 B, not printed, 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. 5998 -The site has a recorded tract map (Tract No. 5998) containing one phase. A total of 44 buildable lots are included. Lots range in size from 11,722 to 23,816 square feet with a median lot size of 14,216 square feet. Thirty two lots border the golf course. Soil and Seismic Conditions -The Rio Bravo 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 buih 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 8 to 10 times) higher than competing areas west of Highway 99. Other off-site development costs imgacted in the Rio Bravo area include some builders adding a b" aggregate base under the concrete curb and gutter and adding extra sand in all trenches.._Hame 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), cable television (Bright House Networks) and storm drainage (within. the golf Bourse development). 31 Off-Site Improvements -Tract No. 5998 has no planned off-site improvements. Typical on-site improvements include rough grading; underground utilities; concrete roll-top curb; asphalt paved streets over an aggregate base; and street lighting. Miscellaneous site improvements include private electric entry gates; median landscaping; and concrete block walls at entrances. On the date of inspection construction was in progress with rough grading completed; sewer system 50% completed, and storm drain 75% completed. The cost of developer's improvements to the land is estimated at $451,000 in consultation with SmithTech*USA licensed land surveyor for the project. Easements and Surface Restrictions - A preliminary title report from First American Title Company dated as of November 24, 2004 and subdivision guarantee dated. February 23, 2005 were provided. A physical inspection of the site and review of the fitle document and tentative tract map did not reveal any adverse easements or surface restrictions. Covenants, conditions, restrictions, and easements provide for orderly development within the country club development. All streets will be private and maintained by Rio Bravo, a master planned community. 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 deternrinafion would require investigation by a qualified expert in--the field of environmental assessment. 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- 32 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 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 had subdivision improvements under construction as described above. The site is well suited for a residential subdivision. AD 04-3 IMPROVEMENT ACQUISITIONS The AD 04-3 Improvement Acquisitions include the construction and installation as separate improvement systems of certain Cal-Water owned infrastructure improvements and incidental work described below. The Improvement Acquisitions are to be constructed in accordance with plans and specifications prepared by Cal-Water (or its designated design engineers) and as approved by Cal-Water. The plans and specifications for all of the Improvement Acquisitions had not been completed andlor finally approved by Cal-Water at the time the Engineer's Report was prepared. Accordingly, the following description. of work is based on schematic, preliminary, andlor approved plans, quantities, and estimates that have been prepared by Cal- Water. The Improvement Acquisitions to be made pursuant to the AD 04-3 proceedings are described below. In addition, the map in Engineer's Report Exhibit E, incorporated herein by reference, shows and describes the general location of the several improvemerrtp"rojects, which together comprise the Improvement Acquisitions that are to be financed by AD 04-3. The Improvement Acquisitions for both the Solera Area and the Rio Bravo Area include the construction and installation as separate systems of: (i) approximately 2,530 feet of 36-inch diameter water line with appurtenances in Paladino Drive from the waterline stub at Valley Lane easterly to a new booster pump station located approximately 500 feet east of the intersection of Masterson Street and Paladino Drive, on the north side of Paladino Drive, (ii) approximately 5,680 feet total of 24-inch diameter water line with appurtenances in Paladino Drive-(from the booster pump station westerly approximately 500 feet to Masterson Street} and in Masterson Street (from Paladina Drive southerly approximately 5,180 feet to State Raute 178), (iii) 33 approximately 2,610 feet of 18-inch diameter water line with appurtenances in State Route 178 from Masterson Street northeasterly to Vista Finestra, and (iv) a booster pump station located approximately 500 feet east of the intersection of Paladino Drive and Masterson Street (on the i north side of Paladino Drive}. Also included in the scope of the Improvement Acquisitions are incidental costs for design and engineering, Ca]-Water contract administration, construction - monitoring and overhead, compaction testing, and permits, all as itemized in Table B-II in Engineer's Report Exhibit B and as generally shown on the map in Engineer's Report Exhibit E. AD 04-3 will confirm an assessment that will fund 74.75% of the estimated total cost of the AD ! 04-3. Improvement Acquisitions and Pulte Home Corporation (the District Proponent) will pay 25.25% of that estimated total cost, pursuant to the CitylCal-WaterlDistrict Proponent ~~ agreements described in Engineer's Report Section I (the "Developer's Contribution"). A detailed description of the Developer's Contribution and of the share of the estimated total cost ! of the AD 04-3 Improvement Acquisitions to be financed by AD 04-3 is presented in Engineer's Report Exhibit D, Description of Assessment Spread Method. 34 HIGHEST AND BEST USE Highest and best use as taken from the third edition of The Dictionary of Real Estate Ap rp aisal by the Appraisal Institute is "The reasonably probable and legal use of vacant land or an improved property, 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 permissibility, ', physical possibihty, financial feasibility, and maximum profitability". Highest and Best Use as Vacant Legal permissibility -The subject property is zoned R-1, One Family Dwelling zone. The purpose of this zone 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 for all allowable land uses. Financial feasibility -The subject neighborhood has a demand for single-family housing as evidenced by the survey of competing developments in the income capitalization approach discussion of absorption rates. New home developments in northeast Bakersfield have lists of potential homebuyers waiting for an opportunity to purchase a new home. Land development and home construction has 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. In addition, financial feasibility for subdivision development is evident when the value indicated by the cost approach is compared with the income capitalization approach which subtracts development costs, expenses, and profit from the value of the finished lots and discounts the cash flows to present value. i ', It appears that development to single-family lots is financially feasible. - 35 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 ownerlbuilder developing the lots for his own single-family project. 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 owner/builder. Highest and Best Use as Proposed Legal permissibility - As discussed in the site analysis, single-family lots are under construction in three difference tract map areas as approved by the City of Bakersfield. This residential use is legally permissible. ', Physical possibility -Public services, soil conditions, size, shape, and topography_are suitable for the j 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 financially feasible. Maximum profitability -Upon completion of the improvements, they will be new finished residential lots and not suffer from depreciation. Lot sizes in the Sclera area are suitable for the predominant price range of homes being constructed in the area ($300,000 to $450,000). The Rio Vista area has the golf course amenity and larger lot sizes more suited to larger and more expense homes ($500,000 to $650,000). Maximum profitability would be achieved by constmcting single- ', family residences in these price ranges on the finished lots. In my opinion, the highest and best use as proposed is to construct single-family residences in the $300,000 to $450,000 price range in the Sclera area and $500,000 to $650,000 in the Rio Vista area. 36 VALUATION PROCEDURE The cost, income capitalization, and sales comparison approaches have been considered in developing an opinion of market value for the subject property in fee simple estate. To apply the cast 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 and in the income capitalization approach to develop an opinion of value for the individual or retail value of the fmished lots. In the income capitalization approach, potential gross income is estimated by analyzing recent finished lot sales to arrive 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 aze capitalized into an indication of value by yield capitalization using a discount rate. Cost Approach In applying the cost approach in this appraisal, I have estimated the cost to constmct 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 value of the site is added, the result is an indication of value for the property at the current stage of development. 37 The principle of substit<rtion 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 comparables 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 differences with the subject. This process involves the appraiser's judgment as to the degree of comparability. The Solera and Rio Vista development areas are located within close proximity of each other at the edge of development in northeast Bakersfield. They are all within one half mile of having touching boundaries. These properties have tentative or recorded final tract maps. They have shnilar soil conditions, topography, and availability of utilities. These properties are considered together in the discussion of raw land value. My investigafion of the subject area has revealed nine sales and one listing 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 utilized are considered the most comparable available. Although similar, there are characteristics of Street Atlas USA® 2005 Undeveloped Residential Land Sales ~~ f d11. i ~p J± { ~~ a'~ ~~~~ ~w ~ ~ ~ , rPH , a Ns E ~ ~ ~~; ~ ~. ,~ ~ ' An 38 these sale properties that differ from the subject and cause the prides paid to vary. These similarities and differences are discussed as follows. Summary Of Undeveloped Residential Land Sales Sale Sale Sale Size Price Per No. Location Date Price Acres Zonin Acre Remarks I SWC Hwy 178 & 03131104 $13,869,000 163.90 R-1 $$4,618.67 Purchase of Solera area over 1 year Miramonte Dr ago. Property is across Miramonte Dr. from Rio Bravo Coun Club. 2 Miramonte Dr, South of Ob/04t04 $3,000,000 14.91 R-1 $201,207.24 Located outside the gated entrance to Casa Club Dr ($147,551.98) CC but fronts golf course. Seller had s ent $80Q000 on im rovements. 3 East Terminus of 09/30104 $1,000,000 5.97 R-i $167,504.19 Tractmaprecordedpriortosa]e.Rough Highland Knolls Dr graded 15 - 20 years ago, will require Tract 5696 re-grading and compaction. 4 SW Quadrant Casa Club 1Ot06t04 $3,801,000 18.57 R-1 $204,684.98 Purchase of Rio Vista Tract No. 5998 Dr & Anacapa Dr. at tentative map stage. Borders golf course on atl sides. 5 Alfred Harrell Hwy South 12t30f04 $12,000,000 214.17 R-I- $56,03026 Site has view amenities due to of Kem River Golf HD proximity of public golf course and Course Kern River. Density is impacted by too a hy. 6 SE Quadrant Casa Club 01/07105 $4,699,000 22.34 R-1 $210,340.20 Purchase of Rio Vista Tract No. 5997 Dr & Anacapa Dr. at tentative map stage. Borders golf course on two sides. 7 West Side City H$Is Dr, OZ(OU05 $6,256,800 47.40 R-1 $132,000.00 Located in City in the Hills master North of Hwy 178 planned development. Mesa Mann S eedwa situated within''/z mile. 8 SWC Casa Club Dr & 02(28!05 $2,860,000 19.07 R-2 $149,973.78 Zoned multi-family but there is strong Donaldo St opposition to apartments. PUD project likely. Located on olf course. 9 NEC Mesa Merin Dr & 02104105 $1,011,500 6.09 R-1 $16b,09195 Tract map recorded and site rough Chase Ave (Tract 5489) graded prior to sale. Most improvement Tans were done. L. 1 SE Quadrant Casa Club Listing $6,880,000 56.04 R-I & $122,769.45 Tentative Tract 5517 with 86 Tots Dr & Anacapa Dr R-I HD located adjacent Rio Vista Tract 5997. --- No galfaourse frontage and density is im cted b too a h . Sales 1, 3, 5, 7, and 9 are similar to the Solera area because they are not situated inside the gated Rio Bravo Country Club and do not have frontage along the Rio Bravo Golf Course. Sale 5, lowest indicator per acre, is negatively impacted by the undulating to hilly topography. The "HD" overlay on the zoning stands for hillside development. The density of residential lots per acre is lower due to a large amount of terracing between lots. A lower lot yield reduces the value of the property. Sale 1 is the prior sale of the subject over one year ago. Sales 3, 7, and 9 are more recent transactions supporting a much higher unit value per acre. As discussed in the single-family residential market overview section, demand is ahead of supply in the local market causing a rapid increase in land 39 values. Sales 3 and 9 had recorded tract maps and rough grading at time of sale and are rated superior. Eliminating Sale 5 which is impacted by hilly topography, the remaining four comparables (Sales 1, 3, 7, and 9) point to a narrower range of $84,619 to $167,504 per acre. Sale 1 requires upward adjustment for improving market conditions. Sales 3 and 9 at the upper end of the range were in superior condition due to rough grading. The Solera area parcels are assigned a unit value of $120,000 per acre. Sales 2, 4, 6, 8, and Listing 1 are similar to the Rio Vista area due to proximity to Rio Bravo Country Club. Sale 2 had subdivision improvements under construction at time of sale. The developer's improvements to the land were estimated at $800,000 by the seller indicating an adjusted price per acre undeveloped of $147,552. Sale 2 is situated outside the main gate to the country club but has frontage on the golf course. It is rated slightly inferior in location. Listing 1 is situated within the gated entrance but does not front the golf course. Lots adjacent to the golf course sell for a premium. Listing 1 also has a "HD" overlay on the zoning and is similarly impacted as Sale 5 discussed above. Sale 8 is zoned R-2, limited multiple-family residential. The buyer stated that during his due diligence period he was aware there was significant opposition from neighboring property owners to development of an apartment complex. The property was purchased with the intent of developing a planned unit development. Sales 4 and 6 are recent sales of the Rio Vista area parcels which are atthe lrigh end of the unit value per acre range. The buyer was influenced by having two other projects under development in the ~ subject area. Eliminating Listing 1 which is impacted by hilly topography, the remaining four comparables (Sales 2, 4, 6, and 8) point to a narrower range of $147,552 to $210,340 per acre. Sale 2 requires upward adjustment for improving market conditions and location. Sales 4 and 6 at the upper end of the range are previous sales of the subject parcels. The Rio Vista area parcels are assigned a unit value of $200,000 per acre. Improvements to the Land -Site development was in progress on the effecfive date of- appraisal but at various stages of completion for each phase. The status of construction is discussed for each phase earlier in the report along with an estimate of the developer's cost of improvements as of the 40 appraisal date. The assessment 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 assessment district improvement acquisitions being in place. 41 Summary of Cost Approach LAND VALUE WITR RAW DEVELOPER'S IMPROVEMENT AD FINANCED NET PRESENT LAND IMPROVEMENTS ACQUISITION INFR45TRUCTURE DEVELOPMENT AREA DESCRIPTION ACRES VALUE/ACRE VALUE TO LAND COST IN PLACC SOLERA .4RF.A I Tmet G149-Phase I. Lois I-17 Residential Lots 7.53 720,000 903,600 7,340.000 70.824 tract 6149-Phase 1, Lot IS 1'ublie Park Lat n/e 0 i Tact 6149-Phaee I, Lot A Private Street Lot Na 0 Tract 6149-Phase 1, Lots B, C and D Landscape Lots n/a 0 TraG 6149-Phaee I, Lots Eend P Storm Drain Sump Lots n/a 0 Tract 6149-Phase 2, Lots I-bl Residential Lots 13.74 120,000 1,648,800 3,134,000 254,135 Tract 6149-Phase 2, Lot A Private Street Lot Na 0 Tract 6149-Phase 2. Lot B Private Park Lot Na 0 Tract 6149-Phase 2, Lot C Landscape Lot n/z 0 'I'raet 6149-Phase 2, Lot D - ~ Dralnasx Way Lot Nz 0 '. Tract 6149-Phnse 3, Lots 1-1 l0 Residential Lots 27.9 120,000 3.348,000 7R7.OW 458,276 i Tracr 6149-Phase 3, Lol 111 Pmaze Recreation 'i, Center Lot Na 0 Tract 6149-Phase 3, Lot A Private Street Lot Na 0 Rcmaindcr of Lot 20 Tract 6749-1 (Furore Tract 6149 Phases 4, 5, 6, 7, 8 & 9) "Super" Lot 101.01 L2Q000 12,121,200 190,000 7,541,476 TOTALS/AVERAGE FOR SOLERA AREA: 150.18 120,000 IR,021,600 6,051A00 2,324,711 RIO V ISTA AREA Tract 5998, Lots 1-44 Residential Lots 18.57 200,000 3,714,000 451,000 210,217 Tract 5998..Lot A Private Street Lor n/a 0 i Tract 5998, Lots B-P Landscape Lots n/a 0 i "; SUBTOTALS TRACT N0.5998: 18.57 200,000 3,714,000 451,000 210,217 j Pa[cel A LLA No. 03-1333 (Poture Trect 5997, Lots 7-50) "Soper" Lot 22.34 200000 4,468,000 80,000 208,677 SUB"FOT'ALS TRACT N0.5997 (FUTURE): 22.34 200,000 4,46$000 8Q000 208,677 II SUBTOTALS R1O VISTA AREA (TR 5997 AND TR 5998): 40.91 200,000 8,182,000 531,000 418,895 ASSESSMENT DISTRICT TOTALS 191.09 137,127 26,203,600 6,582,000 2,743,606 IThe reader may note some discrepancies due to rounding Includes contributory vatuc ofhauses under construction Income Capitalization Anuroach ~~ The income capitalization approach to value consists of methods, techniques, and mathematical procedures that an appraiser uses to analyze a property's capacity to generate benefits (i.e., usually i the monetary benefits of income and reversion) and convert these benefits into an indication of present value. The principle of anticipation is fundamental to this approach. Because value is created by the expectation of benefits to be derived in the future, value may be defined as the present worth of all rights to these future benefits. 2,314,424 0 0 0 0 5,036935 0 0 0 0 4,593,27E 0 0 I4.452.G76 26,397,371 4,371,217 0 0 4,375,217 4,756,677 4,756,677 9,131,895 35,529,206 42 In applying the income capitalization approach in this appraisal, the appraiser estimates the potential gross income from the sale of the finished lots as they are forecast to occur over a period of time. The remaining cost to finish constnrction of the lots; administrative, marketing and property taxes expenses; and entrepreneurial profit are subtracted to arrive at the net cash flow. Yield capitalization is used to convert the series of periodic incomes into an indication of value by discounted cash flow analysis. Each. future periodic income or cash flow is discounted to present value. The present value estimates for each period are then totaled to arrive at an indication of the total present value of the property. To select an appropriate discount rate an appraiser must verify and interpret the attitudes and expectations of market participants, including buyers, sellers, advisers, and brokers. The selection of yield rates for discounting cash flows focuses on the prospective or forecast yield rates anticipated by typical buyers and sellers of comparable investments. A discounted cash flow for ', each recorded phase of the tract maps is provided in the addenda. The components of the discounted cash flow analysis are discussed as follows. Inventory of Lots -The number of units in the discounted cash flow is the number of buildable lots in each recorded tract map. Lots sales begin after the forecasted completion date of the finished lot and the inventory from previous phases is sold out. The number of lots sold per month is based upon the absorption rate for the development. Absorption -Competing developments were surveyed as a method for forecasting the absorption of the subject as well as researching future competition and analyzing economic data. Every new home development in northeast (Rio Bravo Area} Bakersfield has a waiting list of buyers. The Tuscany subdivision is located across Highway 178 to the north. McMillin Homes has two production tracts active and Gaskill Custom Homes is a custom home builder active in the development. McMillin's Portola ($390,000 - $450,000} tract started sales in July 2004 and had 38 sales. The listing agent stated they typically release five or six lots per month. They had an interest list of 155 names waifing for an opportunity to purchase. A total_of 144 homes are planned. McMillin's second tract is Venecia ($450,000 - $550,000}. Sales started March 2005, and 121ots had been released. The listing agent stated they plan to release three and a half lots per month on 43 average. They had an interest list of 390 names waiting for an opportunity to purchase. A total of 122 homes are planned. Mountain Meadows (starting at $416,000), two miles southwest, is a tract that has been active since October 2000. Five "spec" houses are all that remain in the original 152-lot tract. An interest list of 15 are waiting for the houses to be released for sale. Subdivision improvements are under construction on a new tract containing 24 lots. Homes have not been marketed for these lots yet. Mountain Meadows is not a production tract which limited the supply of houses available for sale. Vista Del Lago adjacent to Rio Bravo Country Club was a project consisting of 81 lots in three I phases. Finished lots were marketed to individuals and builders. Sales started in January 2003 and the lots were sold out prior to completion of construction for phase three in August 2004. Vista Verde ($390,000 - $450,000) by Pulte Homes at Ria Bravo Golf Course oonsisted of 39 lots. Sales started July 2004 and sold out in March 2005. The listing agent stated five or six homes were released per month. Rio Vista will be similar to Vista Verde as the same two floor plans will be offered plus one more. The listing agent stated Pulte plans to close escrow on 30 homes this year which is unlikely because no homes are under construction yet. Hawever, Pulte Homes will increase the house production schedule above the five to six houses started per month for Vista Verde. They had 50 names on an interest list. Solera ($275,000 - $320,000) appeals to a slightly different market because it is age restricted to 55 years old. Sales started in September 2004 and 102 of the 188 houses planned in the first three phases have sales pending. Pulte is starting 20 houses per month in an attempt to keep up with demand. Based upon my survey in the area in April and May 2005 with every development having. a waiting list, there does not appear to be an oversupply of lots any time soon. In addition to the existing competition, 10 active tentative tract maps with no recorded phases are approved for 1,644 lots 44 within a two mile radius and three tentative tract maps totaling 1,3251ots have been submitted to city planning and are awaiting approval, according to an April 15, 2005 map printed by the City of Bakersfield Planning Department. Considering the existing competition and planned development in the near term, the supply of finished lots in the area will not adversely affect the absorption rate for the subject. As discussed in earlier secfions of this report, the population of northeast Bakersfield has been growing at a rate slower than the city as a whole due to a lack of supply of new housing. The local economy has had positive job growth for a number of years. Interest rates are forecast to rise slightly over the next few years but stay under 8% for home mortgages. Economic conditions indicate that a continuation of current housing market activity is likely far the absorption period. Taking into considerafion the lot size and likely product type planned, a survey of competing developments, future competition, and economic conditions, the monthly sales absorption rate for the tracts under appraisal are shown as follows. Solera Area Tract No. 6149 20 Lots per month Rio Vista Area Tract No. 5998 8 Lots per month Revenue - In order to determine the gross sales per period, a sales search for residential lot sales to builders was conducted. The number of lot sales per period multipliedl~~! the sale price of the lots is equal to the revenue from lot sales per period. The table below exhibits 12 recent finished residential lot sale transactions in northeast Bakersfield. The information was verified with at least one party to the transaction. '. Data use subject to license. T" n acme i :po Sao l ©2004 DeLorme. Street Atlas USA®2005. ~} ~19~8°E~ ~~ : "" ii www.tlebrme.com V "" 1"= A 687 5 ft Data Zoom 11 7 45 Summary= ~f Finished Residential Lot Sales Sale Sale Sale Lot Size Price Per No. Develo ment/Location Date Frice/Lot S . Ft. Zonin S . FL Remarks Mountain Meadows 12103/04 $80,000 10,200 R-1 $7.g4 This transaction involved 5 lots 1A Tract 5923-3 purchased for $400,000. Last remaining lots in a 152-lot pact. Mountain Meadows 04/26105 $102,500 9,365 R-1 $10.95 Two builders buying lots in a new tract 1B Tr t 5989 d C h ac a jacent esar C avez School, near 04(28105 $105,OD0 10,019 R-1 $10.48 MesaMarinSpeedway. Tuscany 11124104 $13Q,000 43,996 R-1 $2.95 Lots purchased forcustom homes. 2 T t 6000 1 Hi h rac - g er priced lot has unobstructed view 02/28105 $90,000 +/-24,500 R-I $3.67 of foothills and Kern River. Vista Del Lago 11/18/04 $150,000 9,290 R-I $16.15 Access to site not Chrough main 3A Tract 5518 Country Club security gate. Golf Course View Vista Del Lago 11105(04 $9Q,000 7,160 R-1 $12.57 Price influenced by proximity to more 3B Tra t 5518 i l C c expens ve ots. orner lots. Seller Off Golf Course 11111!04 $88,000 7,050 R-1 $12.48 purchased lots for $54,500 each in 8104. Rio Bravo Estates O1f15f04 $150,000 20,475 R-I $7.33 Origina120+yearoldtractatCountry 4 Trac[ 4442 Club. Lot is generally level with no Dolf Course View terracing. VistaMontagna 03109/05 $180,000 11,008 R-1 $16.35 Higher priced lot wastransaetion 5A Tract 5515 involving 2 view ]ots and lot shown as Golf Course View 03117105 $200,000 13,900 R-1 $14.39 56. Location is close to clubhouse. Seller purchased both lots for a total of $216,000 in 4104. Vista Montagna 03117/05 $200,000 13,900 R-I $14.34 Same buyer purchased 2lots in SA SB Tract 5515 from a related party. Seller had Off Golf Course retaining walls installed. Lots in 5A & B are terraced. Setlei pw~chased lot for $130,000 in 7/04. Sales IA, IB, and 3B and to a lesser degree Sale 2 are comparable to the Solera Area lots. The Mountain Meadows development is located two miles west closer to schools, shopping, and other services. It is also close to Mesa Morin Speedway, a large automofive race track that is a major noise nuisance in the surrounding area on Saturday nights. The Vista Del Lago development is bordered by Rio Bravo Golf Course, a small lake or reservoir, and a view of the foothills facing east. Lot Sales 3B do not border any of these amenities but benefit from their proximity. This location is slightly superior to the subject. The Tuscany development lots are situated on the ridgeline of a hill across Highway 178 from the subject. A large portion of these lots is sloped due to terracing between lots. The higher priced lot has a view amenity facing the foothills and Kem River. These lots are superior to Solera. Overall, the Mountain Meadows lots are most similar and given greatest 46 weight in the valuation of the Solera Area lots. They range from $80,000 to $105,000 per lot and $7.84 to $10.95 per square foot. Sales 3A, 3B, 4, SA, and SB are comparable to the Rio Vista Area lots because they are located at Rio Bravo Country Club. Typically, a premium. is paid for lots that border the golf course. The Vista Verde development which recently sold out at Rio Brauo Golf Course had golf course premiums in the range of $40,000 to $50,000. The price difference at Vista Del Lago (Sale 3} is slightly larger but the golf course lot is larger in size. Lots off the golf course at Rio Bravo Country Club range in price from $88,000 to $200,000. Sale SB sold at the same price as lots on the golf course and is somewhat of an anomaly. The buyer purchased multiple lots and may have averaged the prices. Lots on the golf course range in price from $150,000 to $200,000. The variation in price is mainly due to lot size and date of sale. Sale 3A is significantly smaller in size. Sale 4 is over one year old and market condifions have improved since the date of sale. Thirty two of the 44 Rio Vista lots border the golf course. In summary, the lot sales at Rio Bravo Country Club range from $88,000 to $200,000 per lot and $7.33 to $16.35 per square foot. Lots that border the golf course sell for a premium and 32 of 44 subject lots are on the golf course. An average lot market value closer to the high end of the range is reasonable for the subject. These comparable finished residential lot sales were considered good indicators of value for the subject property on an individual or retail lot sale basis. Average_fmished lot values for the development areas with recorded tract maps "upon completion of constmction" are as follows. Development Area Lot Value Value/Sg. Ft.* Solera Area $80,000 $10.76 Rio Vista Area (Tr. 5998) $175,000 _. $13.33 *Based upon the median square foot lot size Lot prices have appreciated rapidly in recent years. Comparable sales in the lot sales table above exhibit appreciation rates. When surveying competing single-family developments sales agents reported that home prices are increased with each monthly release of lots. The home price increase 47 is typically $4,000 to $6,000 (approximately 1 to 2%). I am forecasting that the appreciation rate will level off or slow down to 1.0% per month (12% annually) during the relatively short absorption period. The aggregate retail value of the lots "upon completion of construction" is equal to the individual or retail lot sale value shown above mLiltiplied by the number of lots in the phase Development Costs -Subtraction of the remaining cost to complete construction of the lots is required to arrive at an "as is" value for the subject. Construction cost estimates are shown on the cash flow analysis sheet for each tract in the addenda. The estimates were derived based upon cost data provided by the civil engineer/land surveyor for each development area, cost data in the appraiser's files from similar subdivisions in northwest Bakersfield, and Marshall Valuation Cost Handbook. The assessment district improvement acquisition cost (from Engineer's Report} and developer's construction cost to date are deducted from the total construction cost to arrive at the remaining cost to finish construction of the Lots. The developer's improvements to the land were discussed in an earlier section. Expenses -Besides the cost to complete construction, other expenses are sales & marketing, general & administrative, property taxes & special assessments, and entrepreneurial profit. Sales & marketing expenses include sales commission, advertising, escrow and title insurance. In the 2002 edition of-the National Investor Survey by CB Richard E11is market participants (developers, merchant builders, lenders) were surveyed for their response to "How would they model the acquisition or disposition of a 20+ unit development assuming one sale to a single investor?" Survey responses for sales & marketing were in the range of 2% to 6~0. An estimate of 4% of gross sales is typical and appropriate for this analysis. General & administrafive expenses include administrative, accounting and legal expensesas well as overhead expenses such as office space expenses. The same CB Richard Ellis survey quoted above 48 had a response range of 0.5% to 4% for this category. General & administrative expenses are estimated at 2% of gross sales. Real Estate Taxes & Special Assessments expense is derived by multiplying the tax and special assessment periodic rate times the value of the average inventory of lots for each period in the cash flow. This ownership expense decreases over time as the lots are sold. The Solera Area has a general tax rate of 1.121163%. The Rio Vista Areas has a general tax rate of 1.086924%. These properties will also be subject to the tax lien created by this assessment district AD 04-3 estimated at less than half the rate for general taxes as developed lots but prior to construction of a residence. The combined rate for real estate and special assessment liens is forecast at 1.5%. The entrepreneurial profit category pertains to the profit incentive anticipated by an owner who proceeds to take the risk of managing and marketing the project. Factors which influence the required profit include the term or time in which the owner is required to be involved in the project. An additional factor is the inherent risk associated with the project- This ass b°nment consists of individual phase tracts consisting of 16 to 77 lots valued sepazately that have a relatively short sellout period. The same CB Richard Ellis survey quoted above had a response range of 5% to 12% for this category. Considering the positive market conditions and relatively short and limited associated time requirement, a 5°!o profit as applied to gross sales is considered appropriate for an owner who would incur the risks associated with completing construction of the project. Discount Rate -The rate represents the minimum rate of retum necessary to attract investment capital. Selection is influenced by the degree of apparent risk, prospective rates of return for alternative investment opportunities, historical rates of return earned by comparable properties, market attitudes with respect to future inflation or deflation, supply of and demand for mortgage funds, availability of tax shelter as well as other factors. Although the suitability of a particular discount rate cannot be proved on the basis of market evidence, the chosen rate should be consistent with the available evidence. Rate selection requires appraisal judgment as well as a knowledge of prevailing market attitudes and economic. indicators. Two approaches have been employed to determine the appropriate discount rate. 49 One approach considers the general canying (financing) costs of the project, Generally financing costs are 1 point above a floating prime rate. Based on historical indicators, I forecast that financing costs will be at an average annual rate of 7.0% based on a current prime rate of 6.0%. Since the expected rate for financing costs and opportunity cost of equity capital are similar, a corresponding rate would be appropriate on the equity portion of this type of investment. An additional allocation for risk is required as the aforementioned investments are typically secure, investment quality opportunities. An additional risk assessment of 10% is deemed appropriate. Therefore, in this instance, the conclusion is that 17.0% would be an appropriate discount rate. In a second approach to determining a discount rate, compensations are made for giving up the control over money, which is represented by a riskless rate of interest such as on long term U.S. government bonds. Currently five-year U.S. Treasury bonds have a yield of approximately 4.0%. Based on current single-family market conditions in the subject area and relatively short absorption period required, the exposure to potenfial market changes and associated risk is moderate to low. A risk premium of 12% above the safe rate of 4.0% is deemed appropriate, resulting in a discount rate of 16.0°l°. Iu conclusion, a discount rate of between 16.0% to 17.0% would be appropriate for the subject. I have reconciled to a 16.0% discount rate which is considered appropriate cmrsidering entrepreneurial profit was taken as a line item expense. The discounted cash flows for each phase are presented in the addenda and indicate values "as is" as follows: Indicated Value by the Income Capitalization Approach Market Value "As Is", "Soles Area" Tract No. 6144 Phase 1 Contributory Value of Houses Under Construction Total for Phase 1 Phase 2 Contributory Value of Houses Under Construction Total for Phase 1 Phase 3 Indicated Value by the Income Capitalization Approach Market Value "As Is", "Rio Vista Area" Tract No. 5998 RND $680,000 540,000 $1,220,000 RND $4,142,000 1,748,000 $5,890,000 RND $5,359,000 RND $5,469,000 50 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 estimate. Esthnating 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 engineerJland surveyor; cost estimates on similar tracts in the appraiser's files; and Marshall Valuation Service. Phased construction of large tracts with expensive up front off-site costs can skew the cost figures for an individual phase. The cost approach does not consider the income characteristics of an investment. It is most reliable in this appraisal in forming an opinion for the land without a recorded tract map known as a "super lot". This approach is typically used more for a test of feasibility for a proposed project. It is considered a less reliable indicator than the income capitalization approach in this appraisal. The income capitalization approach considers the income producing capability of the property. Investors place considerable importance on this method for investment properties. The estimate of sales income was supported with comparable builder lot sales data via a sales comparison approach. Appropriate deductions were made for development costs which relies on the cost approach. Expenses and entrepreneurial profit were subtracted to give an indication of net sales proceeds. The net sale proceeds were discounted to present value by deriving a market-based discount rate. In this appraisal the income capitalization approach draws upon the cost and sales comparison approaches to provided a thorough analysis of the subject and is considered the most reliable indicator in this appraisal. As a result of my investigation and analyses presented iu this report, it is my opinion that the market value "as is" or bulk value, assrmung the improvements as a result of AD 04-3 are installed, subject to the assumptions and limiting conditions set forth in this report, as of May 1, 2005 were as shown in the following table along side the assessment lien and value to lien ratio. 51 Value Opinions -Assessment District 04-3 BULK VALUE OF RECORDED VALUE LOTS AND ASSESSMENT TO LIEN ASMT NO ATN/DESCR[PTION LAND LIEN RATIO SOLERA AREA 1-17 Tract 6149-Phase I, Lots 1-17 1,220,000 88,543.3] 13.78 18 Tract 6149-Phase 1, Lot 18 n/a O.QO n/a 19 Tract 6149-Phase 1, Lot A nta O.QO n/a 20-22 Tract 6149-Phase 7, Lots B, C and D nta 0.00 n/a 23-24 Tract 6149-Phase 1, Lots E and F n/a 0.00 nta 25-85 Tract 6149-Phase 2, Lots 1-6 t 5,890,000 317,714.23 18.54 86 Tract 6149-Phase 2, Lot A nla 0.00 t>!a 87 Tract 6149-Phase 2, Lot B nfa 0.00 n/a 88 Tract 6149-Phase 2, Lot C nla 0.00 tda 89 Tract 6149-Phase 2, Lot D n/a 0.00 nta 90-199 Tract 6149-Phase 3, Lots I-t 10 5,359,000 572,927.30 9.35 200 Tract b 149-Phase 3, Lot 11 I nta 0.00 n/a 201 Tract G749-Phase 3, Lot A n/a 0.00 nta Remainder of Lot 20 Tract 6149-1 202 (Future Tract 6149 Phases 4, S, 6, 7, 8 & 9) 14,452,b76 1,427, ] 21.63 7.50 TOTALSi AVERAGE FOR SOLERA AREA: 26,921,67b 2,906,306.47 9.26 RIO VISTA AREA 203-246 Tract 5998, Lots 1-44 5,469,000 262,809.45 20.81 247 Tract 5998, Lot A nfa 0.00 nta 248-252 Tract 5998, Lots B-F n/a 0.00 n/a SUBTOTALS TRACT N0.5498: 5,469,000 262,509.45 20.81 Parcel A LLA No. 03-1333 283 {bltture Tract 5997, Lots t-50) 4,756,677 260,884.08 18.23 SUBTOTALS TRACT NO. 5997 (FUTURE): 4,756,617 26Q884.08 18.23 SUBTOTALS RIO VISTA AREA {TR 5997 AND TR 5998): 10,225,677 523,693.53 19.53 ASSESSMENT DISTRICT TOTALS 37,]47,353 --'3,430,OOOAO 10.83 The reader may note some discrepancies due to rounding *Includes contributory value of houses under constmction Marketine Time Subdivision properties can have considerable variation in marketing times. This is often due to market conditions at time of sale, available fmaneing, 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. The bulk sale value assumes lots will sale in an orderly manner by phase and not all offered at the same time. Based upon current trends in the market, interviews with real estate brokers experienced in this property type, and my analysis of marketing times for comparable properties, a marketing time of six months appears reasonable for each phase. ~-, ~:.JE~"Cia d~ T3( ] veazf~~ t€ta€, Ec~ flaw b.st ~t tn}~ kra~»~ l~d~e stz~S ~cliw3" .. . 1~ae st:at~ rztc~€ts ~f t€zct ~+~na;cini>cl iai thss r~;pc~rt arv true as€d ccarr~~t. w ~anda3l 1/r~traz h~a:5 a€]~ ~ ~ierstanzc] siaslaes:tic>n <af ?lze ]arrr~;;rty thsad is tine SCi€~icct rat dais ri;€xart. t Tki~ aY.larzi3~1 aaaaly~es, ea~enirtnsr, arti~ c~rt~lus'srans are lia'riitcd sanly~ lz}~ tEae J~~urt~i as.~sssnlati«€ss and liixzitin~ ctarzditlotas; atacl ar}.; raay petstaaaaf, unlaariatk anri unbdnsel li~~rrte.~,~itasi a~aty,~,"aa}zirztcrns, azat~ ctart~lisciaans. t tiav~ szca lar~«ent ~€ lasa~s~eciii~ anFeresP is€ the pro~er€4~ that ~s,ili~ sulRjcct of iltr°, z~'}zeart, r~iid nc? personal interest u•itfla rc:spec t tca tlxrn Mastics iaaz ~3sruf. 3 :have szo hsns with ra.speci iv the pr+apvrE3~ dzat i~ alze sub~cc# c+C t]zis r~lat~rt see ts> t3ar panic tnvcxlved czcitls thzs asnei~aasYZenC. hEy esz~e€nezat in [leis assa~tazne €at uir~ n~i ec~nt,€agent u~csrs dwuetcalZn~ car rzlacar#n~ predetecmzn~ii restalts, 14$u csaa>ap~ns~ticza fczr>wca€npletzn~>>. #tass ~sa:ss~s€aaa~nt is tacrc ctantitz~sszt aapcrtz }ze dc+.•~Ic~~srtacn# i~t rep<~rtuz~= eta pred~ tcat?isaed value ~s diractauts s`tz value ttzat f~tivri ii€e pause tsl`f3st ~:iacra#, f]i ar~ztauazz tst €ae vtalu~ c~liinican, the atza3nrsaent rat a ~ti¢zt7ladex~ restzit, c+r it€e €nc€tncnce tsf"sl suhsesl€€enteveni dirc;ifly related iQ tdae intcridecl tsse ~#'tYsis #araisa€a ® ~~} :ers;elys,.capiniczzis end ~onclzzsirons were devclazped, az€~ this rear[ tz.~s tze~tts ~arul; in ~cznftsaaxaity u•itl€ the.r~s?uirsent~ catnc~ L'`sade ts#" F'rCatessi€araal l~tlai~s sand tfse Standards of I'safessivs~l Practice s?f tlae Ap~ara€sak ttistltut~ and clzcs 1Jntcarrit Stast~dards uf` Pci~f`~s.;i€ana ® ']'Ize use c}f this: req?c~rt is sukajetrt tss the res~czinnzcs?fs tzi` the t`€lapraica:d Insfiittaie to€at€sap; iEi r~~`3~w by t~zr€(€€1y €zh~rizcci reftl'ese CaCaEi~°c's, _~s caF thz (3at~ ~al• thz5: t~tassrt_ 1, Rancfnt€ F"rant, tras~ cca€np€~t~c3 flze r€~tiirettaenis uazdcr ttr cv€z€iazuist~; ~ci€€za€usaz prczarasrt of tla~ .4p{rr~isa! Institute. 1*lp a~n~ ~izrak`idu sz~sificaastt cva4 pr~apertY splzrais~l assistaxttie to tl€e persan sa`~tzira~ this cac:rtifidatis~n. 0 1: have the knca~.~l~d~e,attel ca~s~rieraee szew.css,~sre tc camlilete tfai:# as;~it~€atsaent ccanapctentiy. PIc rci'~tt~ my alZprazsszl c~€talziac:atitans:attached v;~itla this smart; - Randall Frattr, tvT.~i, 5KA 'erdifiard faeateral ti; ~Cs~tl43(1~ ~tl E~pieaticirt I2.~~3~~2s~dlfi ADDENDUM z two _ ~ _ _ z" m z" 2 yo¢ S S 8 8 8 8 ~ w ~ a '~ B ~ Ri 2 _ 8 2 .^. ~ o e °¢~z 0 y 0 ¢ p w o m rc~ QOiW °$ 2 z 2 2 2 2 $ 2 2 °g c 6 S W J ~ n p»;o ^ s <LL;p a~ F °S 2 2 2 2 °~ 2 2 2 2 q 5 2 ~ 2 $ 2 KNOq j2 y 4u S W ~ ° n r 3~ m ~w e m - ' s a ez~a 'a ~ - y z po4y' ~ a ,~ z~ gE« m 2 w=O ~ V p K _ f N~ Q g g a WWI Ojj SK~ Of y p Q ~ ~ 8 S v Q $5 S m a K¢ r g rb ~ ° P+ . y ~ m ~ zp 8 Wa 8 8 Q? a N ` rc v i 2 2 o _ _ - y E _ 3 ~ « 0 s 5 d 9 _ J y _ _ ~ 6 3 K~ N N ~ N ~ a -fr c IG 6 ~ 4~~ K 6 0. O K 6U R l° V 'Q 6 m W 6 V p 4 _ S ~ ~ p ~ ~ ~ ~ ~ °~' a ~ ~ ~ ¢ j O 6 LL a LL 6 o U 0 , j ~' n J ~j ~ ~ Q m r5 ~ B @ Y. ~ A C @ ~ `~ G G EC ~ yy ~ ~~ r ~ C F @ F ~ ~ ~ . ~ C ~ r ar r w M i 2 ~ qo o go Fo Fo Fo gm Fo ga ao o q g8 a ~ _ p a rc a q m^ v q q ~ y ~+ ~ q Z o$ ~ o gg go 0 0~ o$ go go o go q o o$ $ $ o q o o °m o m q n 0 0 00 40 40 40 ~o 4~' 4a ~ w 4 4 9 '^ 4 '^ o ~ ~ W Rio a~.o mo e~i o .~io Ro .~io mom ma e~io mo . a`9iq M1 _ mo m0 c D ~, Q m m m Z m Z a 4 0 Sm °~ °m 5'~° .Sim S°m og s`d° s.gn 5~°c sm o~ oe .~~ , ~ ~ 3 k 5 i c~ ~„ ~ i m km ~m Em °-m im i~ ;~~ 4~ 4m ~m .~m 8m .~9m , 3m a W - Y ~ ~-` C ~ ¢ W a°.s a°s 8o 8o ao ~a vs a°'s u°o a°o 8o 8o n°o o ~ n "j ~ ~ p z ~ v r a a ` ~ s m ~ m ~ a ~ o ~ ~ > > o u LG $8 mg b~ ~~ Eg LAND SALE 1 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address SWC Hwy 178 &Miramonte Dr City, County Bakersfield -Kern Farce! No. 387-020-49 387-360-02-04 & 08 Map Page 2404-F7 Property Rrghts Fee Simple PROPERTY INFORMATION Size (SF) 7,139,484 (A C) 163.90 Frontage +1-3,000' Hwy 178 +1-2,600' Miramonte Dr Shape Rectangular Zoning R-1 Topography Sloping Utitities Electricity, Gas, Sewer, Water Street Paved SALE DETAILS Seller JPMP-SAGE BAKERSFIELD, LLC Buyer PULTE HOME CORPORATION Sale Date 3(24/2004 PricetSF $1.94 Sate Price $13,869,000 PricelAcre $84,618.67 Adjustment Adjusted PricelSF Adjusted Sale Prrce Adjusted PricelAcre RECORDING/CONFIRMATION Date Document No. COMMENTS 3/31/2004 By 04-70147 With Confidential The property is located in the Rio Bravo area of northeast Bakersfield. Rio Bravo Golf Course is situated across Miramonte Drive to the east. It was purchased for development of single-family residences. The sale included a tentative tract map {6149) for 558 lots. The site has undulating terrain and is generally below grade for Highway 178. A waiver for the surface right of entry from the mineral rights owners was included. Terms of sale were all cash to the seller. The property previously sold for $1,750,000 recording May 2003 after being in escrow for over one year. r~ J LAND SALE 2 GENERAL INFORMATION item Vacant Land Sale Type Single-Family Residential Address Miramonte Dr. South of Casa Club Dr. City, County Bakersfield -Kern Parcel No. 387-010-43 Map Page 2404-G7 Property Rights Fee Simple PROPERTY INFORMATION Size (SF) 649,480 (AC) 14.91 Frontage 2,200+/- Shape Irregular Zoning R-1 Topography Undulating Utilities Water, Electricity, Gas, Sewer Street Dirt SALE DETAILS Seller RIO GRANDE DEVELOPMENT, LLC Buyer PULTE HOME CORPORATION Sale Date 6/1/2004 PricelSF $4.62 Sa)ePrice $3,000,000 PricelAcre $201,207.24 Adjustment $(800,000} Adjusted PricelSF $3.39 Adjusted Sale Price $2,200,000 Adjusted PricelAcre $147,551.98 RECD RDI N G(CON FI RMATIO N Date 6/4/2004 ey Seller Document No. 128653 With Tom Hartnett COMMENTS The property is located along the western edge of Rio Bravo Golf Course outside the gated entrance. It runs along the east line of the extension of Miramonte Drive. The street ended at Gasa Glub Drive at time of sale. The site (19 lots) fronts the 6th & 16th holes of the golf course. It was purchased for development of single-family lots. The seller provided a tentative map {#6160} with 40 lots. At time of sale engineering was complete. The seller had incurred costs for rough grading, storm drainage and sewer. Total estimated costs paid by seller were $800,000. The remaining cost to complete the lots was estimated at $1,000,000. Terms of sale were all cash to the seller. LAND SALE 3 GENERAL INFORMATION Item Vacant Land Sale TYPe Single-Family Residential ~ c'. ,,,a ra irk car- s~v ~~c o ~~ a, x.ztst. ,~,s x Aot > ,~ , ,r asa_v~ Address East Terminus of Highland ~ 4--- 4 ' - - ---€ ~t'1` zas ~ ea ~ r rc~ r~ r ~ ~' Knolls Dr. (Tract 56961 ~" ~ ~ ~ r ~' q r ~ c z as at aa' u?_ `, ~ " ~, an. -~ j ~ ti 5 a City, County Bakersfield -Kern ~ - --- ` I --.,.m ~~` ,~ -rte`. ~~ x ~~ ~ ~.. ' 1 r Parcel No. 434-010-29 a ~„ , ,~ ,>r ,- ', r Map Page 2443-G2 ~~° -w.u `"~` ~ , ~"~•~ ~, ~ ~~Fa, §s~ ~`~~~ i Property Rights Fee Simple ~ r~^~ ~"~~ °~`" ~ ~'~„j~ ~ ~ ~~ ~ ~; -' ~- ~ ~- ~ "~'" PROPERTY INFORMATION ~ ~I ~~ F t ~ ~,x..t; ~ ~ ~. ".,.. ~~~.. a ... F9e<:.. ~~'~~ Size (SF} 260,053 r~aoe (AC) 5.97 tom- ,~_'A Frontage 330'+!- Highland Knolls I ,~~ , ~° t F~?~ t ~,~. ~ h ~ ' n 3nY3 Shape Irregular ' X40." ~?~) ~~ ~L" - ~ ~, Zoning R-1 t ~~.~ a_ ~~ _ v~ «~~_ d ~~` s.~ ~:, Topography Undulating '~ - `- j Utilities Electricity, Gas, Sewer, Water Street Paved to Property Line SALE DETAILS Seller COKER ELLSWORTH, INC. Buyer JEFFREY D. & MELISSA THORN Sate Date 8/412004 PricelSF $3.85 Sale Price $1,000,000 PricetAcre $167,504.19 Adjustment Adjusted PriceJSF Adjusted Sale Price Adjusted PricetAcre RECORDING/CON FI RMATIO N Date 913 012 0 0 4 ey Agent ~ Document No. 237885 lNirh ____- McKinzie Real Estate COMMENTS !~ The property is located three blocks east of Fairtax Road adjacent to 15 to 18 year old homes. It was purchased for i, development of a residential subdivision. The tract map (#5696) was recorded prior to the sale and consisted of 20 lots (10,000 +/- sf). The site was rough graded approximately 15 to 20 years ago with some terracing of lots. The buyer will be required to re-grade and compact the lots. High tension electric tower lines are located along the east boundary. Terms of sale were all cash to the seller. LAND SALE 4 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address S WO of Casa Club Dr. and Anacapa Dr. City, County Bakersfield -Kern Parcel No. 387-010-59 Map Page 2444-H1 ', Property Rights Fee Simple PROPERTY INFORMATION Size (SF} 808,909 (AC) 1$.57 Frontage nla Shape Irregular Zoning R-1 Topography Undulating Utilities Electricity, Gas, Sewer, Water i Street Paved to Property Line csnurvr.,a.... Se!!er FAIRWAY ASSOCIATES LLC Buyer PULTE HOME CORPORATION Sate Date 10!512004 PricelSF $4.70 Sate Price $3,801,000 PricelAcre $204,684.98 Adjustment Adjusted PricelSF Adjusted Sate Price Adjusted PricelAcre RECORDING/CONFIRMATION Date 10!612004 By Confidential Document No. 242519 With _ , _ _ 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 {#5998} with 44 buildable lots. The triangular site fronts the golf course on all 3 sides including the 18th hole. The clubhouse is situated nearby. Terms of sale were all cash to the seller. Fairway Associates had recently obtained title after negotiating a purchase several years previously. This prior sale price was not available. LAND SALE 5 GENERAL INFORMATION ,.. ~.~.. Item Vacant Land Sale Type Single-Family Residential Address Alfred Harrell Hwy South of x=Mw c~~N Kern River Golf Course _ aacr ~,~, City, Coun ty Bakersfield -Kern Parce! No. 386-020-26,27,29,47 386-050-15 & 16 ~ ~ "" Map Page 2404-F4 x--~, Property Rights Fee Simple ~` PROPERTY INFORMATION Syi ~''S . *~"" ~ Size (SF) 9,329,245 ,~~,' (AC} 214.17 ~ Frontage +/-2,200' Alfred Harrell ~~ Shape Irregular Zoning R-1-HD Topography Undulating ', Utilities Electricity, Gas, Sewer, Water Street Asphalt Paved i \ ~ ~ ~ .x, i ~ } ~ '^4,. P~ h ~ ~ f vf ~ ( '~ ~ _ _. ~.,.,. , we ar ". t~. t r; ~ 11 'f . ' ~ . t ~t`~ ___ _._ ._.________ j ~ ~ i, , ~ p ~ € >. ~ f ~s t YM. • F S ~~ dAK ~. ` , ~ ~ ~ ,.,~ ;, ~y _ ~, N e . b . it SALE DETAILS Setter JPMP-SAGE BAKERSFIELD, LLC Buyer CENTEX HOMES Sale Date 12/27/2004 PricelSF $1.29 Sate Price $12,000,000 Price/Acre $56,030.26 Adjustment Adjusted PricelSF Adjusted Sale Price Adjusted PricelAcre RECORDI NGlCON F I RMATIO N Date 12!30/2004 !3y Buyer Document No. 323593 With Russ Johnson COMMENTS The property is located in the Rio Bravo area of northeast Bakersfield. It borders the Kern River Golf Course (public) on the north. The site rests on a bluff overlooking the Kern River on the east boundary. A California Water Service Co. water plant occupies a portion of the river frontage. The sale included a tentative tract map (#6148) for 359 lots however, a proposed highway alignment will likely reduce the number of lots to 310. Terms of sale were all cash to the seller. i LAND SALE 6 GENERALINFORMATION Item Vacant Land Sale Type Single-Family Residential ~,a3 ~;, ., ,, _~ rP zaG;~ »-o Address SEO of Casa Club Dr. and , ~ r,E i City, County Bakersfield -Kern ~,`~ `~ ~ ' ~~ Parcel No. 387-010-45 ~°~,~fi ~`~~~ sty 387-010-48 (portion) '~>~~, ~~ ~. ~ ~ Map Page 2444-H 1 ia, )~ , s Property Rights Fee Simple ~~"~ ~~ ~" ~ ~ -~--~ --- ~~ .~~ `~~1 ~ PROPERTY INFORMATION ~` ~~ ' -'~ ~ ' 4y °~ t w , 1 «, ~ Slze(SF) 973130 w ~~ ` `~-~` "'~-~~ x r~ ~ a (AC) 22.34 ~ _ ~~ v' {~tl, ~ , jai .t ° , Frontage nta ~~ ~ ~~~- °~ ,~, ^~ s« ~ Shape Irregular z~ ~~„ - '-(q ~~ I ~,~~. Zoning R-1 3 Topography Undulating I utilities Electricity, Gas, Sewer, Water Street Paved to Property Line SALE DETAILS I Setter RIO BRAVO DEVELOPMENT COMPANY LLC Buyer Sate Date 12112!2004 PricelSF Sale Price $4,699,000 PricelAcre Adjustment Adjusted PricelSF Adjusted Sate Price Adjusted PricelAcre RECORDING/CONFIRMATION ,r. ~uCh+'ii 9 iiFd PULTE HOME CORPORATION $4.83 $210,340.20 Date 117!2005 By Confidential Document No. 005222 With _ _ ___ _ COMMENTS _ 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 7 GENERAL INFORMATION ttem Vacant Land Sale Type Single-Family Residential } Address West Side City Hills Dr North of Hiohwav 178 t City, County Bakersfield -Kern Parcel No. 531-010-39 ~° Map Page 2444-B1 ~ e ~, Property Rights Fee Simple "' I? PROPERTY INFORMATION ~ ~ Size (SF) 2,064,744 ~` (A C) 47.40 1' ~ Frontage +/-1,300' City Hills Dr `f 600+/- Panorama Dr ~~ Shape Irregular m, Zoning R-1 "- - Topography Undulating Utilities Electricity, Gas, Sewer, Water Street Asphalt Paved s~~r ~ ~ -y ~ ~ t;i :.i x !a ~1 ~ rfr f 1' f u" ~ ~~ ~, "" ,,, f `` ~.,.t_._ ~ . , -~~-.., '-~".`_ 1 .ate ~ ` v ;+~ . ~ , ~ . _ , . ~ , .. ~4:. f t a ~~ fY .w ~ we t ~ ~ 1 kfiy ~A G.ke' ; XCALG ~ Ffi3 aiYAc.u ~~/,~. ~' ~^" ~ '~ _ b ~~ ~.~~ r- ` s~*~ ~ < ~,k ~a- - 7, _. _ _~ ~ _.. __ ~- . ~ ~... _.. _ . ae nut~~ s ~~ lE,GEX s~7 F~ .,. ~G~~ ' `.: ~ i 'fe_,.....~ ! SALE DETAILS Setter MOUNTAIN VIEW BRAVO, LLC Buyer D. R. NORTON LOS ANGELES HOLDING CO., INC. Sale Date 2J1/2005 Price{SF $3.03 Sale Price $6,256,800 PrtceJAcre $132,000.00 Adjustment Adjusted PricetSF Adjusted Sale Price Adjusted PricelAcre RECORDI NGlCO N FI RMATIO N 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 first 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. i - LAND SALE 8 GENERAL INFORMATION Item Vacant Land Sale Type Multi-Family Site Address SWC Casa Club Dr & Donaldo St City, County Bakersfield -Kern Parcet No. 387-010-25 Map Page 2404-H7 Property Rights Fee Simple PROPERTY INFORMATION Size (SF) 830,689 {AC) 19.07 Frontage +1-800' Casa Club Dr +/-1,060' Danaldo St Shape Irregular Zoning R-2 Topography Undulating Utilities All Available Street Paved, Curb & Gutter SALE DETAILS Selter MHW REALTY, LLC Buyer ANDREW FULLER Sale Date 2(24/2005 PricelSF $3.44 Sale Price $2,860,000 PricetAcre $149,973.78 Adjustment Adjusted PricetSF Adjusted Sate Price Adjusted PrrcelAcre RECORDINGlCONFI RMATION Date 2/28/2005 By Buyer Document No. 05-047414 With Andrew Fuller COMMENTS The property is located at Rio Bravo Golf Course in northeast Bakersfield. It borders the golf course on two sides. Due to opposition from neighboring property owners, an apartment development is unlikely. The buyer had preliminary plans fora 190-unit planned unit development. Utilities are available however, water pressure is insufficient. Neighboring properly owners will have to join together and build a water tank on a higher elevation site or individually design pressure boosters in their own tracts. Sewer is available in Casa Club Drive but a lift station is required. The buyer is negotiating with a neighboring owner for an easement for a more convenient sewer connection that will not require a lift station. Storm drainage from Donaldo Street through the subject site is another issue that must be addressed prior to development. Terms of sale were all cash to the seller. The buyer began negotiating the purchase 2 years prior to closing even though the purchase agreement is dated May 2004. He thought the price was significantly below market by the closing date. LAND SALE 9 GENERAL INFORMATION Item Vacant Land Sale Type Single-Family Residential Address NEC Mesa Merin Dr & , Chase Ave g City, County Bakersfield -Kern Parce! No. 387-430-01 to 24 7 Map Page (. 2444-C2 Property Rights Fee Simple PROPERTY + INFORMATION Size (SF) 6 265,280 (AC) 6.09 ~~ ~~ Frontage 283' Mesa Marin Dr 922' Chase Ave Shape Rectangular Zoning R-1 g~ Topography Level Utilities Electricity, Gas, Sewer, Water Street Asphalt Paved SALE DETAILS ~~ t C ~~ ~~ ~~ [ ~ ~ ( ki ni~s'a a` ~ i 4 3 ~} ~ 4 £ t t }~~ ~ y ; fa ~~y~ e ~ `,.ems d N 1 ' h f , . ~ a _ „ t „ ~, ' j~ a~~/', ~ ~-, ~- ~~s°~r d~ ~ ~ ~~ 'sav,J~a ~ i Setter JASON L. & MONICA L. MARTIN, ET AL Buyer R S & B LAND DEVELOPMENT Sate Date 2/3/2005 PricelSF $3.81 Sate Price $1,011,500 PricetAcre $166,091.95 Adjustment Adjusted PricelSF Adjusted Sale Price Adjusted PriceJAcre RECORDI N GlCO N FI RMATIO N Date 2/4/2005 ey Document No. 29059 With _ __ _ Confidential ~, COMMENTS 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 halt mile 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. LAND LISTING 7 GENERAL INFORMATION Item Vacant Land Listing Type Single-Family Residential Address S E Quadrant Casa Club Dr & Anacaga Dr City, County Bakersfield -Kern Parcel No. 387-010-46 & 49 Ptn 387-010-48 Map Page 2404-J7 Property Rights Fee Simple PROPERTY INFORMATION Size (SF} 2,441,102 (AC) 56.04 Frontage n(a Shape Irregular Zoning R-1 HD Topography Undulating to Hilly Utilities Electricity, Gas, Sewer, Water Street No paved access at this time SALE DETAILS Seller ESTATES AT RIO BRAVO LP Buyer N!A Sate Date 2/1/2005 Price/SF $2.82 Sate Price $6,880,000 PricelAcre $122,769.45 Adjustment Adjusted PricelSF Adjusted Sale Price Adjusted Price/Acre RECOR DI NGICON FI RMATION Date By Owner Document No. Listing With _ ___ _ Ed Coyne COMMENTS The property is located within the gated area of Rio Bravo Golf Course in northeast Bakersfield. The price includes ', a tentative tract map {#5517) with 86 buildable lots. The suggested price is $80,000 per paper lot. Development will be impacted by the undulating terrain which has a 200' change in elevation. A small portion of the is in an earthquake fault. While water capacity is available, water pressure is insufficient to serve residences on site. Pressure boosters or a water tank at a higher elevation will be required. A condition of approval for the tract map requires a second access road to Miramonte Drive through Section 23 to the south. The site has no frontage on the golf course. Terms of sale are all cash to the seller. _, I ohoaow~oo 0 oroN h{o 0 ~ v co co o rn o 0 ` m ci o o h tr cti ' '~ h M h O (O N OD CI I C a N_ Q ¢ 07 2 O ~ m a ~ o~ o g > ~ ~ ° a ~ ~ w ~ ~ C ~ I-- J ~C ~ V ¢ o c~ti O h U ~ W N O V o c F O ` O C LL~ N O ¢ U ~ c~ U o f ~ W~ d' ZU m' a.~ w4. 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O ~ O O O d M ~ ~ n ~ d O ~ N ~ W W O N O N (`~ ~ M M W m p ~ n ooooiv o~o~~ uS 3 m O 1L `0 J ~ LL t6 O _ ~ U J ~ O ~ U ~ "~ ~° ~ ~ •~ U ~ ~ ~ ~ U °u ~ ~ N D N a~~o~ zoom APPRAISAL QUALIFICATIONS OF RANDALL FRANZ EXPERIENCE Independent Real Estate Appraiser(Owner, KERN APPRAISAL COMPANY, Real Estate Appraisal Services, Bakersfield, California, 1193 -Present. Real Estate Appraiser and Analyst, DALLIS HIGDON & ASSOCIATES, Real Estate Analysts and Appraisers, Bakersfield, Califona, 9182 - 12192. STATE CERTIFICATION State of California: Certified General Reat Estate Appraiser OREA Appraiser Identification Number: AG004309 Expiration: 12/5l200b PROFESSIONAL AFFILIATIONS Appraisal Institute Awarded MAI (Member Appraisal Institute) Designation 1989 Awarded SRA {Senior Residential Appraiser) Designation 1989 Bakersfield Chapter President (Society of Real Estate Appraisers) 1940 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 Appraisers Real Estate Appraisal Principles 3/88 Basic Valuation Procedures 3188 Standards of Professional Practice 5/88 Capitalization Theory and Technique Part A 6/87 Capitalization Theory and Technique Part B 6187 Case Studies in Real Estate Valuation 10/87 Valuation Analysis and Report Writing 6188 Society of Real Estate Appraisers Course 101 - Introduction to Appraising Real Property 12183 _ Course 102 -Applied Residential Property Valuation 2/84 Appraisal Institute Standards of Professional Practice Parts A & B 6191, 9(97 Standards of Professional Practice Part C, 11199 National Uniform Standards of Professional Appraisal Practice Course 6/04 College Courses Real Estate Practice -Fresno City College 12117 Real Estate Appraisal I -Bakersfield College 12(83 Real Estate Appraisal B -Bakersfield College 12!84 Real Estate Law -Bakersfield College 5/84 Real Estate Principles -Bakersfield College 5/87 Real Estate Finance -Bakersfield College 12/89 Seminars (Since 1998) Expert Witness Seminar -Appraisal Institute 6/98 Trends In Real Estate Debt and Equity Markets -Appraisal Institute 8(98 The Technical Inspection of Commercial Real Estate -Appraisal Institute 8/98 Valuation Of Detrimental Conditions In Real Estate -Appraisal Institute 3199 Lntemet Sources For California Appraisers -Appraisal Institute 7149 Attacking & Defending An Appraisal In Litigation -Appraisal Institute 8199 Commercial Real Estate Finance For The 21 s' Century -Appraisal Institute 8/99 The Economics Of Right-Of--Way Appraisal -Appraisal Institute 8199 Real Estate Fraud & The Appraiser's Role -Appraisal Institute 3(00 Appraisal Of Nonconfomilng Uses -Appraisal Institute 5100 Technology and the Appraisal Process, New Tools for Appraisers -Appraisal Institute - 9101 ' 35`h Annual Litigation Seminar-Appraisal Institute I 1/Ol Highest and Best Use Applications-Appraisal Institute-6/02 I 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 Bankruptcy Court, Fresno, California and Federal Tax Court, Los Angeles, California. SCOPE OF Commercial Office buildings, shopping centers, motels, restaurants, convenience stores, banks, retail stores, medical offices Industrial Warehouses, shops, officelwarehouses, self-storage facilities, industrial subdivisions Residential Single family, condominiums, planned unit developments, apartments, mobile home/recreational vehicle parks, subdivisions Special Pumose Churches, airplane hangars {THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX C FORM OF OPINION OF BOND COUNSEL Closing Date, 2005 .I City Council City of Bakersfield 1 S01 Truxtun Avenue Bakersfield, CA 93301 City of Bakersfield Assessment District No. 04-3 (SoleralRio Vista} Limited Obligation Improvement Bonds (Taxablel (Final Opinion) Ladies and Gentlemen We have acted as bond counsel in connection with the issuance by the City of Bakersfield (the "Issuer") of $3,380,000 aggregate principal amount of the City of Bakersfield Assessment District No. 04-3 (Solera/Rio Vista) Limited Obligation Improvement Bonds (Taxable) (the "Bonds") pursuant to the provisians of the Municipal Improvement Act of 1913 and the Improvement Bond Act of 1915 and Resolution No. 11S-OS, adopted by the City Council on May 25, 2005 {the "Resolution"). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Resolution. In such connection, we have reviewed the Resolution, 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 ophtions set forth herein. Certain agreements, requirements and procedures contained or referred to in the Resolution and other relevant documents may be changed and certain actions 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 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 are 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 occumng after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or oantted or events do occur. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this opinion. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Issuer. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted of certified in the documents, and of the legal conclusions contained in the opinion, referred to in the second paragraph hereof. Furthermore, we call attention to the fact that the rights and obligations under the Bonds and the Resolution may be subject to batd¢aptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other similar laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against cities in, the State of California. C-t We express no opinion on the plans, specifications, maps and other engineering details of Che proceedings, or upon the validity of the individual separate assessments securing the Bonds which validity depends, in addition to the legal steps required, upon the accuracy of certain of the engineering details. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to Che Bonds and express no apinion 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 valid and binding obligation of the Issuer. 3. Interest on the Bonds is exempt from State of California personal income taxes. Interest on the Bonds is not excluded from gross income for federal income tax purposes. We express no opinion regarding other federal or state tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, FIERRINGTON & SUTCLIFFE LLC per C-2 APPENDIX D ASSESSMENT DIAGRAM Dd c~ r ~ jw 9 ' `~ ~ i ~ ~ ° m~~WOk ~V=g ~}!_ ~ o O i o o Ww c a5~:p~° ~ ~~i W~`o a= o°z<o " O Y o U C w ~ '< $ ~~ ww°wG ~W° adz o ¢G~J ~ p3 ~ ~ m o a 8" o' lam °'=IWa°`~ ~o` LLyx G2 I~~~ 6Q c> m°°~ ~~~yy** GK ~ ~ rcwa apW w~~Z`o 'os~ ~LL~"' L'S F o 5 rc ~~ ~ w u~ ~ 5~rc yL~ o~<w ~_ E a o ~ ash o ~ ~~',~ a~°I ~° s~ m aum ~~ L ~.4fl ~ot~ m~~° P. 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W myOyW y°my~a~~w0 ~ ~ viy ~ o ° g ~ O Y~WYm¢ 2ZyWy 02~24G¢OZ~"000O Ua Q>?Q~F¢-vi ~~¢W¢Ut-~.QW w `j2 ~- O O O Q O x GW aNN ((((y~~jmpaW maLGG~ lx- m •.~Y ¢¢ U U U ~' mO Wh}OJ lp~4snmK2~> G Q O0 = p rv~ p Z OOy QOQ=~ O3~Qmq~mC1~N ~ W WQ 0 4¢ R U Q xW WzwF~ x'' ~xz".w, x `= °m v=i a a a ~ o m¢2~S 2y ywcyO~Z,oG~Q w ~ ~2 '~ e e a °' O W ="Ix-W aj"mimg ~Ka °E=W O~ ~ y¢, ow m a O o O U w ]WaRWCm'W "tOZOWn W~~ 4 O'W> > U U U U h w ~~oo3°zi ~¢`awittQa~Re ~ ~ Qo o ~ ~ ~ ~ a °z e w` 0 APPENDLY F CONTINiING DISCLOSURE CERTIFICATES CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. U4-3 (SOLERA/RIO VISTA) LIMITED OBLIGATION IMPROVEMENT BONDS (TAXABLE) CITY CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City of Bakersfield (the "City") in connection with the issuance by the City of $3,384,000 in aggregate principal amount of the above-referenced bonds (the "Bonds") for Assessment District No. 04-3 (SoleratRio Vista) (the "Assessment Districf~. The Bonds are being issued pursuant to a resolution authorizing issuance of the Bonds, being Resolution No. 115-OS (the "Resolution"), adopted by the City Council of the City on May 25, 2005. The City covenants and agrees as follows: Section 1. Pumose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Undenuriter 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 Yhis Disclosure 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 Disclosure Certificate. "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 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 Year" shall mean the 12-month period beginning on 7uly 1 and_ ending on the next following June 3Q unless and until changed by the City. "Holder" shall mean either the registered owner of any Bond, or, if the Bonds are 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 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:/{wwwsec.govlinfotmunicipal/nrmsir.htm. "Official Statement" shall mean the final Official Statement, dated June 9, 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. "Repositor}~' shall mean each National Repository and each State Repository. F-1 "Rule" shall mean Rule 75c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same maybe 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 Slate Repository. Section 3. Provision of Annual Renorts. (a) The City shall, or shall cause the Dissemination Agent to, not later than nine (9} months afrex the end of the City's Fiscal Year (i.e., currently not later than April 1 of each year), commencing with the report for the 2004-OS Fiscal Year, 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 separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and latex 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 httpalwww.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 form attached hereto as Exhibit A. (c} The Dissemination Agent shall: {i) detemtine 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 I 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 Renorts. The City's Annual Report shall contain or incorporate by reference the following: (a} The audited financial statements of the City for the prior Fiscal Year prepared in accordance with ~I generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the fmancial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. Notwithstanding the foregoing, each Annual Report or other filing containing the City's financial statements may I 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 BAKERSFIELD (OTHER THAN THE ASSESSMENTS LEVIED IN THE ASSESSMENT DISTRICT} ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE BONDS, AND THE CITY IS NOT OBLIGATED TO ADVANCE AVAILABLE FUNDS FROM THE 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 Ciry 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 fox 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 mamriry. (ii) The balances as of the end of such Fiscal Year in each of the following funds established pursuant to the Resolution: (A) the Improvement Fund; (B) the Redemption Fund; and {C) the Reserve Fund. (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 ] 0) of the first delinquency; {C) in the event a foreclosure complaint has been filed respecting such delinquent pazcel 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 pazcel, 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 Community Areas and the Improvements." (v) A current statement of the land-secured public financixtg information summarized in the Official Statement under the subheading "THE BONDS -Priority of Lien." (vi} A current statement of the parcel information set forth in Columns 5 through 9, inclusive, of APPENDIX E to the Official Statement, for both existing and future paroels. (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 Board The City shall clearly identify each such other document so included by reference. Section 5. Renortin of Significant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events (each, a "Listed Event") with respect to the Bonds, if material: (i} principal and interest payment delinquencies; {ii) non-payment related defaults;, (iii) modifications to rights of Bond Holders; (iv) optional, contingent, or unscheduled Bond calls; (v) defeasances; (vi} rating changes; F-3 ', (vii) unscheduled draws on the debt service reserves reflecting financial difficulties; {viii} unscheduled draws on credit enhancements reflecting financial difficulties; (ix) substitution of credit or liquidity providers, or their failure to perform; or (x) 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 deternmine if such event would be material under applicable Federal securities law. (c) If the City determines 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 Rulentaking 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 Yo Holders of affected Sonds pursuant to the Resolution. Section 6. Termination of Reoortine Oblieation. 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 termination occurs prior to the final maturity of the Bonds, the City shall give notice of such temunadon in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Avent. 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 are 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, 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. if the annual financial information or operating data to be provided in the Annual, Report is amended pursuant to the provisions hereof, the first annual financial information 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. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Aanual Report, and shall include, as applicable, a narrative explanation of the reason For the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. If an amendment is F-4 made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the 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 Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in arty Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the City 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 City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees, and agents, harmless against any losses, expenses, and liabilities which it may incur 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 Dissemhtation 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 Disclosure Certificate shall inure solely to the 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 By: Finance Director F-5 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Bakersfield, California Name of Bond Issue: Assessment District No. 04-3 (SoleralRio Vista) Limited Obligation Improvement Bonds (Taxable) Date of Issuance: [Closing Date] NOTICE IS FIEREBY GIVEN that The City 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 Ciry anticipates that the Annual Report will be filed by Dated: CITY OF BAKERSFIELD By: Finance Director F-6 CITY OF BAKERSFIELD ASSESSMENT DISTRICT N0.04-3 (SOLERA/RIO VISTA) LIMITED OBLIGATION IMPROVEMENT BONDS (TA%ABLE) DEVELOPER'S CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by Pnlte Home Corporation, a Michigan corporation (the "Developer"), in connection with the issuance by the City of Bakersfield (the "City"} of $3,380,000 in aggregate principal amount of the above-referenced bonds (the "Bonds") for Assessment District No. 04-3 (SoleralRio Vista) (the "Assessment District"). The Bonds are being issued pursuant to a resolution authorizing issuance of the Bonds, being Resolution No. 115-OS (the "Resolution"), adopted by the City Council of the City on May 25, 2005. The Developer covenants and agrees as follows: SECTION 1. Pumose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Developer for the benefit of the City, Stone & Youngberg LLC, as the underwriter of the Bonds (the "Underwriter"), and the Holders and Beneftcial 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 Certificate, unless otherwise defined in this section, the following capitalized temps 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 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 Developer, containing terms substantially similar to this Disclosure Certificate, whereby such Successor Developer 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 Developer 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 the Developer intends to make, or cause to be made, in order fox the Community Area 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 Developer'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-7 "Disclosure Representative" shall mean the president, the managing member, any vice-president, or the chief financial officer of the Developer or his or her designee, or such other officer, employee, or agent as the Developer shall designate in writing to the Dissemination Agent and the City from time to time. "Dissenunation 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 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 bankrupt, or is to be discharged from any or all of such Person's debts or obligations, or offers to such Person's creditors to effect a composition or extension of time to pay such Person's debts or 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 instituted or taken against such Person, 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 Developer intends to finance its Development Plan, including specific sources of funding for such Development Plan. The Developer'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 fmancial statements, project ogerating statements, or other reports reflecting the financial position of the Developer's parent company ot, if such fmancial statements are prepared separately for the Developer, reflecting the financial position of the Developer; provided that, if such financial statements or reports are otherwise prepared as audited financial statements or reports, then "Financial Statements" means such audited fmancial statements or reports. The Financial Statements for the Developer 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 are listed on the Securities and Exchange Commission website at httpaJwwwseo.govlinfolmunicipalJnrmsir.htm. "Official Statement" shall mean the final Official Statement dated June 9, 2645, pertaining to the Bonds. "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a limited liability company, a tmst, 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 awned by the Developer or its Affiliates, if any, the stage of development to which the Developer intends to develop such property, as described in the Official Statement, and the Developer has completed construction and/or development as described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT-Development and Financing Plans." "Repository" shall mean each National Repository and each State Repository. r-s "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 Developer pursuant to, and as described in, Sections3 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 Developer" shall mean any property owner, other than the Developer or its Affiliates, wlrich purchases property in the Assessment District for ttte purpose of developing the property and not merely as an end- user. SECTIdN 3. Provision of Semi-Annual Renorts. (a) So long as the Developer is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, the Developer shall provide, or shall cause the Dissemination Agent to provide, not later than Four (4) months after the Disclosure Period ending December 31 each year, and not later Than three {3} months after the Disclosure Period ending June 30 each year (i. e., not later than Apti130 or September 30 of each year, as applicable), commencing with the report for the Disclosure Period ending June 30, 2005, to each Repository aSemi-Annual Report relating to the immediately preceding Disclosure Period which 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 provided, such audited Financial Statements tray be submitted separately from the balance of the Semi-Annual Report, and later thau the date required above for the filing of the Serni-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. di scl osureusa, org. (b} So long as the Developer is obligated hereunder and said obligation has not been ternnated 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 Developer shall provide the Semi-Annual Report to the Dissemination Agent. If The Developer 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, first, confirm that the Developer's obligation hereunder has net been terminated pursuant to Section 6 of this Disclosure Certificate, and, if the Developer 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 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 Developer 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 aad address} with which it was filed. F-9 SECTION 4. Content of Semi-Annual Reports. So long as the Developer is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, the Developer shall provide aSemi-Annual Report for the preceding Disclosure Period with respect to property within the Assessment District awned by the Developer or its Affiliates, if any, which Semi-Annual Report shall contain or incorporate by reference the following: (a) The Developer shall provide a general description of progress made in The Development Plan, and any significant changes in the Development Plan, Financing Plan, or zoning during the prior Disclosure Period. The Developer 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 Developer shall identify any material deviations in actual versus expected sale prices, and identify zoning changes, if any. The Developer shall also include 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 Developer. The Developer shall describe any significant changes in the Financing Plan for its development project including, without limitation, changes in status of the Developer's credit line (or the credit line of any Affiliates of the Developer that own property within the Assesstent Distrct), if applicable. The Developer shall describe (i) any change in the legal structure of the Developer or of any of its Affiliates that own property within the Assessment District; (ii) any previously undisclosed amendments to the land use entitlements ar environmental conditions or other governmental conditions that are necessary to complete its Development Plan; or {iit~ 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 armual financial statements of the Developer's parent corporation, on file with the Securities and Exchange Commission (if applicable). All such references shall contain the following caveat: The quarterly and annual reports of the Developer's parent corporafion 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 the Developer to pay the unpaid assessment installments does not constitute a personal indebtedness of the Developer for which the funds or assets (other than the property in the Assessment District) of the Developer 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 and annual reports of the Developer's parent corporation 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 fox the Developer's parent corporation, 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 the Developer's parent corporation, 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 yeaz for the entity covered thereby. 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 Developer's parent corporation, if any, shall contain the following caveat: The audited financial statements of the Developer's parent corporation are included for informational purposes only. Iu 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 Developer to pay the unpaid assessment installments does not constitute a personal indebtedness of the Developer for which the funds or assets (other than the property in the Assessment District) of the Developer may be required, F-]0 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 Developer's parent corporation that [he 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 Developer 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 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 Developer shall clearly identify each such other document so included by reference. SECTION 5. Developer's Renort of Listed Events (a} So long as the Developer 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 Developer 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 Developer and any of its Affiliates that own property within the Assessment District: (~~ Any conveyance by the Developer or any of its Affiliates to a Successor Developer or its Af5liates, if any, of property that, when aggregated with all other property in the Assessment Distract then-owned by such Successor Developer and its Affiliates, if any, is subjecC Yo the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds. (ii) Any failure of the Developer 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 the Developer's most recently disclosed Financing Plan or Development Plan, if any, or on the ability of the Developer 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 Developer or any of its Affiliates that could have a material adverse affect on the Developer's most recently disclosed Financing Plan or Development Plan, if any, or on the ability of the Developer or any of its Affiliates to pay assessment installments with respect to the Assessment District when due. _ {v) Any significant amendments Yo land use entitlements for the Developer's or its Affiliates' property in the Assessment District, if material. (vi) Any previously undisclosed governmentally-imposed preconditians to commencement or continuation of development on the Developer's or its Affiliates' property in the Assessment District, if material. (vii} Any previously undisclosed legislative, administrative, or judicial challenges Yo development on the Developer's or its Affiliates' property in the Assessment District, if material. (viii) Any changes, iF material, in the alignment, design, or likelihood of completion of significant public improvements, including major thoroughfares, sewers, water conveyance systems, and similar facilities. (ix) The assumption of any obligations by a Successor Developer pursuant to Section 6 of this Disclosure Certificate. F-11 (b) Whenever the Developer obtains lrnowledge of the occurrence of a Listed Event, the Developer 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 Developer to report the occunence 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. Ternvnation of Developer's Reoortine Oblieafion The Developer'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 alt of the Bonds, or (2) the date upon which the Developer and its Affiliates, if any, cease to own property in the Assessment District that, when aggmgated with all other property in the Assessment District then-owned by the Developer 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, or (3} when the Developer's Community Area has reached the Planned Development Stage. If the Developer conveys to a Successor Developer 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 Developer 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 Developer shall require a Successor Developer to enter into an Assmnption Agreement, but only to the extent and upon the terms, if any, required by the Rule. SECTION 7. Dissemination Agent. The Ciry may, from time to time, appoint or engage a Dissemination Agent to assist the Developer in carrying out its obligations under this Disclosure Certificate, and the City may discharge any such Dissexnhtation Agent, with or without appointing a successor Dissemination Agent. SECTION B. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Developer may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the Giry agrees in writing and the following 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, 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. If the annual fmancial information or operating data to be provided in the Semi-Annual Report is amended pursuant to the provisions hereof, the fast 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. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Developer shalt describe such amendment in the next Semi-Annual Report, and shall include, as applicable, a narrative explanation F-12 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 Developer. If an amendment is made to the undertaking specifying the accounting principles to be fallowed in preparing financial i statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those ~ prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the Developer 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 mariner as for a Listed Event under Section 5. SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Developer 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 addition to that which is required by this Disclosure Certificate. If the Developer 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 Disclostue Certificate, the Developer 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. In the event of a failure of the Developer to comply with any provision of this Disclosure Certificate, dre Uuderwritcr, the City, or any Holder or Beneficial Owner of outstanding Bonds may take such actions as may he necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Developer to comply with its obligations under this Disclosure Certificate. A default under this Disclostue Agreement 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 the Developer 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 Developer agrees to indemnify and save the City, the Dissennation 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 Developer'§ 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 Dissennation Agents negligence or willful misconduct. The obligations of the Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. F-13 SECTION 12. Beneficiaries. This Disclosure Certificate shall be binding upon the Developer and shall inure solely to the benefit of the Developer, 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] PULTE HOME CORPORATION, a Michigan corporation By: Title: F-14 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE SEMI-ANNUAL REPORT Name of Developer: PULTE HOME CORPORATION. a Michigan corporation Name of Bond Issue: CITY OF BAKERSFIELD, CALIFORNIA ASSESSMENT DISTRICT N0.04-3 (SOLERAlRIO VISTA) LIMITED OBLIGATION IMPROVEMEA"f BONDS (TAXABLE) Date of issuance: [Closing Date] NOTICE IS HEREBY GIVEN that Pulte Home Corporation, a Michigan corporation (the "Developer"), has not provided aSemi-Annual Report with respect to the above-named Bonds as required by Section 3 of the Developer's Continuing Disclosure Certificate, dated [Closing Date]. The Developer anticipates tlrat the Semi- Annual Report will be filed by Date: By: THE CITY OF BAKERSFIELD, as Dissemination Agent, on behalf of PULTE HOME CORPORATION, a Michigan corporation Finance Director F-IS