NEW ISSUE NOT RATED In the opinion of Best Best & Krieger LLP, San Diego, California, Bond Counsel, subject, however to certain quali?cations described herein, under existing law, the interest on the 2006 Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See ""LEGAL MATTERS ? Tax Exemption'' herein. $51,515,000 POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) 2006 SPECIAL TAX BONDS Dated: Date of Delivery $51,495,000 POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) IMPROVEMENT AREA A 2006 SPECIAL TAX BONDS Due: September 1, as shown below The Community Facilities District No. 14 (Del Sur) 2006 Special Tax Bonds (the ""2006 CFD Bonds'') are being issued under the Mello-Roos Community Facilities Act of 1982 (the ""Act'') and the Community Facilities District Bond Indenture (the ""CFD Bond Indenture''), dated as of May 1, 2006, by and between the Community Facilities District No. 14 (Del Sur) of the Poway Uni?ed School District (the ""Community Facilities District'') and Zions First National Bank, as ?scal agent (the ""Fiscal Agent''). The Improvement Area A 2006 Special Tax Bonds (the ""2006 Improvement Area A Bonds'' and together with the 2006 CFD Bonds, the ""2006 Bonds'') are being issued under the Act and the Improvement Area A Bond Indenture, dated as of May 1, 2006 (the ""Improvement Area A Bond Indenture'' and together with the CFD Bond Indenture, the ""Bond Indentures''), by and between the Community Facilities District and the Fiscal Agent. The 2006 Bonds are payable from proceeds of Special Taxes (as de?ned herein) levied on property within the Community Facilities District and Improvement Area A, respectively, according to the Rates and Methods of Apportionment of Special Tax approved by the quali?ed electors of the Community Facilities District and Improvement Area A and by the Board of Education of the Poway Uni?ed School District (the ""School District''), acting as the Legislative Body of the Community Facilities District. The 2006 CFD Bonds are being issued to provide for the cost to (i) ?nance, either directly or indirectly, the acquisition and construction of certain school facilities (the ""School Facilities''), (ii) to establish a reserve fund for the 2006 CFD Bonds, (iii) to fund capitalized interest on the 2006 CFD Bonds through September 1, 2007, and Administrative Expenses, and (iv) to pay the costs of issuing the 2006 CFD Bonds. The 2006 Improvement Area A Bonds are being issued to provide for the cost to (i) ?nance, either directly or indirectly, the acquisition and construction of certain public improvements of the other public agencies (the ""Infrastructure Improvements''), (ii) to fund a separate reserve fund for the 2006 Improvement Area A Bonds, (iii) to pay the costs of issuing the 2006 Improvement Area A Bonds, and (iv) in the case of the 2006 Improvement Area A Bonds, to pay interest on the 2006 Bonds through September 1, 2007, and Administrative Expenses. See ""ESTIMATED SOURCES AND USES OF FUNDS'' and ""SCHOOL FACILITIES AND INFRASTRUCTURE IMPROVEMENTS TO BE FINANCED WITH PROCEEDS OF THE 2006 BONDS'' herein. Interest on the 2006 Bonds is payable on September 1, 2006 and semiannually thereafter on each March 1 and September 1. The 2006 Bonds will be issued in denominations of $5,000 or integral multiples thereof. The 2006 Bonds, when delivered, will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company (""DTC''), New York, New York. DTC will act as securities depository for the 2006 Bonds as described herein under ""THE 2006 Bonds ? Book-Entry and DTC.'' The 2006 Bonds are subject to optional redemption, mandatory redemption from prepayment of Special Taxes and mandatory redemption as described herein. THE 2006 BONDS, THE INTEREST THEREON, AND ANY PREMIUMS PAYABLE ON THE REDEMPTION OF ANY OF THE 2006 BONDS, ARE NOT AN INDEBTEDNESS OF THE SCHOOL DISTRICT, THE STATE OF CALIFORNIA (THE ""STATE'') OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN), THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS IS LIABLE ON THE 2006 BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN) OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2006 BONDS. OTHER THAN THE COMMUNITY FACILITIES DISTRICT SPECIAL TAXES AND IMPROVEMENT AREA A SPECIAL TAXES, NO TAXES ARE PLEDGED TO THE PAYMENT OF THE 2006 BONDS. THE 2006 BONDS ARE NOT A GENERAL OBLIGATION OF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DISTRICT PAYABLE SOLELY FROM THE COMMUNITY FACILITIES DISTRICT SPECIAL TAXES AND IMPROVEMENT AREA A SPECIAL TAXES, AS MORE FULLY DESCRIBED HEREIN. This cover page contains certain information for quick reference only. It is not a summary of the issue. Potential investors must read the entire O?cial Statement to obtain information essential to the making of an informed investment decision. Investment in the 2006 Bonds involves risks which may not be appropriate for some investors. See ""BONDOWNERS' RISKS'' herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the 2006 Bonds. The 2006 Bonds are o?ered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Best Best & Krieger LLP, San Diego, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the School District and the Community Facilities District by Best Best & Krieger LLP and by McFarlin & Anderson LLP, Lake Forest, California, Disclosure Counsel. It is anticipated that the 2006 Bonds, in book-entry form, will be available for delivery to DTC in New York, New York on or about June 22, 2006. Dated: June 9, 2006. MATURITY SCHEDULE $51,515,000 POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) $7,280,000 SERIAL BONDS 2006 SPECIAL TAX BONDS Base CUSIP>> No. 738855? Maturity (September 1) Principal Amount Interest Rate 2008 2009 2010 2011 2012 2013 $130,000 190,000 255,000 325,000 395,000 475,000 4.00% 4.10 4.20 4.30 4.40 4.50 Yield/ Price CUSIP>> No.? Maturity (September 1) Principal Amount 100% 100 100 100 100 100 QF5 QG3 QH1 QJ7 QK4 QL2 2014 2015 2016 2019 2020 2021 $ 560,000 645,000 740,000 1,065,000 1,185,000 1,315,000 Interest Rate 4.60% 4.70 4.80 5.00 5.00 5.10 Yield/ Price CUSIP>> No.? 100% 100 100 100 5.05 100 QM0 QN8 QP3 QS7 QT5 QU2 $1,790,000 4.90% 2006 CFD Term Bonds due September 1, 2018 Yield 4.93% CUSIP>> No. 738855QR9? $8,850,000 5.125% 2006 CFD Term Bonds due September 1, 2026 Yield 5.16% CUSIP>> No. 738855QV0? $33,595,000 5.25% 2006 CFD Term Bonds due September 1, 2036 Yield 5.26% CUSIP>> No. 738855QW8? MATURITY SCHEDULE $51,495,000 POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) $7,280,000 SERIAL BONDS IMPROVEMENT AREA A 2006 SPECIAL TAX BONDS Base CUSIP>> No. 738855? Maturity (September 1) Principal Amount 2008 2009 2010 2011 2012 2013 $130,000 190,000 255,000 325,000 395,000 475,000 Interest Rate 4.00% 4.10 4.20 4.30 4.40 4.50 Yield/ Price CUSIP>> No.? Maturity (September 1) Principal Amount 100% 100 100 100 100 100 QX6 QY4 QZ1 RA5 RB3 RC1 2014 2015 2016 2019 2020 2021 $ 560,000 645,000 740,000 1,065,000 1,185,000 1,315,000 Interest Rate 4.60% 4.70 4.80 5.00 5.00 5.10 Yield/ Price CUSIP>> No.? 100% 100 100 100 5.05 100 RD9 RE7 RF4 RJ6 RK3 RL1 $1,790,000 4.90% Improvement Area A 2006 Term Bonds due September 1, 2018 Yield 4.93% CUSIP>> No. 738855RH0? $8,850,000 5.125% Improvement Area A 2006 Term Bonds due September 1, 2026 Yield 5.16% CUSIP>> No. 738855RM9? $33,575,000 5.25% Improvement Area A 2006 Term Bonds due September 1, 2036 Yield 5.26% CUSIP>> No. 738855RN7? ? CUSIP>> A registered trademark of the American Bankers Association. Copyright ? 1999-2006 Standard & Poor's, a Division of The McGraw-Hill Companies, Inc. CUSIP>> data herein is provided by Standard & Poor's CUSIP>> Service Bureau. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP>> Service Bureau. CUSIP>> numbers are provided for convenience of reference only. Neither the Community Facilities District nor the Underwriter takes any responsibility for the accuracy of such numbers. POWAY UNIFIED SCHOOL DISTRICT BOARD OF EDUCATION Penny Ranftle, President Jeff Mangum, Vice President Linda Vanderveen, Clerk of the Board Steve McMillan, Member Andy Patapow, Member DISTRICT CHIEF ADMINISTRATORS Donald A. Phillips, Ed.D., Superintendent John Collins, Deputy Superintendent BOND COUNSEL/DISTRICT SPECIAL COUNSEL Best Best & Krieger LLP San Diego, California SCHOOL DISTRICT COUNSEL Best Best & Krieger LLP San Diego, California DISCLOSURE COUNSEL McFarlin & Anderson LLP Lake Forest, California APPRAISER Stephen G. White, MAI Fullerton, California MARKET CONSULTANT Empire Economics, Inc. Capistrano Beach, California SPECIAL TAX CONSULTANT David Taussig & Associates, Inc. Newport Beach, California FISCAL AGENT Zions First National Bank Los Angeles, California GENERAL INFORMATION ABOUT THE OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the 2006 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the 2006 Bonds. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Community Facilities District in any press release and in any oral statement made with the approval of an authorized officer of the Community Facilities District or any other entity described or referenced herein, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast," "expect," "intend," and similar expressions identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are subject to risks and uncertainties that could cause actual results to differ materially 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. 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 shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the Community Facilities District or any other entity described or referenced herein since the date hereof. The Community Facilities District does not plan to issue any updates or revision to the forward-looking statements set forth in this Official Statement. Limited Offering. No dealer, broker, salesperson or other person has been authorized by the Community Facilities District to give any information or to make any representations in connection with the offer or sale of the 2006 Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the Community Facilities District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the 2006 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwriter has submitted the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Community Facilities District or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. Stabilization of Prices. In connection with this offering, the Underwriter may over allot or effect transactions which stabilize or maintain the market price of the 2006 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the 2006 Bonds to certain dealers and others at prices lower than the public offering prices set forth on the cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE 2006 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE 2006 BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. TABLE OF CONTENTS Page INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The School District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Community Facilities District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sources of Payment for the 2006 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value to Lien Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors Associated with Purchasing the 2006 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forward Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professionals Involved in the Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 1 1 3 4 5 5 5 5 5 6 CONTINUING DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ESTIMATED SOURCES AND USES OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SCHOOL FACILITIES AND INFRASTRUCTURE IMPROVEMENTS TO BE FINANCED WITH PROCEEDS OF THE 2006 BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Purpose of the 2006 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 THE 2006 BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Authority for Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt Service Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Registration, Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Book-Entry and DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10 10 11 13 16 16 SECURITY FOR THE 2006 BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rates and Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds of Foreclosure Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special Tax Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bond Service Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redemption Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative Expense Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Improvement Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment of Moneys in Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment of Rebate Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Parity Bonds for Refunding Purposes Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Letters of Credit/Cash Deposit for 2006 Improvement Area A Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compliance with Letter of Credit Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special Taxes Are Not Within Teeter Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 17 17 18 23 24 25 25 25 26 26 26 26 26 27 28 29 THE DEL SUR PROJECT AND PROPERTY OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Project Approvals and Environmental Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Environmental Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Development Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Development Status and Current Entitlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Covenants, Conditions and Restrictions; Homeowners' Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Black Mountain Ranch LLC and the Merchant Builders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 30 31 32 33 34 34 34 COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Authority for Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market Absorption Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appraised Property Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value-to-Lien Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 54 55 58 60 -i- Estimated Special Tax Allocation by Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Direct and Overlapping Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Overlapping Direct Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 BONDOWNERS' RISKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risks of Real Estate Secured Investments Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Concentration of Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Failure to Develop Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special Taxes Are Not Personal Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The 2006 Bonds Are Limited Obligations of the Community Facilities District . . . . . . . . . . . . . . . . . . . . . Appraised Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Land Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property . . . . . . . . . . . . . . Disclosure to Future Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Government Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Local, State and Federal Land Use Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Endangered and Threatened Species . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insufficiency of the Special Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exempt Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depletion of Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential Delay and Limitations in Foreclosure Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustable Rate and Unconventional Mortgage Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bankruptcy and Foreclosure Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments by FDIC and Other Federal Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Factors Affecting Parcel Values and Aggregate Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Acceleration Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Community Facilities District Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Billing of Special Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inability to Collect Special Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Right to Vote on Taxes Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ballot Initiatives and Legislative Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Limited Secondary Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss of Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Limitations on Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 67 68 68 69 69 69 69 70 70 71 71 71 72 72 73 73 74 75 75 77 77 78 78 78 79 79 80 80 80 80 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IRS Audit of Tax-Exempt Bond Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No General Obligation of School District or Community Facilities District . . . . . . . . . . . . . . . . . . . . . . . . 81 81 81 82 82 82 NO RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 PROFESSIONAL FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 APPENDIX A APPENDIX B - - APPENDIX C APPENDIX D APPENDIX E APPENDIX F APPENDIX G APPENDIX H APPENDIX I APPENDIX J APPENDIX K - - - - - - - - - General Information About the Poway Unified School District . . . . . . . . . . . . . . . . . . . . A-1 Rates and Methods of Apportionment for Community Facilities District No. 14 (Del Sur) of the Poway Unified School District and Improvement Area A of the Poway Unified School District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1 Summary Appraisal Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1 Market Absorption Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1 Summary of Certain Provisions of the Bond Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . E-1 Form of Community Facilities District Continuing Disclosure Agreement . . . . . . . . . . . F-1 Form of Developer Continuing Disclosure Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . G-1 Forms of Opinion of Bond Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H-1 ... Book-Entry and DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1 Community Facilities District Boundary Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J-1 Land Use Plan and Unit Areas Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J-1 -ii- an . A 22.2.. In N: $.aEo._ A ?m8.5m fix Cr < 3,450 $3,709.94 per Unit Residential Property Attached Unit < 1,900 $1,830.34 per Unit Residential Property Attached Unit 1,900 - 2,100 $2,130.07 per Unit Residential Property Attached Unit > 2,100 $2,360.19 per Unit Residential Property Affordable Unit NA $1,106.59 per Unit Residential Property Senior Citizen Unit NA $0.00 per Unit Commercial/Industrial Property NA NA $0.00 per GFA Each July 1, commencing July 1, 2007, the Assigned Annual Special Tax for each Assessor's Parcel of Developed Property in the first Fiscal Year in which such Assessor's Parcel is classified as Developed Property shall be increased by the Inflator. RMA_Final Page 7 of 13 November 30, 2005 B. Assigned Annual Special Tax for Existing Developed Property Each July 1, commencing the July 1 immediately following the Fiscal Year in which the Assessor's Parcel was first classified as Developed Property, the Assigned Annual Special Tax applicable to such Assessor's Parcel shall be increased by two percent (2.00%) of the amount in effect the prior Fiscal Year. 2. Undeveloped Property The Assigned Annual Special Tax rate in Fiscal Year 2006-07 for an Assessor's Parcel classified as Undeveloped Property shall be $25,027.47 per acre of Acreage. Each July 1, commencing July 1, 2007, the Assigned Annual Special Tax per acre of Acreage for each Assessor's Parcel of Undeveloped Property shall be increased by two percent (2.00%) of the amount in effect the prior Fiscal Year. SECTION F BACKUP ANNUAL SPECIAL TAXES Each Fiscal Year, each Assessor's Parcel of Developed Property shall be subject to a Backup Annual Special Tax. The Backup Annual Special Tax rate for an Assessor's Parcel of Developed Property within a Final Subdivision Map in Fiscal Year 2006-07 or such later Fiscal Year in which such Final Subdivision Map is created shall be the rate per Lot calculated according to the following formula: UxA B = -------------------------L The terms above have the following meanings: B U = = A = L = Backup Annual Special Tax per Lot Assigned Annual Special Tax per acre of Acreage for Undeveloped Property in the Fiscal Year which the calculation is performed Acreage of Taxable Property in such Final Subdivision Map at time of calculation, as determined by the Board pursuant to Section L Lots in the Final Subdivision Map at the time of calculation Each July 1, commencing the July 1 first following the initial calculation of the Backup Annual Special Tax rate for an Assessor's Parcel of Developed Property with a Final Subdivision Map, the Backup Annual Special Tax for each Lot within such Final Subdivision Map shall be increased by two percent (2.00%) of the amount in effect the prior Fiscal Year. Notwithstanding the foregoing, if all or any portion of the Final Subdivision Map(s) described in the preceding paragraph is subsequently changed or modified, then the Backup Annual Special Tax for each Assessor's Parcel of Developed Property in such Final Subdivision Map that is changed or modified shall be a rate per square foot of Acreage calculated as follows: RMA_Final Page 8 of 13 November 30, 2005 1. Determine the total Backup Annual Special Taxes anticipated to apply to the changed or modified area in the Final Subdivision Map prior to the change or modification in the current Fiscal Year. 2. The result of paragraph 1 above shall be divided by the Acreage of Taxable Property which is ultimately expected to exist in such changed or modified area in the Final Subdivision Map, as reasonably determined by the Board. 3. The result of paragraph 2 above shall be divided by 43,560. The result is the Backup Annual Special Tax per square foot of Acreage which shall be applicable to Assessor's Parcels of Developed Property in such changed or modified area of the Final Subdivision Map. Each July 1, commencing the July 1 first following the change or modification to be Final Subdivision Map the amount determined by this Section shall be increased by two percent (2.00%) of the amount in effect the prior Fiscal Year. SECTION G METHOD OF APPORTIONMENT OF THE ANNUAL SPECIAL TAX Commencing Fiscal Year 2006-07, and for each subsequent Fiscal Year, the Board shall levy Annual Special Taxes as follows: Step One: The Board shall levy an Annual Special Tax on each Assessor's Parcel of Developed Property in an amount equal to the Assigned Annual Special Tax applicable to each such Assessor's Parcel. Step Two: If the sum of the amounts collected in step one is insufficient to satisfy the Minimum Annual Special Tax Requirement, then the Board shall Proportionately levy an Annual Special Tax on each Assessor's Parcel of Undeveloped Property up to the Assigned Annual Special Tax applicable to each such Assessor's Parcel to satisfy the Minimum Annual Special Tax Requirement. Step Three: If the sum of the amounts collected in steps one and two is insufficient to satisfy the Minimum Annual Special Tax Requirement, then the Board shall Proportionately levy an Annual Special Tax on each Assessor's Parcel of Developed Property up to the Maximum Special Tax applicable to each such Assessor's Parcel to satisfy the Minimum Annual Special Tax Requirement. SECTION H PREPAYMENT OF ANNUAL SPECIAL TAXES The Annual Special Tax obligation of an Assessor's Parcel of Developed Property, or an Assessor's Parcel of Undeveloped Property for which a Building Permit has been issued, may be prepaid in full provided that there are no delinquent Special Taxes, penalties, or interest charges outstanding with respect to such Assessor's Parcel at the time the Annual Special Tax obligation would be prepaid. The Prepayment Amount for an Assessor's Parcel eligible for prepayment shall be determined as described below. RMA_Final Page 9 of 13 November 30, 2005 An owner of an Assessor's Parcel intending to prepay the Annual Special Tax obligation shall provide CFD No. 14 with written notice of intent to prepay. Within thirty (30) days of receipt of such written notice, the Board shall reasonably determine the Prepayment Amount of such Assessor's Parcel and shall notify such owner of such Prepayment Amount. The Prepayment Amount shall be calculated according to the following formula: P = PVT - RFC + PAF The terms above have the following meanings: P PVT RFC PAF = = = = Prepayment Amount Present Value of Taxes Reserve Fund Credit Prepayment Administrative Fees Notwithstanding the foregoing, no prepayment will be allowed unless the amount of Annual Special Taxes that may be levied on Taxable Property, net of Administrative Expenses, shall be at least 1.1 times the regularly scheduled annual interest and principal payments on all currently outstanding Bonds in each future Fiscal Year and such prepayment will not impair the security of all currently outstanding Bonds, as reasonably determined by the Board. Such determination shall include identifying all Assessor's Parcels that are expected to become Exempt Property. With respect to any Assessor's Parcel that is prepaid, the Board shall indicate in the records of CFD No. 14 that there has been a prepayment of the Annual Special Tax obligation and shall cause a suitable notice to be recorded in compliance with the Act to indicate the prepayment of the Annual Special Tax obligation and the release of the Annual Special Tax lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay such Annual Special Tax shall cease. SECTION I PARTIAL PREPAYMENT OF ANNUAL SPECIAL TAXES The Annual Special Tax obligation of an Assessor's Parcel may be partially prepaid at the times and under the conditions set forth in this section, provided that there are no delinquent Special Taxes, penalties, or interest charges outstanding with respect to such Assessor's Parcel at the time the Annual Special Tax obligation would be prepaid. 1. Partial Prepayment Times and Conditions Prior to the conveyance of the first production Unit on a Lot within a Final Subdivision Map to a Homeowner, the owner of no less than all the Taxable Property within such Final Subdivision Map may elect in writing to the Board to prepay a portion of the Annual Special Tax obligations for all the Assessor's Parcels within such Final Subdivision Map, as calculated in Section I.2. below. The partial prepayment of each Annual Special Tax obligation shall be collected for all Assessor's Parcels prior to the conveyance of the first production Unit to a Homeowner with respect to such Final Subdivision Map. RMA_Final Page 10 of 13 November 30, 2005 2. Partial Prepayment Amount The Partial Prepayment Amount shall be calculated according to the following formula: PP = PG x F The terms above have the following meanings: PP = PG = F = 3. the Partial Prepayment Amount the Prepayment Amount calculated according to Section H the percent by which the owner of the Assessor's Parcel is partially prepaying the Annual Special Tax obligation Partial Prepayment Procedures and Limitations With respect to any Assessor's Parcel that is partially prepaid, the Board shall indicate in the records of CFD No. 14 that there has been a partial prepayment of the Annual Special Tax obligation and shall cause a suitable notice to be recorded in compliance with the Act to indicate the partial prepayment of the Annual Special Tax obligation and the partial release of the Annual Special Tax lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay such prepaid portion of the Annual Special Tax shall cease. Additionally, the notice shall indicate that the Assigned Annual Special Tax and the Backup Annual Special Tax if applicable for the Assessor's Parcel has been reduced by an amount equal to the percentage which was partially prepaid. Notwithstanding the foregoing, no partial prepayment will be allowed unless the amount of Annual Special Taxes that may be levied on Taxable Property after such partial prepayment, net of Administrative Expenses, shall be at least 1.1 times the regularly scheduled annual interest and principal payments on all currently outstanding Bonds in each future Fiscal Year and such partial prepayment will not impair the security of all currently outstanding Bonds, as reasonably determined by the Board. Such determination shall include identifying all Assessor's Parcels that are expected to become Exempt Property. SECTION J EXCESS ASSIGNED ANNUAL SPECIAL TAXES In any Fiscal Year which the Annual Special Taxes collected from Developed Property, pursuant to Step 1 of Section G, exceeds the Minimum Annual Special Tax Requirement, the School District shall use such amount for acquisition, construction or financing of school facilities in accordance with the Act, CFD No. 14 proceedings and other applicable laws as determined by the Board. SECTION K TERMINATION OF SPECIAL TAX Annual Special Taxes shall be levied for a period of thirty-five (35) Fiscal Years after the last series of Bonds have been issued, provided that Annual Special Taxes shall not be levied after Fiscal Year 2050-2051. RMA_Final Page 11 of 13 November 30, 2005 SECTION L EXEMPTIONS The Board shall classify as Exempt Property (i) Assessor's Parcels owned by the State of California, Federal or other local governments, (ii) Assessor's Parcels which are used as places of worship and are exempt from ad valorem property taxes because they are owned by a religious organization, (iii) Assessor's Parcels owned by a homeowners' association, (iv) Assessor's Parcels with public or utility easements making impractical their utilization for other than the purposes set forth in the easement, (v) Assessor's Parcels developed or expected to be developed exclusively for non-residential use, including any use directly servicing any nonresidential property, such as parking, as reasonably determined by the Board, and (vi) any other Assessor's Parcels at the reasonable discretion of the Board, provided that no such classification would reduce the Net Taxable Acreage to less than the Minimum Taxable Acreage. Notwithstanding the above, the Board shall not classify an Assessor's Parcel as Exempt Property if such classification would reduce the sum of all Taxable Property to less than the Minimum Taxable Acreage. Assessor's Parcels which cannot be classified as Exempt Property because such classification would reduce the Acreage of all Taxable Property to less than the Minimum Taxable Acreage will continue to be classified as Developed Property or Undeveloped Property, as applicable, and will continue to be subject to Special Taxes accordingly. TABLE 3 MINIMUM TAXABLE ACREAGE Minimum Taxable Acreage 123.76 Acres SECTION M APPEALS Any property owner claiming that the amount or application of the Special Tax is not correct may file a written notice of appeal with the Board not later than twelve months after having paid the first installment of the Special Tax that is disputed. In order to be considered sufficient, any notice of appeal must: (i) specifically identify the property by address and Assessor's Parcel Number; (ii) state the amount in dispute and whether it is the whole amount or only a portion of the Special Tax; (iii) state all grounds on which the property owner is disputing the amount or application of the Special Tax, including a reasonably detailed explanation as to why the amount or application of such Special Tax is incorrect; (iv) include all documentation, if any, in support of the claim; and (v) be verified under penalty of perjury by the person who paid the Special Tax or his or her guardian, executor or administrator. A representative(s) of CFD No. 14 shall promptly review the appeal, and if necessary, meet with the property owner, consider written and oral evidence regarding the amount of the Special Tax, and rule on the appeal. If the representative's decision requires that the Special Tax for an Assessor's Parcel be modified or changed in favor of the property owner, a cash refund shall not be made (except for the last year of levy), but an adjustment shall be made to the Annual Special Tax on that Assessor's Parcel in the subsequent Fiscal Year(s) as the representative's decision shall indicate. RMA_Final Page 12 of 13 November 30, 2005 SECTION N MANNER OF COLLECTION The Annual Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes and shall be subject to the same penalties, the same procedure, sale and lien priority in the case of delinquency; provided, however, that CFD No. 14 may directly bill the Special Tax, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and if so collected, a delinquent penalty of 10% of the Special Tax will attach at 5:00 p.m. on the date the Special Tax becomes delinquent and interest at 1.5% per month of the Special Tax will attach on the July 1 after the delinquency date and the first of each month thereafter until such Special Taxes are paid. J:\CLIENTS\POWAY.USD\Del Sur\RMA_DelSur_11.29.05.doc RMA_Final Page 13 of 13 November 30, 2005 PAGE INTENTIONALLY LEFT RATE AND METHOD OF APPORTIONMENT FOR IMPROVEMENT AREA NO. A OF COMMUNITY FACILITIES DISTRICT NO. 14 OF POWAY UNIFIED SCHOOL DISTRICT The following sets forth the Rate and Method of Apportionment for the levy and collection of Special Taxes ("Rate and Method of Apportionment") of Improvement Area No. A ("IA No. A") of Community Facilities District No. 14 ("CFD No. 14") of the Poway Unified School District ("School District"). An Annual Special Tax shall be levied on and collected on Taxable Property (defined below) located within the boundaries of IA No. A of CFD No. 14 each Fiscal Year in an amount determined through the application of the Rate and Method of Apportionment described below. All of the real property in IA No. A of CFD No. 14, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent, and in the manner herein provided. SECTION A DEFINITIONS For purposes of this Rate and Method of Apportionment the terms hereinafter set forth have the following meanings: "Acreage" means the number of acres of land area of an Assessor's Parcel as shown on an Assessor's Parcel Map, or if the land area is not shown on an Assessor's Parcel Map, the Board may rely on the land area shown on the applicable final map, parcel map, condominium plan, or other recorded County parcel map. "Act" means the Mello-Roos Communities Facilities Act of 1982, as amended, being Chapter 2.5, Division 2 of Title 5 of the Government Code of the State of California. "Administrative Expenses" means any ordinary and necessary expense incurred by the School District on behalf of IA No. A of CFD No. 14 related to the determination of the amount of the levy of Special Taxes, the collection of Special Taxes, including the reasonable expenses of collecting delinquencies, the administration of Bonds, the proportionate payment of salaries and benefits of any School District employee whose duties are directly related to the administration of IA No. A of CFD No. 14, and reasonable costs otherwise incurred in order to carry out the authorized purposes of IA No. A of CFD No. 14. "Affordable Unit" means an Attached Unit that is subject to affordable housing restrictions under any applicable law. "Annual Special Tax" means the Special Tax actually levied in any Fiscal Year on any Assessor's Parcel. "Assessor's Parcel" means a lot or parcel of land designated on an Assessor's Parcel Map with an assigned Assessor's Parcel Number within the boundaries of IA No. A of CFD No. 14. "Assessor's Parcel Map" means an official map of the Assessor of the County designating parcels by Assessor's Parcel Number. RMA_IA A_Final Page 1 of 13 December 5, 2005 "Assessor's Parcel Number" means that number assigned to an Assessor's Parcel by the County for purposes of identification. "Assigned Annual Special Tax" means the Special Tax of that name described in Section D. "Attached Unit" means a Unit that is located or shall be located within a building in which each of the individual Units has or shall have at least one common wall with another Unit. "Backup Annual Special Tax" means the Special Tax of that name described in Section E. "Board" means the Board of Education of Poway Unified School District, or its designee, in certain cases acting as the Legislative Body of IA No. A of CFD No. 14. "Bond Index" means the national Bond Buyer Revenue Index, commonly referenced as the 25Bond Revenue Index. In the event the Bond Index ceases to be published, the index used shall be based on a comparable index for revenue bonds maturing in 30 year with an average rating equivalent to Moody's A1 and/or S&P's A+, as reasonably determined by the Board. "Bond Yield" means the yield of the last series of Bonds issued, for purposes of this calculation the yield of the Bonds shall be the yield calculated at the time such Bonds are issued, pursuant to Section 148 of the Internal Revenue Code of 1986, as amended for the purpose of the NonArbitrage Certificate or other similar bond issuance document. "Bonds" means any obligation to repay a sum of money, including obligations in the form of bonds, notes, certificates of participation, long-term leases, loans from government agencies, or loans from banks, other financial institutions, private businesses, or individuals, or long-term contracts, or any refunding thereof, to which the Special Taxes have been pledged for repayment. "Building Permit" means a permit for the construction of one or more Units issued by the City, or another public agency in the event the City no longer issues said permits for the construction of Units within IA No. A of CFD No. 14. For purposes of this definition, "Building Permit" shall not include permits for construction or installation of structures, parking structures, retaining walls, utility improvements, or other such improvements not intended for human habitation or commercial/industrial use. "Building Square Footage" or "BSF" means the square footage of assessable internal living space of a Unit, exclusive of any carports, walkways, garages, overhangs, patios, enclosed patios, detached accessory structure, other structures not used as living space, or any other square footage excluded under Government Code Section 65995 as determined by reference to the Building Permit for such Unit. "City" means the City of San Diego. "Commercial/Industrial Property" means all Assessor's Parcels of Developed Property other than Residential Property. "County" means the County of San Diego. RMA_IA A_Final Page 2 of 13 December 5, 2005 "Developed Property" means all Assessor's Parcels of Taxable Property for which Building Permits were issued on or before May 1 of the prior Fiscal Year, provided that such Assessor's Parcels were created on or before January 1 of the prior Fiscal Year and that each such Assessor's Parcel is associated with a Lot, as determined reasonably by the Board. "Detached Unit" means a Unit which is not an Attached Unit. "Exempt Property" means all Assessor's Parcels designated as being exempt from Special Taxes in Section K each Fiscal Year as determined May 1st of the previous Fiscal Year. "Final Subdivision Map" means a final tract map, parcel map, lot line adjustment, or functionally equivalent map or instrument that creates individual Lots, recorded in the County Office of the Recorder. "Fiscal Year" means the period commencing on July 1 of any year and ending the following June 30. "Gross Floor Area" or "GFA" means, for an Assessor's Parcel of Commercial/Industrial Property, the covered and enclosed space determined to be within the perimeter of a commercial or industrial structure, not including any storage areas incidental to the principal use of the development, garage, parking structure, unenclosed walkway, utility, or disposal area. The determination of Gross Floor Area shall be made by the Board in accordance with the standard practice of the building department of the City. "Homeowner" means any owner of a completed Unit constructed and sold within IA No. A of CFD No. 14. "Lot" means an individual legal lot created by a Final Subdivision Map for which a Building Permit for residential construction has been or could be issued. Notwithstanding the foregoing, in the case of an individual legal lot created by such a Final Subdivision Map upon which condominium units are entitled to be developed but for which a condominium plan has not been recorded, the number of Lots allocable to such legal lot for purposes of calculating the Backup Special Tax applicable to such Final Subdivision Map shall equal the number of condominium units which are permitted to be constructed on such legal lot as shown on such Final Subdivision Map. "Maximum Special Tax" means the maximum Special Tax, determined in accordance with Section C, that can be levied by IA No. A of CFD No. 14 in any Fiscal Year on any Assessor's Parcel. RMA_IA A_Final Page 3 of 13 December 5, 2005 "Minimum Annual Special Tax Requirement" means the amount required in any Fiscal Year to pay: (i) the debt service or the periodic costs on all outstanding Bonds, (ii) Administrative Expenses of IA No. A of CFD No. 14, (iii) the costs associated with the release of funds from an escrow account(s) established in association with the Bonds, and (iv) any amount required to establish or replenish any reserve funds (or accounts thereof) established in association with the Bonds, less (v) any amount(s) available to pay debt service or other periodic costs on the Bonds pursuant to any applicable bond indenture, fiscal agent agreement, trust agreement, or equivalent agreement or document. In arriving at the Minimum Annual Special Tax requirement the Board shall take into account the reasonably anticipated delinquent Special Taxes based on the delinquency rate for Special Taxes levied in the previous Fiscal Year. "Minimum Taxable Acreage" means the applicable Acreage listed in Table 3 set forth in Section K. "Net Taxable Acreage" means the total Acreage of all Taxable Property expected to exist in IA No. A of CFD No. 14 after all Final Subdivision Maps are recorded. "Partial Prepayment Amount" means the amount required to prepay a portion of the Annual Special Tax obligation for an Assessor's Parcel as described in Section H. "Prepayment Administrative Fees" means any fees or expenses of the School District or IA No. A of CFD No. 14 associated with the prepayment of the Special Tax obligation of an Assessor's Parcel. Prepayment Administrative Fees shall include among other things the cost of computing the Prepayment Amount, redeeming Bonds, and recording any notices to evidence the prepayment and redemption of Bonds. "Prepayment Amount" means the amount required to prepay the Annual Special Tax obligation in full for an Assessor's Parcel as described in Section G. "Present Value of Taxes" means for any Assessor's Parcel the present value of (i) the unpaid portion, if any, of the Special Tax applicable to such Assessor's Parcel in the current Fiscal Year and (ii) the Annual Special Taxes expected to be levied on such Assessor's Parcel in each remaining Fiscal Year, as determined by the Board, until the termination date specified in Section J. The discount rate used for this calculation shall be equal to the (i) Bond Yield after Bond issuance or (ii) most recently published Bond Index prior to Bond issuance. "Proportionately" means that the ratio of the actual Annual Special Tax levy to the applicable Assigned Annual Special Tax or Maximum Annual Special Tax is equal for all applicable Assessor's Parcels. "Reserve Fund Credit" means an amount equal to the reduction in the applicable reserve fund requirement(s) resulting from the redemption of Bonds with the Prepayment Amount. In the event that a surety bond or other credit instrument satisfies the reserve requirement or the reserve requirement is under funded at the time of the prepayment no Reserve Fund Credit shall be given. "Residential Property" means all Assessor's Parcels of Developed Property which a Building Permit was issued for the construction of one or more Units. RMA_IA A_Final Page 4 of 13 December 5, 2005 "Senior Citizen Unit" means a Unit designated as senior citizen housing, part of a residential care facility for the elderly, or part of a multilevel care facility for the elderly as referred to in California Government Code Section 65995.1. For the purpose hereof it shall be sufficient to designate a Unit as a Senior Citizen Unit if Senior Citizen Restrictions have been affected with respect to such Unit. "Senior Citizen Restriction" means (i) a restriction limiting the use of Units to senior citizen housing under a specific plan, a final map or other governmental entitlements, or a declaration of covenants, conditions and restrictions or any similar recorded instrument or (ii) licensing from appropriate agencies received for residential care facilities for the elderly or multilevel care facilities as those terms are defied in Health and Safety Code Section 1569.23 and Government Code Section 15432(d)(8), respectively. "Special Tax" means any of the special taxes authorized to be levied by IA No. A of CFD No. 14 pursuant to the Act. "Taxable Property" means all Assessor's Parcels which are not Exempt Property. "Undeveloped Property" means all Assessor's Parcels of Taxable Property which are not Developed Property. "Unit" means each separate residential dwelling unit which comprises an independent facility capable of conveyance separate from adjacent residential dwelling units. Each Unit shall be classified as an Attached Unit or a Detached Unit. SECTION B CLASSIFICATION OF ASSESSOR'S PARCELS For each Fiscal Year, beginning with Fiscal Year 2006-07, each Assessor's Parcel within IA No. A of CFD No. 14 shall be classified as Taxable Property or Exempt Property. Furthermore, each Assessor's Parcel of Taxable Property shall be classified as Developed Property or Undeveloped Property and Developed Property shall be further classified as Residential Property or Commercial/Industrial Property. Residential Property shall be classified by unit type (e.g. Detached Unit, Attached Unit, Senior Citizen Unit, or Affordable Unit) and Detached Units and Attached Units shall be classified based on the Building Square Footage of the Unit. The classification of Exempt Property shall take into consideration the Minimum Taxable Acreage as determined pursuant to Section K. SECTION C MAXIMUM SPECIAL TAXES 1. Developed Property The Maximum Special Tax for each Assessor's Parcel classified as Developed Property for any Fiscal Year shall be the amount determined by the greater of (i) the application of the Assigned Annual Special Tax or (ii) the application of the Backup Annual Special Tax for a given Final Subdivision Map. RMA_IA A_Final Page 5 of 13 December 5, 2005 2. Undeveloped Property The Maximum Special Tax for each Assessor's Parcel classified as Undeveloped Property for any Fiscal Year shall be the amount determined by the application of the Assigned Annual Special Tax. SECTION D ASSIGNED ANNUAL SPECIAL TAXES 1. Developed Property The Assigned Annual Special Tax in Fiscal Year 2006-07 for each Assessor's Parcel of Developed Property shall be the amount determined by reference to Table 2 subject to increases as described below. TABLE 2 ASSIGNED ANNUAL SPECIAL TAX FOR DEVELOPED PROPERTY FISCAL YEAR 2006-07 Property Type Unit Type Building Square Footage Residential Property Detached Unit < 1,800 $2,042.05 per Unit Residential Property Detached Unit 1,800 - 2,000 $2,274.10 per Unit Residential Property Detached Unit 2,001 - 2,200 $2,564.16 per Unit Residential Property Detached Unit 2,201 - 2,400 $2,641.51 per Unit Residential Property Detached Unit 2,401 - 2,600 $2,660.85 per Unit Residential Property Detached Unit 2,601 - 2,800 $2,757.54 per Unit Residential Property Detached Unit 2,801 - 3,000 $2,931.58 per Unit Residential Property Detached Unit 3,001 - 3,200 $3,257.22 per Unit Residential Property Detached Unit 3,201 - 3,450 $3,612.26 per Unit Residential Property Detached Unit > 3,450 $3,708.94 per Unit Residential Property Attached Unit < 1,900 $1,829.34 per Unit Residential Property Attached Unit 1,900 - 2,100 $2,129.07 per Unit Residential Property Attached Unit > 2,100 $2,359.19 per Unit Residential Property Affordable Unit NA $0.00 per Unit Residential Property Senior Citizen Unit NA $0.00 per Unit Commercial/Industrial Property NA NA $0.00 per GFA RMA_IA A_Final Page 6 of 13 Assigned Annual Special Tax December 5, 2005 Each July 1, commencing July 1, 2007, the Assigned Annual Special Tax for each Assessor's Parcel of Developed Property shall be increased by two percent (2.00%) of the amount in effect the prior Fiscal Year. 2. Undeveloped Property The Assigned Annual Special Tax rate in Fiscal Year 2006-07 for an Assessor's Parcel classified as Undeveloped Property shall be $25,018.20 per acre of Acreage. Each July 1, commencing July 1, 2007, the Assigned Annual Special Tax per acre of Acreage for each Assessor's Parcel of Undeveloped Property shall be increased by two percent (2.00%) of the amount in effect the prior Fiscal Year. SECTION E BACKUP ANNUAL SPECIAL TAXES Each Fiscal Year, each Assessor's Parcel of Developed Property shall be subject to a Backup Annual Special Tax. The Backup Annual Special Tax rate for an Assessor's Parcel of Developed Property within a Final Subdivision Map in Fiscal Year 2006-07 or such later Fiscal Year in which such Final Subdivision Map is created shall be the rate per Lot calculated according to the following formula: UxA B = -------------------------L The terms above have the following meanings: B U = = A = L = Backup Annual Special Tax per Lot Assigned Annual Special Tax per acre of Acreage for Undeveloped Property in the Fiscal Year which the calculation is performed Acreage of Taxable Property in such Final Subdivision Map at time of calculation, as determined by the Board pursuant to Section K Lots in the Final Subdivision Map at the time of calculation Each July 1, commencing the July 1 first following the initial calculation of the Backup Annual Special Tax rate for an Assessor's Parcel of Developed Property with a Final Subdivision Map, the Backup Annual Special Tax for each Lot within such Final Subdivision Map shall be increased by two percent (2.00%) of the amount in effect the prior Fiscal Year. Notwithstanding the foregoing, if all or any portion of the Final Subdivision Map(s) described in the preceding paragraph is subsequently changed or modified, then the Backup Annual Special Tax for each Assessor's Parcel of Developed Property in such Final Subdivision Map that is changed or modified shall be a rate per square foot of Acreage calculated as follows: 1. RMA_IA A_Final Determine the total Backup Annual Special Taxes anticipated to apply to the changed or modified area in the Final Subdivision Map prior to the change or modification in the current Fiscal Year. Page 7 of 13 December 5, 2005 2. The result of paragraph 1 above shall be divided by the Acreage of Taxable Property which is ultimately expected to exist in such changed or modified area in the Final Subdivision Map, as reasonably determined by the Board. 3. The result of paragraph 2 above shall be divided by 43,560. The result is the Backup Annual Special Tax per square foot of Acreage which shall be applicable to Assessor's Parcels of Developed Property in such changed or modified area of the Final Subdivision Map. Each July 1, commencing the July 1 first following the change or modification to be Final Subdivision Map the amount determined by this Section shall be increased by two percent (2.00%) of the amount in effect the prior Fiscal Year. SECTION F METHOD OF APPORTIONMENT OF THE ANNUAL SPECIAL TAX Commencing Fiscal Year 2006-07, and for each subsequent Fiscal Year, the Board shall levy Annual Special Taxes as follows: Step One: The Board shall levy an Annual Special Tax on each Assessor's Parcel of Developed Property in an amount equal to the Assigned Annual Special Tax applicable to each such Assessor's Parcel. Step Two: If the sum of the amounts collected in step one is insufficient to satisfy the Minimum Annual Special Tax Requirement, then the Board shall Proportionately levy an Annual Special Tax on each Assessor's Parcel of Undeveloped Property up to the Assigned Annual Special Tax applicable to each such Assessor's Parcel to satisfy the Minimum Annual Special Tax Requirement. Step Three: If the sum of the amounts collected in steps one and two is insufficient to satisfy the Minimum Annual Special Tax Requirement, then the Board shall Proportionately levy an Annual Special Tax on each Assessor's Parcel of Developed Property up to the Maximum Special Tax applicable to each such Assessor's Parcel to satisfy the Minimum Annual Special Tax Requirement. SECTION G PREPAYMENT OF ANNUAL SPECIAL TAXES The Annual Special Tax obligation of an Assessor's Parcel of Developed Property, or an Assessor's Parcel of Undeveloped Property for which a Building Permit has been issued, may be prepaid in full provided that there are no delinquent Special Taxes, penalties, or interest charges outstanding with respect to such Assessor's Parcel at the time the Annual Special Tax obligation would be prepaid. The Prepayment Amount for an Assessor's Parcel eligible for prepayment shall be determined as described below. An owner of an Assessor's Parcel intending to prepay the Annual Special Tax obligation shall provide IA No. A of CFD No. 14 with written notice of intent to prepay. Within thirty (30) days of receipt of such written notice, the Board shall reasonably determine the Prepayment Amount of such Assessor's Parcel and shall notify such owner of such Prepayment Amount. The Prepayment Amount shall be calculated according to the following formula: RMA_IA A_Final Page 8 of 13 December 5, 2005 P = PVT - RFC + PAF The terms above have the following meanings: P PVT RFC PAF = = = = Prepayment Amount Present Value of Taxes Reserve Fund Credit Prepayment Administrative Fees Notwithstanding the foregoing, no prepayment will be allowed unless the amount of Annual Special Taxes that may be levied on Taxable Property, net of Administrative Expenses, shall be at least 1.1 times the regularly scheduled annual interest and principal payments on all currently outstanding Bonds in each future Fiscal Year and such prepayment will not impair the security of all currently outstanding Bonds, as reasonably determined by the Board. Such determination shall include identifying all Assessor's Parcels that are expected to become Exempt Property. With respect to any Assessor's Parcel that is prepaid, the Board shall indicate in the records of IA No. A of CFD No. 14 that there has been a prepayment of the Annual Special Tax obligation and shall cause a suitable notice to be recorded in compliance with the Act to indicate the prepayment of the Annual Special Tax obligation and the release of the Annual Special Tax lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay such Annual Special Tax shall cease. SECTION H PARTIAL PREPAYMENT OF ANNUAL SPECIAL TAXES The Annual Special Tax obligation of an Assessor's Parcel may be partially prepaid at the times and under the conditions set forth in this section, provided that there are no delinquent Special Taxes, penalties, or interest charges outstanding with respect to such Assessor's Parcel at the time the Annual Special Tax obligation would be prepaid. 1. Partial Prepayment Times and Conditions Prior to the conveyance of the first production Unit on a Lot within a Final Subdivision Map to a Homeowner, the owner of no less than all the Taxable Property within such Final Subdivision Map may elect in writing to the Board to prepay a portion of the Annual Special Tax obligations for all the Assessor's Parcels within such Final Subdivision Map, as calculated in Section H.2. below. The partial prepayment of each Annual Special Tax obligation shall be collected for all Assessor's Parcels prior to the conveyance of the first production Unit to a Homeowner with respect to such Final Subdivision Map. 2. Partial Prepayment Amount The Partial Prepayment Amount shall be calculated according to the following formula: PP = PG x F RMA_IA A_Final Page 9 of 13 December 5, 2005 The terms above have the following meanings: PP = PG = F = 3. the Partial Prepayment Amount the Prepayment Amount calculated according to Section G the percent by which the owner of the Assessor's Parcel is partially prepaying the Annual Special Tax obligation Partial Prepayment Procedures and Limitations With respect to any Assessor's Parcel that is partially prepaid, the Board shall indicate in the records of IA No. A of CFD No. 14 that there has been a partial prepayment of the Annual Special Tax obligation and shall cause a suitable notice to be recorded in compliance with the Act to indicate the partial prepayment of the Annual Special Tax obligation and the partial release of the Annual Special Tax lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay such prepaid portion of the Annual Special Tax shall cease. Additionally, the notice shall indicate that the Assigned Annual Special Tax and the Backup Annual Special Tax if applicable for the Assessor's Parcel has been reduced by an amount equal to the percentage which was partially prepaid. Notwithstanding the foregoing, no partial prepayment will be allowed unless the amount of Annual Special Taxes that may be levied on Taxable Property after such partial prepayment, net of Administrative Expenses, shall be at least 1.1 times the regularly scheduled annual interest and principal payments on all currently outstanding Bonds in each future Fiscal Year and such partial prepayment will not impair the security of all currently outstanding Bonds, as reasonably determined by the Board. Such determination shall include identifying all Assessor's Parcels that are expected to become Exempt Property. SECTION I EXCESS ASSIGNED ANNUAL SPECIAL TAXES In any Fiscal Year which the Annual Special Taxes collected from Developed Property, pursuant to Step 1 of Section F, exceeds the Minimum Annual Special Tax Requirement, the School District shall use such amount for acquisition, construction or financing of school facilities in accordance with the Act, IA No. A of CFD No. 14 proceedings and other applicable laws as determined by the Board. SECTION J TERMINATION OF SPECIAL TAX Annual Special Taxes shall be levied for a period of thirty-five (35) Fiscal Years after the last series of Bonds have been issued, provided that Annual Special Taxes shall not be levied after Fiscal Year 2050-2051. RMA_IA A_Final Page 10 of 13 December 5, 2005 SECTION K EXEMPTIONS The Board shall classify as Exempt Property (i) Assessor's Parcels owned by the State of California, Federal or other local governments, (ii) Assessor's Parcels which are used as places of worship and are exempt from ad valorem property taxes because they are owned by a religious organization, (iii) Assessor's Parcels owned by a homeowners' association, (iv) Assessor's Parcels with public or utility easements making impractical their utilization for other than the purposes set forth in the easement, (v) Assessor's Parcels developed or expected to be developed exclusively for non-residential use, including any use directly servicing any nonresidential property, such as parking, as reasonably determined by the Board, and (vi) any other Assessor's Parcels at the reasonable discretion of the Board, provided that no such classification would reduce the Net Taxable Acreage to less than the Minimum Taxable Acreage listed in Table 3 below. Notwithstanding the above, the Board shall not classify an Assessor's Parcel as Exempt Property if such classification would reduce the sum of all Taxable Property to less than the Minimum Taxable Acreage. Assessor's Parcels which cannot be classified as Exempt Property because such classification would reduce the Acreage of all Taxable Property to less than the Minimum Taxable Acreage will continue to be classified as Developed Property or Undeveloped Property, as applicable, and will continue to be subject to Special Taxes accordingly. TABLE 3 MINIMUM TAXABLE ACREAGE Taxable Acres 123.76 Acres SECTION L APPEALS Any property owner claiming that the amount or application of the Special Tax is not correct may file a written notice of appeal with the Board not later than twelve months after having paid the first installment of the Special Tax that is disputed. In order to be considered sufficient, any notice of appeal must: (i) specifically identify the property by address and Assessor's Parcel Number; (ii) state the amount in dispute and whether it is the whole amount or only a portion of the Special Tax; (iii) state all grounds on which the property owner is disputing the amount or application of the Special Tax, including a reasonably detailed explanation as to why the amount or application of such Special Tax is incorrect; (iv) include all documentation, if any, in support of the claim; and (v) be verified under penalty of perjury by the person who paid the Special Tax or his or her guardian, executor or administrator. A representative(s) of IA No. A of CFD No. 14 shall promptly review the appeal, and if necessary, meet with the property owner, consider written and oral evidence regarding the amount of the Special Tax, and rule on the appeal. If the representative's decision requires that the Special Tax for an Assessor's Parcel be modified or changed in favor of the property owner, a cash refund shall not be made (except for the last year of levy), but an adjustment shall be made to the Annual Special Tax on that Assessor's Parcel in the subsequent Fiscal Year(s) as the representative's decision shall indicate. RMA_IA A_Final Page 11 of 13 December 5, 2005 SECTION M MANNER OF COLLECTION The Annual Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes and shall be subject to the same penalties, the same procedure, sale and lien priority in the case of delinquency; provided, however, that IA No. A of CFD No. 14 may directly bill the Special Tax, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and if so collected, a delinquent penalty of 10% of the Special Tax will attach at 5:00 p.m. on the date the Special Tax becomes delinquent and interest at 1.5% per month of the Special Tax will attach on the July 1 after the delinquency date and the first of each month thereafter until such Special Taxes are paid. J:\CLIENTS\POWAY.USD\Del Sur\RMA_DelSur_11.29.05.doc RMA_IA A_Final Page 12 of 13 December 5, 2005 EXHIBIT A CFD BOUNDARY MAP A_Fina1 Page 13 of 13 December 5, 2005 SHEET I OF 2 RROROSED BOUNDARIES OE POWAY UNIFIED SCHOOL DISTRICT IMPROVEMENT AREA NO. A OF COMMUNHY FACRIHES NO.14 SAN DECO COUNTY STATE OF CALIFORNIA 267--I50--I3 207--I50--I6 NAP NAP I 267--I 50--I 7 Conflno Dd Sur LEGEND 267--I50--28 NAP ndaries of IA NO. A of mmunity Facilities District No. 14 Road Easements (Not a No. A of CED N0. 14) Assessor's Parcel Line San Diego County Assessor's Parcel Number Not 0 Port Exhibit A art of IA PREPARED BY 678--230--I6 (I) Filed in the office of the Secretary to the Board of Education this day of 20 Secretary of the Board of Education (2) I hereby certify that the within map showing the boundaries of IA No. A of Community Facilities District No. I4, San Diego County, State of California, was approved by the Board of Education of the Poway Unified School District at a regular meeting thereof, held on this day of by its Resolution No. Secretary of the Board of Education (3) Filed this day of 20 at the hour of o'clock in Book of Maps of Assessment and Community Facilities Districts at page and as Instrument No. in the office of the County Recorder of San Diego County, State of California. County Recorder of San Diego County Reference is hereby made to the Assessor maps the County of San Diego ct descri dim each an of the sions of and parcel. DAVID TAUSSIG ASSOCIATES, INC. SHEET 2 OF 2 A BOUNDARIES OF POWAY UNWED SCHOOL IMPROVEMENT AREA NO.A OF COMMUNITY FACILITIES DISTRICT NO. 14 AssessoHs PorceIhhuhbers* 267--150--2O 267--150--2I 267--150--22 267--150--23 267--150--24 267--150--25 267--230--01 267--230--02 267--230--03 267--230--04 267--230--05 267--230--06 267--230--07 *Current as of equofized tax Role of the Assesor of the County of Son Efiego for Fiscal Year 2005-06 PAGE INTENTIONALLY LEFT APPENDIX SUMMARY APPRAISAL REPORT PAGE INTENTIONALLY LEFT SUMMARY APPRAISAL REPORT COVERING Poway Unified School District Community Facilities District No. 14 (Del Sur) DATE OF VALUE: April 1, 2006 DATE OF REPORT: April 21, 2006 SUBMITTED TO: Sandra G. Burgoyne Poway Unified School District 13626 Twin Peaks Rd. Poway, CA 92064-3098 SUBMITTED BY: Stephen G. White, MAI 1370 N. Brea Blvd., Suite 205 Fullerton, CA 92835 April 21, 2006 Sandra G. Burgoyne Poway Unified School District 13626 Twin Peaks Rd. Poway, CA 92064-3098 Re: Community Facilities District No. 14 (Del Sur) Dear Ms. Burgoyne: In accordance with your request and the District's authorization, I have completed a Complete Appraisal of the taxable properties comprising the above-referenced Community Facilities District (CFD). This CFD consists of six separate tracts by four different builders plus the remaining master developer ownership. Construction of homes is underway on the six tracts owned by the four different builders, and the master developer ownership consists of vacant lots that are mostly graded and with installation of the backbone infrastructure in process. The purpose of this appraisal is to estimate the market value of each of the separate tracts, plus the remaining master developer ownership. This appraisal also reflects the proposed public bond financing, as well as the tax rates up to a maximum of 1.9% to the future homeowners, including the special taxes for this CFD and other overlapping debt. Based on the inspections of the properties and analysis of matters pertinent to value, the following conclusions of market value have been arrived at, subject to the Assumptions and Limiting Conditions, and as of April 1, 2006: No. of Lots/Units Market Value Bridgewalk (Standard Pacific Homes) Madeira (Shea Homes) Alcala (William Lyon Homes) Cassero (Standard Pacific Homes) Cabrillo (Standard Pacific Homes) Kensington (Davidson Communities) Sub-Total 69 78 83 38 26 70 364 $ 22,300,000 $ 31,750,000 $ 32,500,000 $ 13,800,000 $ 10,250,000 $ 28,150,000 $138,750,000 Black Mountain Ranch LLC Ownership: 784 $191,750,000 1,148 $330,500,000 Tract Name (Builder) Total (THREE HUNDRED THIRTY MILLION FIVE HUNDRED THOUSAND DOLLARS) MS. SANDRA G. BURGOYNE APRIL 21, 2006 PAGE 2 The following is the balance of this 73-page Summary Appraisal Report which includes the Certification, Assumptions and Limiting Conditions, definitions, property data, exhibits, valuation and market data from which the value conclusions were derived. Sincerely, Stephen G. White, MAI (State Certified General Real Estate Appraiser No. AG013311) SGW:sw Ref: 06006 TABLE OF CONTENTS PAGES Certification......................................................................... 5 Assumptions and Limiting Conditions............................................ 6-7 Purpose and Use of the Appraisal, Scope of the Appraisal, Date of Value, Property Rights Appraised, Definitions......................... 8-9 GENERAL PROPERTY DATA Location, General Area Description, Description of Del Sur................ 10-16 BRIDGEWALK (STANDARD PACIFIC HOMES).............................. 17-22 MADEIRA (SHEA HOMES)........................................................... 23-28 ALCALA (WILLIAM LYON HOMES)............................................. 29-34 CASSERO (STANDARD PACIFIC HOMES).................................... 35-39 CABRILLO (STANDARD PACIFIC HOMES)..................................... 40-44 KENSINGTON (DAVIDSON COMMUNITIES)................................. 45-49 BLACK MOUNTAIN RANCH LLC OWNERSHIP............................. 50-65 ADDENDA Tabulation of Single-Family Residential Land Sales.......................... Master Developer Costs to Complete.......................................... Empire Economics Absorption Schedule...................................... Qualifications of Appraiser....................................................... 66-67 68-69 70 71-73 CERTIFICATION I certify that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, impartial, and unbiased professional analyses, opinions and conclusions. 3. I have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved. 4. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. 5. My engagement in this assignment was not contingent upon developing or reporting predetermined results. 6. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 7. My analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. 8. I have made a personal but general inspection of the property that is the subject of this report. 9. No one provided significant professional assistance to the person signing this report, other than data research and partial report writing by my associate, Kirsten Patterson. 10. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. As of the date of this report, I have completed the requirements of the continuing education program of the Appraisal Institute. Stephen G. White, MAI (State Certified General Real Estate Appraiser No. AG013311) 5 ASSUMPTIONS AND LIMITING CONDITIONS This appraisal has been based upon the following assumptions and limiting conditions: 1. No responsibility is assumed for the legal descriptions provided or for matters pertaining to legal or title considerations. Title to the properties is assumed to be good and marketable unless otherwise stated. 2. The properties are appraised free and clear of any or all liens or encumbrances unless otherwise stated. 3. Responsible ownership and competent property management are assumed. 4. The information furnished by others is believed to be reliable, but no warranty is given for its accuracy. 5. All engineering studies, if applicable, are assumed to be correct. Any plot plans or other illustrative material in this report are included only to help the reader visualize the property. 6. It is assumed that there are no hidden or unapparent conditions of the properties, subsoil, or structures that render them more or less valuable. No responsibility is assumed for such conditions or for obtaining the engineering studies that may be required to discover them. 7. It is assumed that the properties are in full compliance with all applicable federal, state and local environmental regulations and laws unless the lack of compliance is stated, described and considered in the appraisal report. 8. It is assumed that the properties conform to all applicable zoning and use regulations and restrictions unless a nonconformity has been identified, described and considered in the appraisal report. 9. It is assumed that all required licenses, certificates of occupancy, consents and other legislative or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in the report is based. 10. It is assumed that the use of the land and improvements is confined within the boundaries or property lines of the properties described and that there is no encroachment or trespass unless noted in the report. 11. Unless otherwise stated in this report, the existence of hazardous materials, which may or may not be present on the properties, was not observed by the appraiser. However, the appraiser is not qualified to detect such substances. The presence of such substances may affect the value of the properties, but the value estimated in this 6 ASSUMPTIONS AND LIMITING CONDITIONS, Continuing appraisal is based on the assumption that there is no such material on or in the properties that would cause a loss in value. No responsibility is assumed for such conditions or for any expertise or engineering knowledge required to discover them. The client should retain an expert in this field, if desired. 12. Any allocation of the total value estimated in this report between the land and the improvements applies only under the stated program of utilization. The separate values allocated to the land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. 13. Possession of this report, or a copy thereof, does not carry with it the right of publication, unless otherwise authorized. It is understood and agreed that this report will be utilized in the Official Statement, as required for the bond issuance. 14. The appraiser, by reason of this appraisal, is not required to give further consultation or testimony or to be in attendance in court with reference to the properties in question unless arrangements have previously been made. SPECIAL ASSUMPTIONS AND LIMITING CONDITIONS 1. Estimates of land development costs including fees to get the subject tracts and the master developer ownership from their as is condition to finished lot condition have been obtained from the merchant builders and from the master developer's consultant. These costs are integral to the analysis of the value of the as is condition of the land, and have been relied upon in this appraisal as being reasonably accurate. 2. The valuation has assumed that School Facilities in an amount of ?$42,300,000 will be funded by bond proceeds from Community Facilities District No. 14 of the Poway Unified School District, and Non-School Facilities in an amount of ?$42,250,000 will be funded by bond proceeds from Community Facilities District No. 14 Improvement Area A of the Poway Unified School District. 7 PURPOSE AND USE OF THE APPRAISAL The purpose of this appraisal is to estimate the aggregate market value of the six separate tracts owned by four different merchant builders plus the remaining ownership of the master developer, comprising the taxable property located within Community Facilities District No. 14 (Del Sur) of the Poway Unified School District. This Summary Appraisal Report is to be used as required in the bond issuance. SCOPE OF THE APPRAISAL It is the intent of this Complete Appraisal that all appropriate data considered pertinent in the valuation of the subject properties be collected, confirmed and reported in a Summary Appraisal Report, in conformance with the Uniform Standards of Professional Appraisal Practice and the guidelines of the California Debt and Investment Advisory Commission. This has included an inspection of the subject properties and their surroundings; review of various maps and documents relating to the properties and the developments which are currently underway and planned; obtaining of pertinent property data on the subject properties; obtaining of comparable land and home sales from a variety of sources; and analysis of all of the data to the value conclusions. DATE OF VALUE The date of value for this appraisal is April 1, 2006. PROPERTY RIGHTS APPRAISED This appraisal is of the fee simple interest in the subject properties, subject to the special tax and assessment liens. DEFINITION OF MARKET VALUE The most probable price, as of a specified date, in cash or in terms equivalent to cash, or in other precisely revealed terms for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably and for self-interest, and assuming that neither is under undue duress. DEFINITION OF FINISHED LOT This term describes the condition of residential lots in a single-family subdivision for detached homes or a subdivision of building pads for attached homes in which the lots or building pads are fully improved and ready for homes to be built. This reflects that the lots or building pads have all development entitlements, infrastructure improvements completed, finish grading completed, all in-tract utilities extended to the property line of each lot or building pad, street improvements completed, common area improvements/landscaping (associated with the tract) completed, resource agency permits (if necessary), and all 8 DEFINITION OF FINISHED LOT, Continuing development fees paid, exclusive of building permit fees, in accordance with the conditions of approval of the specific tract map. DEFINITION OF BLUE-TOP LOT This term describes residential lots in a single-family subdivision for detached homes or a subdivision for attached homes in which the lots or building pads and streets have been rough graded, and the offsite infrastructure of streets and utilities are completed to the tract, but not within the tract. 9 LOCATION MAP 10 GENERAL PROPERTY DATA LOCATION The map on the opposite page indicates the approximate location of Del Sur, with the six tracts and master developer ownership in CFD No. 14 being located to the south and east of Camino Del Sur. This location is in the northern part of the City of San Diego in a newly developing area that includes portions of unincorporated San Diego County nearby to the north, west and east. The 15 Freeway is just over 3 miles to the east, the 5 Freeway is approximately 7 miles to the west and Highway 56 is within 3 miles to the south. GENERAL AREA DESCRIPTION The immediate subject area is located in the northwest part of the City of San Diego, with unincorporated County areas adjacent to the north and nearby to the west and east. The subject area is located about 20 miles northerly of downtown San Diego, and about 8 miles inland of the ocean at Encinitas and Solana Beach. To the north of the subject property is the Santa Fe Valley area, which is mostly a large area of undeveloped and gently undulating land with some scattered homes. Across Camino Del Sur from the northeast part of the subject property is a 17.5-acre site that is currently being developed by Maranatha Christian Schools with a preschool through high school facility. North and northeast of that is the Santa Fe Valley Water Reclamation Facility that was completed several years ago and includes a reservoir and storage pond. East of that are three gated estate communities of Bel Etage, Savenna and Salviati. To the east of the subject property is the undeveloped land for the future phases of Del Sur, and not a part of CFD No. 14. This area will include a wide range of residential development similar to the subject area, but also including higher density attached housing, as well as commercial and mixed-use development, a middle school and a high school. Most of this area is beyond a valley area that lies along the east/southeast part of the subject property. However, adjacent to the east of the subject property along the south side of Camino Del Sur is a narrow open space, then an SDG&E facility, a future fire station site and the Fairbanks Ridge Apartments that are currently under construction and being developed by Chelsea Investment Corp. Farther to the east and northeast is the master-planned community of 4S Ranch that has been developing over the past six years. The community will include a total of ?4,500 dwelling units at build-out, plus much commercial and mixed-use development. The current pricing for new homes in this community ranges from the high $300,000's to near $1,500,000. To the west of the subject property is a tract of new homes under construction called Avaron, being built by Standard Pacific. The homes range in size from 3,951 s.f. to 11 <> n. n_ a 898m man. 258 :00 REE ?.n.Nmm a 9 n. a Bug? EEm.9n_ inn; 9 9 a .5 nE.En Emma. _.fi_mum; mum". .255 a a ammfi: um_._mE 35.3. amn.mE m--m.mm_ Emu mcammuen Eaamgfim Sfium aamum oofimm Sada oS__mm_. 85.3.. mafia: 89:: 8m_hm_. _:mEw1 5.. mum". a mum". dazom a a a .. nm.n.9.m.? muE.__u5_ mfimcncou a n_ a a 32. En_Bm.$ a a a Sc._m.m.m a a a a a3_m_.m.m m. ma am". a a Ema? _n.mE <420 tzmuomm 1.. 6.2 Eu nmam 2.aJn_ San 5m_.omn_ I02: xufim Sauna" .09 9 ad <> 3.3 own; E. 33.9. mmfimfi Ina? mama: Em. tad? m2. am a awn? mam. Er Swami :M.mR_m55.3 at? $5.3 13.: 33. 2.5.2 3.9: 3.53.. E3230 cufiflficou a a 0.8.3 oomwh ms. Sm? 8:2 as. o=_B3 $50 5 n. N363 33.3 Emam un_..m3 23.3 53.3>> 333 .m mm" 39.3 magi: pawn? 33$ moan EmEmmuE._.__ _Fi: dd a 93.3 autos" .rEu._ou._ a a FEE fish 5 Ba. Ba E3 u_mmo.n _3oE.._m a a 393 5 84.3" Ban 3; S_._mmo.n "Ea: mmxfi E. .23.. muunfi uau._.mu mmda EN 2 5 5 5.8: 539 5 So. an 2.3.35 .3935 a 93m n_ 33.. wads to. ucaufi _m 5.8.: SR 3.: $mm..Em_ 33. ED. fifima. a$.8n_ Emu.>> 5. s3_mE.c: 9.3.5: a m8.5h mica nma._m..u_n E. EEmp_n_ .25; 5 a 5 238.. E25: ESE. sewn E2_u_> mm..?m a .. 93.: 5 <> a a H. 55.: Name: mE.wm._. Swan. mi. an a Em_mmw._. .n.mm.m a a a m_m_u9.. unn_.a3 Rm. Ea mE.Em_nm amfiman .Ea.mmu mwm.8n xfimmn w_?__aSu a imam 2.5.3" .353 mzemw 232,." 3n__um 99$ 3&3 Swan 39.. 39.1 53. 33.. 33. 15.5 .B_.a5 5 n. Bn?m amn?m mwunm nmn?z _.mm.m~m Emunma <<.2324 u%u.3E._ 5 a 23.8>> Em.8m _.mm.S_n Emdan n$.E.m Em: . a a Ewan mnamm SE0 . gum a a 93.. 9&8 m._.m._mau mE.Eu awn. Em Hui . 9 398 25.8 :3 In <> m2:fi_. .520 tmmaomm 1. dz Eu awn; . 2.3.. moan Bmaomm 2.52:0: zufim coca JIEP flu v.:U.t gain .33! -23.5 95.9.5 2% 33.3 . 98.2.5 9:955 I :2 .51.. 31" :3 .33 23.. :2 E53. EnSun sum." .30.2. .3. .35.35.. _u.qvc2_m .3: Efix.n5.._ 42.1." :32 2.5.. 4. I .22 X3 uzxfi. 3.353 3.52. .. 2 5.3.. .5. cw .. F. .3 .61: .. . -E53 . . OF humemnm . 2 dz QUALIFICATIONS OF STEPHEN G. WHITE, MAI PROFESSIONAL EXPERIENCE Real Estate Appraiser since 1976. 1983 through current date: Self-employed; office located at 1370 N. Brea Blvd., Suite 205, Fullerton, CA 92835 (Phone: 714-738-1595) 1976-1982: Employed by Cedric A. White, Jr., MAI, independent appraiser located in Anaheim. Real estate appraisals have been completed on most types of properties for purposes of fair market value, leased fee value, leasehold value, easement value, partial acquisitions and severance damages. PROFESSIONAL ORGANIZATIONS Member, Appraisal Institute; MAI designation obtained 1985 Affiliate Member, Pacific West Association of Realtors LICENSES Licensed by the State of California as a Certified General Real Estate Appraiser; OREA ID No. AG013311; valid through September 22, 2006. EDUCATION B.A. Economics & Business, Westmont College, Santa Barbara (1976) Appraisal Institute Courses: Basic Appraisal Principles, Methods and Techniques Capitalization Theory and Techniques Urban Properties Litigation Valuation Standards of Professional Appraisal Practice Numerous seminars and continuing education on various appraisal subjects, including valuation of easements and leased fee interests, litigation, the money market and its impact on real estate, and standards of professional appraisal practice. COURT/TESTIMONY EXPERIENCE Qualified as an expert witness in the Superior Courts of Orange, Los Angeles, Riverside and San Bernardino Counties; also before the Assessment Appeals Board of Orange and Los Angeles Counties. TYPES OF PROPERTY APPRAISED Residential: vacant lots, acreage and subdivisions; single family residences, condominiums, townhomes and apartment complexes. Commercial: vacant lots/acreage; office buildings, retail stores, shopping centers, restaurants, hotels and motels. 71 QUALIFICATIONS, Page 2 Industrial: vacant lots and acreage; warehouses, manufacturing buildings, R&D buildings, industrial parks, mini-warehouses. Special Purpose: mobilehome parks, churches, automobile agencies, medical buildings, convalescent hospitals, easements, leased fee and leasehold interests. CLIENT LIST Corporations: Aera Energy British Pacific Properties BSI Consultants Crown Central Petroleum Eastman Kodak Company Firestone Building Materials Foodmaker Realty Corp. Greyhound Lines Holiday Rambler Corp. International Baking Co. Johnson Controls Kampgrounds of America La Habra Products, Inc. MCP Foods Merrill Lynch Relocation Orangeland RV Park Pacific Scientific Penhall International Pic 'N Save Stores Sargent-Fletcher Co. Shell-Western E&P Southern Distributors Corp. Southern California Edison The Home Depot Tooley and Company Wastewater Disposal Co. Developers: Brighton Homes Citation Builders Davison-Ferguson Investment Devel. D.T. Smith Homes Irvine Company Kathryn Thompson Developers Mark Taylor, Inc. Mission Viejo Co. Premier Homes Presley Homes Rockefeller & Associates Taylor Woodrow Homes Unocal Land & Development Law Firms: Baldikoski, Klotz & Dragonette Best, Best & Krieger Bowie, Arneson, Kadi, Wiles & Giannone Bradshaw, John Bye, Hatcher & Piggott Callahan, McCune & Willis Cooksey, Coleman & Howard Hamilton & Samuels Horgan, Rosen, Beckham & Coren Kent, John Kirkland & Ellis Lathan & Watkins McKee, Charles C. Mosich, Nicholas J. Long, David M. 72 Nossaman, Guthner, Knox & Elliott Oliver, Barr & Vose Ollestad, Freedman & Taylor Palmieri, Tyler, Wiener, Wilhelm & Waldron Paul, Hastings, Jonofsky & Walker Piggott, George B. Pothier, Rose Rosenthal & Zimmerman Rutan & Tucker Sikora & Price, Inc. Smith & Politiski Williams, Gerold G. Woodruff, Spradlin & Smart Yates, Sealy M. QUALIFICATIONS, Page 3 Financial Institutions: Barclays Bank Chino Valley Bank Continental Bank First Interstate Mortgage Security Pacific Bank Washington Square Capital San Clemente Savings & Loan United Calif. Savings Bank National Credit Union Admin. First Wisconsin Bank Ahmanson Trust Company Sunwest Bank City of Anaheim City of Baldwin Park City of Buena Park City of Cypress City of Duarte City of La Habra City of Laguna Beach City of Mission Viejo City of Orange City of Placentia City of Riverside City of Santa Ana City of Santa Fe Springs City of Stanton City of Tustin City of Yorba Linda Cities: Counties: County of Orange County of Riverside Other Governmental: Agua Mansa Industrial Growth Association El Toro Water District Federal Deposit Insurance Corporation (FDIC) Kern County Employees Retirement Association Metropolitan Water District Orange County Water District Trabuco Canyon Water District U.S. Postal Service School Districts: Anaheim Union High School Dist. Banning Unified School Dist. Capistrano Unified School Dist. Castaic Union School Dist. Cypress School Dist. Etiwanda School Dist. Fullerton School Dist. Garden Grove Unified School Dist. Irvine Unified School Dist. Lake Elsinore Unified School Dist. Moreno Valley Unified School Dist. Newhall School Dist. Newport-Mesa Unified School Dist. Placentia-Yorba Linda Unified Dist. Poway Unified School Dist. Rialto Unified School Dist. Saddleback Unified School Dist. Santa Ana Unified School Dist. So. Org. Cnty Comm. College Dist. Temple City School Dist. Churches/Church Organizations: Calvary Church, Santa Ana Central Baptist Church, Pomona Christian & Missionary Alliance Church, Santa Ana Christian Church Foundation Congregational Church, Fullerton First Church of the Nazarene Lutheran Church, Missouri Synod Presbytery of Los Rancho St. Mark's Lutheran Church, Hac. Hts. Vineyard Christian Fellowship Biola University Cedars-Sinai Medical Center Garden Grove Boys' Club The Sheepfold Other: 73 PAGE INTENTIONALLY LEFT APPENDIX MARKET ABSORPTION STUDY D--1 PAGE INTENTIONALLY LEFT MARKET ABSORPTION STUDY COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) POWAY UNIFIED SCHOOL DISTRICT SAN DIEGO COUNTY, CALIFORNIA DEVELOPMENT ACTIVITIY IN A PORTION OF CFD NO. 14 BY EMPIRE ECONOMICS, INC. * MARCH 17, 2006 * Empire Economics A Release Date: March 17, 2006 PAGE INTENTIONALLY LEFT CERTIFICATION OF INDEPENDENCE The Securities & Exchange Commission has recently taken action against Wall Street firms that have utilized their research analysts to promote companies with whom they conduct business, citing this as a potential conflict of interest. Accordingly, Empire Economics (Empire), in order to ensure that its clients are not placed in a situation that could cause such conflicts of interest, provides a Certification of Independence. Specifically, the Certificate states that Empire performs consulting services for public entities only in order to avoid potential conflicts of interest that could occur if it also provided consulting services for developer/builders. For example, if a research firm for a specific Community Facilities District or Assessment District were to provide consulting services to both the public entity as well as the property owner/developer/builder, then a potential conflict of interest could be created, given the different objectives of the public entity versus the property owner/developer. Accordingly, Empire Economics certifies that the Market Absorption Study for the CFD No. 14 (Del Sur) of the Poway Unified School District was performed in an independent professional manner, as represented by the following statements: Empire was retained to perform the Market Absorption Study by the Poway Unified School District, not the District's developer, Black Mountain Ranch, LP, or the various builders. Empire has not performed any consulting services for the District's property owner or the developer/builders during at least the past five years. Empire will not perform any consulting services for the District's property owner or the developer/builders during at least the next three years. Empire's compensation for performing the Market Absorption Study for the District is not contingent upon the issuance of Bonds; Empire's fees are paid on a non-contingency basis. Therefore, based upon the statements set-forth above, Empire hereby certifies that the Market Absorption Study for CFD No. 14 (Del Sur) of the Poway Unified School District was performed in an independent professional manner. ________________________ Empire Economics, Inc. Joseph T. Janczyk, President Empire Economics 1 Release Date: March 17, 2006 INTRODUCTION TO THE BOND FINANCING PROGRAM The Planned Community of Del Sur is located some seven miles from the Pacific Ocean, northerly of SR-56 between Interstates 5 and 15, in San Diego County, California. Del Sur is expected to have a copious amenity package, including neighborhood parks, private pools, community parks and trails as well as a golf course. According to Black Mountain Ranch, LP, the developer, Del Sur is expected to have some 3,000 homes in more than fifteen projects by various builders, such as Standard Pacific Homes, Davidson Construction, William Lyon Homes, Shea Homes and Laing Luxury. Del Sur's products are expected to consist of single-family detached and attached homes with a broad range of prices and living areas. The prices of the homes are expected to be some $814,000, on the average, and they have a range of $589,000 for the smallest attached products to $1,137,500 for the largest single-family home. The sizes of living area are expected to be some 2,490 sq.ft., on the average, and they have a range of 1,643 sq.ft. for the smallest attached product to 3,600 sq.ft. for the largest single-family detached home. The Poway Unified School District was petitioned by Black Mountain Ranch, LP to form Community Facilities District (CFD) No. 14 for the Planned Community of Del Sur as a means of funding a portion of the "public" infrastructure that is required to support the development of its residential projects, particularly school facilities. The Poway Unified School District has retained Empire Economics, Inc., an economic and real estate consulting firm, to perform a Market Absorption Study for the properties/projects that are expected to be included in CFD No. 14 (Del Sur). The purpose of the Market Study for CFD No. 14 is to perform a comprehensive analysis of the relevant economic and real estate factors in order to arrive at an estimate of the probable absorption schedules for the forthcoming residential projects. Specifically, from the viewpoint of Bond Purchasers, the particular components of the infrastructure should be time-phased and location-phased in a manner that approximately coincides with the expected marketability/absorption of the projects in CFD No. 14. Otherwise, to the extent that the infrastructure is not appropriately phased, then the following types of market inefficiencies may occur: On the one hand, if certain projects do not have the infrastructure that is required to support their development in a timely manner, then they would not be able to respond to the demand in the marketplace, resulting in a market shortage. On the other hand, if too much infrastructure is built, then projects for which there is not presently a market demand would incur high carrying costs due to the market surplus, and this could adversely impact their financial feasibility. Thus, the Market Absorption Study assists in the formulation of the appropriate or optimal timephasing and location-phasing of the infrastructure for the properties/projects located in CFD No. 14. Empire Economics 2 Release Date: March 17, 2006 Empire Economics CFD NO.14 (DEL SUR) 3 Release Date: March 17, 2006 SOUTHERN CALIFORNIA MARKET REGION SUHME "Dana ommflom mousocoomm BEEN . . . in. mm mm 1 23 4mm a:P_an .. .. Ham umanfim <>> Market Segments >>> 153 0 38 45 45 25 Active 3rd-2006 $380 $710,429 $728,900 $713,900 $686,900 1,869 1,961 1,930 1,702 153 51 54 48 153 0 153 Standard Pacific Homes 2450 Detached 15095 N/A Bridgewalk 83 0 0 23 35 25 Active 3rd-2006 $311 $779,454 $791,900 $774,900 $769,900 2,507 2,593 2,460 2,463 83 29 31 23 83 0 83 William Lyon Homes 4200 Detached 1E & 2E Alcala $ 700,000 - $799,999 58 0 0 18 40 0 1st-2007 $365 $750,517 $769,000 $777,000 $745,000 $737,000 $715,000 2,059 2,269 2,131 2,000 1,939 1,785 58 20 8 11 7 12 58 0 58 Shea Homes 3600 Detached 15149 & 15165 2C & 9C Madeira II 26 89 0 34 40 15 0 3rd-2007 $344 $756,685 $769,000 $755,000 $743,000 2,203 2,349 2,200 2,020 89 33 30 26 89 0 89 William Lyon Homes 3300 Detached 10A Pasado 70 0 0 5 40 25 Active 2nd-2006 $297 $866,214 $900,000 $885,000 $857,000 $853,000 $827,000 2,914 3,156 3,037 2,861 2,766 2,660 70 11 22 17 6 14 70 0 70 Davidson Construction 6027 Detached 15093 & 15099 1A & 2A Kensington Court 62 0 0 12 40 10 Active 4th-2006 $303 $830,468 $866,000 $829,000 $791,000 2,743 3,000 2,772 2,420 62 23 19 20 62 0 62 Standard Pacific Homes 9000 Detached N/A 9 Cabrillo $ 800,000 - 899,999 . MARCH 17, 2006; SUBJECT TO REVISION . 96 0 31 35 30 0 2nd-2007 $302 $904,271 $925,000 $905,000 $880,000 2,998 3,150 3,000 2,825 96 34 32 30 96 0 96 Standard Pacific 7000 Detached 3&5 108 0 38 40 30 0 2nd-2007 $297 $987,870 $1,021,000 $996,000 $972,000 $947,000 3,331 3,600 3,400 3,200 3,000 108 31 30 26 21 108 0 108 Standard Pacific 8000 Detached 3&5 Product P-5 $ 900,000 - 999,999 Product P-6 76 0 21 30 25 0 2nd-2007 $358 $1,072,974 $1,137,500 $1,063,500 $1,027,500 3,001 3,250 2,975 2,800 76 18 41 17 76 0 76 Laing Luxury 8000 Detached 3&5 Sentinels Above $1,000,000 Release Date: March 17, 2006 70 0 30 40 0 0 1st-2008 $299 $860,657 $900,000 $885,000 $857,000 $853,000 $827,000 2,877 3,156 3,037 2,861 2,766 2,660 70 4 21 23 6 16 70 0 70 Davidson Construction 6027 Detached 9A Del Sur Unit 9A ESTIMATED ABSORPTION SCHEDULES FOR CFD NO. 14 (DEL SUR) 1,148 0 242 358 408 140 $327 $814,109 2,490 1,148 1,148 0 1,148 Annually 1,148 1,148 906 548 140 Cumulatively 2007 30 30 0 40 40 15 40 35 45 38 40 30 0 0 0 10 25 0 0 25 25 40 15 0 Product P-5 Product P-6 Del Sur Unit 9A Cabrillo Kensington Court Pasado Madeira II Alcala Bridgewalk Madeira Cassero Del Sur Clusters Empire Economics 25 0 Sentinels 0 50 100 150 200 250 300 350 400 450 27 45 25 0 45 23 18 40 5 12 40 35 40 30 2008 50 0 0 38 0 0 34 0 0 30 31 38 21 2009 Release Date: March 17, 2006 CFD NO. 14 (DEL SUR) ESTIMATED ABSORPTION SCHEDULES 2006 NUMBER OF HOMES - ANNUALLY 2,000 3,000 4,000 5,000 6,000 9.2% 25.7% 1,590 25.7% 140 1,522 9.2% CFD No. 14 Market Area Capture Rate Empire Economics 408 2006 0 1,000 2007 MARKET AREA DEMAND AND CFD ABSORPTION 7,000 21.6% 1,658 358 2008 21.6% 28 14.0% 1,725 242 2009 14.0% Release Date: March 17, 2006 17.7% 6,496 1,148 2006-2009 17.7% CFD NO. 14 (DEL SUR) ABSORPTION SCHEDULE AS WELL AS THE CAPTURE RATE 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CAPTURE RATE OF CFD TO MARKET AREA POTENTIAL "FINANCIAL" RISK FACTORS UNDERLYING THE CREDIT QUALITY AND BOND SIZING FOR LAND SECURED FINANCINGS IN SOUTHERN CALIFORNIA There has recently been a substantial amount of discussion on the potential for a housing market bubble, including remarks of "froth in some local markets" by the former Federal Reserve Board Chairman, Alan Greenspan, based primarily upon the use of exotic mortgage structures; these remarks have dealt with the housing market on a national as well as a regional level. However, developing Planned Communities have characteristics that differentiate them from broader markets: they represent the marketing of new homes to purchasers at current prices that exclusively utilize current mortgage rates and financing structures, and they are also concentrated in particular geographical locations. The purpose of this section is to focus specifically on the potential implications of the recent use of adjustable rate and creative financing techniques that are presently available for home purchasers on the credit quality underlying land-secured financings in Southern California. There has been a fundamental shift in the driving force underlying the recent rates of housing price appreciation, from the historical role of employment growth as the driving force to the recent role of adjustable rate and creative financing techniques as the driving force. These financial factors have been the primary driving force underling the extraordinary rate of housing price appreciation in Southern California of more than 75% since January 2002. Consequently the current levels of housing prices and land values are subject to potentially substantial downward adjustments, due to mortgage rate resets (as mortgages are adjusted from teaser rates to market rates) as well as higher short-term rates (due to rate hikes by the Federal Reserve Board). These adjustments, in turn, may cause a softening in housing prices and land values that could adversely impact the credit quality underlying land-secured financings. Creative financing refers to the use of loan structures other than fixed-rate or 1 year adjustable, including the following: interest only, payment option loans as well as initial teaser rates (below market rates that are offered only for a limited time period) with very low initial payments that result in negative amortizations (higher principal balance), less stringent lending standards such as low/no documentation, and much higher mortgage payment to income ratios, among others. Structural Shift of Factors Underlying Housing Price Appreciation Since January 2002 there has been a fundamental shift in the primary factor underlying housing price appreciation in Southern California; the primary driving force was initially declining mortgage rates as well as the extensive use of adjustable and creative financing as compared to the traditional driving force of strong employment growth. Specifically, the term "driving force" is utilized herein to refer to a SIGNIFICANT CHANGE in a major economic/financial factor that has STRONG DISCERNIBLE IMPACT on housing prices. Empire Economics 29 Release Date: March 17, 2006 January 2002 through June 2003: The rates on fixed 30-year mortgage loans declined to recent historic lows in June 2003, and were a driving force underlying the rate of housing price appreciation of some 13.4% on an annualized basis; however, since June 2003, fixed rate mortgages have been ABOVE their recent historic lows. July 2003 to March 2004: As fixed mortgage rates rose, purchasers shifted to adjustable rate mortgages which offered significantly lower rates, and these were a driving force underlying the rate of housing price appreciation of some 18.8% on an annualized basis; however, since March 2004, adjustable rates have been ABOVE their recent historic lows. April 2004 - Presently: As adjustable mortgage rates rose due to the Federal Reserve Board increasing the federal funds rate, home buyers shifted to various types of creative financial structures, and these were a driving force underlying the rate of housing price appreciation of some 24.1% on an annualized basis; however, since Fall-2005, some lenders have started to tighten their qualification standards. Potential Adjustments for Mortgage Payments The extensive use of adjustable rate mortgages and also creative mortgage structures since June 2003 means that such homeowners have monthly mortgage payments which are subject to significant upward adjustments due to automatic mortgage rate resets as well as potentially higher interest rates: Mortgage Resets (Stable Mortgage Rates) reflect the changes in mortgage payments that households with adjustable and creative mortgage structures will incur as the initial "teaser" rates are realigned with the current "market" rates. The dollar volume of mortgages subject to resets for the United States mortgage market is expected to increase from $83 billion in 2005 to more that $1 trillion in 2007. Higher Mortgage Rates would result in even higher monthly payments for homeowners with adjustable rate mortgages as well as creative mortgage structures; the increase in their mortgage payments depends upon the degree to which short-term rates rise. The recent use of adjustable rate and creative financing techniques by home purchasers is especially significant for residential land secured financings, since these financings are predominately for developing Planned Communities that represent the marketing of new homes to purchasers at current prices that exclusively utilize current mortgage rates and financing structures and they are also concentrated in particular geographical locations. Specific Impacts of Rate Resets and Higher Mortgage Rates on the Land Secured Credit Quality To the extent that mortgage payments rise due to various possible combinations of automatic mortgage rate resets as well as potentially higher short-term rates that directly impact adjustable rate and creative mortgages, then the credit quality underlying recent land-secured financings may be diminished in the following ways: Empire Economics 30 Release Date: March 17, 2006 Lower housing prices resulting in a higher Special Tax to Housing Price Burden for homeowners, possibly in excess of the Issuer's policy of a maximum total tax burden, typically some 1.8% to 2.0% of the initial sales prices, even though these maximums may have been satisfied at the time that the Special Taxes were established. Significantly lower land values resulting in a reduced Value/Lien ratio, possibly below the Issuer's policy of typically some 3 to 1 or 4 to 1 when the bonds are sold, thereby diminishing the security for bond holders. (The Appraisal for the Bond Issue is valid only for the stated Date of Value; it is not meant to be a prediction of future values.) Higher levels of Special Tax delinquencies as monthly payments of owners increase resulting in diminishing the maximum Special Tax to the bond debt service coverage ratios for bond holders that may adversely impact the Issuer's ability to meet the debt service payments in a timely manner, possibly resulting in the use of the bond reserve fund. Adjustable rate mortgages (some 79% of current mortgages) have significantly higher delinquency rates than fixed rate mortgages; additionally, homeowners that use adjustable rate mortgages also have higher loan to value ratios as well, some 90% as compared to homeowners with fixed rate loans, some 81%. Accordingly, in arriving at these conclusions, this section systematically discusses the following: 1. Recent Shift in the Primary Factors Underling Housing Price Appreciation 2. Financial Factors "Driving" Recent Housing Price Appreciation 3. Mortgage Rate Resets: Realignment of Adjustable/Creative Loans to Market Rates 4. Mortgage Rate Increases: Potential for Further Federal Reserve Board Rate Hikes 5. Specific Impacts of Higher Mortgage Rates on the Land-Secured Credit Quality This section should not be construed as a forecast that mortgage rates will rise significantly in the foreseeable future; rather, it sets forth the POTENTIAL risk factors that mortgage rate resets as well as higher mortgage rates along with the near-term policy of the Federal Reserve Board would have on the credit quality underlying land-secured financings. Empire Economics acknowledges that financial markets, due to their high degree of economic efficiency and complexity, are difficult to forecast, and, as such, the use of the term "Potential" Risk Factor is regarded as being appropriate. Empire Economics 31 Release Date: March 17, 2006 1. Recent Shift in the Primary Factors Underlying Housing Price Appreciation The primary factors underlying housing price appreciation in Southern California since January 2002, declining mortgage rates as well as the extensive use of adjustable and creative financing, represent a fundamental shift from the traditional factor, employment growth. Specifically, the term "driving force" is utilized herein to refer to a SIGNIFICANT CHANGE in a major economic/financial factor that has STRONG DISCERNIBLE IMPACT on housing prices. During 1984-2001 housing price appreciation was driven by employment growth, along with accommodating financial factors, such as stable or somewhat declining mortgage rates. During this time period financial factors played only a secondary role: for instance, during 1991-1993 when employment decreased, housing prices declined, even though mortgage rates fell by more than two percentage points from their 1989-1990 levels. However, since January 2002, as housing prices escalated at strong rates, the primary fundamental factor, employment growth, has experienced only minimal growth, less than 1% per year, on the average. Instead, housing price appreciation has been driven primarily by financial factors, particularly the use of adjustable rate mortgages and creative financing techniques. SOUTHERN CALIFORNIA EMPLOYMENT, HOUSING PRICES AND MORTGAGE RATES, HOUSING PRICE CHANGES DRIVEN BY EMPLOYMENT CHANGES 30% MORTGAGE RATES 10.31% 9.86% 7.75% 6.93% 20% 7.35% 7.26% 6.05% 25% CHANGES IN EMPLOYMENT AND HOUSING PRICE APPRECIATION 0% SINCE 2002, EMPLOYMENT GROWTH HAS BEEN MINIMAL YET PRICE APPRECIATION HAS BEEN STRONG 20% -20% 18.70% 15% 8.56% 9.81% 10% STRONG EMPLOYMENT RESULTED IN STRONG HOUSING PRICE APPRECIATION -40% 4.68% 9.63% -60% 3.94% 5% 2.77% 2.24% 2.44% 1.20% -2.29% 0.69% -80% 0% -1.37% -4.70% Empire Economics -5% -100% 1984-1988 1989-1990 Employment Changes 1991-1993 1994-1995 1996-1998 Mortgage Rates - Fixed 1999-2001 2002-2005 Housing Price Changes Sources: Empire Economics, Employment Development Department, Freddie Mac & Office of Federal Housing During 2002 to 2005 financial factors have been the strong driving force underlying the rates of housing price appreciation. Specifically, the rates of housing price appreciation have been generally similar among all of the Southern California counties, despite their differences in geographic location, employment growth and housing supply. Empire Economics 32 Release Date: March 17, 2006 The rates of employment growth for the counties varied substantially during 2002 to 2005, from a low of -1.15% per year for Los Angeles County to a high of 4.60% per year for Riverside-San Bernardino counties. The supply of new housing has also exhibited a wide variation during 2002 to 2005 as compared to 1999-2001, from declines of -26% in Ventura County and -14% in Orange County to increases of 80% in Riverside-San Bernardino counties. Therefore, the financial factors have been so strong that they have effectively overshadowed other possible explanatory factors such as geographical location, employment growth and housing supply. 2. Financial Factors "Driving" Recent Housing Price Appreciation in Southern California The particular factors that have been the driving forces underlying recent strong rates of housing price appreciation in Southern California during January 2002 through 2005 are now discussed. Specifically, the factors which have driven housing prices since January 2002 started with fixed mortgage rates declining to recent historic lows, then a shift to adjustable rate mortgages, and, most recently, a shift to "creative" mortgage structures. January 2002 to June 2003: Prices Driven by Declining Fixed Rates; Fixed Rates Now Higher Fixed-rate 30-year mortgage loans declined from 7.00% in January 2002 to a low of 5.23% in June 2003, and were a driving force underlying the rate of housing price appreciation of some 13.4% on an annualized basis. Since June 2003, rates on fixed rate mortgages have been ABOVE their recent historic lows and, as such, they are no longer considered to be a driving force underlying housing price appreciation. RECENT MORTGAGE RATE TRENDS: FIXED-RATE MORTGAGE LOANS 8.00% 7.00% MORTGAGE RATES 6.00% 5.00% 4.00% 3.00% TRENDLINE: FIXED RATE MORTGAGES DECLINE TRENDLINE FIXED RATE MORTGAGES RISE TO HISTORIC LOWS 2.00% FIXED RATE MORTGAGES AT HISTORIC LOWS: JUNE 2003 1.00% 0.00% October July -- . 2005 April January - .2005 October July -- . 2004 April January - .2004 October July -- . 2003 April January - .2003 October July -- . 2002 April January - .2002 Sources: Empire Economics & Freddie Mac Empire Economics 33 Release Date: March 17, 2006 July 2003 to March 2004: Prices Driven by Adjustable Rate Loans; Adjustable Rates Higher Starting in July 2003, as rates on fixed rate mortgages rose, households shifted to adjustable rate mortgages which offered favorable terms, due to the Federal Reserve Board maintaining a low federal funds rate, and these attained a recent historic low of 3.41%. During the July 2003 to March 2004 time period, adjustable rates were significantly below fixed rates of by some 215 basis points. The use of adjustable rates were a driving force underlying the rate of housing price appreciation of some 18.8% on an annualized basis. Since March 2004, the rates on adjustable rate mortgages have been ABOVE their recent historic lows, and, as such, they are no longer considered to be a driving force underlying housing price appreciation. RECENT MORTGAGE RATE TRENDS: 1-YEAR ADJUSTABLE RATE LOANS 6.00% FEDERAL RESERVE BOARD LOWERS THE FEDERAL FUNDS RATES DUE TO THE NASDAQ MELTDOWN AND 9-11 ATTACKS. FEDERAL RESERVE BOARD RAISES THE FEDERAL FUNDS RATE DUE TO INFLATIONARY CONCERNS. 5.00% MORTGAGE RATES 4.00% 3.00% TRENDLINE ADJUSTABLE RATE MORTGAGES DECLINE 2.00% TRENDLINE ADJUSTABLE RATE MORTGAGES ADJUSTABLE RATE MORTGAGES AT HISTORIC LOWS: MARCH 2004 1.00% 0.00% November September July -- . 2005 May March January - .2005 November September July -- . 2004 May March January - .2004 November September July -- . 2003 May March January - .2003 November September July -- . 2002 May March January - .2002 Sources: Empire Economics & Freddie Mac For Southern California, the percentage of adjustable rate loans has risen dramatically, from 19% in 2001 to 79% during 2005; conversely, fixed rate loans have decreased from 81% in 2001 to only 21% in 2005. Additionally, each of the Southern California counties exhibited a similar pattern in the shift from fixed-rate to adjustable rate mortgages as well. TYPES OF MORTGAGE LOANS - SOUTHERN CALIFORNIA 100% 90% 80% SHARE OF LOANS 70% 60% 50% 40% 30% 20% 10% 0% 2001 2002 2003 Share-Fixed 2004 2005 Share-Variable Sources: Empire Economics, Mortgage Bankers Association & Real Property Fil Empire Economics 34 Release Date: March 17, 2006 Furthermore, for Southern California, the ratio of the mortgage loans (first and seconds) to the housing purchase prices during 2001 to 2005 has risen for homeowners with adjustable rate mortgages as compared to homeowners with fixed-rate loans. For homeowners with adjustable rate loans, the ratio of their loans to the purchase price of the homes has risen from 85% in 2001 to 90% in 2005, a gain of five percentage points. While for homeowners with fixed-rate mortgages the ratio of their loans to the purchase price of their homes has declined from 87% in 2001 to 81% in 2005, a decrease of six percentage points. So, homeowners with adjustable rate mortgages have substantially higher amounts of mortgage debt (90%) as compared to homeowners with fixed rate mortgages (81%). LOAN TO VALUE RATIOS - SOUTHERN CALIFORNIA FIXED-RATE VS. VARIABLE-RATE LOANS 100% SHARE OF LOANS 95% 90% 85% 80% 75% 2001 2002 2003 Fixed: Loan/Value 2004 2005 Variable: Loan/Value Sources: Empire Economics, Mortgage Bankers Association & Real Property Fil April 2004 to Present: Prices Driven by Shifting to Creative Loan Structures: Since April 2004, as adjustable rates rose due to the Federal Reserve Board increasing the federal funds rate, home buyers shifted to various types of creative financial structures. These have been the driving force underlying the rate of housing price appreciation of some 24.1% on an annualized basis. Creative financing refers to the use of loan structures other than fixed-rate or 1 year adjustable, including the following: interest only, payment option loans as well as initial teaser rates such as 1% for the first year that results in negative amortizations (higher principal balance), less stringent lending standards such as low/no documentation, and much higher mortgage payment to income ratios, among others. During the 2001 to 2004 time period, for the United States as a whole, there has been a dramatic shift from fixed rate to adjustable rate loans: fixed rate mortgage loans declined from 75% in 2001 to only 19% in 2004. Adjustable rates that were amortized (interest and principal) rose from 20% to 29% while adjustable rates that are interest only (no reduction of principal) rose dramatically, from 5% in 2001 to 53% in 2004. Empire Economics 35 Release Date: March 17, 2006 RECENT TRENDS FOR VARIOUS MORTGAGE LOAN STRUCTURES FIXED RATE, ADJUSTABLE RATE AND INTEREST ONLY 100% 90% PERCENTAGE OF HOME BUYERS 80% 70% 60% 50% 40% 30% 20% 10% 0% Fixed Rate ARM- Amortized 2001 2002 2003 ARM-Interest Only 2004 Sources: Empire Economics, Loan Performance & Mortgage Bankers Association Conclusions In conclusion, since January 2002, the primary driving force underlying housing price appreciation has been households initially taking advantage of recent historically low fixed rates through June 2003, then a shift to adjustable rate mortgages through March 2004, and finally, since then, the use of creative financing structures. Specifically, for the same monthly mortgage payment, the use of lower mortgage rates and creative mortgage structures has bolstered housing prices substantially since January 2002. RELATIONSHIP OF HOUSING PRICE APPRECIATION AND TYPES OF MORTGAGE FINANCINGS 50% Shift to Creative Structures; April 2004 to December 2005, Appreciation: 42.1% 45% APPRECIATION RATES - TIME PERIODS 40% 35% 30% 25% 20% 15% Fixed Rates Decline: Jan-2002 to June 2003 Appreciation: 20.1% Shift to Variable Rates: July-2003 to March 2004 Appreciation: 14.1% 10% 5% 0% Sources: Empire Economics & Office of Federal Housing Empire Economics 36 Release Date: March 17, 2006 3. Mortgage Rate Resets: Realignment of Adjustable/Creative Loans to Market Rates There may be some softness in housing prices and land values even if mortgage rates remain stable during the foreseeable future, as households with various types of "adjustable rate" and "creative" debt structures have their initial teaser rates realigned to the current market rates. The resets are expected to generally result in higher monthly payments for homeowners since both the fixed as well as adjustable rate loans attained their recent historical lows in June 2003 and March 2004, respectively, and, since then, these rates have moved upwards: Fixed Rate Loans were recently at some 6.32%, some 109 basis points above their recent historic low. Adjustable Rate Loans were recently at some 5.22%, some 181 basis points above their recent historic lows. With regard to the amount of mortgages that are subject to such resets, based upon data for the United States mortgage market as a whole, these are expected to rise dramatically, from some $0.83 billion in 2005 to more that $1.0 trillion in 2007. ESTIMATED MORTGAGE LOAN - RESETS VARIABLE RATE LOANS WITH ADJUSTABLE MORTGAGE RATES $1.20 $1.001 MORTGAGE LOANS - TRILLIONS $$$ $1.00 $0.80 $0.60 $0.40 $0.330 $0.20 $0.083 $0.00 2005 2006 Mortgage Loans - TRILLIONS 2007 Sources: Empire Economics & DB Global Markets Research The specific types of resets that may occur for adjustable rate and creative loan structures as rates are realigned with the marketplace are as follows: Adjustable Rate Mortgages are expected to have upward reset adjustments to their monthly payments as a result of the Federal Reserve Board's policy since June 2004 which has caused the short end of the yield curve to rise significantly. The one-year adjustable loans, which were at their recent historic lows in March 2004, have started to have higher monthly payments, and such loans are now some 181 basis points above their cyclical lows. Empire Economics 37 Release Date: March 17, 2006 For instance, a household that entered into an adjustable rate loan in March 2004 with a rate of 3.41% would encounter an approximate adjustment in March 2005 to a rate of 4.23%. This represents an increase of some 82 basis points which results in the household's mortgage payment rising by some 24%. So, for a household with a monthly mortgage payment of some $2,000 per month, their payment would increase to some $2,480 per month. Creative Mortgage Structures will undergo reset adjustments over time as the starter teaser rates are adjusted to their market rates. Since creative mortgages are typically based upon short-term rates and also have further adjustments due to teaser rates, then the mortgage payments of such households may rise by much more than for adjustable rate mortgages. So, households with adjustable and creative mortgage structures will encounter higher mortgage payments as their initial teaser rates are realigned to the market rates which have significantly higher mortgage payments due to the recent hikes of the federal funds rate by the Federal Reserve Board. For example, the types of adjustments that may occur for various loan structures can be gauged by comparing their initial payments with their payments at the start of year six, after the five year time span during which rates are fixed at a low level; accordingly, these adjustments for various interest rate scenarios are as follows: Mortgage Loan of $500,000 Fixed Rate 30- Year Hybrid ARM Interest Only Option ARM Initial Min. Pymts. $2,998 (Interest & Principal) $2,553 (Interest Only) $1,608 (Minimum Payments) (Negative Amortization) Rates Decline 100 BP Payment: Start of Sixth-Yr. Change from Initial Pymt. $2,998 0% $2,960 16% $3,289 105% Rates Stable Payment: Start of Sixth-Yr. Change from Initial Pymt. $2,998 0% $3,260 28% $3,575 122% Rates Rise 100 BP Payment: Start of Sixth-Yr. Change from Initial Pymt. $2,998 0% $3,513 38% $3,928 144% Initial Payments - First Five Years Homeowners with fixed rate mortgages can expect stable mortgage payments of some $2,998 per year for the entire term of the loan of 30 years, regardless of what happens to mortgage rates after they originate their loans. Homeowners with Hybrid ARM Interest Only Loans have lower payments for the initial five years but can then expect higher mortgage payments starting in year six: from $2,553 to $3,260 (+28%) if rates are stable or, if rates rise by 100 basis points (one percent), from $2,553 to $3,513 (+38%). Homeowners with Option ARMs that initially make minimum payments (negative amortization) of some $1,608 can expect very significant increases in their monthly payments at the start of year six: from the initial payment of $1,608 to $3,575 (+122%) if rates are stable, or if rates rise by 100 basis points, from $1,608 to $3,928 (+144%). Empire Economics 38 Release Date: March 17, 2006 Additionally, the mortgage delinquency levels for homeowners with adjustable and creative mortgages have traditionally been significantly higher than for homeowners with fixed rate loans. This is typically attributed to homeowners with adjustable rate loans having difficulty with higher mortgage payments as rates rise as well as such households having "low" equity levels (due to higher loan to price ratios as well as negative amortization), and hence less of an incentive to "hold-on" to the home, especially if the rate of appreciation diminishes. During the 2000-2005 time period, the 5.4% delinquency rate for adjustable rate loans has been above the 3.6% delinquency rate for fixed rate loans by some 50% (5.4% vs. 3.6%.). DELINQUENCY RATES: FIXED-RATE VS. VARIABLE-RATE LOANS 7% 6% PERCENTAGE OF LOANS 5% 4% 3% 2% 1% 0% 2000 2001 2002 Fixed-Rate 2003 2004 2005 Variable-Rate Sources: Empire Economics & National Delinquency S 4. Mortgage Rate Increases: Potential for Further Federal Reserve Board Rate Hikes Since the financial markets, being very efficient, are difficult to forecast, especially mid-term and longterm rates, it is not the position of Empire Economics to forecast that mortgage rates will rise. Nevertheless, it is worthwhile to explore the potential implications of the Federal Reserve Board continuing its current policy of increasing the federal funds rate, since this directly impacts the shortend of the yield curve, and, in turn, adjustable rate mortgage rates as well as the creative mortgage structures. The Federal Reserve Board, according to some analysts, is expected to raise the federal funds rate to some 4.75%, significantly above its prior level of 1.0% in June 2004; the federal funds rate is presently at 4.50%. Consequently, the primary driving forces underlying the strong rates of housing price appreciation, adjustable rates and creative financing structures, will diminish substantially over time. (Note: Since the recent fixed rate of some 6.32% is some 110 basis points above the recent one-year adjustable rate of 5.22%, even a moderate decline in fixed rates would not become a driving force for further price appreciation because they are significantly higher than adjustable rates.) Empire Economics 39 Release Date: March 17, 2006 Therefore, further increases in the federal funds rate will result in the short-term rates rising, and this, in turn, will cause the following: Existing Borrowers would have higher monthly payments as adjustable rate mortgages rise and creative teaser rates are realigned to HIGHER market rates, as compared to the current market rates. New Borrowers would face HIGHER rates, reducing their ability to qualify for loans that support existing prices, thereby placing downward pressure on home prices. RECENT MORTGAGE RATES FIXED AND ADJUSTABLE AND THE FEDERAL RESERVE BOARD 8.00% PRICE APPRECIATION: --------- 13.4%/yr--------------.||-----------------18.8%/yr --------------|| ----------------------------------24.1%/yr------------------- MORTGAGE AND FINANCIAL RATES 7.00% 6.00% FIXED RATE MORTGAGES RISE 5.00% FIXED RATE MORTGAGES AT HISTORIC LOWS: JULY 2003 4.00% ADJUSTABLE RATE MORTGAGES RISE 3.00% ADJUSTABLE RATE MORTGAGES AT HISTORIC LOWS: MARCH 2004 2.00% 1.00% FEDERAL RESERVE BOARD RAISES THE FEDERAL FUNDS RATES DUE TO POTENTIAL INFLATIONARY PRESSURES. FEDERAL RESERVE BOARD LOWERS THE FEDERAL FUNDS RATES DUE TO NASDAQ MELTDOWN AND 9-11 ATACKS. 0.00% January - .2006 October July -- . 2005 April January - .2005 October Fixed: 30-Yr July -- . 2004 April January - .2004 October July -- . 2003 April January - .2003 October July -- . 2002 April January - .2002 Federal Funds Variable 1-Yr Sources: Empire Economics, Federal Reserve Board & Freddie Mac 5. Specific Impacts of Higher Mortgage Rates on the Land-Secured Credit Quality The widespread use of adjustable rate and creative financing for newly developing residential projects has significant implications for the Credit Quality underlying Land Secured Financing: Special Tax Rates set-forth in the Rate and Method of Apportionment of Special Taxes are based upon current housing prices which have recently realized strong rates of appreciation as a result of the utilization of adjustable and creative financing techniques by home purchasers. Empire Economics 40 Release Date: March 17, 2006 Appraisals are based upon current land values, which, in turn, are derived from current housing prices, that have appreciated at a strong rate in recent years, and so they also reflect the use of adjustable and creative financing techniques. Furthermore, since the value of the land is a residual value, that is, the price of the home less the construction costs of building the home, most of the decline in the price of a home is passed through to the land, since construction costs are relatively stable in the short-run. For example, if a home with an initial price of $400,000 declines to $350,000, a reduction of some -$50,000 or -12.5%, the value of the finished lot for the same sized home declines from $149,000 to $113,600, a reduction of -$35,400 or -23.8%. Similarly, a decline in the price of a home by 25% results in a reduction of the value of a finished lot for the same sized home by some 48%! (Note: The above discussion focuses on the value of a finished lot which includes entitlements and infrastructure improvements; by comparison, the value of "raw" land, land without any entitlements or infrastructure improvements, may approach zero.) CHANGES IN HOUSING PRICES AND FINISHED LOT LAND VALUES * LAND VALUES DELCINE AT A FASTER RATE 0% CHANGES IN HOUSING PRICES AND LAND VALUES 0.0% 0.0% -6.3% -10% -11.9% -12.5% -20% -18.8% -23.8% -25.0% -30% -35.7% -40% -47.6% -50% -60% Price $ 400,000 Price $ 400,000 to $375,000 Price $ 400,000 to $350,000 Change in Housing Prices Price $ 400,000 to $325,000 Price $ 400,000 to $300,000 Change in Finished Lot Value Therefore, the Credit Quality underlying Land Secured Financings reflects the use of current prices and land values, and, as such, includes, among other factors, the underlying use of adjustable and creative loan structures by homeowners. Consequently, should mortgage rates rise significantly, the Credit Quality of the land secured bonds is subject to substantial weakening due to the following: Lower housing prices resulting in a higher Special Tax to Home Price Burden for homeowners, possibly in excess of the Issuer's policy of a maximum total tax burden, typically some 1.8% to 2.0% of the initial sales prices, even though these maximums may have been satisfied at the time that the Special Taxes were established. Empire Economics 41 Release Date: March 17, 2006 Significantly lower land values resulting in a reduced Value/Lien ratio, possibly below the Issuer's policy of typically some 3 to 1 or 4 to 1 when the bonds are sold, thereby diminishing the security for bond holders. (The Appraisal for the Bond Issue is valid only for the stated Date of Value; it is not meant to be a prediction of future values.) Higher levels of Special Tax delinquencies as monthly payments of owners increase resulting in diminishing the maximum Special Tax to the bond debt service coverage ratios for bond holders that may adversely impact the Issuer's ability to meet the debt service payments in a timely manner, possibly resulting in the use of the bond reserve fund. Adjustable rate mortgages (some 79% of current mortgages) have significantly higher delinquency rates than fixed rate mortgages; additionally, homeowners that use adjustable rate mortgages also have higher loan to value ratios as well, some 90% as compared to homeowners with fixed rate loans, some 81%. Therefore, as mortgage rate resets occur to the current market rates, and furthermore, to the extent that mortgage rates rise further, then the Credit Quality for Land Secured financing may be diminished, resulting in Higher Tax Burdens due to lower housing prices, Lower Value/Lien Ratios due to lower land values, and Higher Special Tax Delinquencies due to higher monthly mortgage payments. 6. Recent Trends/Patterns for "Notices of Default" for Mortgages A "leading" indicator of higher Special Tax delinquency rates may be "notices of default" (NOD) that are recorded against homes that are not making their mortgage payments on a timely basis. The NOD hit a prior peak in 1996, due to the adverse impacts that the economic recession had on the housing market, and then declined thereafter. However, for 2005 as compared to 2004, the level of NODs began to rise, by some 15.6% for California, 19.6% for Southern California and 34.5 for San Diego County. So, although the number of NODs is well below the prior peak levels of 1996, the recent patterns of increases should be monitored carefully. RECENT TRENDS FOR "NOTICES OF DEFAULT" FOR MORTGAGES 40% 300,000 34.5% 30% 250,000 20% NUMBER OF DEFAULTS 15.6% 10% 200,000 162,597 0% 150,000 -10% 109,122 -20% 100,000 51,900 59,996 -30% 50,000 29,806 RATIO OF DEFAULTS: 2005 VS.2004 19.6% 35,648 -40% 11,621 3,488 4,692 -50% 0 California Prior Peak: 1996 Southern California 2004 2005 San Diego County Change: 2005 vs.2004 Source: Dataquick & Empire Economics Empire Economics 42 Release Date: March 17, 2006 ASSUMPTIONS AND LIMITING CONDITIONS The Market Absorption Study for CFD No. 14 is based upon various assumptions and limiting conditions; accordingly, these are as follows: Title to Property Property Boundaries Accuracy of Information from Others Date of Study Hidden or Unapparent Conditions Opinions of a Legal/Specialized Nature Right of Publication of Report Soil and Geological Studies Earthquakes and Seismic Hazards Testimony or Court Attendance Maps and Exhibits Environmental and Other Regulations Required Permits and Other Governmental Authority Liability of Market Analyst Presence and Impact of Hazardous Material Structural Deficiencies of Improvements Presence of Asbestos Acreage of Property Designated Economic Scenario Provision of the Infrastructure; Role of Coordinator Developer/Builders Responsiveness to Market Conditions Financial Strength of the Project Developer/Builder Market Absorption Study Timeliness of Results For additional information on the various assumptions and limiting conditions, please refer to the comprehensive Market Absorption Study. Empire Economics 43 Release Date: March 17, 2006 PAGE INTENTIONALLY LEFT APPENDIX SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURES PAGE INTENTIONALLY LEFT SUMMARY OF CERTAIN PROVISIONS OF THE CFD BOND INDENTURE RELATED TO THE 2006 CFD BONDS The following summary discussion of selected provisions of the CFD Bond Indenture is made subject to all of the provisions of such document. This summary discussion does not purport to be a complete statement of such provisions and prospective purchasers of the 2006 CFD Bonds are referred to the complete text of the CFD Bond Indenture, copies of which are available upon request sent to the Fiscal Agent. As used in this summary, the term "Bonds" refers to the 2006 CFD Bonds and the term "Indenture" refers to the 2006 CFD Bonds. Definitions "Act" means the "Mello-Roos Community Facilities Act of 1982", as amended, being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California. "Administrative Expense Fund" means the fund by that name established pursuant to the Indenture. "Administrative Expenses" means the expenses directly related to the administration of the District, including, but not limited to, the following: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the School District or a designee thereof or both); the costs of collecting the Special Taxes (whether by the County, the School District or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties of the Fiscal Agent required under the Indenture; the costs of the School District, the District or any designee thereof of complying with the arbitrage rebate requirements; the costs of the School District, the District, or any designee thereof of complying with School District, District or obligated person disclosure requirements associated with applicable federal or state securities laws and of the Act; the costs associated with preparing the Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the School District, District or any designee thereof related to an appeal of the Special Tax; and the costs of any credit enhancement obtained by the School District or the District. Administrative Expenses shall also include Delinquency Collection Expenses. "Administrative Expense Requirement" means an annual amount equal to $50,000 which amount shall escalate by 2% in each Bond Year beginning September 2, 2007. "Annual Debt Service" means, for each Bond Year, the sum of (a) the interest payable on the Outstanding Bonds in such Bond Year, and (b) the principal amount of the Outstanding Bonds scheduled to be paid in such Bond Year, including from mandatory sinking fund payments. "Authorized Representative" of the District means the Superintendent, or the Deputy Superintendent, or any other person designated in writing by the Superintendent or the Deputy Superintendent acting on behalf of the District under or with respect to the Indenture and all other agreements related hereto. "Average Annual Debt Service" means, as of the date of any calculation, the average annual debt service on the Bonds based upon a Bond Year during the current or any future Bond Year. "Bond Counsel" means an attorney or firm of attorneys, selected by the District, of nationally recognized standing in matters pertaining to the tax treatment of interest on bonds issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of the State. E-1 "Bondowner" or "Owner," or any similar term, means any person who shall be the registered owner or his duly authorized attorney, trustee, representative or assign of any Outstanding Bond which shall at the time be registered. "Bonds" means the $51,515,000 Poway Unified School District Community Facilities District No. 14 (Del Sur) 2006 Special Tax Bonds, issued pursuant to the Indenture. "Bond Service Fund" means the fund created and established pursuant to the Indenture. "Bond Year" means each twelve-month period extending from September 2 in one calendar year to September 1 of the succeeding calendar year, except in the case of the initial Bond Year which shall be the period from the Delivery Date to September 1, 2006. "Business Day" means a day that is not a Saturday or a Sunday or a day of the year on which banks in New York, New York and Los Angeles, California, or where the Principal Corporate Trust Office is located, are not required or authorized to remain open. "Capitalized Interest Sub-Account" means the account by that name established within the Interest Account of the Bond Service Fund pursuant to the Indenture. "Code" means the Internal Revenue Code of 1986, as amended. "Comptroller of the Currency" means the Comptroller of the Currency of the United States. "Delinquency Collection Expenses" means those fees and expenses of the District incurred by or on behalf of the District in or related to the collection of delinquent Special Taxes. "Costs of Issuance" means all of the costs of issuing the Bonds, including but not limited to, all printing and document preparation expenses in connection with the Indenture and any Supplemental Indenture, the Bonds, and any and all other agreements, instruments, certificates or other documents issued in connection therewith; any computer and other expenses incurred in connection with the Bonds; the initial fees and expenses of the Fiscal Agent (including without limitation, legal fees, acceptance fees, and first annual fees payable in advance); the fees and expenses of the appraiser, market absorption consultant, Bond Counsel, disclosure counsel, special tax consultant and other fees and expenses incurred in connection with the issuance of the Bonds, to the extent such fees and expenses are approved by the District. "Costs of Issuance Fund" means the fund by that name established pursuant to the Indenture. "Delinquency Proceeds" means the net amounts collected from the redemption of delinquent Special Taxes including the penalties and interest thereon and from the sale of property sold as a result of the foreclosure of the lien of the Special Tax resulting from the delinquency in the payment of Special Taxes due and payable on such property and net of County of San Diego, foreclosure counsel, and other fees and expenses incurred by or on behalf of the District or the School District in undertaking such foreclosure proceedings. "Delivery Date" means the date on which the Bonds are issued and delivered to the initial purchaser thereof. "Depository" means DTC and its successors and assigns or if (1) the then Depository resigns from its functions as securities depository of the Bonds, or (2) the District discontinues use of the Depository E-2 pursuant to the Indenture, any other securities depository which agrees to follow procedures required to be followed by a securities depository in connection with the Bonds and which is selected by the District. "Deputy Superintendent" means the Deputy Superintendent of the School District, acting for and on behalf of the District "District" means Community Facilities District No. 14 (Del Sur) of the Poway Unified School District. "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. "Fiscal Agent" means Zions First National Bank, and any successor thereto. "Fiscal Year" means the 12 month period beginning July 1 of each year and terminating on June 30 of the following year, or any other annual accounting period hereinafter selected and designated by the District as its fiscal year in accordance with applicable law. "Government Obligations" means obligations described in Paragraph 1 of the definition of Permitted Investments. "Gross Proceeds" has the meaning ascribed to such term in Section 148(f)(6) of the Code. "Indenture" means the Bond Indenture, as amended or supplemented pursuant to the terms thereof. "Independent Accountant" means any certified public accountant or firm of such certified public accountants appointed and paid by the District, and who, or each of whom: 1. is in fact independent and not under domination of the District or the School District; 2. does not have any substantial interest, direct or indirect, in the District or the School District; and 3. is not an officer or employee of the District or the School District, but who may be regularly retained to make annual or other audits of the books of or reports to the School District or the District. "Interest Account" means the account by that name established within the Bond Service Fund pursuant to the Indenture. "Interest Payment Date" means March 1 and September 1 of each year, commencing September 1, 2006 as to the Bonds. "Investment Agreement" means any investment satisfying the requirements of Paragraph 11 of the definition of Permitted Investments. "Legislative Body" means the Board of Education of the School District, acting as the legislative body of the District. "Maximum Annual Debt Service" means, as of the date of any calculation, the largest Annual Debt Service during the current or any future Bond Year. "Moody's" means Moody's Investors Service, its successors and assigns. E-3 "Net Special Tax Revenues" means Special Tax Revenues minus amounts applied to pay the Administrative Expense Requirement. "Nominee" means the nominee of the Depository that may be the Depository, as determined from time to time by the Depository. "Outstanding" means as to the Bonds, all of the Bonds, except: 1. 2. 3. Bonds theretofore canceled or surrendered for cancellation in accordance with the provisions of the Indenture; Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Fiscal Agent pursuant to the terms the Indenture; and Bonds for the payment or redemption of which monies shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds); provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the Indenture or any applicable Supplemental Indenture. "Participant" means a member of or participant in the Depository. "Permitted Investments" means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein (the Fiscal Agent shall be entitled to rely upon any written investment direction from an Authorized Representative of the District as a certification to the Fiscal Agent that such investment constitutes a Permitted Investment): 1. A. Direct obligations (other than an obligation subject to variation in principal payment) of the United States of America ("United States Treasury Obligations"); B. Obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America; C. Obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America; or D. Evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated. 2. Federal Housing Administration debentures. 3. The listed obligations of government-sponsored agencies which are not backed by the full faith and credit of the United States of America: A. Federal Home Loan Mortgage Corporation (FHLMC) (1) Participation certificates (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) E-4 (2) Senior Debt obligations. B. Farm Credit Banks (formerly: Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) (1) Consolidated system-wide bonds and notes. C. Federal Home Loan Banks (FHL Banks) (1) Consolidated debt obligations. D. Federal National Mortgage Association (FNMA) (1) Senior debt obligations (2) Mortgage-backed securities (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts). E. Student Loan Marketing Association (SLMA) (1) Senior debt obligations (excluded are securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date). F. Financing Corporation (FICO) (1) Debt obligations. G. Resolution Funding Corporation (REFCORP) (1) Debt obligations. 4. Unsecured certificates of deposit, time deposits, deposit accounts and bankers' acceptances (having maturities of not more than 30 days) of any bank the short-term obligations of which are rated "A-1" or better by S&P. 5. Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5 million. 6. Commercial paper (having original maturities of not more than 270 days rated "A-1" by S&P and "Prime-1" by Moody's. 7. Money market funds rated "AAm-1" or "AAm-G" by S&P, or better. 8. State Obligations, which means: A. Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated "A3" by Moody's and "A" by S&P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. B. Direct general short-term obligations of any state agency or subdivision or agency thereof described in (A) above and rated "A-1+" by S&P and "Prime-1" by Moody's. E-5 C. 9. Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state, state agency or subdivision described in (A) above and rated "AA" or better by S&P and "Aa" or better by Moody's. Pre-refunded municipal obligations rated "AAA" by S & P and "Aaa" by Moody's meeting the following requirements: A. B. the municipal obligations are secured by cash or United States Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations; C. the principal of and interest on the United States Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations ("Verification"); D. the cash or United States Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; E. no substitution of a United States Treasury Obligation shall be permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and F. 10. the municipal obligations are (1) not subject to redemption prior to maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; the cash or United States Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. Repurchase agreements: With (1) any domestic bank, or domestic branch of a foreign bank, the long term debt of which is rated at least "A" by S&P and Moody's; or (2) any broker-dealer with "retail customers" or a related affiliate thereof which broker-dealer has, or the parent company (which guarantees the provider) of which has, long-term debt rated at least "A" by S&P and Moody's, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation, or (3) any other entity rated "A" or better by S&P and Moody's, provided that: A. The market value of the collateral is maintained at levels and upon such conditions as would be acceptable to S & P and Moody's to maintain an "A" rating in an "A" rated structured financing (with a market value approach); B. The Fiscal Agent or a third party acting solely as agent therefor or for the District (the "Holder of the Collateral") has possession of the collateral or the collateral has been transferred to the Holder of the Collateral in accordance with applicable state and federal laws (other than by means of entries on the transferor's books); E-6 C. The Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); D. The repurchase agreement shall provide that if during its term the provider's rating by either Moody's or S&P is withdrawn or suspended or falls below "A-" by S&P or "A3" by Moody's, as appropriate, the provider must, at the direction of the District or the Fiscal Agent, within 10 days of receipt of such direction, repurchase all collateral and terminate the agreement, with no penalty or premium to the District or Fiscal Agent. Notwithstanding the above, collateral levels need not be as specified in "A" above, so long as such collateral levels are 103% or better and the provider is rated at least "A" by S&P and Moody's, respectively. 11. Investment agreements with a domestic or foreign bank or corporation the long-term debt or financial strength of which, it or its guarantor is rated at least "AA-" by S&P and "Aa3" by Moody's; provided that, by the terms of the investment agreement: A. the invested funds are available for withdrawal without penalty or premium, upon not more than seven days' prior notice; the District and the Fiscal Agent hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; B. the investment agreement shall state that it is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof; or, in the case of a bank, that the obligation of the bank to make payments under the agreement ranks pari passu with the obligations of the bank to its other depositors and its other unsecured and unsubordinated creditors; C. the District and the Fiscal Agent receives the opinion of domestic counsel that such investment agreement is legal, valid, binding and enforceable upon the provider in accordance with its terms and of foreign counsel (if applicable); D. the investment agreement shall provide that if during its term (1) the provider's rating by either S&P or Moody's falls below "AA-" or "Aa3," respectively, the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (a) collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider's books) to the District, the Fiscal Agent or a Holder of the Collateral free and clear of any third-party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to S & P and Moody's to maintain an "A" rating in an "A" rated structured financing (with a market value approach); or (b) transfer and assign the investment agreement to a then qualifying counterparty with ratings specified above; and (2) the provider's rating by either S&P or Moody's is withdrawn or suspended or falls below "A-" or "A3", respectively, the provider must, E-7 within 10 days of the date of such withdrawal, suspension or reduction of the provider's rating, repay the principal of and accrued but unpaid interest on the investment; E. the investment agreement shall state and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); F. the investment agreement must provide that if during its term (1) (2) 12. the provider shall default in its payment obligations, the provider's obligations under the investment agreement shall, at the direction of the District or the Fiscal Agent, be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or Fiscal Agent, as appropriate, and the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. ("Event of Insolvency"), the provider's obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or Fiscal Agent, as appropriate. The Local Agency Investment Fund (LAIF) administered by the treasurer of the State to the extent such deposits remain in the name of and control of the Fiscal Agent. "Prepayments" means Special Tax Revenues identified to the Fiscal Agent by an Authorized Representative as representing a prepayment of the Special Tax. "Principal Account" means the account by such name established in the Bond Service Fund pursuant to the Indenture. "Principal Corporate Trust Office" means the office of the Fiscal Agent at 550 South Hope Street, Suite 2650, Los Angeles, CA 90071 or such other offices as may be specified to the District by the Fiscal Agent in writing. "Rebate Fund" means the fund by that name established pursuant to the Indenture. "Record Date" means the fifteenth (15th) calendar day of the month immediately preceding an Interest Payment Date whether or not such day is a Business Day. "Redemption Fund" means the fund by that name established pursuant to the Indenture. "Regulations" means the regulations promulgated under the Internal Revenue Code of 1986, as amended. "Reserve Fund" means the fund by that name established pursuant to the Indenture. "Reserve Requirement" means an amount initially equal to $4,600,987.30 which amount shall, as of any date of calculation, be equal to the least of (i) Maximum Annual Debt Service for the Bonds, (ii) one hundred twenty-five percent (125%) of Average Annual Debt Service for the Bonds, or (iii) ten percent E-8 (10%) of the original principal amount of the Bonds less original issue discount, if any, plus original issue premium, if any, applicable to the Bonds. "School District" means the Poway Unified School District. "School Facilities" means the types of facilities described in Exhibit A to Resolution No. 41-2006 of the Board of Education of the School District. "School Facilities Fund" means the fund by that name established pursuant to the Indenture. "Special Tax" means the special tax authorized to be levied in the District to finance the acquisition or construction of the School Facilities pursuant to the Act and the Special Taxes RMA. "Special Tax Consultant" means any person or firm possessing demonstrated experience and expertise in the preparation of special tax formulas and/or the administration of special taxes levied for community facilities districts. Any such person or firm shall be appointed and paid by the District and who, or each of whom: 1. is in fact independent and not under domination of the District or the School District; 2. does not have any substantial interest, direct or indirect, in the District or the School District; and 3. is not an officer or employee of the District or the School District, but who may be regularly retained by the School District or other community facilities districts formed by the School District to administer the levy of special taxes within such community facilities districts. "Special Tax Fund" means the fund by that name established pursuant to the Indenture. "Special Tax Revenues" means (a) the proceeds of the Special Tax levied and received by the District, and (b) the Delinquency Proceeds. "Special Tax RMA means the rate and method of apportionment of the Special Tax approved at the special election held in the District on January 17, 2006, as may be modified from time to time in accordance with the Act. "Standard & Poor's" or "S&P" means Standard & Poor's Rating Services, its successors and assigns. "State" means the State of California. "Superintendent" means the Superintendent of the School District, acting for and on behalf of the District. "Supplemental Indenture" means any bond indenture then in full force and effect which has been duly approved by resolution of the Legislative Body under and pursuant to the Act at a meeting of the Legislative Body duly convened and held, at which a quorum was present and acted thereon, amendatory hereof or supplemental to the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized pursuant to the Indenture. "Supplement to Mitigation Agreement" means the Supplement to Subarea I Black Mountain Ranch Phase II School Impact Mitigation Agreement dated January 1, 2006, by and between the School District and Black Mountain Ranch Limited Partnership. E-9 "Tax Exempt" means, with reference to a Permitted Investment, a Permitted Investment the interest earnings on which are excludable from gross income for federal income tax purposes pursuant to Section 103(a) of the Code, other than one described in section 57(a)(5)(C) of the Code. "Term Bonds" means the Bonds maturing on September 1, 2018, the Bonds maturing on September 1, 2026, and the Bonds maturing on September 1, 2036. "Yield" has the meaning assigned to such term for purposes of Section 148(f) of the Code. Establishment of Funds and Accounts Special Tax Fund. (a) The District shall, no later than the tenth (10th) Business Day after which Special Tax Revenues, as applicable, have been received by the District and in any event not later than February 15th and August 15th of each year, transfer such Special Tax Revenues to the Fiscal Agent and, except as set forth in the following sentence, such amounts shall be deposited in the Special Tax Fund. (b) With the exception of Special Tax Revenues representing Prepayments which shall be transferred pursuant to the provisions of clause (c) below, the Special Tax Revenues deposited in the Special Tax Fund shall be held in trust or transferred to the following other funds and accounts on the dates and in the amounts set forth in the following paragraphs and in the following order of priority: (1) The Fiscal Agent shall each Fiscal Year transfer to the Administrative Expense Fund from the first Special Tax Revenues received by the Fiscal Agent during such Fiscal Year an amount equal to the Administrative Expense Requirement. (2) The Fiscal Agent shall deposit in the Interest Account of the Bond Service Fund, on each Interest Payment Date and date for redemption of the Bonds, an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest due or becoming due and payable on such Interest Payment Date on all Outstanding Bonds or to be paid on the Bonds being redeemed on such date. (3) The Fiscal Agent shall deposit in the Principal Account of the Bond Service Fund, on each Interest Payment Date and redemption date on which the principal of the Bonds shall be payable, pursuant to the Indenture, an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of, and premium (if any) on, the Bonds coming due and payable on such Interest Payment Date, or required to be redeemed on such date pursuant to the Indenture. (4) On or after March 2 and September 2 of each year after making the transfer and deposits required under (1) through (3) above, the Fiscal Agent shall transfer the amount, if any, necessary to replenish the amount then on deposit in the Reserve Fund to an amount equal to the Reserve Requirement. (5) On or after September 2 of each year after making the deposits and transfers required under (1) through (4) above, upon receipt of written instructions from an E-10 Authorized Representative, the Fiscal Agent shall transfer from the Special Tax Fund to the Rebate Fund the amount specified in such request. (6) On or after September 2 of each year after making the deposits and transfers required under (1) through (5) above, upon receipt of a written request of an Authorized Representative, the Fiscal Agent shall transfer from the Special Tax Fund to the Administrative Expense Fund the amounts specified in such request to pay those Administrative Expenses which the District reasonably expects (a) will become due and payable during such Fiscal Year or the cost of which Administrative Expenses have previously been incurred and paid by the District from funds other than the Administrative Expense Fund, and (b) the cost of which Administrative Expenses will be in excess of the Administrative Expense Requirement for such Fiscal Year. (7) If, on or after September 2 of each year, after making the deposits and transfers required under (1) through (6) above, monies remain in the Special Tax Fund, such monies shall remain on deposit in the Special Tax and shall be subsequently deposited or transferred pursuant to the provisions of (1) through (6) above, provided, however, that if the District notifies the Fiscal Agent that the levy of Special Taxes on Developed Property exceeds the Special Tax Requirement (as defined in the Special Tax RMA), the excess monies may be paid to the School District to be used to pay for the acquisition, construction, rehabilitation, and improvement of School Facilities. (c) The Fiscal Agent shall, upon receipt of Special Tax Revenues representing Prepayments together with written instructions of the District executed by an Authorized Representative, immediately transfer such Prepayments pursuant to such written instructions into the Interest Account of the Bond Service Fund and the Redemption Fund, as applicable, and utilize such funds to pay the interest and premium, if any, on and principal of Bonds to be redeemed pursuant to the provisions of the Indenture. The Fiscal Agent may conclusively rely upon such instructions. (d) When there are no longer any Bonds Outstanding, any amounts then remaining on deposit in the Special Tax Fund shall be transferred to the District and used for any lawful purpose under the Act. Bond Service Fund. Interest Account. All moneys in the Interest Account, including the proceeds of the Bonds deposited in the Capitalized Interest Sub-Account, pursuant to the Indenture to fund interest on the Bonds through September 1, 2007, shall be used and withdrawn by the Fiscal Agent solely for the purpose of paying interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity). Principal Account. All moneys in the Principal Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of (i) paying the principal of the Bonds at the maturity thereof, or (ii) paying the principal of the Term Bonds upon the mandatory sinking fund redemption thereof pursuant to the Indenture. E-11 Costs of Issuance Fund. The Fiscal Agent shall, upon the written requisition of the District executed by an Authorized Representative, disburse money from the Costs of Issuance Fund, if any, on such dates and in such amounts as specified in such requisition to pay the Costs of Issuance related to the Bonds. Any amounts remaining on deposit in the Costs of Issuance Fund on the earlier of the date on which all Costs of Issuance have been paid as stated in writing by an Authorized Representative delivered to the Fiscal Agent or six months after the Delivery Date shall be transferred to the School Facilities Fund. School Facilities Fund The Fiscal Agent shall, from time to time, disburse monies from the School Facilities Fund to pay School Facilities Costs. Upon receipt of a payment request of the District duly executed by an Authorized Representative in substantially the form attached to the Indenture, the Fiscal Agent shall pay the School Facilities Costs from amounts in the School Facilities Fund directly to the contractor or such other person, corporation or entity entitled to payment thereunder (including reimbursements, if any, to the District) unless the District requests payment to be made to the contractor or such other party jointly, in which case said School Facilities Costs shall be paid jointly. The Fiscal Agent may rely on an executed payment request as complete authorization for said payments. After the final payment or reimbursement of all School Facilities Costs as certified by delivery of a written notice from an Authorized Representative to the Fiscal Agent, the Fiscal Agent shall transfer excess monies, if any, on deposit in, or subsequently deposited in, the School Facilities Fund to the Special Tax Fund and the Fiscal Agent shall apply the amount so transferred in accordance with the Indenture. Upon such transfer, the School Facilities Fund shall be closed. Notwithstanding anything in the Indenture to the contrary, if on the date which is three (3) years from the Delivery Date of the Bonds, any funds derived from the Bonds remain on deposit in the School Facilities Fund, upon written instruction from the District, the Fiscal Agent shall restrict the Yield on such amounts so that the Yield earned on the investment of such amounts is not in excess of the Yield on the Bonds, unless in the written opinion of Bond Counsel delivered to the Fiscal Agent such restriction is not necessary to prevent an impairment of the exclusion of interest on the Bonds from gross income for federal income tax purposes. Reserve Fund Moneys on deposit in the Reserve Fund shall be used solely for the purpose of paying the principal of and interest on the Bonds as such amounts shall become due and payable in the event that the moneys in the Special Tax Fund and the Bond Service Fund for such purpose are insufficient therefor or redeeming Bonds as described below. The Fiscal Agent shall, when and to the extent necessary, withdraw money from the Reserve Fund and transfer such money to the Bond Service Fund or the Redemption Fund for such purpose. All Authorized Investments in the Reserve Fund shall be valued at their fair market value at least semi-annually on March 1 and September 1. On any date after the transfers to the Administrative Expense Fund and the Interest Account of the Bond Service Fund have been made for any Bond Year, if the amount on deposit in the Reserve Fund is less than the Reserve Requirement, the Fiscal Agent shall transfer to the Reserve Fund from the first available monies in the Special Tax Fund, an amount necessary to increase the balance therein to the Reserve Requirement. If on March 1 or on September 1, or on the first Business Day thereafter if March 1 or September 1 is not a Business Day, of each year, the amount on deposit in the Reserve Fund is in excess of the Reserve Requirement, the Fiscal Agent shall transfer such excess (a) to the School Facilities Fund until the earlier of (i) the final payment or reimbursement of E-12 all School Facilities Costs or (ii) June 1, 2009 and (b) thereafter to the Interest Account of the Bond Service Fund. In connection with any optional redemption of Bonds, amounts on deposit in the Reserve Fund which would be in excess of the Reserve Requirement following such redemption shall be transferred to the Redemption Fund or the Interest Account of the Bond Service Fund, as applicable, prior to such redemption and applied to such redemption of Bonds pursuant to written instructions of the District executed by an Authorized Representative. Upon receipt of written instructions of the District executed by an Authorized Representative instructing the Fiscal Agent to transfer certain moneys representing a Reserve Fund credit for a Prepayment pursuant to the Special Tax RMA, the Fiscal Agent shall transfer the amount specified in such instructions from the Reserve Fund to the Redemption Fund for the purpose of redeeming Bonds pursuant to such instructions. Whenever the balance in the Reserve Fund and the Bond Service Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall transfer the amount in the Reserve Fund to the Redemption Fund to be applied, on the next succeeding interest payment date, to the payment and redemption of all of the Outstanding Bonds. In the event that the amount so transferred from the Reserve Fund to the Redemption Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the District to be used for any lawful purpose of the District as set forth in the Act. Rebate Fund. The District shall calculate Excess Investment Earnings as defined in, and in accordance with, the Tax Certificate, and shall, in writing, direct the Fiscal Agent to transfer funds to the Rebate Fund from funds furnished by the District as provided for in the Indenture and the Tax Certificate. Moneys in the Rebate Fund shall be used to pay rebate to the United States government upon written instruction from the District or as otherwise directed in writing by the District. Notwithstanding the foregoing, the Tax Certificate may be modified, in whole or in part, without the consent of the Owners of the Bonds, upon receipt by the District of an opinion of Bond Counsel to the effect that such modification shall not adversely affect the exclusion from gross income of interest on the Bonds then Outstanding for federal income tax purposes. The Fiscal Agent shall not be responsible for calculating rebate amounts or for the adequacy or correctness of any rebate report or rebate calculations. The Fiscal Agent shall be deemed conclusively to have complied with the provisions of the Indenture regarding calculation and payment of rebate if it follows the directions of the District and it shall have no independent duty to review such calculations or enforce the compliance by the District with such rebate requirements. Redemption Fund Monies shall be deposited into the Redemption Fund by the Fiscal Agent pursuant to the provisions of the Indenture and shall be set aside and used solely for the purpose of redeeming Bonds in accordance with written instructions of the District executed by an Authorized Representative given in accordance with the Indenture. Following the redemption of any Bonds, if any funds remain in the Redemption Fund, such funds shall be transferred to the Special Tax fund. E-13 Administrative Expense Fund. The Fiscal Agent shall deposit from time to time the amounts authorized for deposit therein pursuant to the Indenture. The moneys in the Administrative Expense Fund shall be used to pay Administrative Expenses from time to time upon receipt by the Fiscal Agent of a written request of the District executed by an Authorized Representative specifying the name and address of the payee and the amount of the Administrative Expense and a description thereof and further stating that such request has not formed the basis of any prior request for payment. Investment of Funds. Unless otherwise specified in the Indenture, monies in the Special Tax Fund, as applicable, the Bond Service Fund, the School Facilities Fund, the Reserve Fund, the Costs of Issuance Fund, and the Administrative Expense Fund shall, at the written direction of the District executed by an Authorized Representative given at least two (2) days prior, be invested and reinvested in Permitted Investments (including investments with the Fiscal Agent or an affiliate of the Fiscal Agent or investments for which the Fiscal Agent or an affiliate of the Fiscal Agent acts as investment advisor or provides other services so long as the investments are Permitted Investments). Monies in the Redemption Fund and the Rebate Fund shall, at the written direction of District executed by an Authorized Representative, be invested in Government Obligations or money market funds comprised solely of Government Obligations and rated in the highest rating category of S&P. Notwithstanding anything in the Indenture to the contrary, in the absence of written investment instructions, the Fiscal Agent shall invest solely in investments identified in paragraph 7 of the definition of Permitted Investments. Any Permitted Investments that are registerable securities shall be registered in the name of the Trustee. The District acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the District the right to receive brokerage confirmations of security transactions as they occur, the District specifically waives receipt of such confirmations to the extent permitted by law. The Fiscal Agent will furnish the District periodic cash transaction statements, which include detail for all investment transactions made by the Fiscal Agent pursuant to the Indenture. The Fiscal Agent shall not be required to provide statements for accounts with zero balances. Obligations purchased as investments of monies in any fund or account shall be deemed at all times to be a part of such fund or account. Except as provided otherwise in the Indenture, any income realized on or losses resulting from investments in any fund or account shall be credited or charged to such fund or account. Subject to the restrictions set forth in the Indenture and/or any written investment instructions received by Fiscal Agent pursuant to the Indenture, moneys in all funds and accounts, except for the Reserve Fund, shall be invested in Authorized Investments maturing, or with respect to which payments of principal and interest are scheduled or otherwise payable, not later than the date on which it is estimated that such moneys will be required by the Fiscal Agent for the purposes specified in the Indenture. With respect to amounts in the Reserve Fund, if such investments may be redeemed without penalty or premium on the business day prior to each Interest Payment Date, 100% of the amount on deposit in the Reserve Fund may be invested in such redeemable investments of any maturity on or prior to the final maturity of the Bonds. Authorized Investments purchased under a repurchase agreement may be deemed to mature on the date or dates on which the Fiscal Agent may deliver such Authorized Investments for repurchase under such agreement. The Fiscal Agent shall sell or present for redemption any obligations so purchased whenever it may be necessary to do so in order to provide monies to meet any payment or transfer for such funds and E-14 accounts or from such funds and accounts. The Fiscal Agent shall not be liable for any loss from any investments made or sold by it in accordance with the provisions of the Indenture. The Fiscal Agent is authorized, in making or disposing of any investment permitted by the Indenture, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Fiscal Agent or for any third person or dealing as principal for its own account. Amendments or Supplements. The Legislative Body may, by adoption of a resolution from time to time, and at any time but without notice to or consent of any of the Bondholders, approve a Supplemental Indenture hereto for any of the following purposes: (a) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provision with respect to matters or questions arising under the Indenture or in any Supplemental Indenture, provided that such action shall not adversely affect the interests of the Bondowners; (b) to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in the Indenture, other covenants, agreements, limitations and restrictions to be observed by the District which are not contrary to or inconsistent with the Indenture as theretofore in effect; (c) to modify, alter, amend or supplement the Indenture in any other respect which is not materially adverse to the interests of the Bondowners; or (d) to amend any provision of the Indenture relating to the Code as may be necessary or appropriate to assure compliance with the Code and the exclusion from gross income of interest on the Bonds. Exclusive of the Supplemental Indenture hereto provided for in the preceding paragraph, the Owners of not less than 60% in aggregate principal amount of the Bonds then Outstanding shall have the right to consent to and approve the adoption by the District of such Supplemental Indenture as shall be deemed necessary or desirable by the District for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Indenture; provided, however, that nothing herein shall permit, or be construed as permitting, (a) an extension of the maturity date of the principal of, or the payment date of interest on, any Bond, or (b) a reduction in the principal amount of, or redemption premium on, any Bond or the rate of interest thereon without the consent of the affected Bondowner(s), or permit, or be construed as permitting, (x) a preference or priority of any Bond or Bonds over any other Bond or Bonds, (y) a reduction in the aggregate principal amount of the Bonds the Owners of which are required to consent to such Supplemental Indenture, or (z) creating of a pledge of or lien or charge upon the Special Tax Revenues, as applicable, superior to the pledge provided for of the Indenture, without the consent of the Owners of all Bonds then Outstanding. If at any time the District shall desire to approve a Supplemental Indenture, which shall require the consent of the Bondowners, the District shall so notify the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplemental Indenture. The District shall, at the expense of the District, cause notice of the proposed Supplemental Indenture to be mailed, postage prepaid, to all Bondowners at their addresses as they appear in the bond register. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a copy thereof is on file at the principal office of the District for inspection by all Bondowners. The failure of any Bondowner to receive such notice shall not E-15 affect the validity of such Supplemental Indenture when consented to and approved as provided for in the Indenture. Whenever at any time within one year after the date of the first mailing of such notice, the District shall receive an instrument or instruments purporting to be executed by the Owners of not less than 60% in aggregate principal amount of the Bonds then Outstanding, which instrument or instruments shall refer to the proposed Supplemental Indenture described in such notice, and shall specifically consent to the approval thereof by the Legislative Body substantially in the form of the copy thereof referred to in such Notice as on file with the District, such proposed Supplemental Indenture, when duly approved by the Legislative Body, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of 60% of the aggregate principal amount of the Bonds have consented to the approval of any Supplemental Indenture, Bonds which are owned by the District or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the District, shall be disregarded and shall be treated as though they were not outstanding for the purpose of any such determination. Upon the approval of any Supplemental Indenture hereto and the receipt of consent to any such Supplemental Indenture from the Owners of the appropriate aggregate principal amount of Bonds in instances where such consent is required, the Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the District and all Owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced under the Indenture, subject in all respects to such modifications and amendments. Notwithstanding anything in the Indenture to the contrary, no Supplemental Indenture shall be entered into which would modify the duties of the Fiscal Agent under the Indenture, without the prior written consent of the Fiscal Agent. Ownership of Bonds. The person in whose name any Bond shall be registered shall be deemed and regarded as the absolute Owner thereof for all purposes, and payment of or on account of the principal and redemption premium, if any, of any such Bond, and the interest on any such Bond, shall be made only to or upon the order of the registered Owner thereof or his legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond, including the redemption premium, if any, and interest thereon, to the extent of the sum or sums so paid. Mutilated, Lost, Destroyed or Stolen Bonds. If any Bond shall become mutilated, the Fiscal Agent shall authenticate and deliver a new Bond of like tenor, date and maturity in exchange and substitution for the Bond so mutilated, but only upon surrender to the Fiscal Agent of the Bond so mutilated. Every mutilated Bond so surrendered to the Fiscal Agent shall be canceled. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Fiscal Agent and, if such evidence is satisfactory to the Fiscal Agent and, if an indemnity satisfactory to the Fiscal Agent shall be given, the Fiscal Agent shall authenticate and deliver a new Bond of like tenor and maturity, numbered and dated as the Fiscal Agent shall determine in lieu of and in substitution for the Bond so lost, destroyed or stolen. Any Bond issued in lieu of any Bond alleged to have been lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of the Indenture with all other Bonds secured by the Indenture. The Fiscal Agent shall not treat both the original Bond and any replacement Bond as being Outstanding for the purpose of determining the principal amount of Bonds which may be executed, authenticated and delivered under the Indenture or for the purpose of determining any percentage of Bonds Outstanding under the Indenture, but both the original and replacement Bond shall be treated as one and the same. E-16 Covenants. General. As long as the Bonds are Outstanding and unpaid, the District, acting on behalf of the District, shall (through its proper members, officers, agents or employees) faithfully perform and abide by all of the covenants and agreements set forth in the Indenture; provided, however, that said covenants do not require the District to expend any funds other than the Special Tax Revenues, as applicable. Covenant to Foreclose. On or before June 1 of each Fiscal Year, the District will review the public records of the County of San Diego, California, in connection with the Improvement Area B Special Tax, as applicable, levied in such Fiscal Year to determine the amount of such Special Tax actually collected in such Fiscal Year. If the District determines that (a) any single parcel subject to such Special Tax is delinquent in the payment of such Special Taxes in the aggregate of $5,000 or more or (b) any single parcel or parcels under common ownership subject to such Special Tax are delinquent in the payment of such Special Taxes in the aggregate of $10,000 or more, the District shall, not later than forty five (45) days of such determination, send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner. The District shall cause judicial foreclosure proceedings to be commenced and filed in the Superior Court not later than ninety (90) days of such determination against any parcel for which a notice of delinquency was given pursuant to this section and for which such Special Taxes remain delinquent. With respect to aggregate delinquencies throughout the District, if the District determines that it has collected less than 95% of such Special Taxes levied in the such Fiscal Year, then the District shall, not later than forty five (45) days of such determination, send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the owner of each delinquent parcel (regardless of the amount of such delinquency). The District will cause judicial foreclosure proceedings to be commenced and filed in the Superior Court not later than ninety (90) days of such determination against any parcel for which a notice of delinquency was given pursuant to this section and for which such Special Taxes remain delinquent. Protection of Security. The District shall preserve and protect the security of the Bonds and the rights of the Bondowners and defend their rights against all claims and demands of all persons. Until such time as an amount has been set aside sufficient to pay Outstanding Bonds at maturity or to the date of redemption if redeemed prior to maturity, plus unpaid interest thereon and premium, if any, to maturity or to the date of redemption if redeemed prior to maturity, the District will faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture or in any Bond issued under the Indenture. No Senior or Parity Liens. The District will not issue any other obligations payable, principal or interest, from the Special Taxes which have, or purport to have, any lien upon such Special Taxes superior to or on a parity with the lien of the Bonds herein authorized. Nothing in the Indenture shall prevent the District from issuing and selling, pursuant to law, refunding bonds or other refunding obligations payable from and having a first lien upon such Special Taxes on a parity with the Outstanding Bonds so long as the issuance of such refunding bonds or other refunding obligations results in a reduction in the Annual Debt Service on the Bonds and such refunding bonds or other refunding obligations taken together. Levy of Special Taxes. The District shall comply with all requirements of the Act so as to assure the timely collection of the Special Taxes. The District shall annually ascertain the parcels on which the Special Taxes are to be levied in the following Fiscal Year, taking into account any subdivisions of parcels during the current Fiscal Year. The District shall effect the levy of such Special Tax in accordance with the Special Tax RMA and the Act each Fiscal Year so that the computation of such levy is complete and transmitted to the Auditor of the County of San Diego before the final date on which the Auditor of the County of San Diego will accept the transmission of the Special Tax for the parcels within the District for inclusion on the next real property tax roll. Upon completion of the computation of the amount of such Special Tax levy, the District shall prepare or cause to be prepared, and shall transmit or cause to be E-17 transmitted to the Auditor of the County of San Diego, such data as such Auditor requires to include the levy of the Special Tax on the next real property tax roll. To the maximum extent that the law permits it to do so, the District covenants, that it shall not initiate proceedings to reduce the Maximum Special Tax, unless, in connection therewith, (i) the District receives a certificate from one or more Special Tax Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in the District as of the July 1 preceding the reduction, the Maximum Special Tax (as such term is defined in the Special Tax RMA) which may be levied on all Assessor's Parcels (as such term is defined in the Special Tax RMA) of Developed Property in each Fiscal Year will equal at least 110% of the gross debt service on all Bonds to remain Outstanding after the reduction is approved and will not reduce the Maximum Special Tax payable from Assessor's Parcels of Developed Property is located to less than 110% of Maximum Annual Debt Service, and (ii) the Board of Education, acting as the Legislative Body of the District, finds pursuant to the Indenture that any reduction made under such conditions will not adversely affect the interests of the Owners of the Bonds. Any reduction in the Maximum Special Tax approved pursuant to the preceding sentence may be approved without the consent of the Owners of the Bonds. The District covenants that, in the event that any initiative is adopted by the qualified electors which purports to reduce the Maximum Special Tax below the levels authorized pursuant to the Special Tax RMA, the District shall, from funds available hereunder, commence and pursue legal action in order to preserve the authority and power of the District to levy such Special Taxes pursuant to such Special Tax RMA. Proper Books and Records. The District will at all times keep, or cause to be kept, proper and current books and accounts (separate from all other records and accounts) in which complete and accurate entries shall be made of all transactions relating to the Special Tax Revenues, as applicable, and other funds provided for by the Indenture. Tax Covenants. The District will not directly or indirectly use or permit the use of any proceeds of the Bonds or any other funds of the District or take or omit to take any action that would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code, or obligations which are "federally guaranteed" within the meaning of Section 149(b) of the Code. The District will not allow five percent (5%) or more of the proceeds of the Bonds to be used in the trade or business of any nongovernmental units and will not loan five percent (5%) or more of the proceeds of the Bonds to any nongovernmental units. The District covenants that it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the interest on the Bonds under Section 103 of the Code. The District will not directly or indirectly use or permit the use of any proceeds of the Bonds or any other funds of the District, or take or omit to take any action, that would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the District will comply with all requirements of Section 148 of the Code to the extent applicable to the Bonds. In the event that at any time the District is of the opinion that for purposes of the Indenture it is necessary to restrict or limit the yield on the investment of any monies held under the Indenture or otherwise the District shall so instruct the Fiscal Agent in writing, and the Fiscal Agent shall take such action as may be necessary in accordance with such instructions. Without limiting the generality of the foregoing, the District agrees that there shall be paid from time to time all amounts required to be rebated to the United States of America pursuant to Section 148(f) the Code and any temporary, proposed, or final Treasury Regulations as may be applicable to the Bonds from time to time. This covenant shall survive payment in full or defeasance of the Bonds. E-18 Notwithstanding any provision of this covenant, if the District shall obtain an opinion of Bond Counsel to the effect that any action required under this covenant is no longer required, or to the effect that some further action is required, to maintain the exclusion from gross income of the interest on the Bonds pursuant to the Code, the Fiscal Agent may rely conclusively on such opinion in complying with the provisions of the Indenture, and the covenant under the Indenture shall be deemed to be modified to that extent. Extension of Maturity of the Bonds. The District shall not directly or indirectly extend the maturity dates of the Bonds or the time of payment of interest with respect thereto. Adoption of Policy Regarding Tender of Bonds. The District covenants that it will not adopt any policy pursuant to the Act permitting tender of Bonds in full payment or partial payment of any Special Taxes, as applicable, unless it first receives a certificate of a Special Tax Consultant that accepting such tender will not result in the District having insufficient Special Tax Revenues to pay the principal of and interest on the Bonds when due. Defeasance. If the District shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an Outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in the Indenture, then the Owner of such Bond shall cease to be entitled to the pledge of the Special Tax Revenues, and, other than as set forth below, all covenants, agreements and other obligations of the District to the Owner of such Bond under the Indenture shall thereupon cease, terminate and become void and discharged and satisfied. In the event of the defeasance of all Outstanding Bonds and after payment of any amounts then owed to the Fiscal Agent, the Fiscal Agent shall pay over or deliver to the District all money or securities held by it pursuant to the Indenture which are not required for the payment of the principal of, premium, if any, and interest due on such Bonds. Any Outstanding Bond shall be deemed to have been paid within the meaning expressed in the preceding paragraph if such Bond is paid in any one or more of the following ways: (a) by paying or causing to be paid the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; (b) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the funds established pursuant to the Indenture (exclusive of the Rebate Fund) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; or (c) by depositing with an escrow bank appointed by the District, in trust, noncallable Permitted Investments of the type described in subparagraph 1 of the definition thereof, in such amount as an Independent Accountant shall determine (as set forth in a verification report from such Independent Accountant) will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the funds established under the Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; then, at the election of the District, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the District under the Indenture with respect to such Bond shall cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the E-19 Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District to preserve the exclusion of the interest on the Bonds from gross income for federal income tax purposes. Notice of such election shall be filed with the Fiscal Agent not less than ten (10) days prior to the proposed defeasance date, or such shorter period of time as may be acceptable to the Fiscal Agent. In connection with a defeasance under (b) or (c) above, there shall be provided to the Fiscal Agent a certificate of Independent Accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Fiscal Agent or the escrow bank, together with the interest to accrue thereon and moneys then on deposit in the funds established under the Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the interest to accrue thereon to pay and discharge the principal of, premium, if any, and interest on all such Bonds to be defeased in accordance with the Indenture as and when the same shall become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased in accordance with the Indenture. To accomplish such defeasance, the District shall cause to be delivered (i) a report of the Independent Accountant verifying the determination made pursuant to the preceding paragraph (the "Verification Report") and (ii) an opinion of Bond Counsel to the effect that the Bonds are no longer Outstanding. The Verification Report and opinion of Bond Counsel shall be acceptable in form and substance, and addressed to the District and the Fiscal Agent. Provisions Constitute a Contract. The provisions of the Indenture shall constitute a contract between the District and the Bondowners and the provisions of the Indenture shall be enforceable by any Bondowner for the equal benefit and protection of all Bondowners similarly situated by mandamus, accounting, mandatory injunction or any other suit, action or proceeding at law or in equity that is now or may hereafter be authorized under the laws of the State in any court of competent jurisdiction. Said contract is made under and is to be construed in accordance with the laws of the State. No remedy conferred by the Indenture upon any Bondowner is intended to be exclusive of any other remedy, but each such remedy is cumulative and in addition to every other remedy and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law of the State. No waiver of any default or breach of duty or contract by any Bondowner shall affect any subsequent default or breach of duty or contract or shall impair any rights or remedies on said subsequent default or breach. No delay or omission of any Bondowner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed as a waiver of any such default or acquiescence therein. Every substantive right and every remedy conferred upon the Bondowners may be enforced and exercised as often as may be deemed expedient. In case any suit, action or proceeding to enforce any right or exercise any remedy shall be brought or taken and the Bondowner shall prevail, said Bondowner shall be entitled to receive from the Special Tax Fund reimbursement for reasonable costs, expenses, outlays and attorney's fees, and should said suit, action or proceeding be abandoned or be determined adversely to the Bondowners then, and in every such case, the District and the Bondowners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. Events of Default. The following events shall be Events of Default under the Indenture. (a) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise. E-20 (b) Default in the due and punctual payment of interest on any Bond when and as such interest shall become due and payable. (c) Default by the District in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default shall have continued for a period of thirty (30) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the District by the Fiscal Agent or to the District and the Fiscal Agent by the Owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding; provided that such default (other than a default arising from nonpayment of the Fiscal Agent's fees and expenses, which must be cured within such 30-day period unless waived by the Fiscal Agent) shall not constitute an Event of Default under the Indenture if the District shall commence to cure such default within said thirty (30) day period and thereafter diligently and in good faith shall cure such default within a reasonable period of time; or (d) The filing by the District of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the District, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property. Application of Revenues and Other Funds After Default If a default in the payment of the Bonds shall occur and be continuing, all revenues and any other funds then held or thereafter received under any of the provisions of the Indenture shall be applied as follows and in the following order: A. To the payment of any expenses necessary in the opinion of the District to protect the interest of the owners of the Bonds and payment of reasonable charges and expenses of the Fiscal Agent (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture; B. To the payment of the principal of and interest then due with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, as follows: First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity of redemption, and if the amount available shall not be sufficient to pay in full E-21 all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without discrimination or preference. Remedies of the Owners. Following the occurrence of an event of default, any Owner shall have the right for the equal benefit and protection of all Owners similarly situated: A. By mandamus or other suit or proceeding at law or in equity to enforce his rights against the District and any of the members, officers and employees of the District, and to compel the District or any such members, officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in the Indenture; B. By suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or C. By a suit in equity to require the District and its members, officers and employees to account as the trustee of an express trust. Nothing in Indenture or the Bonds shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners thereof at the respective dates of maturity, as herein provided, out of the applicable Net Special Tax Revenue pledged for such payment, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds and in the Indenture. The principal of the Bonds shall not be subject to acceleration. A waiver of any default or breach of duty or contract by any Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners by the Act or by this article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners. If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the District and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. No remedy herein conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law. E-22 SUMMARY OF CERTAIN PROVISIONS OF THE 2006 IMPROVEMENT AREA A BOND INDENTURE RELATED TO THE 2006 IMPROVEMENT AREA A BONDS The following summary discussion of selected provisions of the 2006 Improvement Area A Bond Indenture is made subject to all of the provisions of such document. This summary discussion does not purport to be a complete statement of such provisions and prospective purchasers of the 2006 Improvement Area A Bonds are referred to the complete text of the 2006 Improvement Area A Bond Indenture, copies of which are available upon request sent to the Fiscal Agent. As used in this summary, the term "Bonds" refers to the 2006 Improvement Area A Bonds and the term "Indenture" refers to the Improvement Area A Indenture. Definitions "Act" means the "Mello-Roos Community Facilities Act of 1982", as amended, being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California. "Actual Cost" or "Actual Costs" shall have the meaning given to such term in the Supplement to Mitigation Agreement. "Administrative Expense Fund" means the fund by that name established pursuant to the Indenture. "Administrative Expenses" means the expenses directly related to the administration of the District, including, but not limited to, the following: the costs of computing the Improvement Area A Special Taxes and preparing the annual Improvement Area A Special Tax collection schedules (whether by the School District or a designee thereof or both); the costs of collecting the Improvement Area A Special Taxes (whether by the County, the School District or otherwise); the costs of remitting the Improvement Area A Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties of the Fiscal Agent required under the Indenture; the costs of the School District, the District or any designee thereof of complying with the arbitrage rebate requirements; the costs of the School District, the District, or any designee thereof of complying with School District, District or obligated person disclosure requirements associated with applicable federal or state securities laws and of the Act; the costs associated with preparing Improvement Area A Special Tax disclosure statements and responding to public inquiries regarding the Improvement Area A Special Taxes; the costs of the School District, District or any designee thereof related to an appeal of the Improvement Area A Special Tax; and the costs of any credit enhancement obtained by the School District or the District. Administrative Expenses shall also include Delinquency Collection Expenses. "Administrative Expense Requirement" means an annual amount equal to $50,000 for Fiscal Year 20062007 and escalating at 2% each Fiscal Year thereafter commencing in Fiscal Year 2007-2008. "Affiliate" means any entity owned, controlled or under common ownership or control by or with, as applicable, a Property Owner and includes all general partners of any entity which is a partnership. Control shall mean ownership of fifty percent (50%) or more of the voting power of or ownership interest in the respective entity. "Annual Debt Service" means, for each Bond Year, the sum of (a) the interest payable on the Outstanding Bonds in such Bond Year, and (b) the principal amount of the Outstanding Bonds scheduled to be paid in such Bond Year, including from mandatory sinking fund payments. "Annual Special Tax Requirement" shall have the meaning given such term in the Improvement Area A Special Tax RMA. E-23 "Assessor's Parcel" means an Assessor's Parcel as defined in the Improvement Area A Special Tax RMA. "Authorized Representative" of the District means the Superintendent, or the Deputy Superintendent, or any other person designated in writing by the Superintendent or the Deputy Superintendent acting on behalf of the District under or with respect to the Indenture and all other agreements related hereto. "Average Annual Debt Service" means, as of the date of any calculation, the average annual debt service on the Bonds based upon a Bond Year during the current or any future Bond Year. "Bond Counsel" means an attorney or firm of attorneys, selected by the District, of nationally recognized standing in matters pertaining to the tax treatment of interest on bonds issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of the State. "Bondowner" or "Owner," or any similar term, means any person who shall be the registered owner or his duly authorized attorney, trustee, representative or assign of any Outstanding Bond which shall at the time be registered. "Bonds" means the $51,495,000 Poway Unified School District Community Facilities District No. 14 (De Sur) Improvement Area A 2006 Special Tax Bonds, issued pursuant to the Indenture. "Bond Service Fund" means the fund created and established pursuant to the Indenture. "Bond Year" means each twelve-month period extending from September 2 in one calendar year to September 1 of the succeeding calendar year, except in the case of the initial Bond Year which shall be the period from the Delivery Date to September 1, 2007. "Business Day" means a day that is not a Saturday or a Sunday or a day of the year on which banks in New York, New York and Los Angeles, California, or where the Principal Corporate Trust Office is located, are not required or authorized to remain open. "CalTrans Improvements" shall have the meaning given to such term in the Supplement to Mitigation Agreement. "CalTrans Improvements Account" means the account by that name established pursuant to the Indenture. "Capitalized Interest Sub-Account" means the account by that name established within the Bond Service Fund pursuant to the Indenture. "Cash Deposit" means a deposit of good funds by a Property Owner with the Fiscal Agent in the applicable Stated Amount in lieu of depositing a Letter of Credit or Substitute Letter of Credit pursuant to the Supplement to Mitigation Agreement. "City" means the City of San Diego, California. "City Improvements" shall have the meaning given to such term in the Supplement to Mitigation Agreement. "City Improvements Account" means the account established by that name pursuant to the Indenture. "Code" means the Internal Revenue Code of 1986, as amended. E-24 "Comptroller of the Currency" means the Comptroller of the Currency of the United States. "Delinquency Collection Expenses" means those fees and expenses of the District incurred by or on behalf of the District in or related to the collection of delinquent Improvement Area B Special Taxes. "Costs of Issuance" means, as to the Bonds, all of the costs of issuing the Bonds, including but not limited to, all printing and document preparation expenses in connection with the Indenture and any Supplemental Indenture, the Bonds, and any and all other agreements, instruments, certificates or other documents issued in connection therewith; any computer and other expenses incurred in connection with the Bonds; the initial fees and expenses of the Fiscal Agent (including without limitation, legal fees, acceptance fees and first annual fees payable in advance); the fees and expenses of the appraiser, market absorption consultant, Bond Counsel, disclosure counsel, special tax consultant and other fees and expenses incurred in connection with the issuance of the Bonds, to the extent such fees and expenses are approved by the District. "Costs of Issuance Fund" means the fund by that name established pursuant to the Indenture. "Delinquency Collection Expenses" means those fees and expenses of the District incurred by or on behalf of the District in or related to the collection of delinquent Improvement Area A Special Taxes. "Delinquency Proceeds" means the net amounts collected from the redemption of delinquent Improvement Area A Special Taxes including the penalties and interest thereon and from the sale of property sold as a result of the foreclosure of the lien of the Improvement Area A Special Tax resulting from the delinquency in the payment of Improvement Area A Special Taxes due and payable on such property and net of County of San Diego, foreclosure counsel and other fees and expenses incurred by or on behalf of the District or the School District in undertaking such foreclosure proceedings. "Delivery Date" means the date on which the Bonds are issued and delivered to the initial purchaser thereof. "Depository" means DTC and its successors and assigns or if (a) the then Depository resigns from its functions as securities depository of the Bonds, or (b) the District discontinues use of the Depository pursuant to the Indenture, any other securities depository which agrees to follow procedures required to be followed by a securities depository in connection with the Bonds and which is selected by the Deputy Superintendent. "Deputy Superintendent" means the Deputy Superintendent of the School District, acting for and on behalf of the District "Developed Property" shall have the meaning given such term in he Improvement Area A Special Tax RMA. "Discreet Component" shall have the meaning given such term in the Supplement to Mitigation Agreement. "District" means Poway Unified School District Community Facilities District No. 14 (Del Sur). "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. "Fiscal Agent" means Zions First National Bank, and any successor thereto. E-25 "Fiscal Year" means the 12 month period beginning July 1 of each year and terminating on June 30 of the following year, or any other annual accounting period hereinafter selected and designated by the District as its fiscal year in accordance with applicable law. "Government Obligations" means obligations described in Paragraph 1 of the definition of Permitted Investments. "Gross Proceeds" has the meaning ascribed to such term in Section 148(f)(6) of the Code. "Improvement Area A" means Improvement Area A of the District. "Improvement Area A Improvement Fund" means the fund by that name established pursuant to the Indenture. "Improvement Area A Special Tax" means the Special Tax authorized to be levied in Improvement Area A to finance the acquisition or construction of the City Improvements and CalTrans Improvements pursuant to the Act, the Supplement to Mitigation Agreement, and the Improvement Area A Special Tax RMA. "Improvement Area A Special Tax Fund" means the fund by that name established pursuant to the Indenture. "Improvement Area A Special Tax RMA" means the rate and method of apportionment of the Improvement Area A Special Tax approved at the special election held in Improvement Area A of the District on January 17, 2006, as may be modified from time to time in accordance with the Act. "Improvement Area A Special Tax Revenues" means (a) the proceeds of the Improvement Area B Special Tax levied and received by the District, and (b) the Delinquency Proceeds. "Indenture" means the Bond Indenture, as amended or supplemented pursuant to the terms thereof. "Independent Accountant" means any certified public accountant or firm of such certified public accountants appointed and paid by the District, and who, or each of whom: 1. is in fact independent and not under domination of the District or the School District; 2. does not have any substantial interest, direct or indirect, in the District or the School District; and 1. is not an officer or employee of the District or the School District, but who may be regularly retained to make annual or other audits of the books of or reports to the School District or the District. "Interest Account" means the account by that name established within the Bond Service Fund pursuant to the Indenture. "Interest Payment Date" means March 1 and September 1 of each year, commencing September 1, 2006. "Investment Agreement" means any investment satisfying the requirements of Paragraph 11 of the definition of Permitted Investments. "Legislative Body" means the Board of Education of the School District, acting as the legislative body of the District. E-26 "Letter of Credit" means a Letter of Credit issued pursuant to the Supplement to the Mitigation Agreement by a Letter of Credit Bank, or any reissuance or extension thereof, which Letter of Credit shall be in the Stated Amount therefor. "Letter of Credit Bank" means the issuer from time to time of a Letter of Credit and the respective successors and assigns of the business thereof and any surviving, resulting or transferee banking association or corporation with or into which it may be consolidated or merged or to which it may transfer all of its banking business, provided that the short-term and long-term ratings of such entity are at least investment grade, such entity must have a minimum Moody's long-term rating of "A" and short-term rating of "P-1," as evidenced by proof provided by such Letter of Credit Bank to the District and the Fiscal Agent. "Letter of Credit Fund" means the fund by that name established pursuant to the Indenture. "Maximum Annual Debt Service" means, as of the date of any calculation, the largest Annual Debt Service during the current or any future Bond Year. "Maximum Special Tax" shall have the meaning given such term in the Improvement Area A Special Tax RMA. "Moody's" means Moody's Investors Service, its successors and assigns. "Net Improvement Area A Special Tax Revenues" means Improvement Area A Special Tax Revenues excluding (a) the amount necessary to annually fund the Administrative Expense Requirement, and (b) Surplus Special Taxes. "Nominee" means the nominee of the Depository that may be the Depository, as determined from time to time by the Depository. "Outstanding" means as to the Bonds, all of the Bonds, except: 1. 2. 3. Bonds theretofore canceled or surrendered for cancellation in accordance with the provisions of the Indenture; Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Fiscal Agent pursuant to the terms of the Indenture; and Bonds for the payment or redemption of which monies shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such bonds); provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the Indenture or any applicable Supplemental Indenture. "Participant" means a member of or participant in the Depository. "Permitted Investments" means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein (the Fiscal Agent shall be entitled to rely upon any written investment direction from an Authorized Representative of the District as a certification to the Fiscal Agent that such investment constitutes a Permitted Investment): 1. A. Direct obligations (other than an obligation subject to variation in principal payment) of the United States of America ("United States Treasury Obligations"); E-27 B. Obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America; C. Obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America; or D. Evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated. 2. Federal Housing Administration debentures. 3. The listed obligations of government-sponsored agencies which are not backed by the full faith and credit of the United States of America: A. B. Farm Credit Banks (formerly: Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) (1) Consolidated system-wide bonds and notes C. Federal Home Loan Banks (FHL Banks) (1) Consolidated debt obligations D. Federal National Mortgage Association (FNMA) (1) Senior debt obligations (2) Mortgage-backed securities (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) E. Student Loan Marketing Association (SLMA) (1) Senior debt obligations (excluded are securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date) F. Financing Corporation (FICO) (1) Debt obligations G. 4. Federal Home Loan Mortgage Corporation (FHLMC) (1) Participation certificates (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) (2) Senior Debt obligations Resolution Funding Corporation (REFCORP) (1) Debt obligations. Unsecured certificates of deposit, time deposits, deposit accounts and bankers' acceptances (having maturities of not more than 30 days) of any bank the short-term obligations of which are rated "A-1" or better by S&P. E-28 5. Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5 million. 6. Commercial paper (having original maturities of not more than 270 days rated "A-1" by S&P and "Prime-1" by Moody's. 7. Money market funds rated "AAm-1" or "AAm-G" by S&P, or better. 8. State Obligations, which means: A. B. Direct general short-term obligations of any state agency or subdivision or agency thereof described in (A) above and rated "A-1+" by S&P and "Prime-1" by Moody's. C. 9. Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated "A3" by Moody's and "A" by S&P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state, state agency or subdivision described in (A) above and rated "AA" or better by S&P and "Aa" or better by Moody's. Pre-refunded municipal obligations rated "AAA" by S & P and "Aaa" by Moody's meeting the following requirements: A. the municipal obligations are (1) not subject to redemption prior to maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; B. the municipal obligations are secured by cash or United States Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations; C. the principal of and interest on the United States Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations ("Verification"); D. the cash or United States Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; E. no substitution of a United States Treasury Obligation shall be permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and E-29 F. 10. the cash or United States Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. Repurchase agreements: With (1) any domestic bank, or domestic branch of a foreign bank, the long term debt of which is rated at least "A" by S&P and Moody's; or (2) any broker-dealer with "retail customers" or a related affiliate thereof which broker-dealer has, or the parent company (which guarantees the provider) of which has, long-term debt rated at least "A" by S&P and Moody's, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation, or (3) any other entity rated "A" or better by S&P and Moody's, provided that: A. The market value of the collateral is maintained at levels and upon such conditions as would be acceptable to S & P and Moody's to maintain an "A" rating in an "A" rated structured financing (with a market value approach); B. The Fiscal Agent or a third party acting solely as agent therefor or for the District (the "Holder of the Collateral") has possession of the collateral or the collateral has been transferred to the Holder of the Collateral in accordance with applicable state and federal laws (other than by means of entries on the transferor's books); A. The Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); B. The repurchase agreement shall provide that if during its term the provider's rating by either Moody's or S&P is withdrawn or suspended or falls below "A-" by S&P or "A3" by Moody's, as appropriate, the provider must, at the direction of the District or the Fiscal Agent, within 10 days of receipt of such direction, repurchase all collateral and terminate the agreement, with no penalty or premium to the District or Fiscal Agent. Notwithstanding the above, collateral levels need not be as specified in "A" above, so long as such collateral levels are 103% or better and the provider is rated at least "A" by S&P and Moody's, respectively. 11. Investment agreements with a domestic or foreign bank or corporation the long-term debt or financial strength of which, it or its guarantor is rated at least "AA-" by S&P and "Aa3" by Moody's; provided that, by the terms of the investment agreement: A. the invested funds are available for withdrawal without penalty or premium, upon not more than seven days' prior notice; the District and the Fiscal Agent hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; B. the investment agreement shall state that it is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof; or, in the case of a bank, that the obligation of the bank to make E-30 C. payments under the agreement ranks pari passu with the obligations of the bank to its other depositors and its other unsecured and unsubordinated creditors; the District and the Fiscal Agent receives the opinion of domestic counsel that such investment agreement is legal, valid, binding and enforceable upon the provider in accordance with its terms and of foreign counsel (if applicable); D. the investment agreement shall provide that if during its term (1) the provider's rating by either S&P or Moody's falls below "AA-" or "Aa3", respectively, the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (a) collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider's books) to the District, the Fiscal Agent or a Holder of the Collateral free and clear of any third-party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to S & P and Moody's to maintain an "A" rating in an "A" rated structured financing (with a market value approach); or (b) transfer and assign the investment agreement to a then qualifying counterparty with ratings specified above; and (2) the provider's rating by either S&P or Moody's is withdrawn or suspended or falls below "A-" or "A3", respectively, the provider must, within 10 days of the date of such withdrawal, suspension or reduction of the provider's rating, repay the principal of and accrued but unpaid interest on the investment; E. the investment agreement shall state and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); F. the investment agreement must provide that if during its term (1) (2) 12. the provider shall default in its payment obligations, the provider's obligations under the investment agreement shall, at the direction of the District or the Fiscal Agent, be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or Fiscal Agent, as appropriate, and the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. ("Event of Insolvency"), the provider's obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or Fiscal Agent, as appropriate. The Local Agency Investment Fund (LAIF) administered by the treasurer of the State to the extent such deposits remain in the name of and control of the Fiscal Agent. E-31 "Prepayments" means Improvement Area A Special Tax Revenues identified to the Fiscal Agent by an Authorized Representative as representing a prepayment of the Improvement Area A Special Tax. "Principal Account" means the account by such name established in the Bond Service Fund pursuant to the Indenture. "Principal Corporate Trust Office" means the office of the Fiscal Agent at 550 South Hope Street, Suite 2650, Los Angeles, CA 90071 or such other offices as may be specified to the District by the Fiscal Agent in writing. "Project Area" shall have the meaning given to such term in the Supplement to Mitigation Agreement. "Property Owner" shall have the same meaning given the term "Owner" in the Supplement to Mitigation Agreement. "Rebate Fund" means the fund by that name established pursuant to the Indenture. "Record Date" means the fifteenth (15th) calendar day of the month immediately preceding an Interest Payment Date whether or not such day is a Business Day. "Redemption Fund" means the fund by that name established pursuant to the Indenture. "Regulations" means the regulations promulgated under the Internal Revenue Code of 1986, as amended. "Reserve Fund" means the fund by that name established pursuant to the Indenture. "Reserve Requirement" means an amount initially equal to $4,599,096.73 which amount shall, as of any date of calculation, be equal to the least of (i) Maximum Annual Debt Service for the Bonds; (ii) one hundred twenty-five percent (125%) of Average Annual Debt Service for the Bonds; or (iii) ten percent (10%) of the original principal amount of the Bonds less original issue discount, if any, plus original issue premium, if any, applicable to the Bonds. "School District" means the Poway Unified School District. "School Facilities" shall have the meaning given such term in the Supplement to Mitigation Agreement. "Special Tax Consultant" means any person or firm possessing demonstrated experience and expertise in the preparation of special tax formulas and/or the administration of special taxes levied for community facilities districts. Any such person or firm shall be appointed and paid by the District and who, or each of whom: 1. is in fact independent and not under domination of the District or the School District; 2. does not have any substantial interest, direct or indirect, in the District or the School District; and 3. is not an officer or employee of the District or the School District, but who may be regularly retained by the School District or other community facilities districts formed by the School District to administer the levy of special taxes within such community facilities districts. "Standard & Poor's" or "S&P" means Standard & Poor's Rating Services, its successors and assigns. E-32 "State" means the State of California. "Stated Amount" means the amount available to be drawn under any Letter of Credit or Cash Deposit or Letters of Credit from time to time, as such amount is set forth in the initial Letter of Credit delivered on the Closing Date and as such amount shall be stated in such Letters of Credit thereafter delivered to the Fiscal Agent. During each Fiscal Year in which such Letter of Credit is in effect, the Stated Amount of each Letter of Credit shall equal the estimated amount of Special Taxes to be levied secured by such Letter of Credit during that Fiscal Year. "Substitute Letter of Credit" shall have the meaning given such term in the Supplement to Mitigation Agreement. "Superintendent" means the Superintendent of the School District, acting for and on behalf of the District. "Supplement to Mitigation Agreement" means that Supplement to Subarea I Black Mountain Ranch Phase II School Impact Mitigation Agreement made and entered into as of January 1, 2006, by and among the School District, the District, and Black Mountain Ranch Limited Partnership, as it may be amended or supplemented from time to time. "Supplemental Indenture" means any bond indenture then in full force and effect which has been duly approved by resolution of the Legislative Body under and pursuant to the Act at a meeting of the Legislative Body duly convened and held, at which a quorum was present and acted thereon, amendatory hereof or supplemental to the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "Supplemental School Facilities" shall have the meaning given such term in the Supplement to Mitigation Agreement. "Surplus Special Taxes" shall have the meaning given such term in the Supplement to Mitigation Agreement. "Tax Exempt" means, with reference to a Permitted Investment, a Permitted Investment the interest earnings on which are excludable from gross income for federal income tax purposes pursuant to Section 103(a) of the Code, other than one described in section 57(a)(5)(C) of the Code. "Term Bonds" means the Bonds maturing on September 1, 2018, the Bonds maturing on September 1, 2026, and the Bonds maturing on September 1, 2036. "Transferee" shall have the meaning given such term in the Supplement to Mitigation Agreement. "Yield" has the meaning assigned to such term for purposes of Section 148(f) of the Code. Establishment of Funds and Accounts Improvement Area A Special Tax Fund. (a) The District shall, no later than the tenth (10th) Business Day after which Improvement Area A Special Tax Revenues have been received by the District and in any event not later than February 15th and August 15th of each year, transfer such Improvement Area A Special Tax Revenues to the Fiscal Agent, and except as set forth in the following sentence, such amounts shall deposited in the Improvement Area A Special Tax Fund. E-33 (b) With the exception of Improvement Area A Special Tax Revenues representing Prepayments which shall be transferred pursuant to the provisions of Paragraph C below, the Improvement Area A Special Tax Revenues deposited in the Improvement Area A Special Tax Fund shall be held in trust or transferred to the following other funds and accounts on the dates and in the amounts set forth paragraphs and in the following order of priority: (1) The Fiscal Agent shall each Fiscal Year transfer to the Administrative Expense Fund from the first Improvement Area A Special Tax Revenues received by the Fiscal Agent during such Fiscal Year an amount equal to the Administrative Expense Requirement. (2) The Fiscal Agent shall deposit in the Interest Account of the Bond Service Fund, on each Interest Payment Date and date of redemption of the Bonds, an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest due or becoming due and payable on such Interest Payment Date on all Outstanding Bonds or to be paid on the Bonds being redeemed on such date. (3) The Fiscal Agent shall deposit in the Principal Account of the Bond Service Fund, on each Interest Payment Date and redemption date on which the principal of the Bonds shall be payable, pursuant to Paragraph C below, an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of, and premium (if any) on, the Bonds coming due and payable on such interest Payment Date, or required to be redeemed on such date pursuant to Paragraph C below. (4) On or after March 2 and September 2 of each year after making the transfers and deposits required under (1) and (3) above, the Fiscal Agent shall transfer the amount, if any, necessary to replenish the amount then on deposit in the Reserve Fund to an amount equal to the Reserve Requirement. (5) On or after September 2 of each year after making the deposits and transfers required under (1) through (4) above, upon receipt of a written instructions from an Authorized Representative, the Fiscal Agent shall transfer from the Improvement Area A Special Tax Fund to the Rebate Fund the amount specified in the request. (6) On or after September 2 of each year after making the deposits and transfers required under (1) through (5) above, upon receipt of a written request of an Authorized Representative, the Fiscal Agent shall transfer from the Improvement Area A Special Tax Fund to the Administrative Expense Fund the amounts specified in the request to pay (a) those Administrative Expenses which the District reasonably expects will become due and payable during such Fiscal Year in excess of the Administrative Expense requirement for such Fiscal Year; and (b) any Administrative Expenses that have previously been incurred and paid by the District from funds other than the Administrative Expense Fund. E-34 (7) If, on or after September 2 of each year, after making the deposits and transfers required under (1) through (6) above, monies remain in the Improvement Area A Special Tax Fund, such monies shall remain on deposit in the Improvement Area A Special Tax Fund and shall be subsequently deposited or transferred pursuant to the provisions of (1) through (6) above; provided, however, that if at any time and from time to time the District determines, pursuant to the Supplement to Mitigation Agreement, that all or any portion of such monies constitute the proceeds of Surplus Special Taxes, the District may, by written instructions executed by an Authorized Representative, direct the Fiscal Agent to transfer that amount of such monies constituting Surplus Special Taxes to the School District to be utilized pursuant to the provisions of the Supplement to Mitigation Agreement to finance acquisition or construction of Supplemental School Facilities or School Facilities. (c) The Fiscal Agent shall, upon receipt of Improvement Area A Special Tax Revenues representing Prepayments together with written instructions of the District executed by an Authorized Representative, immediately transfer such Prepayments pursuant to such written instructions into the Interest Account of the Bond Service Fund, the Redemption Fund and the Administrative Expense Fund, as applicable, and utilize such funds to pay the interest and premium, if any, on and principal of Bonds to be redeemed pursuant to the provisions of the Indenture and to defray the costs of redeeming the Bonds. (d) When there are no longer any Bonds Outstanding, any amounts then remaining on deposit in the Improvement Area A Special Tax Fund shall be transferred to the District to be utilized to finance the acquisition or construction of Supplemental School Facilities pursuant to the provisions of the Supplement to Mitigation Agreement. Bond Service Fund. Interest Account. All moneys in the Interest Account, including the Capitalized Interest Subaccount, shall be used and withdrawn by the Fiscal Agent solely for the purpose of paying interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity). All funds on deposit in the Capitalized Interest Subaccount shall be used and withdrawn to pay interest on the Bonds through September 1, 2007 prior to using any other funds on deposit in the Interest Account for such purpose. Principal Account. All moneys in the Principal Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of (i) paying the principal of the Bonds at the maturity thereof, or (ii) paying the principal of the Term Bonds upon the mandatory sinking fund redemption thereof pursuant to the Indenture. Costs of Issuance Fund. The Fiscal Agent shall, upon the written requisition of the District executed by an Authorized Representative, in substantially the form attached to the Indenture, disburse money from the Costs of Issuance Fund, if any, on such dates and in such amounts as specified in such requisition to pay Costs of Issuance related to the Bonds. Any amounts remaining on deposit in the Costs of Issuance Fund on the earlier of the date on which all Costs of Issuance have been paid as stated in writing by an Authorized Representative delivered to the Fiscal Agent or six months after the Delivery Date of the Bonds shall be transferred to the Improvement Area A Improvement Fund. Upon such transfer, the Costs of Issuance Fund shall be closed. E-35 Improvement Area A Improvement Fund City Improvements Account. The Fiscal Agent shall, from time to time, disburse monies from the City Improvements Account to pay Actual Costs of City Improvements. Upon receipt of a payment request of the District duly executed by an Authorized Representative in substantially the form attached to the Indenture (which payment request shall not exceed the corresponding payment request provided to the School District under the Supplement to Mitigation Agreement), the Fiscal Agent shall pay the Actual Costs from amounts in the City Improvements Account directly to the contractor or such other person, corporation or entity entitled to payment hereunder (including reimbursements, if any, to the District) unless the District requests payment to be made to the contractor or such other party jointly, in which case said Actual Costs of City Improvements shall be paid jointly. The Fiscal Agent may rely on an executed payment request as complete authorization for said payments. After the final payment or reimbursement of all Actual Costs of City Improvements as certified by delivery of a written notice from an Authorized Representative to the Fiscal Agent, the Fiscal Agent shall transfer excess monies, if any, on deposit in, or subsequently deposited in, the City Improvements Account to the Improvement Area A Special Tax Fund and the Fiscal Agent shall apply the amount so transferred in accordance with the Indenture. Upon such transfer, the City Improvements Account shall be closed. Notwithstanding anything in the Indenture to the contrary, if on the date which is three (3) years from the Delivery Date of the Bonds, any funds derived from the Bonds remain on deposit in the City Improvements Account, upon written instruction from the District, the Fiscal Agent shall restrict the Yield on such amounts so that the Yield earned on the investment of such amounts is not in excess of the Yield on the Bonds, unless in the written opinion of Bond Counsel delivered to the Fiscal Agent such restriction is not necessary to prevent an impairment of the exclusion of interest on the Bonds from gross income for federal income tax purposes. CalTrans Improvements Account The Fiscal Agent shall, from time to time, disburse monies from the CalTrans Improvements Account to pay Actual Costs of CalTrans Improvements. Upon receipt of a payment request of the District duly executed by an Authorized Representative in substantially the form attached to the Indenture (which payment request shall not exceed the corresponding payment request provided to the School District under the Supplement to Mitigation Agreement), the Fiscal Agent shall pay the Actual Costs from amounts in the CalTrans Improvements Account directly to the contractor or such other person, corporation or entity entitled to payment hereunder (including reimbursements, if any, to the District) unless the District requests payment to be made to the contractor or such other party jointly, in which case said Actual Costs of CalTrans Improvements shall be paid jointly. The Fiscal Agent may rely on an executed payment request as complete authorization for said payments. After the final payment or reimbursement of all Actual Costs of CalTrans Improvements as certified by delivery of a written notice from an Authorized Representative to the Fiscal Agent, the Fiscal Agent shall transfer excess monies, if any, on deposit in, or subsequently deposited in, the CalTrans Improvements Account to the Improvement Area A Special Tax Fund and the Fiscal Agent shall apply the amount so transferred in accordance with the Indenture. Upon such transfer, the CalTrans Improvements Account shall be closed. E-36 Notwithstanding anything in the Indenture to the contrary, if on the date which is three (3) years from the Delivery Date of the Bonds, any funds derived from the Bonds remain on deposit in the CalTrans Improvements Account, upon written instruction from the District, the Fiscal Agent shall restrict the Yield on such amounts so that the Yield earned on the investment of such amounts is not in excess of the Yield on the Bonds, unless in the written opinion of Bond Counsel delivered to the Fiscal Agent such restriction is not necessary to prevent an impairment of the exclusion of interest on the Bonds from gross income for federal income tax purposes. Reserve Fund Moneys on deposit in the Reserve Fund shall be used solely for the purpose of paying the principal of and interest on the Bonds as such amounts shall become due and payable in the event that the moneys in the Improvement Area A Special Tax Fund, the Bond Service Fund, and the Letter of Credit Fund for such purpose are insufficient therefore or redeeming Bonds as described below. The Fiscal Agent shall, when and to the extent necessary, withdraw money from the Reserve Fund and transfer such money to the Bond Service Fund or the Redemption Fund for such purpose. All Authorized Investments in the Reserve Fund shall be valued at their fair market value at least semi-annually on March 1 and September 1. On any date after the transfers to the Administrative Expense Fund, the Interest Account, and the Principal Account have been made for any Bond Year, if the amount on deposit in the Reserve Fund is less than the Reserve Requirement, the Fiscal Agent shall transfer to the Reserve Fund from the first available monies in the Improvement Area A Special Tax Fund, an amount necessary to increase the balance therein to the Reserve Requirement. If on March 1 or on September 1, or on the first Business Day thereafter if March 1 or September 1 is not a Business Day, of each year, the amount on deposit in the Reserve Fund is in excess of the Reserve Requirement inclusive of interest earnings and exclusive of excess created by optional redemption, the Fiscal Agent shall transfer such excess to the Interest Account of the Bond Service Fund. In connection with any optional redemption of Bonds pursuant to the Indenture, amounts on deposit in the Reserve Fund which would be in excess of the Reserve Requirement following such redemption shall be transferred to the Redemption Fund or the Interest Account of the Bond Service Fund, as applicable, prior to such redemption and applied to such redemption of Bonds pursuant to the written instructions of the District executed by an authorized Representative Upon receipt of written instructions of the District executed by an Authorized Representative instructing the Fiscal Agent to transfer certain moneys representing a Reserve Fund credit for a Prepayment pursuant to the Improvement Area A Special Tax RMA, the Fiscal Agent shall transfer the amount specified in such instructions from the Reserve Fund to the Redemption Fund for the purpose of redeeming Bonds pursuant to such instructions. Whenever the balance in the Reserve Fund and the Bond Service Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall transfer the amount in the Reserve Fund and the Bond Service Fund to the Redemption Fund to be applied, on the next succeeding interest payment date, to the payment and redemption of all of the Outstanding Bonds. In the event that the amount so transferred from the Reserve Fund and the Bond Service Fund to the Redemption Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the District to be used for any lawful purpose of the District as set forth in the Act. Rebate Fund. The District shall calculate Excess Investment Earnings as defined in, and in accordance with, the Tax Certificate, and shall, in writing, direct the Fiscal Agent to transfer funds to the Rebate Fund from E-37 funds furnished by the District as provided for in the Indenture and the Tax Certificate. Moneys in the Rebate Fund shall be sued to pay rebate to the United States government upon written instruction from the District or as otherwise directed in writing by the District. Notwithstanding the foregoing, the Tax Certificate may be modified, in whole or in part, without the consent of the Owners of the Bonds, upon receipt by the District of an opinion of Bond Counsel to the effect that such modification shall not adversely affect the exclusion from gross income of interest on the Bonds then Outstanding for federal income tax purposes. Redemption Fund Monies shall be deposited into the Redemption Fund by the Fiscal Agent pursuant to the provisions of the Indenture and shall be set aside and used solely for the purpose of redeeming Bonds in accordance with the written instructions of the District executed by an Authorized Representative given in accordance with the Indenture. Following the redemption of any Bonds, if any funds remain in the Redemption Fund, such funds shall be transferred to the Improvement Area A Special Tax Fund. Administrative Expense Fund. The Fiscal Agent shall deposit from time to time the amounts authorized for deposit therein pursuant to the Indenture. The moneys in the Administrative Expense Fund shall be used to pay Administrative Expenses from time to time upon receipt by the Fiscal Agent of a written request of the District executed by an Authorized Representative, in substantially the form attached to the Indenture, specifying the name and address of the payee and the amount of the Administrative Expense and a description thereof and further stating that such request has not formed the basis of any prior request for payment. Letter of Credit Fund Letter of Credit; Purpose; Duration. As a condition precedent to issuance of the Bonds, the District shall cause each applicable Property Owner to provide a Letter of Credit or Cash Deposit pursuant to the provisions of the Supplement to Mitigation Agreement in the applicable Stated Amount therefor for each Project Area within Improvement Area A and having the Fiscal Agent as beneficiary. The Fiscal Agent shall deposit any Letter of Credit, Substitute Letter of Credit, or Cash Deposit provided pursuant to the Supplement to Mitigation Agreement in the Letter of Credit Fund. Deposits into the Letter of Credit Funds; Transfers from the Letter of Credit Fund. 1. Draws Prior to an Interest Payment Date. Ten Business Days before each Interest Payment Date, the Fiscal Agent shall determine whether amounts on deposit in the Bond Service Fund for that Interest Payment Date will be sufficient to pay principal of and interest on the Bonds that will be due and payable on such Interest Payment Date and notify the District of any deficiency. If amounts in the Bond Service Fund will be insufficient to pay principal of and interest on the Bonds and such insufficiency is attributable to the delinquency in the payment of Improvement Area A Special Taxes levied on properties owned by the Property Owner that provided a Letter of Credit or Cash Deposit pursuant to the Supplement to Mitigation Agreement or an Affiliate of such Property Owner, the Fiscal Agent shall upon the receipt of written direction of an Authorized Representative (prior to any withdrawals from the Reserve Fund) draw upon such Letter of Credit or withdraw money from the Cash Deposit; provided, however, that the amount of such draw or withdrawal (as set forth in said written direction of the Authorized Representative) shall be no greater than the delinquent Improvement Area A Special Taxes levied on such Properties. The Fiscal Agent shall deposit the proceeds of any such draw upon a Letter of Credit into the Letter of Credit Fund. On the day preceding the Interest Payment Date, and prior to any E-38 transfers from the Reserve Fund, the Fiscal Agent shall transfer the amount of such draw on the Letter of Credit or an equivalent amount from any Cash Deposit from the Letter of Credit Fund to the Bond Service Fund. In the event of a draw on a Letter of Credit or transfer of funds from a Cash Deposit, the Fiscal Agent shall, upon receipt of Delinquency Proceeds representing the Improvement Area A Special Taxes the delinquency of which necessitated such draw on such Letter of Credit or transfer of funds from a Cash Deposit, reimburse (a) the applicable Letter of Credit Provider from such Delinquency Proceeds in an amount not to exceed such draw on such Letter of Credit; or (b) deposit an amount not to exceed such transfer from such Cash Deposit in the Letter of Credit Fund to replenish such Cash Deposit 2. Draws Prior to Termination of the Letter of Credit. If a Letter of Credit is not renewed, or a Substitute Letter of Credit or Cash Deposit not provided within fifteen (15) days prior to stated expiration date of such Letter of Credit and the requirements for the release or termination of such Letter of Credit have not then been met, the Fiscal Agent shall draw on the full amount of such Letter of Credit without instruction from the District. In the event the Fiscal Agent makes such a draw upon a Letter of Credit, the Fiscal Agent shall deposit the proceeds of such draw into the Letter of Credit Fund and pending any transfer to the Bond Service Fund for the purposes described above, such proceeds shall be invested and reinvested by the Fiscal Agent in Permitted Investments described in paragraph 7 of the definition thereof. At no time shall the District direct that the proceeds of a draw on any Letter of Credit or any Cash Deposit held in the Letter of Credit Fund be invested by the Fiscal Agent at a yield exceeding the yield on the Bonds. Investment earnings and profits from such investments shall be retained in the Letter of Credit Fund until such time as the Letter of Credit Fund is no longer required and at such time all interest earnings shall be paid over to the Property Owner. Letter of Credit Requirements. Except as otherwise provided in the Indenture, the provisions of the Supplement to Mitigation Agreement shall establish and govern all requirements related to any Letter of Credit provided thereunder or under the Indenture including but not limited to applicability of the requirement to provide a Letter of Credit, determination of the Stated Amount thereof, renewal, substitution, reduction and termination thereof. No amendment may be made to any provision of the Supplement to Mitigation Agreement pertaining to the provision of a Letter of Credit that would be materially adverse to the interests of the Bondowners without the consent of the Bondowners obtained pursuant to the provisions of the Indenture. Receipt by District of any Letter of Credit, Substitute Letter of Credit or Cash Deposit. If the District shall receive a Letter of Credit or a Substitute Letter of Credit provided pursuant to the terms of the Supplement to Mitigation Agreement or a Cash Deposit, the District shall immediately transfer such Letter of Credit, Substitute Letter of Credit, or Cash Deposit to the Fiscal Agent. The District shall provide written instructions to the Fiscal Agent to return any Letter of Credit to the Letter of Credit Provider thereof for which a Substitute Letter of Credit or Cash Deposit is being provided upon the effective date of such Substitute Letter of Credit or upon receipt by the Fiscal Agent of such Cash Deposit. Termination or Release of a Letter of Credit, Substitute Letter of Credit or Cash Deposit. If any Letter of Credit or Substitute Letter of Credit is terminated pursuant to the provisions of the Supplement to Mitigation Agreement the District shall provide written notice of such termination to the Fiscal Agent together with instructions directing the Fiscal Agent to return such Letter of Credit to the Letter of Credit Provider thereof. If the requirement to provide a Letter Credit is terminated pursuant to the provisions of the Supplement to Mitigation Agreement in any case where a Cash Deposit has been provided, the District shall provide written notice of such termination to the Fiscal Agent together with instructions directing the Fiscal Agent E-39 to return such Cash Deposit to the Property Owner, and any interest earnings thereon, who provided such Cash Deposit. Actions by the District. In the event any Letter of Credit Bank wrongfully refuses to honor any drawing made on any Letter of Credit, the District, on behalf of the owners of the Bonds, shall immediately bring an action and pursue any remedy available at law or in equity for the purpose of compelling the Letter of Credit Bank to honor such drawing and to enforce the provisions of the Letter of Credit. Investment of Funds. Unless otherwise specified in the Indenture, monies in the Improvement Area A Special Tax Fund, the Bond Service Fund, the Improvement Area A Improvement Fund, the Reserve Fund, the Costs of Issuance Fund, and Administrative Expense Fund shall, at the written direction of the district executed by an Authorized Representative given at least two (2) days prior, be invested and reinvested in Permitted Investments (including investments with the Fiscal Agent or an affiliate of the Fiscal Agent or investments for which the Fiscal Agent or an affiliate of the Fiscal Agent acts as investment advisor or provides other services so long as the investments are Permitted Investments). Monies in the Redemption Fund and the Rebate Fund shall, at the written direction of the District by an Authorized Representative, be invested in Government Obligations or money market funds comprised solely of Government Obligations rated in the highest rating category of S&P. Notwithstanding anything herein to the contrary, in the absence of written investment instructions, the Fiscal Agent shall invest solely in investments identified in paragraph 7 of the definition of Permitted Investments. Any Permitted Investments that are registerable securities shall be registered in the name of the Fiscal Agent. Obligations purchased as investments of monies in any fund or account shall be deemed at all times to be a part of such fund or account. Except as provided otherwise in the Indenture, any income realized on or losses resulting from investments in any fund or account shall be credited or charged to such fund or account. Moneys in all funds and accounts may be aggregated for purposes of investing in Permitted Investments except when it is necessary to segregate a fund or account or portion thereof for purposes of restricting the Yield on the investment of such funds. Subject to the restrictions set forth in the Indenture and/or any written investment instructions received by Fiscal Agent pursuant to the Indenture, moneys in all funds and accounts, except for the Reserve Fund, shall be invested in Permitted Investments maturing, or with respect to which payments of principal and interest are scheduled or otherwise payable, not later than the date on which it is estimated that such moneys will be required by the Fiscal Agent for the purposes specified in the Indenture. With respect to amounts in the Reserve Fund, if such investments may be redeemed without penalty or premium on the business day prior to each Interest Payment Date, 100% of the amount on deposit in the Reserve Fund may be invested in such redeemable investments of any maturity on or prior to the final maturity of the Bonds. Permitted Investments purchased under a repurchase agreement may be deemed to mature on the date or dates on which the Fiscal Agent may deliver such Permitted Investments for repurchase under such agreement. The Fiscal Agent shall sell or present for redemption any obligations so purchased whenever it may be necessary to do so in order to provide monies to meet any payment or transfer for such funds and accounts or from such funds and accounts. The Fiscal Agent shall not be liable for any loss from any investments made or sold by it in accordance with the provisions of the Indenture. E-40 Amendments or Supplements. The Legislative Body may, by adoption of a resolution from time to time, and at any time but without notice to or consent of any of the Bondholders, approve a Supplemental Indenture hereto for any of the following purposes: (a) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision the Indenture, or to make any other provision with respect to matters or questions arising under the Indenture or in any Supplemental Indenture, provided that such action shall not adversely affect the interests of the Bondowners; (b) to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in the Indenture, other covenants, agreements, limitations and restrictions to be observed by the District which are not contrary to or inconsistent with the Indenture as theretofore in effect; (c) to modify, alter, amend or supplement the Indenture in any other respect which is not materially adverse to the interests of the Bondowners; or (d) to amend any provision of the Indenture relating to the Code as may be necessary or appropriate to assure compliance with the Code and the exclusion from gross income of interest on the Bonds. Exclusive of the Supplemental Indentures hereto provided for in the preceding paragraph, the Owners of not less than 60% in aggregate principal amount of the Bonds then Outstanding shall have the right to consent to and approve the adoption by the District of such Supplemental Indentures as shall be deemed necessary or desirable by the District for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Indenture; provided, however, that nothing in the Indenture shall permit, or be construed as permitting, (a) an extension of the maturity date of the principal of, or the payment date of interest on, any Bond; or (b) a reduction in the principal amount of, or redemption premium on, any Bond or the rate of interest thereon without the consent of the affected Bondowner(s), or permit, or be construed as permitting, (x) a preference or priority of any Bond or Bonds over any other Bond or Bonds, (y) a reduction in the aggregate principal amount of the Bonds the Owners of which are required to consent to such Supplemental Indenture, or (z) creating of a pledge of or lien or charge upon the Improvement Area A Special Tax Revenues, as applicable, superior to the pledge provided for of the Indenture, without the consent of the Owners of all Bonds then Outstanding. If at any time the District shall desire to approve a Supplemental Indenture, which shall require the consent of the Bondowners, the District shall so notify the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplemental Indenture. The District shall, at the expense of the District, cause notice of the proposed Supplemental Indenture to be mailed, postage prepaid, to all Bondowners at their addresses as they appear in the bond register. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a copy thereof is on file at the principal office of the District for inspection by all Bondowners. The failure of any Bondowner to receive such notice shall not affect the validity of such Supplemental Indenture when consented to and approved as provided for in the Indenture. Whenever at any time within one year after the date of the first mailing of such notice, the District shall receive an instrument or instruments purporting to be executed by the Owners of not less than 60% in aggregate principal amount of the Bonds then Outstanding, which instrument or instruments shall refer to the proposed Supplemental Indenture described in such notice, and shall specifically consent to the approval thereof by the Legislative Body substantially in the form of the copy thereof referred to in E-41 such Notice as on file with the District, such proposed Supplemental Indenture, when duly approved by the Legislative Body, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of 60% of the aggregate principal amount of the Bonds have consented to the approval of any Supplemental Indenture, Bonds which are owned by the District or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the District, shall be disregarded and shall be treated as though they were not outstanding for the purpose of any such determination. Upon the approval of any Supplemental Indenture hereto and the receipt of consent to any such Supplemental Indenture from the Owners of the appropriate aggregate principal amount of Bonds in instances where such consent is required, the Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the District and all Owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced under the Indenture, subject in all respects to such modifications and amendments. Notwithstanding anything in the Indenture to the contrary, no Supplemental Indenture shall be entered into which would modify the duties of the Fiscal Agent under the Indenture, without the prior written consent of the Fiscal Agent. Ownership of Bonds. The person in whose name any Bond shall be registered shall be deemed and regarded as the absolute Owner thereof for all purposes, and payment of or on account of the principal and redemption premium, if any, of any such Bond, and the interest on any such Bond, shall be made only to or upon the order of the registered Owner thereof or his legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond, including the redemption premium, if any, and interest thereon, to the extent of the sum or sums so paid. Mutilated, Lost, Destroyed or Stolen Bonds. If any Bond shall become mutilated, the Fiscal Agent shall authenticate and deliver a new Bond of like tenor, date and maturity in exchange and substitution for the Bond so mutilated, but only upon surrender to the Fiscal Agent of the Bond so mutilated. Every mutilated Bond so surrendered to the Fiscal Agent shall be canceled. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Fiscal Agent and, if such evidence is satisfactory to the Fiscal Agent and, if an indemnity satisfactory to the Fiscal Agent shall be given, the Fiscal Agent shall authenticate and deliver a new Bond of like tenor and maturity, numbered and dated as the Fiscal Agent shall determine in lieu of and in substitution for the Bond so lost, destroyed or stolen. Any Bond issued in lieu of any Bond alleged to have been lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of the Indenture with all other Bonds secured by the Indenture. The Fiscal Agent shall not treat both the original Bond and any replacement Bond as being Outstanding for the purpose of determining the principal amount of Bonds which may be executed, authenticated and delivered under the Indenture or for the purpose of determining any percentage of Bonds Outstanding under the Indenture, but both the original and replacement Bond shall be treated as one and the same. Covenants. General. As long as the Bonds are Outstanding and unpaid, the School District, acting on behalf of the District, shall (through its proper members, officers, agents or employees) faithfully perform and abide by all of the covenants and agreements set forth in the Indenture; provided, however, that said covenants do not require the District to expend any funds other than the Improvement Area A Special Tax Revenues, as applicable. E-42 Covenant to Foreclose. On or before June 1 of each Fiscal Year, the District will review the public records of the County of San Diego, California, in connection with the Improvement Area A Special Tax levied in such Fiscal Year to determine the amount of such Improvement Area A Special Tax actually collected in such Fiscal Year. If the District determines that (a) any single parcel subject to such Improvement Area A Special Tax is delinquent in the payment of such Improvement Area A Special Taxes in the aggregate of $5,000 or more; or (b) any single parcel or parcels under common ownership subject to such Improvement Area A Special Tax are delinquent in the payment of such Improvement Area A Special Taxes in the aggregate of $10,000 or more, the District shall, not later than forty five (45) days of such determination, send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner. The District shall cause judicial foreclosure proceedings to be commenced and filed in the Superior Court not later than ninety (90) days of such determination against any parcel for which a notice of delinquency was given pursuant to this section and for which such Improvement Area A Special Taxes remain delinquent. With respect to aggregate delinquencies throughout the District, if the District determines that it has collected less than 95% of the h Improvement Area A Special Taxes levied in the such Fiscal Year, then the District shall, not later than forty five (45) days of such determination, send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the owner of each delinquent parcel (regardless of the amount of such delinquency). The District will cause judicial foreclosure proceedings to be commenced and filed in the Superior Court not later than ninety (90) days of such determination against any parcel for which a notice of delinquency was given pursuant to this section and for which Improvement Area A Special Taxes remain delinquent. Protection of Security. The District shall preserve and protect the security of the Bonds and the rights of the Bondowners and defend their rights against all claims and demands of all persons. Until such time as an amount has been set aside sufficient to pay Outstanding Bonds at maturity or to the date of redemption if redeemed prior to maturity, plus unpaid interest thereon and premium, if any, to maturity or to the date of redemption if redeemed prior to maturity, the District will faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture or in any Bond issued under the Indenture. No Senior or Parity Liens. The District will not issue any other obligations payable, principal or interest, from the Improvement Area A Special Taxes which have, or purport to have, any lien upon the Improvement Area A Special Taxes superior to or on a parity with the lien of the Bonds herein authorized. Nothing in the Indenture shall prevent the District from issuing and selling, pursuant to law, refunding bonds or other refunding obligations payable from and having a first lien upon the Improvement Area A Special Taxes on a parity with the Outstanding Bonds so long as the issuance of such refunding bonds or other refunding obligations results in a reduction in the Annual Debt Service on the Bonds and such refunding bonds or other refunding obligations taken together. Levy of Improvement Area A Special Taxes. The District shall comply with all requirements of the Act so as to assure the timely collection of the Improvement Area A Special Taxes, as applicable. The District shall annually ascertain the parcels on which the Improvement Area A Special Taxes are to be levied in the following Fiscal Year, taking into account any subdivisions of parcels during the current Fiscal Year. The District shall effect the levy of the Improvement Area A Special Tax in accordance with the Improvement Area A Special Tax RMA and the Act each Fiscal Year so that the computation of such levy is complete and transmitted to the Auditor of the County of San Diego before the final date on which the Auditor of the County of San Diego will accept the transmission of the Improvement Area A Special Tax for the parcels within the District for inclusion on the next real property tax roll. Upon completion of the computation of the amount of the Improvement Area A Special Tax levy, the District shall prepare or cause to be prepared, and shall transmit or cause to be transmitted to the Auditor of the County of San Diego, such data as such Auditor requires to include the levy of the Improvement Area A Special Tax on the next real property tax roll. E-43 To the maximum extent that the law permits it to do so, the District covenants, that it shall not initiate proceedings to reduce the Maximum Special Tax (as defined in the Improvement Area A Special Tax RMA), unless, in connection therewith, (i) the District receives a certificate from one or more Special Tax Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in the District as of the July 1 preceding the reduction, such Maximum Special Tax which may be levied on all Assessor's Parcels (as such term is defined in the Improvement Area A Special Tax RMA, as applicable) of Developed Property in each Fiscal Year will equal at least 110% of the gross debt service on all Bonds to remain Outstanding after the reduction is approved and will not reduce the Maximum Special Tax payable from Assessor's Parcels of Developed Property is located to less than 110% of Maximum Annual Debt Service; and (ii) the Legislative Body finds pursuant to the Indenture that any reduction made under such conditions will not adversely affect the interests of the Owners of the Bonds. Any reduction in the Maximum Special Tax approved pursuant to the preceding sentence may be approved without the consent of the Owners of the Bonds. The District covenants that, in the event that any initiative is adopted by the qualified electors which purports to reduce the Maximum Special Tax below the levels authorized pursuant to the Improvement Area A Special Tax RMA or to limit the power or authority of the District to levy Improvement Area A Special Taxes pursuant to the Improvement Area A Special Tax RMA, the District shall, from funds available hereunder, commence and pursue legal action in order to preserve the authority and power of the District to levy Improvement Area A Special Taxes pursuant to the Improvement Area A Special Tax RMA. Proper Books and Records. The District will at all times keep, or cause to be kept, proper and current books and accounts (separate from all other records and accounts) in which complete and accurate entries shall be made of all transactions relating to the Improvement Area A Special Tax Revenues, as applicable, and other funds provided for by the Indenture. Tax Covenants. The District will not directly or indirectly use or permit the use of any proceeds of the Bonds or any other funds of the District or take or omit to take any action that would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code, or obligations which are "federally guaranteed" within the meaning of Section 149(b) of the Code. The District will not allow five percent (5%) or more of the proceeds of the Bonds to be used in the trade or business of any nongovernmental units and will not loan five percent (5%) or more of the proceeds of the Bonds to any nongovernmental units. The District covenants that it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the interest on the Bonds under Section 103 of the Code. The District will not directly or indirectly use or permit the use of any proceeds of the Bonds or any other funds of the District, or take or omit to take any action, that would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the District will comply with all requirements of Section 148 of the Code to the extent applicable to the Bonds. In the event that at any time the District is of the opinion that for purposes of this Section it is necessary to restrict or limit the yield on the investment of any monies held under the Indenture or otherwise the District shall so instruct the Fiscal Agent in writing, and the Fiscal Agent shall take such action as may be necessary in accordance with such instructions. Without limiting the generality of the foregoing, the District agrees that there shall be paid from time to time all amounts required to be rebated to the United States of America pursuant to Section 148(f) of the Code and any temporary, proposed or final Treasury Regulations as may be applicable to the Bonds from time to time. This covenant shall survive payment in full or defeasance of the Bonds. E-44 Notwithstanding any provision of this covenant, if the District shall obtain an opinion of Bond Counsel to the effect that any action required under this covenant is no longer required, or to the effect that some further action is required, to maintain the exclusion from gross income of the interest on the Bonds pursuant to the Code, the Fiscal Agent may rely conclusively on such opinion in complying with the provisions of the Indenture, and the covenant under the Indenture shall be deemed to be modified to that extent. Extension of Maturity of the Bonds. The District shall not directly or indirectly extend the maturity dates of the Bonds or the time of payment of interest with respect thereto. Adoption of Policy Regarding Tender of Bonds. The District covenants that it will not adopt any policy pursuant to Section 53341.1 of the Act permitting tender of Bonds in full payment or partial payment of any Improvement Area A Special Taxes unless it first receives a certificate of a Special Tax Consultant that accepting such tender will not result in the District having insufficient Improvement Area A Special Tax Revenues to pay the principal of and interest on the Bonds when due. Defeasance. If the District shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an Outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in the Indenture, then the Owner of such Bond shall cease to be entitled to the pledge of the Improvement Area A Special Tax Revenues, and, other than as set forth below, all covenants, agreements and other obligations of the District to the Owner of such Bond under the Indenture shall thereupon cease, terminate and become void and discharged and satisfied. In the event of the defeasance of all Outstanding Bonds, the Fiscal Agent shall pay over or deliver to the District all money or securities held by it pursuant to the Indenture which are not required for the payment of the principal of, premium, if any, and interest due on such Bonds. Any Outstanding Bond shall be deemed to have been paid within the meaning expressed in the preceding paragraph if such Bond is paid in any one or more of the following ways: (a) by paying or causing to be paid the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; (b) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the funds established pursuant to the Indenture (exclusive of the Rebate Fund) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; or (c) by depositing with an escrow bank appointed by the District, in trust, noncallable Permitted Investments of the type described in subparagraph 1 of the definition thereof, in such amount as an Independent Accountant shall determine (as set forth in a verification report from such Independent Accountant) will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the funds established under the Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; then, at the election of the District, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the District under the Indenture with respect to such Bond shall cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the E-45 Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District to preserve the exclusion of the interest on the Bonds from gross income for federal income tax purposes. Notice of such election shall be filed with the Fiscal Agent not less than ten (10) days prior to the proposed defeasance date, or such shorter period of time as may be acceptable to the Fiscal Agent. In connection with a defeasance under (b) or (c) above, there shall be provided to the Fiscal Agent a certificate of Independent Accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Fiscal Agent or the escrow bank, together with the interest to accrue thereon and moneys then on deposit in the funds established under the Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the interest to accrue thereon to pay and discharge the principal of, premium, if any, and interest on all such Bonds to be defeased in accordance with the Indenture as and when the same shall become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased in accordance with the Indenture. To accomplish such defeasance, the District shall cause to be delivered (i) a report of the Independent Accountant verifying the determination made pursuant to the preceding paragraph (the "Verification Report") and (ii) an opinion of Bond Counsel to the effect that the Bonds are no longer Outstanding. The Verification Report and opinion of Bond Counsel shall be acceptable in form and substance, and addressed to the District and the Fiscal Agent. Provisions Constitute a Contract. The provisions of the Indenture shall constitute a contract between the District and the Bondowners and the provisions of the Indenture shall be enforceable by any Bondowner for the equal benefit and protection of all Bondowners similarly situated by mandamus, accounting, mandatory injunction or any other suit, action or proceeding at law or in equity that is now or may hereafter be authorized under the laws of the State in any court of competent jurisdiction. Said contract is made under and is to be construed in accordance with the laws of the State. No remedy conferred by the Indenture upon any Bondowner is intended to be exclusive of any other remedy, but each such remedy is cumulative and in addition to every other remedy and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law of the State. No waiver of any default or breach of duty or contract by any Bondowner shall affect any subsequent default or breach of duty or contract or shall impair any rights or remedies on said subsequent default or breach. No delay or omission of any Bondowner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed as a waiver of any such default or acquiescence therein. Every substantive right and every remedy conferred upon the Bondowners may be enforced and exercised as often as may be deemed expedient. In case any suit, action or proceeding to enforce any right or exercise any remedy shall be brought or taken and the Bondowner shall prevail, said Bondowner shall be entitled to receive from the Special Tax Fund reimbursement for reasonable costs, expenses, outlays and attorney's fees, and should said suit, action or proceeding be abandoned or be determined adversely to the Bondowners then, and in every such case, the District and the Bondowners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. Events of Default. The following events shall be Events of Default under the Indenture. (a) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise. E-46 (b) Default in the due and punctual payment of interest on any Bond when and as such interest shall become due and payable. (c) Default by the District in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default shall have continued for a period of thirty (30) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the District by the Fiscal Agent or to the District and the Fiscal Agent by the Owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding; provided that such default (other than a default arising from nonpayment of the Fiscal Agent's fees and expenses, which must be cured within such 30-day period unless waived by the Fiscal Agent) shall not constitute an Event of Default under the Indenture if the District shall commence to cure such default within said thirty (30) day period and thereafter diligently and in good faith shall cure such default within a reasonable period of time; or (d) The filing by the District of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the District, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property. Application of Revenues and Other Funds After Default If a default in the payment of the Bonds shall occur and be continuing, all revenues and any other funds then held or thereafter received under any of the provisions of the Indenture shall be applied as follows and in the following order: A. To the payment of any expenses necessary in the opinion of the District to protect the interest of the Owners of the Bonds and payment of reasonable charges and expenses of the Fiscal Agent (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture; B. To the payment of the principal of and interest then due with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, as follows: First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity of redemption, and if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according E-47 to the amounts of principal due on such date to the persons entitled thereto, without discrimination or preference. Remedies of the Owners. Following the occurrence of an Event of Default, any Owner shall have the right for the equal benefit and protection of all Owners similarly situated: A. By mandamus or other suit or proceeding at law or in equity to enforce his rights against the District and any of the members, officers and employees of the District, and to compel the District or any such members, officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in the Indenture; B. By suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or C. By a suit in equity to require the District and its members, officers and employees to account as the trustee of an express trust. Nothing in the Indenture shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners thereof at the respective dates of maturity, as herein provided, out of the applicable Net Special Tax Revenue pledged for such payment, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds and in the Indenture. The principal of the Bonds shall not be subject to acceleration. A waiver of any default or breach of duty or contract by any Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners by the Act or by this article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners. If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the District and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. No remedy herein conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law. E-48 APPENDIX F FORM OF COMMUNITY FACILITIES DISTRICT CONTINUING DISCLOSURE AGREEMENT This CONTINUING DISCLOSURE AGREEMENT (the "Disclosure Agreement") is executed and entered into as of June 1, 2006, by and among the Poway Unified School District, on behalf of Community Facilities District No. 14 (Del Sur) of the Poway Unified School District (the "Community Facilities District"), Zions First National Bank, a national banking association organized and existing under and by virtue of the laws of the United States of America (the "Bank") in its capacity as Fiscal Agent (the "Fiscal Agent"), and David Taussig & Associates, Inc., in its capacity as Dissemination Agent (the "Dissemination Agent"), in connection with the issuance of the PowayUnified School District Community Facilities District No. 14 (Del Sur) 2006 Special Tax Bonds (the "2006 CFD Bonds") and Poway Unified School District Community Facilities District No. 14 (Del Sur) Improvement Area A 2006 Special Tax Bonds (the "Improvement Area A Bonds" and together with the 2006 CFD Bonds, the "2006 Bonds"); WITNESSETH: WHEREAS, pursuant to the Community Facilities DistrictBond Indenture,dated as of June 1,2006 (the "CFD Bond Indenture"), by and between the Community Facilities District and the Fiscal Agent, and the Improvement Area A Bond Indenture, by and between the Community Facilities District and the Fiscal Agent (the "Improvement Area A Bond Indenture" and together with the CFD Bond Indenture, the "Bond Indentures"), the Community Facilities District has issued the 2006 CFD Bonds in the aggregate principal amount of $51,515,000 and the Improvement Area A Bonds in the aggregate principal amount of $51,495,000; and WHEREAS, the 2006 Bonds are payable from and secured by special taxes levied on certain of the property within the Community Facilities District; NOW, THEREFORE, for and in consideration of the mutual premises and covenants herein contained, the parties hereto agree as follows: Section 1. Purpose of the Disclosure Agreement. The Disclosure Agreement is being executed and delivered by the Community Facilities District for the benefit of the owners and beneficial owners of the 2006Bonds andin order to assistthe Participating Underwriterin complyingwith S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in each Bond Indenture which apply to any capitalized term used in this Disclosure Agreement 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 Community Facilities District pursuant to, and described in, Sections 3 and 4 of this Disclosure Agreement. "Annual Report Date" shall mean January 31 next following the end of the Community Facility District's fiscal year, which fiscal year end, as of the date of this Disclosure Agreement, is June 30. "Community Facilities District"means Community Facilities District No. 14 (Del Sur) of the Poway Unified School District. F-1 "Disclosure Representative" shall mean the Deputy Superintendent of the School District. "Dissemination Agent" shall mean David Taussig & Associates, Inc., or any successor Dissemination Agent designated in writing by the Community Facilities District and which has filed with the Community Facilities District a written acceptance of such designation. "Improvement Area A" shall mean Improvement Area A of Community Facilities District No. 14 (Del Sur) of the Poway Unified School District. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Information on the National Repositories as of a particular date is available on the Internet at sec.gov/info/municipal/nrmsir.htm. "Participating Underwriter" shall mean Stone & Youngberg LLC. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository. Section 3. Provision of Annual Reports. (a) The Community Facilities District shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date commencing January 31, 2007, provide to each Repository, to the Fiscal Agent and to the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of the Disclosure Agreement. Not later than fifteen (15) Business Days prior to said date, the Community Facilities District shall provide the Annual Report to the Dissemination Agent. 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 Agreement; provided that the audited financial statements of the School District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if not available by that date. If the School District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). If the Dissemination Agent has not received a copy of the Annual Report on or before 15 business days prior to January 31 in anyyear, the Dissemination Agent shall notify the Community Facilities District of such failure to receive the Annual Report. The Community Facilities District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the Community Facilities District and shall have no duty or obligation to review such Annual Report. The Annual Report may be provided in electronic format to each Repository and the Participating Underwriter andmay be provided through the services of a "central post office" approved by the Securities and Exchange Commission. For example, any filing under the Disclosure Agreement may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC") as provided at F-2 http://www.disclosureusa.org unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004. (b) If the Community Facilities District is unable to provide to the Repositories and to the Participating Underwriter an Annual Report by the date required in subsection (a), the Dissemination Agent shall send a notice to the Repositories and the appropriate State Repository, if any, in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; (ii) provide any Annual Report received by it to each Repository, the Fiscal Agent and the Participating Underwriter as provided herein; and (iii) if the Dissemination Agent is other than the Community Facilities District and to the extent it can confirm such filing of the Annual Report, file a report with the Community Facilities District, the Fiscal Agent and the Participating Underwriter certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The Community Facilities District ?Annual Report shall s contain or incorporate by reference the following: (a) Audited Financial Statements of the School District prepared in accordance with generally accepted accounting principles as promulgated to apply to government entities from time to time by the Governmental Accounting Standards Board. If audited financial statements are not available, at the time required for filing, unaudited financial statements shall be submitted with the Annual Report, and audited financial statements shall be submitted once available. (b) The following information regarding the 2006 Bonds and any refunding bonds: (i) Principal amount of 2006 Bonds and any refunding bonds outstanding as of a date within 30 days proceeding the date of the Annual Report; (ii) Balance in the 2006 Bond ServiceFunds as of adate within 30 days proceeding the date of the Annual Report; (iii) Balance in the Reserve Funds and statement of Reserve Requirements as of a date within 30 days proceeding the date of the Annual Report; (iv) Balance in the School Facilities Fund and the Improvement Area A Improvement Fund as of a date within 30 days preceding the date of the Annual Report, and of any other fund not referenced in clauses (i), (ii), (iii) or (iv) hereof; (v) A table summarizing assessed value-to-lien ratios for the property in the Community Facilities District and by each Rate and Method of Apportionment of Special Taxes' land use categories. The assessed values in such table will be determined by reference to the value of the parcels on which the Special Taxes are F-3 levied, as shown on the assessment roll of the San Diego County Assessor last equalized prior to the September 2 next preceding the Annual Report Date. The lien values in such table will include all 2006 Bonds and anyrefunding bonds with respect to either the Community Facilities District or Improvement Area A and all other debt secured by atax or assessments levied on parcels within the Community Facilities District; (vi) Information regarding the annual special taxes levied in the Community Facilities District and in Improvement Area A, amounts collected, delinquent amounts and percents delinquent for the most recent fiscal year; (vii) Status of foreclosure proceedings of parcels within the Community Facilities District and summary of results of foreclosure sales, if available; (viii) A land ownership summary listing property owners responsible for more than 5% of the Special Tax levy as shown on the assessment roll of the San Diego County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, a summary of the Special Taxes levied on the property owned bysuch property owners, and the assessed value of such property, as shown on such assessment roll; (ix) Concerning delinquent parcels as of the immediately preceding August 15; o o total of such delinquency and percentage of delinquency in relation to total Special Tax levy, and o (x) number of parcels delinquent in payment of Special Tax, status of the actions taken by the School District and/or the Community Facilities District related to any foreclosure proceedings upon delinquent properties; Identity of any delinquent taxpayer obligated for greater than 5% of the annual Special Tax levy as of the immediately preceding August 15, plus; o assessed value of applicable properties, and o summary of results of foreclosure sales, if available; (xi) A copy of any report for or concerning the Community Facilities District as of the immediately preceding October 31 required under State law; and (xii) Anychanges to the Rate and Method of Apportionment of Special Tax for either the Community Facilities District or Improvement Area A approved or submitted to the qualified electors of the Community Facilities District for approval prior to the filing of the Annual Report. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the Community Facilities District shall provide such further F-4 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 Community Facilities District 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 Community Facilities District shall clearly identify each such other document so included by reference. A form of information cover sheet for municipal secondary market disclosure recommended by the Municipal Securities Rulemaking Board is attached as Exhibit B. Section 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Community Facilities District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2006 Bonds and any Additional Bonds, if material: (i) Principal and interest payment delinquencies; (ii) Non-payment related defaults; (iii) Unscheduled draws on debt service reserves reflecting financial difficulties; (iv) Unscheduled draws on credit enhancements reflecting financial difficulties; (v) Substitution of credit or liquidity providers, or their failure to perform; (vi) Adverse tax opinions or events affecting the tax-exempt status of the security; (vii) Modifications to rights of security holders; (viii) Contingent or unscheduled bond calls; (ix) Defeasances; (x) Release, substitution, or sale of property securing repayment of the securities; and (xi) Rating changes. (b) The Dissemination Agent shall, within five business days of obtaining actual knowledge of the occurrence of anyof the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the Community Facilities District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of the Listed Events described under clauses (ii), (iii), (vi), (x) and (xi) above shall mean actual knowledge by an officer at the corporate trust office of the Dissemination Agent. The Dissemination Agent shall have no responsibility for determining the materiality of any of the Listed Events. F-5 (c) Whenever the Community Facilities District obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Dissemination Agent pursuant to subsection (b) or otherwise, the Community Facilities District shall as soon as possible determine if such event would be material under applicable Federal securities law. (d) If the Community Facilities District determines that knowledge of the occurrence ofa Listed Event would be material under applicable federal securitieslaw, the Community Facilities District shallpromptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). The Community Facilities District shall provide the Dissemination Agent with a form of notice of such event in a format suitable for reporting to the Municipal Securities Rulemaking Board and each State Repository, if any. (e) If in response to a request under subsection (b), the Community Facilities District determines that the Listed Event would not be material under applicable federal securities law, the Community Facilities District shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) Ifthe Dissemination Agent has been instructed bythe Community Facilities District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository andshall provide a copy of such notice to the Participating Underwriter. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to owners of affected 2006 Bonds pursuant to each Bond Indenture. Section 6. Termination of Reporting Obligation. All of the Community Facilities District's obligations hereunder shall terminate upon the earliest to occur of (i) the legal defeasance of the 2006 Bonds, (ii) prior redemption of the 2006 Bonds or (iii) payment in full of all the 2006 Bonds. If such determination occurs prior to the final maturity of the 2006 Bonds, the Community Facilities District shall give notice of such termination in the same manner as for a Listed Event under Section 5(f). Section 7. Dissemination Agent. The Community Facilities District may, from time to time, appoint or engage a Dissemination Agent to assist in carrying out its obligations under this Disclosure Agreement, andmay discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be David Taussig & Associates, Inc. The Dissemination Agent may resign by providing thirty days' written notice to the Community Facilities District and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent). The Dissemination Agent shall have no duty to prepare the Annual Report nor shall the Dissemination Agent be responsible for filing any Annual Report not provided to it by the Community Facilities District in a timely manner and in a form suitable for filing. Section 8. Amendment Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Community Facilities District, the Fiscal Agent andthe Dissemination Agent may amend this Disclosure Agreement (and the Fiscal Agent and the Dissemination Agent shall agree to any amendment so requested by the Community Facilities District, so long as such amendment does not adversely affect the rights or obligations of the Fiscal Agent or the Dissemination Agent), andany provision of thisDisclosure Agreement may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the 2006 Bonds, or type of business conducted; F-6 (b) the undertakingsherein, 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 primaryoffering of the 2006 Bonds, after taking into account anyamendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by owners of the 2006 Bondsin the manner provided in the applicable Bond Indenture foramendments to such Bond Indenture with the consent of owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the owners or beneficial owners of the 2006 Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information 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. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information in order to provide information to investors to enable them to evaluate the ability of the Community Facilities District 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(f). Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Community Facilities District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Community Facilities District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Community Facilities District shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Community Facilities District or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent may (and, at the written direction of the Participating Underwriter or the owners of at least 25% aggregate principal amount of Outstanding 2006 Bonds, shall, upon receipt of indemnification reasonably satisfactory to the Fiscal Agent) or any owner or beneficial owner of the 2006 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Community Facilities District, the Fiscal Agent or the Dissemination Agent to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the applicable Bond Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Community Facilities District, the Fiscal Agent or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. F-7 Section 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Agent. Section 6.08 of each Bond Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the applicable Bond Indenture, and the Fiscal Agent and the Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded to the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties hereunder as are specifically set forth in this Disclosure Agreement. This Disclosure Agreement does not apply to any other securities issued or to be issued by the Community Facilities District. The Dissemination Agent shall have no obligation to make any disclosure concerning the 2006 Bonds, the Community Facilities District or any other matter except as expressly set out herein, provided that no provision of this Disclosure Agreement shall limit the duties or obligations of the Fiscal Agent under the applicable Bond Indenture. The Dissemination Agent shall have no responsibility for the preparation, review, form or content of any Annual Report or any notice of a Listed Event. The fact that the Fiscal Agent has or may have any banking, fiduciary or other relationship with the Community Facilities District or any other party, apart from the relationship created by the applicable Bond Indenture and this Disclosure Agreement, shall not be construed to mean that the Fiscal Agent has knowledge or notice of any event or condition relating to the 2006 Bonds or the Community Facilities District except in its respective capacities under such agreements. No provision of this Disclosure Agreement shall require or be construed to require the Dissemination Agent to interpret or provide an opinion concerning any information disclosed hereunder. Information disclosed hereunder by the Dissemination Agent may contain such disclaimer language concerning the Dissemination Agent's responsibilities hereunder with respect thereto as the Dissemination Agent may deem appropriate. The Dissemination Agent may conclusively rely on the determination of the Community Facilities District as to the materiality of any event for purposes of Section 5 hereof. Neither the Fiscal Agent nor the Dissemination Agent make anyrepresentation asto the sufficiency ofthis Disclosure Agreement for purposes of the Rule. The Dissemination Agent shall be paid compensation by the Community Facilities District for its services provided hereunder in accordance with its schedule of fees, as amended from time to time, and all expenses, legal fees andadvances made or incurred by the Dissemination in the performance of its duties hereunder. The Community Facilities District's obligations under this Section shall survive the termination of this Disclosure Agreement. Section 12. Beneficiaries. The Participating Underwriter and the owners and beneficial owners from time to time of the 2006 Bonds shall be third party beneficiaries under this Disclosure Agreement. This Disclosure Agreement shall inure solely to the benefit of the Community Facilities District, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and owners and beneficial owners from time to time of the 2006 Bonds, and shall create no rights in any other person or entity. Section 13. Notices. Any notice or communications to or among any of the parties to this Disclosure Agreement shall be given to all of the following and may be given as follows: F-8 If to the Community Facilities District: Community Facilities District No. 14 (Del Sur) of the Poway Unified School District 13626 Twin Peaks Road Poway, California 92064-3034 Telephone: (858) 679-2517 Telecopier: (858) 679-2642 Attention: Deputy Superintendent If to the Dissemination Agent: David Taussig & Associates, Inc. 1301 Dove Street, Suite 600 Newport Beach, California 92660 Telephone: (949) 955-1500 Telecopier: (949) 955-1590 If to the Fiscal Agent: Zions First National Bank 550 S. Hope Street, Suite 2650 Los Angeles, California 90071 Telephone: (213) 593-3152 Telecopier: (213) 593-3160 If to the Participating Underwriter: Stone & Youngberg LLC One Ferry Building San Francisco, California 94111 Telephone: (415) 445-2300 Telecopier: (415) 445-2395 Attention: Municipal Research Department Section 14. Future Determination of Obligated Persons. In the event the Securities Exchange Commission amends, clarifies or supplements the Rule in such a manner that requires anylandowner within the Community Facilities District to be an obligated person as defined in the Rule, nothing contained herein shall be construed to require the Community Facilities District to meeting the continuing disclosure requirements of the Rule with respect to such obligated person and nothing in this Disclosure Agreement shall be deemed to obligate the Community Facilities District to disclose information concerning any owner of land within the Community Facilities District except as required as part of the information required to be disclosed by the Community Facilities District pursuant to Section 4 and Section 5 hereof. Section 15. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. Section 16. State of California Law Governs. The validity, interpretation and performance of this Purchase Agreement shall be governed by the laws of the State of California. Section17. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. F-9 Section 18. Merger. Any person succeeding to all or substantially all of the Dissemination Agent's corporate trust business shall be the successor Dissemination Agent without the filing of any paper or any further act. IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. POWAY UNIFIED SCHOOL DISTRICT, on behalf of Community Facilities District No. 14 (Del Sur) of the Poway Unified School District By: _________________________________________ Authorized Officer ZIONS FIRST NATIONAL BANK, as Fiscal Agent By: _________________________________________ Authorized Officer DAVID TAUSSIG & ASSOCIATES, INC., as Dissemination Agent By: _________________________________________ Authorized Officer F-10 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Community Facilities District No. 14 (Del Sur) of the Poway Unified School District Name of Bond Issue: Poway Unified School District Community Facilities District No. 14 (Del Sur) 2006 Special Tax Bonds and Poway Unified School District Community Facilities District No. 14 (Del Sur) Improvement Area A 2006 Special Tax Bonds Date of Issuance: June 22, 2006 NOTICE IS HEREBY GIVEN that Community Facilities District No. 14 (Del Sur) of the Poway Unified School District (the "Community Facilities District") has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of June 1, 2006, by and among the Community Facilities District, Zions First National Bank, as Fiscal Agent and David Taussig & Associates, Inc. as Dissemination Agent. [The Community Facilities District anticipates that the Annual Report will be filed by ________________.] Dated: ________, 20__ David Taussig & Associates, Inc., as Dissemination Agent, on behalf of the Community Facilities District cc: Community Facilities District No. 14 (Del Sur) Stone & Youngberg LLC Zions First National Bank F-11 EXHIBIT B Municipal Secondary Market Disclosure Information Cover Sheet This cover sheet should be sent with all submissions made to the Municipal Securities Rulemaking Board, Nationally Recognized Municipal Securities Information Repositories, and any applicable State Information Depository, whether the filing is voluntary or made pursuant to Securities and Exchange Commission Rule 15c2-12 or any analogous state statute. See www.sec.gov/info/municipal/nrmsir.htm for list of current NRMSIRs and SIDs IF THIS FILING RELATES TO A SINGLE BOND ISSUE: Provide name of bond issue exactly as it appears on the cover of the Official Statement (please include name of state where Issuer is located): $51,515,000 POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) 2006 SPECIAL TAX BONDS (California) Provide nine-digit CUSIP(R) numbers * if available, to which the information relates: Maturity 2008 2009 CUSIP(R) 738855QF5 738855QG3 Maturity 2016 2019 CUSIP(R) 738855QP3 738855QS7 2010 2011 738855QH1 738855QJ7 2020 2021 738855QT5 738855QU2 2012 2013 738855QK4 738855QL2 2018 2026 738855QR9 738855QV0 2014 2015 738855QM0 738855QN8 2036 738855QW8 $51,495,000 POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) IMPROVEMENT AREA A 2006 SPECIAL TAX BONDS (California) Provide nine-digit CUSIP(R) numbers * if available, to which the information relates: Maturity 2008 CUSIP(R) 738855QX6 Maturity 2016 CUSIP(R) 738855RF4 2009 2010 738855QY4 738855QZ1 2019 2020 738855RJ6 738855RK3 2011 2012 738855RA5 738855RB3 2021 2018 738855RL1 738855RH0 2013 2014 738855RC1 738855RD9 2026 2036 738855RM9 738855RN7 2015 738855RE7 F-12 IF THIS FILING RELATES TO ALL SECURITIES ISSUED BY THE ISSUER OR ALL SECURITIES OF A SPECIFIC CREDIT OR ISSUED UNDER A SINGLE INDENTURE: Issuer's Name (please include name of state where Issuer is located): ___________________________________________ Other Obligated Person's Name (if any): __________________________________________________________________ (Exactly as it appears on the Official Statement Cover) Provide six-digit CUSIP(R) number(s)*, if available, of Issuer: __________________________________________________ *(Contact CUSIP(R) 's Municipal Disclosure Assistance Line at 212.438.6518 for assistance with obtaining the proper CUSIP(R) numbers.) TYPE OF FILING: ? Electronic (number of pages attached)___________________ ? Paper (number of pages attached) ________________ If information is also available on the Internet, give URL: _____________________________________________________ WHAT TYPE OF INFORMATION ARE YOU PROVIDING? (Check all that apply) A. ? Annual Financial Information and Operating Data pursuant to Rule 15c2-12 (Financial information and operating data should not be filed with the MSRB.) Fiscal Period Covered: _____________________________________________________________________________ B. ? Audited Financial Statements or CAFR pursuant to Rule 15c2-12 Fiscal Period Covered: _____________________________________________________________________________ C. ? Notice of a Material Event pursuant to Rule 15c2-12 (Check as appropriate) 1. ? Principal and interest payment delinquencies 6. ? Adverse tax opinions or events affecting the taxexempt status of the security 2. ? Non-payment related defaults 7. ? Modifications to the rights of security holders 3. ? Unscheduled draws on debt service reserves reflecting financial difficulties 8. ? Bond calls 4. ? Unscheduled draws on credit enhancements reflecting financial difficulties 9. ? Defeasances 5. ? Substitution of credit or liquidity providers, or their failure to perform 10. ? Release, substitution, or sale of property securing repayment of the securities 11. ? Rating changes D. ? Notice of Failure to Provide Annual Financial Information as Required E. ? Other Secondary Market Information (Specify): _____________________________________________________ I hereby represent that I am authorized by the issuer or obligor or its agent to distribute this information publicly: Issuer Contact: Name ______________________________________________ Title ____________________________________________ Employer ___________________________________________________________________________________________ Address ____________________________________________ City _____________ State _____ Zip Code_____________ Telephone___________________________________________ Fax ____________________________________________ Email Address _______________________________________ Issuer Web Site Address ____________________________ Dissemination Agent Contact, if any: Name ______________________________________________ Title ____________________________________________ Employer ___________________________________________________________________________________________ Address ____________________________________________ City _____________ State _____ Zip Code_____________ Telephone___________________________________________ Fax ____________________________________________ Email Address _______________________________________ Relationship to Issuer_______________________________ F-13 Obligor Contact, if any: Name ______________________________________________ Title ____________________________________________ Employer ___________________________________________________________________________________________ Address ____________________________________________ City _____________ State _____ Zip Code_____________ Telephone___________________________________________ Fax ____________________________________________ Email Address _______________________________________ Obligor Web site Address ___________________________ Investor Relations Contact, if any: Name ______________________________________________ Title ____________________________________________ Telephone___________________________________________ Email Address ___________________________________ F-14 APPENDIX G FORM OF MAJOR DEVELOPER CONTINUING DISCLOSURE AGREEMENTS A separate Major DeveloperContinuing Disclosure Agreement will be provided by Black Mountain Ranch LLC and Standard Pacific Corp. This CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement") is executed and entered into as of June 1, 2006, by and between Zions First National Bank, a national banking association organized and existing under and by virtue of the laws of the United States of America (the "Bank"), in its capacity as dissemination agent (the "Dissemination Agent") and in its capacity as Fiscal Agent (the "Fiscal Agent") with respect to the Poway Unified School District Community Facilities District No. 14 (Del Sur) 2006 Special Tax Bonds and Poway Unified School District Community Facilities District No. 14 (Del Sur) Improvement Area A 2006 Special Tax Bonds (collectively the "2006 Bonds"), and [Black Mountain Ranch LLC][Standard Pacific Corp.] organized and existing under and by virtue of the laws of the State of [California] [Delaware] (the "Property Owner"); Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Property Owner for the benefit of the owners and beneficial owners of the 2006 Bonds. Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Affiliate" of anotherPerson means (a) aPerson directlyor 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, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person. For purposes hereof, "control" means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Assumption Agreement" means an agreement of a Major Developer or an Affiliate thereof, the Dissemination Agent, and the Fiscal Agent for the benefit of the owners and beneficial owners of the 2006 Bonds containing terms substantially similar to this Disclosure Agreement, whereby such Major Developer or Affiliate agrees to provide semi-annual reports and notices of significant events, setting forth the information described in Sections 4 and 5 hereof, respectively, with respect to the portion of the property in the Community Facilities District owned by, or under option to, such Major Developer and its Affiliates and agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof. "Community Facilities District" means Community Facilities District No. 14 of the Poway Unified School District. "Dissemination Agent" means Zions First National Bank, or any successor Dissemination Agent designated in writing by the Property Owner, and which has filed with the Property Owner, the Community Facilities District and the Fiscal Agent a written acceptance of such designation, and which is experienced in providing dissemination agent services such as those required under this Disclosure Agreement. "Improvement Area A" means Improvement Area A of Community Facilities District No. 14 of the Poway Unified School District. "Listed Events" means any of the events listed in Section 5(a) of this Disclosure Agreement. G-1 "Major Developer" means, as of any Report Date, an owner of land responsible in the aggregate for 15% or more of the Special Taxes in the Community Facilities District actually levied at any time during the then-current fiscal year. "National Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Information on the National Repositories as of a particular date is a va i l a b l e o n t h e S e c u r i t i e s a nd Exc ha nge Commi s s i on' s In t e r n e t s i t e a t www.sec.gov/info/municipal/nrmsir.htm. "Official Statement"means the final official statement executed by the Community Facilities District in connection with the issuance of the 2006 Bonds. "Participating Underwriter" means Stone & Youngberg LLC, the original underwriter of the 2006 Bonds required to comply with the Rule in connection with offering of the 2006 Bonds. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Property" means the property owned by, or under option to, the Property Owner in the Community Facilities District. "Report Date" means April 1 and October 1 of each calendar year. "Repository" means each National Repository and each State Repository, if any. "Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Semi-Annual Report" means any Semi-Annual Report provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Special Taxes" means the special taxes levied on taxable property within Improvement Area A and within the Community Facilities District used to pay debt service on the 2006 Bonds. "State Repository" means any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository. Section 3. Provision of Semi-Annual Reports. (a) The Property Owner shall, or upon written direction shall cause the Dissemination Agent to, not later than the Report Date, commencing October 1, 2006, provide to each Repository a Semi-Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement with a copy to the Fiscal Agent (if different from the Dissemination Agent), the Participating Underwriter and the Community Facilities District. Not later than 15 Business Days prior to the Report Date, the Property Owner shall provide the Semi-Annual Report to the Dissemination Agent. The Property Owner shall provide a written certification with (or included as a part of) each Semi-Annual Report furnished to the Dissemination Agent, the Fiscal Agent (if differentfrom the Dissemination Agent), the Participating Underwriter and the Community Facilities District to the effect that such Semi-Annual Report constitutes the Semi-Annual Report required to be furnished by it under this Disclosure Agreement. The Dissemination Agent, the Fiscal Agent, the Participating Underwriter and the Community Facilities District may conclusively rely upon such certification of the Property Owner and shall have no duty or obligation to review the Semi-Annual Report. The Semi-Annual Report may be submitted as a single document or as separate documents G-2 comprising a package, and may incorporate by reference other information as provided in Section 4 of this Disclosure Agreement. The Semi-Annual Report may be provided in electronic format to each Repository and the Participating Underwriter and may be provided through the services of a "central post office" approved by the Securities and Exchange Commission. For example, any filing under this Disclosure Agreement may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC") as provided at http://www.disclosureusa.org unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004. The Dissemination Agent may utilize the reminder system offeredby MAC to notify the Developer to file its Semi-Annual disclosurereports in addition to the notice provided by the Dissemination Agent pursuant to Section 3(b) below. (b) If the Dissemination Agent does not receive a Semi-Annual Report by 15 days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Property Owner that the Semi-Annual Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Property Owner to determine whether its obligations under this Disclosure Agreement have terminated (pursuant to Section 6 below) and, if so, to provide the Dissemination Agent with a notice of such termination in the same manner as for a Listed Event (pursuant to Section 5 below). If the Property Owner does not provide, or cause the Dissemination Agent to provide, a Semi-Annual Report to the Repositories by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the Municipal Securities Rulemaking Board and appropriate State Repository, if any, in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the Community Facilities District, the Participating Underwriter and the Property Owner. (c) The Dissemination Agent shall: (i) determine prior to each Report Date the name and address of each National Repository and each State Repository, if any; and (ii) to the extent the Semi-Annual Report has been furnished to it, file a report with the Property Owner (if the Dissemination Agent is other than the Property Owner), the Community Facilities District and the Participating Underwriter certifying that the SemiAnnual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Semi-Annual Reports. The Property Owner's Semi-Annual Report shall contain or incorporate by reference the information set forth in Exhibit B, any or all of which may be includedby specific reference to other documents, including officialstatements of debtissues of the Property Owner 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 Property Owner shall clearly identify each such other document so included by reference. With respect only to the Semi-Annual Report that is required to be provided nolater than April 1 of each Fiscal Year, if audited financial statements of the Property Owner or its parent company (the "Financial Statements") are prepared, attach the audited Financial Statements. If such audited Financial Statements are not available by the time such Semi-Annual Report is required to be filed, the audited Financial Statements shall be filed as a supplement or amendment to the Semi-Annual Report when they become available. Such Financial Statements shall be for the most recently ended fiscal year for the entity covered thereby. If the financial information or operating data to be provided in a SemiAnnual Report is amended pursuant to the provisions hereof, the first Semi-Annual Report containing the operating data or financial information in accordance with such amendment shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. In addition to any of the information expressly required to be provided in Exhibit B, the Property Owner's Semi-Annual Report shall include such further information, if any, as may be necessary to make G-3 the specifically required statements, in the light of the circumstances under which they are made, not misleading. A form of information cover sheet for municipal secondary market disclosure recommended by the Municipal Securities Rulemaking Board is attached as Exhibit C. Section 5. Reporting of Significant Events. (a) The Property Owner shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the 2006 Bonds, if material: (i) bankruptcy or insolvency proceedings commenced by or against the Property Owner and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Property Owner; (ii) failure of the Property Owner or, if known, an Affiliate, to pay any taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property; (iii) filingof a lawsuitagainst the Property Owner(of which the Property Owner has notice, such as through service of process) or, if known, an Affiliate of the Property Owner, seeking damages which could have a material impact on the Property Owner's or an Affiliate's ability to pay Special Taxes or to sell or develop the Property; (iv) Property; material damage to or destruction of any of the improvements on the (v) any uncured material payment default or other material default by the Property Owner (or, if known, an Affiliate of the Property Owner) on any loan with respect to the construction of improvements on the Property; (vi) any denial or termination of credit, any denial or termination of, or 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 such Property Owner's most recently disclosed financing plan or development plan or on the ability of such PropertyOwner, or any Affiliate of such Property Owner that owns any portion of the Property, to pay Special Taxes within the Community Facilities District when due; (vii) anymaterially adverse significant amendments to land use entitlements for such Property Owner's Property, or if known, an Affiliate's Property if material to the Development plan; (viii) any previously undisclosed governmentally-imposed preconditions to commencement or continuation of development on such Property Owner's Property, or if known, an Affiliate's Property if material to the Development plan; (ix) any previously undisclosed legislative, administrative or judicial challenges to development on such Property Owner's Property, or if known, an Affiliate's Property, if material to the Development plan; and (x) any changes, if materially adverse to the development plan, in the alignment, design or likelihood of completion of significant public improvements affecting such Property Owner's Property or, if known, an Affiliates' Property, including major thoroughfares, sewers, water conveyance systems and similar facilities; G-4 (b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, the Property Owner shall as soon as possible determine if such event would be material under applicable federal securities law; and (c) If the Property Owner determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities law, the Property Owner shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository, if any, with a copy to the Fiscal Agent, the Community Facilities District and the Participating Underwriter. Section 6. Duration of Reporting Obligation. (a) All of the Property Owner's obligations hereunder shall commence on the date hereof and shall terminate (except as provided in Section 11) on the earliest to occur of the following: (i) upon the legal defeasance, prior redemption or payment in full of all the 2006 Bonds, or (ii) at such time as property owned by, or under option to, the Property Owner and its Affiliates is no longer responsible for payment of 15% or more of the Special Taxes, or (iii) the date on which the Property Owner prepays in full all of the Special Taxes attributable to the Property; provided, however, that notwithstanding that the Property owned by, or under option to, the Property Owner is no longer responsible for payment of 15% or more of the Special Taxes, in the event the Property Owner shall transfer any portion of its Property to another Person which, taking into account such transfer shall be a Major Developer, the Property Owner's obligations hereunder shall continue with respect to the Property transferred and the other property owned by, or under option to, such Major Developer until such time as the transferee shall have assumed the obligations of the Property Owner hereunder or such transferee shall have the disclosure obligations set forth herein with respect to such Property pursuant to a Major Developer Continuing Disclosure Agreement executed in connection with issuance of the 2006 Bonds or an Assumption Agreement. The Property Owner shall give notice of the termination of its obligations under this Disclosure Agreement in the same manner as for a Listed Event under Section 5. (b) If a portion of the Property in the Community Facilities District owned by, or under option to, the Property Owner, or any Affiliate of the Property Owner, is conveyed to a Person that, upon such conveyance, will be a Major Developer, the obligations of the Property Owner hereunder with respect to the Property in the Community Facilities District owned by such Major Developer and its Affiliates may be assumed by such Major Developer or by an Affiliate thereof and the PropertyOwner's obligations hereunder will be terminated. In order to effect such assumption, such Major Developer or Affiliate shall enter into an Assumption Agreement in form and substance reasonably satisfactory to the Community Facilities District and the Participating Underwriter. Section 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist the Property Owner in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Zions First National Bank. The Dissemination Agent may resign by providing thirty days' written notice to the Community Facilities District, the Property Owner and the Fiscal Agent. G-5 Section8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Property Owner may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied (provided, however, that the Dissemination Agent shall not be obligated under any such amendment that modifies or increases its duties or obligations hereunder without its written consent thereto): (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the 2006 Bonds, or type of business conducted; (b) the undertakingsherein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the 2006 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by owners of the 2006 Bonds in the manner provided in the applicable Bond Indenture(s) with the consent of owners or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the owners or beneficial owners of the 2006 Bonds. Ifan amendment is made to the accounting principles followed in preparing the Financial Statements, the financial information for the year in which the change is made shall present a comparison between the Financial Statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the Financial Statements or information, in order to provide information to investors to enable them to evaluate the ability of the Major Developer to generally meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A qualitative analysis in accordance with Generally Accepted Accounting Principles (GAAP) shall be deemed to satisfy this requirement. 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 hereof. Section9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Property Owner from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Semi-Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Property Owner chooses to include any information in any Semi-Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Property Owner shall have no obligation under this Disclosure Agreement to update such information or include it in any future Semi-Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Property Owner to comply with any provision of this Disclosure Agreement, the Fiscal Agent shall (upon written direction and only to the extent indemnified to its satisfaction from any liability, cost or expense, including fees and expenses of its attorneys),and the Participating Underwriter andany owner or beneficial owner of the 2006 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Property Owner to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Property Owner to comply with this Disclosure Agreement shall be an action to compel performance. Neither the Property Owner nor the Dissemination Agent shall have any liability to the owners of the 2006 Bonds or any other party for monetary damages or financial liability of any kind whatsoever relatingto or arising from this Disclosure Agreement. G-6 Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shallhave only such duties as are specifically set forth in this Disclosure Agreement, and the Property Owner agrees to indemnify and save the Dissemination Agent, including its officers, directors, employees and agents, harmless against any loss, expense and liability which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys' fees) of defending against any such claim of liability, but excluding liabilities, costs and expenses due to the Dissemination Agent's, including its officers, directors, employees and agents, negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services provided hereunder in accordance with its schedule of fees as amended from time to time, which schedule, as amended, shall be reasonably acceptable, and all reasonable expenses, reasonable legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the Community Facilities District, the Property Owner, the Fiscal Agent, the 2006 Bond owners, or any other party. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2006 Bonds. Section 12. Notices. Any notice or communications to be among any of the parties to this Disclosure Agreement may be given as follows: If to the Community Facilities District: Community Facilities District No.14 (Del Sur) of the Poway Unified School District 13626 Twin Peaks Road Poway, California 92064-3034 Telephone: 858-679-2517 Telecopier: 858-679-2642 Attention: Deputy Superintendent If to the Dissemination Agent: Zions First National Bank 550 South Hope Street, Suite 2650 Los Angeles, California 90071 Telephone: 213/593-3152 Telecopier: 213/593-3160 If to the Fiscal Agent: Zions First National Bank 550 South Hope Street, Suite 2650 Los Angeles, California 90071 Telephone: 213/593-3152 Telecopier: 213/593-3160 If to the Participating Underwriter: Stone & Youngberg LLC One Ferry Building San Francisco, California 94111 Telephone: 415/445-2300 Telecopier: 415/445-2395 Attention: Municipal Research Department If to the Property Owner: [Black Mountain Ranch LLC 16010 Camino Del Sur San Diego, California 92127 Telephone: 858/792-7061 Telecopier: 858/792-7625]/ G-7 [Standard Pacific Corp. 5750 Fleet Street, Suite 200 Carlsbad, California 92008 Telephone: 760/602-6818 Telecopier: 760/602-6819] Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. Section 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Community Facilities District, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and owners and beneficial owners from time to time of the 2006 Bonds, and shall create no rights in any other person or entity. All obligations of the Property Ownerhereunder shallbe assumed by any legal successor to the obligations of the Property Owner as a result of a sale, merger, consolidation or other reorganization. Section14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument. Section 15. Merger. Any person succeeding to all or substantially all of the Dissemination Agent's corporate trust business shall be the successor Dissemination Agent without the filing of any paper or any further act. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; EXECUTION PAGE FOLLOWS] G-8 Section 16. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. Section 17. State of California Law Governs.. The validity, interpretation and performance of this Disclosure Agreement shall be governed by the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have executed thisDisclosure Agreement as of the date first above written. Dated: June 1, 2006 [BLACK MOUNTAIN RANCH LLC, a California limited liability company By: BMR Communities LLC a California limited liability company its managing member By: Standard Pacific Corp., a Delaware corporation its managing member By: __________________________ Name: __________________________ Title: __________________________ By: __________________________ Name: __________________________ Title: __________________________ [STANDARD PACIFIC CORP., a Delaware corporation By: __________________________________________ Its: __________________________________________ By: __________________________________________ Its: __________________________________________] AGREED AND ACCEPTED: Zions First National Bank, as Dissemination Agent By: Title: _____________________ _____________________ G-9 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE SEMI-ANNUAL REPORT Name of Issuer: Community Facilities District No. 14 (Del Sur) of the Poway Unified School District Name of Bond Issue: Poway Unified School District Community Facilities District No. 14 (Del Sur) 2006Special Tax Bonds andPoway Unified School District Community Facilities District No. 14 (Del Sur) Improvement Area A 2006 Special Tax Bonds Date of Issuance: June 22, 2006 NOTICE IS HEREBY GIVEN that ____________ (the "Property Owner") has not provided a SemiAnnual Report with respect to the above-named bonds as required by that certain Major Developer Continuing Disclosure Agreement, dated June 1, 2006. [The Property Owner anticipates that the SemiAnnual Report will be filed by _____________.] Dated: DISSEMINATION AGENT: Zions First National Bank By: ___________________________________________ Its: __________________________________________ cc: Community Facilities District No. 14 (Del Sur) of the Poway Unified School District [Property Owner] G-10 EXHIBIT B SEMI-ANNUAL REPORT POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) 2006 SPECIAL TAX BONDS This Semi-Annual Report is hereby submitted under Section 4 of the Major Developer Continuing Disclosure Agreement (the "Disclosure Agreement") dated as of June 1, 2006, executed by the undersigned (the "Property Owner") in connection with the issuance of the above-captioned bonds by Community Facilities District No. 14 (Del Sur) of the Poway Unified School District (the "Community Facilities District"). Capitalized terms used in this Semi-Annual Report but not otherwise defined have the meanings given to them in the Disclosure Agreement. I. Property Ownership and Development The information in this section is provided as of ____________________ (this date must be not more than 60 days before the date of this Semi-Annual Report). A. Property currently owned by, or under option to, the Property Owner in the Community Facilities District (the "Property"): Development Name(s) _______________________________________________ Total Lots and Homes in the Development Total Homes Completed (__________, 200__) Total Homes Sold (Closed Escrow) (__________, 200__) Property Sold (Closed Escrow) Since the Last Semi-Annual Report (Report dated ___, 200__) Acres* ____ Lots ____ Homes ____ Acres* ____ Lots ____ Homes ____ Acres* ____ Lots ____ Homes ____ Acres* ____ Lots ____ Homes ____ * For bulk land sales only (excluding sales of finished lots for completed homes). B. Status of land development or home construction activities with regard to the Property: ________________________________________________________________________ ________________________________________________________________________ C. Status of building permits and any significant amendments to land use or development entitlements with regard to the Property: ________________________________________________________________________ ________________________________________________________________________ D. Status of any land purchase contracts with regard to the Property, whether acquisition of land by the Property Owner or sales of land to other property owners (other than individual homeowners): ________________________________________________________________________ G-11 ________________________________________________________________________ E. Any changes, if material, to the development plan, in the alignment, design or likelihood of completion of significant public improvements affecting such Property Owner's Property, including major thoroughfares, sewers, water conveyance systems and similar facilities: ________________________________________________________________________ ________________________________________________________________________ II. Legal and Financial Status of Property Owner Unless such information has previously been included orincorporated byreference in a Semi-Annual Report, describe any change in the legal structure of the Property Owner or the financial condition and financing plan of the Property Owner that is materially different from the legal structure, financial condition or financing plan described in the Official Statement that would materially and adversely interfere with its ability to complete its proposed development of the Property. With respect only to the Semi-Annual Report that is required to be provided no later than April 1 of each Fiscal Year, if audited financial statements of the Property Owner are prepared or if the Property Owner's financial statements are consolidated with the Property Owner's parent company and audited financial statements of the parent company are prepared (the "Financial Statements"), attach or incorporate by reference to materials on file with the Repositories or Securities and Exchange Commission, the audited Financial Statements of the Property Owner or its parent company. If such audited Financial Statements are prepared but not available by the time such Semi-Annual Report is required to be filed, the audited Financial Statements shall be filed as a supplement or amendment to the Semi-Annual Report when they become available. Such Financial Statements shall be for the most recently ended fiscal year for the entity covered thereby. ________________________________________________________________________ ________________________________________________________________________ III. Change in Development or Financing Plans Unless such information has previously been included or incorporated byreference in a Semi-Annual Report, describe any development plans or financing plans relating to the Property owned by or under option to the Property Owner or an Affiliate that are materially different from the proposed development and financing plan described in the Official Statement. Describe any change in the provider of the Letter of Credit or provide information regarding a cash deposit in lieu of the Letter of Credit. ________________________________________________________________________ ________________________________________________________________________ IV. Status of Tax Payments Describe status of payment of taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property owned by, or under option to, the Property Owner or an Affiliate. ________________________________________________________________________ ________________________________________________________________________ V. Official Statement Updates Unless such information has previously been includedor incorporated byreference in a Semi-Annual Report, describe any other significant changes in the information relating to the Property Owner or the Property contained in the Official Statement under the headings "CONTINUING DISCLOSURE - Developers," "THE DEL SUR PROJECT AND PROPERTY OWNERSHIP - Background," " - Environmental Permits," and"Black Mountain Ranch LLC andthe Merchant Builders" that would materially G-12 andadversely interfere with the Property Owner's ability to develop and sell the Property as described in the Official Statement. ________________________________________________________________________ ________________________________________________________________________ VI. Other Material Information In addition to any of the information expressly required above, provide such further information, if any, as may be necessary to make the specificallyrequired statements, in the light of the circumstances under which they are made, not misleading. ________________________________________________________________________ ________________________________________________________________________ Certification The undersigned PropertyOwner herebycertifies that this Semi-Annual Report constitutes the SemiAnnual Report required to be furnished by the Property Owner under the Continuing Disclosure Agreement dated as of June 1, 2006, executed by the Property Owner in connection with the issuance of the abovecaptioned bonds. ANY OTHER STATEMENTS REGARDING THE PROPERTYOWNER, THE DEVELOPMENT OFTHE PROPERTY, THE PROPERTY OWNER'S FINANCINGPLAN OR FINANCIAL CONDITION, OR THE 2006 BONDS, OTHER THAN STATEMENTS MADE BY THE PROPERTY OWNER IN AN OFFICIAL RELEASE OR NEWSPAPER OF GENERAL CIRCULATION, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD OR A NATIONALLY RECOGNIZED MUNICIPAL SECURITIES INFORMATION REPOSITORY, ARE NOT AUTHORIZED BY THE PROPERTY OWNER. THE PROPERTY OWNER IS NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS. THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS SEMI-ANNUAL REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE AGREEMENT. Dated: __________, 20__ [BLACK MOUNTAIN RANCH LLC, a California limited liability company By: BMR Communities LLC a California limited liability company its managing member By: Standard Pacific Corp., a Delaware corporation its managing member By: __________________________ Name: __________________________ Title: __________________________ By: __________________________ Name: __________________________ Title: __________________________ G-13 [STANDARD PACIFIC CORP., a Delaware corporation By: __________________________________________ Its: __________________________________________ By: __________________________________________ Its: __________________________________________] G-14 EXHIBIT C Municipal Secondary Market Disclosure Information Cover Sheet This cover sheet should be sent with all submissions made to the Municipal Securities Rulemaking Board, Nationally Recognized Municipal Securities Information Repositories, and any applicable State Information Depository, whether the filing is voluntary or made pursuant to Securities and Exchange Commission Rule 15c2-12 or any analogous state statute. See www.sec.gov/info/municipal/nrmsir.htm for list of current NRMSIRs and SIDs IF THIS FILING RELATES TO A SINGLE BOND ISSUE: Provide name of bond issue exactly as it appears on the cover of the Official Statement (please include name of state where Issuer is located): $51,515,000 POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) 2006 SPECIAL TAX BONDS (California) Provide nine-digit CUSIP(R) numbers * if available, to which the information relates: Maturity 2008 2009 2010 2011 2012 2013 2014 2015 CUSIP(R) 738855QF5 738855QG3 738855QH1 738855QJ7 738855QK4 738855QL2 738855QM0 738855QN8 Maturity 2016 2019 2020 2021 2018 2026 2036 CUSIP(R) 738855QP3 738855QS7 738855QT5 738855QU2 738855QR9 738855QV0 738855QW8 $51,495,000 POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) IMPROVEMENT AREA A 2006 SPECIAL TAX BONDS (California) Provide nine-digit CUSIP(R) numbers * if available, to which the information relates: Maturity 2008 2009 2010 2011 2012 2013 2014 2015 CUSIP(R) 738855QX6 738855QY4 738855QZ1 738855RA5 738855RB3 738855RC1 738855RD9 738855RE7 Maturity 2016 2019 2020 2021 2018 2026 2036 G-15 CUSIP(R) 738855RF4 738855RJ6 738855RK3 738855RL1 738855RH0 738855RM9 738855RN7 IF THIS FILING RELATES TO ALL SECURITIES ISSUED BY THE ISSUER OR ALL SECURITIES OF A SPECIFIC CREDIT OR ISSUED UNDER A SINGLE INDENTURE: Issuer's Name (please include name of state where Issuer is located): _____________________________________________ Other Obligated Person's Name (if any): ___________________________________________________________________ (Exactly as it appears on the Official Statement Cover) (R) * Provide six-digit CUSIP number(s) , if available, of Issuer: ____________________________________________________ *(Contact CUSIP(R)'s Municipal Disclosure Assistance Line at 212.438.6518 for assistance with obtaining the proper CUSIP(R) numbers.) TYPE OF FILING: ? Electronic (number of pages attached)___________________ ? Paper (number of pages attached) ________________ If information is also available on the Internet, give URL: _____________________________________________________ WHAT TYPE OF INFORMATION ARE YOU PROVIDING? (Check all that apply) A. ? Annual Financial Information and Operating Data pursuant to Rule 15c2-12 (Financial information and operating data should not be filed with the MSRB.) Fiscal Period Covered: _____________________________________________________________________________ B. ? Audited Financial Statements or CAFR pursuant to Rule 15c2-12 Fiscal Period Covered: _____________________________________________________________________________ C. ? Notice of a Material Event pursuant to Rule 15c2-12 (Check as appropriate) 1. ? Principal and interest payment delinquencies 6. 2. ? Non-payment related defaults ? Unscheduled draws on debt service reserves reflecting financial difficulties ? Unscheduled draws on credit enhancements reflecting financial difficulties ? Substitution of credit or liquidity providers, or their failure to perform 7. 3. 4. 5. 8. ? Adverse tax opinions or events affecting the taxexempt status of the security ? Modifications to the rights of security holders ? Bond calls 9. ? Defeasances 10. ? Release, substitution, or sale of property securing repayment of the securities ? Rating changes 11. D. ? Notice of Failure to Provide Annual Financial Information as Required E. ? Other Secondary Market Information (Specify): _____________________________________________________ I hereby represent that I am authorized by the issuer or obligor or its agent to distribute this information publicly: Issuer Contact: Name ______________________________________________ Title ____________________________________________ Employer ___________________________________________________________________________________________ Address ____________________________________________ City _____________ State _____ Zip Code_____________ Telephone___________________________________________ Fax ____________________________________________ Email Address _______________________________________ Issuer Web Site Address ____________________________ Dissemination Agent Contact, if any: Name ______________________________________________ Title ____________________________________________ Employer ___________________________________________________________________________________________ Address ____________________________________________ City _____________ State _____ Zip Code_____________ Telephone___________________________________________ Fax ____________________________________________ Email Address _______________________________________ Relationship to Issuer_______________________________ G-16 Obligor Contact, if any: Name ______________________________________________ Title ____________________________________________ Employer ___________________________________________________________________________________________ Address ____________________________________________ City _____________ State _____ Zip Code_____________ Telephone___________________________________________ Fax ____________________________________________ Email Address _______________________________________ Obligor Web site Address ___________________________ Investor Relations Contact, if any: Name ______________________________________________ Title ____________________________________________ Telephone___________________________________________ Email Address ___________________________________ G-17 PAGE INTENTIONALLY LEFT APPENDIX H FORMS OF OPINION OF BOND COUNSEL Upon delivery of the Bonds, Best, Best & Krieger, San Diego, California, Bond Counsel to Community Facilities District No. 14 (Del Sur) of the Poway Unified School District, proposes to render their final approving opinions with respect to 2006 CFD Bonds and 2006 Improvement Area A Bonds in substantially the following forms: June 22, 2006 Board of Education Poway Unified School District 13626 Twin Peaks Road Poway, CA 92064-3034 $51,515,000 POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) 2006 SPECIAL TAX BONDS BOND OPINION Ladies and Gentlemen: We have acted as Bond Counsel in connection with the issuance and sale by the Poway Unified School District (the "District") of Community Facilities District No. 14 (Del Sur) 2006 Special Tax Bonds in the aggregate principal amount of $51,515,000 ("2006 CFD Bonds"). The Bonds are issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (comprising Chapter 2.5 of Part 1 of Division2 of Title 5 of the Government Code of the State of California) andResolution No. 76-2006 adopted bythe Board of Education of the Poway Unified School District (the "School District") acting in its capacity as the Legislative Body of the District on May 15, 2006, and the Bond Indenture executed in connection therewith dated as of April 1, 2006, by and between the District and Zions First National Bank, as Fiscal Agent (the "Bond Indenture"). Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Bond Indenture. As Bond Counsel, we have examined copies certified to us as being true and complete copies of the proceedings in connection with the formation of the District and the issuance of the 2006 CFD Bonds (the "District Proceedings"). We have also examined certificates and representations of fact made by public officials and officers of the District and the School District, the underwriter, certain Property Owners and others as we have deemed necessary to render this opinion. Attention is called to the fact that we have not been requested to examine and have not examined any documents or information relating to the District or the School District other than the record of the District Proceedings hereinabove referred to, and no opinion is expressed as to any financial or other information, or the adequacy thereof which has been or may be supplied to any purchaser of the 2006 CFD Bonds. In rendering this opinion, we have relied upon the representations of fact and certifications referred to above, and we have not undertaken by independent investigation to verify the accuracy of the factual matters represented, warranted or certified therein. H-1 TheBond Indenture and other related documents referto certain requirements and procedures which may be changed and certain actions which may be taken, in circumstances and subject to terms and conditions set forth in such documents, upon the advice or with an approving opinion of nationally recognized bond counsel. No opinion is expressed herein as to any 2006 CFD Bond or the interest thereon if any such change is made or action is taken upon the advice or approval of counsel other than ourselves. No opinion is expressed herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the 2006 CFD Bonds. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions. The opinions may be affected by actions or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events occur. As to questions of fact material to our opinion, we have relied upon the representations of fact and certifications referred to above, and we have not undertaken by independent investigation to verify the authenticity of signatures or the accuracy of the factual matters represented, warranted or certified therein. Furthermore, we have assumed compliance with all covenants contained in the Bond Indenture, including, without limitation, covenants compliance with which is necessary to assure that future actions or events will not cause the interest on the 2006 CFD Bonds to be included in gross income for federal income tax purposes. Failure to comply with certain of such covenants may cause interest on the 2006 CFD Bonds to be included in gross income for federal income tax purposes retroactive to the date of original issuance of the 2006 CFD Bonds. It is to be understood that the rights and obligations under the 2006 CFD Bonds and the Bond Indentureare subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws heretofore or hereafter enacted, affecting the enforcement of creditors' rights and remedies, to the application of equitable principles when equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases. Based on and subject to the foregoing, and in reliance thereon, and our consideration of such questions of law as we have deemed relevant to the circumstances, we are of the following opinions: 1. The District has, and the District Proceedings show, full power and authority to issue the 2006 CFD Bonds. The 2006 CFD Bonds constitute legal, valid and binding obligations of the District, payable in accordance with their terms. The District has the full right, power and authority to levy and pledge the 2006 CFD Special Taxes to the Owners of the 2006 CFD Bonds. The 2006 CFD Bonds are limited obligations of the District payable solely from and secured by an irrevocable first lien on the Special Tax Revenues, and from certain other funds and accounts pursuant to the Bond Indenture and are not obligations of the School District, the State of California, or any public agency thereof (other than the District). 2. The Bond Indenture has been duly and validly authorized, executed and delivered by, and constitutes a valid and binding obligation of, the District. 3. Interest on the 2006 CFD Bonds (including any original issue discount properly allocable to the owner thereof) is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended, and is exempt from State of California personal income taxes. Interest on the 2006 CFD Bonds is not a specific preference item for purposes of the federal alternative minimum taxes imposed on individuals and corporations; although it should be noted that with respect to corporations, such interest will be excluded as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations. We H-2 express no opinion regarding other tax consequences related to the 2006 CFD Bonds or to the accrual or receipt of the interest on the 2006 CFD Bonds. We express no opinion as to any matter other than as expressly set forth above. Respectfully submitted, BEST BEST & KRIEGER LLP H-3 June 22, 2006 Board of Education Poway Unified School District 13626 Twin Peaks Road Poway, CA 92064-3034 $51,495,000 POWAY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 14 (DEL SUR) IMPROVEMENT AREA A 2006 SPECIAL TAX BONDS BOND OPINION Ladies and Gentlemen: We have acted as Bond Counsel in connection with the issuance and sale by the Poway Unified School District (the "District") of Community Facilities District No. 14 (Del Sur) Improvement Area A2006 Special Tax Bonds in the aggregate principal amount of $51,495,000 (the "Improvement Area A Bonds"). The Improvement Area A Bonds are issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (comprising Chapter 2.5 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California) and Resolution No. 76-2006 adopted by the Board of Education of the Poway Unified School District (the "School District")acting in its capacity as the Legislative Body of the District on May 15, 2006, and the Bond Indenture executed in connection therewith dated as of April 1, 2006, by and between the District and Zions First National Bank, as Fiscal Agent (the "Bond Indenture"). Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Bond Indenture. As Bond Counsel, we have examined copies certified to us as being true and complete copies of the proceedings in connection with the formation of the District and the issuance of the Improvement Area A Bonds (the "District Proceedings"). We have also examined certificates and representations of fact made by public officials and officers of the District and the School District, the underwriter, certain Property Owners and others as we have deemed necessary to render this opinion. Attention is called to the fact that we have not been requested to examine and have not examined any documents or information relating to the District or the School District other than the record of the District Proceedings hereinabove referred to, and no opinion is expressed as to any financial or other information,or the adequacy thereof whichhas been or may be supplied to any purchaserof the Improvement Area A Bonds. In rendering this opinion, we have relied upon the representations of fact and certifications referred to above, and we have not undertaken by independent investigation to verify the accuracy of the factual matters represented, warranted or certified therein. TheBond Indenture and other related documents referto certain requirements and procedures which may be changed and certain actions which may be taken, in circumstances and subject to terms and conditions set forth in such documents, upon the advice or with an approving opinion of nationally recognized bond counsel. No opinion is expressed herein as to any Improvement Area A Bond or the interest thereon if any such change is made or action is taken upon the advice or approval of counsel other than ourselves. No opinion is expressed herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Improvement Area A Bonds. H-4 The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions. The opinions may be affected by actions or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events occur. As to questions of fact material to our opinion, we have relied upon the representations of fact and certifications referred to above, and we have not undertaken by independent investigation to verify the authenticity of signatures or the accuracy of the factual matters represented, warranted or certified therein. Furthermore, we have assumed compliance with all covenants contained in the Bond Indenture, including, without limitation, covenants compliance with which is necessary to assure that future actions or events will not cause the interest on the Improvement Area A Bonds to be included in gross income for federal income tax purposes. Failure to comply with certain of such covenants may cause interest on the Improvement Area A Bonds to be included in gross income for federal income tax purposes retroactive to the date of original issuance of the Improvement Area A Bonds. It is to be understood that the rights and obligations under the Improvement Area A Bonds and the Bond Indenture are subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws heretofore orhereafter enacted, affecting the enforcementof creditors' rights and remedies, to the application of equitable principles when equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases. Based on and subject to the foregoing, and in reliance thereon, and our consideration of such questions of law as we have deemed relevant to the circumstances, we are of the following opinions: 1. The District has, and the District Proceedings show, full power and authority to issue the Improvement Area ABonds. The Improvement Area A Bonds constitute legal, valid and binding obligations of the District, payable in accordance with their terms. The District has the full right, power and authority to levy and pledge the Special Taxes to the Owners of the Improvement Area A Bonds. The Improvement Area A Bonds are limited obligations of the District payable solely from and secured by an irrevocable first lien on the Special Tax Revenues, and from certain other funds and accounts pursuant to the Bond Indenture andare not obligations of the School District,the State ofCalifornia, or anypublic agency thereof (other than the District). 2. The Bond Indenture has been duly and validly authorized, executed and delivered by, and constitutes a valid and binding obligation of, the District. 3. Interest on the Improvement Area A Bonds (including any original issue discount properly allocable to the owner thereof) is excludedfrom gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended, and is exempt from State of California personal income taxes. Interest on the Improvement Area A Bonds is not a specific preference item for purposes of the federal alternative minimum taxes imposed on individuals and corporations; although it should be noted that with respect to corporations, such interest will be excluded as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations. We express no opinion regarding other tax consequences related to the Improvement Area A Bonds or to the accrual or receipt of the interest on the Improvement Area A Bonds. We express no opinion as to any matter other than as expressly set forth above. Respectfully submitted, BEST BEST & KRIEGER LLP H-5 PAGE INTENTIONALLY LEFT APPENDIX I BOOK-ENTRY SYSTEM The following description of the procedures and record keeping withrespect to beneficial ownership interests in the 2006 Bonds, payment of principal of and interest on the 2006 Bonds to Direct Participants, Indirect Participants or Beneficial Owners (as such terms are defined below) of the 2006 Bonds, confirmation and transfer of beneficial ownership interests in the 2006 Bonds and other Bond-related transactions by and between DTC, Direct Participants, Indirect Participants and Beneficial Owners of the 2006 Bonds is based solely on information furnished by DTC to the Community Facilities District which the Community Facilities District believes to be reliable, but the Community Facilities District, the School District and the Underwriter do not and cannot make any independent representations concerning these matters and do not take responsibility for the accuracy or completeness thereof. Neither the DTC, Direct Participants, Indirect Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the 2006 Bonds. The 2006 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered 2006 Bond will be issued for each maturity of the 2006 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers anddealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as 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 and www.dtc.org. Purchases of 2006 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2006 Bonds on DTC's records. The ownership interest of each actual purchaser of each 2006 Bond ("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. I-1 Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through whichthe Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2006 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2006 Bonds, except in the event that use of the book-entry system for the 2006 Bonds is discontinued. Tofacilitate subsequent transfers,all Bonds deposited byDirect Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as requested by an authorized representative of DTC. The deposit of the 2006 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee donot effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2006 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such 2006 Bonds are credited, which may or may not be the Beneficial Owners. The Direct or Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2006 Bonds may wish to take certain steps to augment the transmissions to them of notices of significant events with respect to the 2006 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2006 Bonds documents. For example, Beneficial Owners of the 2006 Bonds may wish to ascertain that the nominee holding the 2006 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 Fiscal Agent and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the 2006 Bonds are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the 2006 Bonds unless authorized by a Direct Participant in accordance with DTC'sProcedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Community Facilities District 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 2006 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, redemption price and interest payments on the 2006 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Community Facilities District or the Fiscal Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Fiscal Agent or the Community Facilities District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Community Facilities District or the Fiscal Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. I-2 DTC may discontinue providingits service as depository with respect to the 2006 Bonds at any time by giving reasonable notice to the Community Facilities District or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, the 2006 Bond certificates are required to be printed and delivered. The Community Facilities District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, the 2006 Bond certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Community Facilities District believes to be reliable, but the Community Facilities District takes no responsibility for the accuracy thereof. Discontinuance of DTC Services In the event that (a) DTC determines not to continue to act as securities depository for the 2006 Bonds, or (b) the Community Facilities District determines that DTC shall no longer act and delivers a written certificate to the Fiscal Agent to that effect, then the Community Facilities District will discontinue the Book-Entry System with DTC for the 2006 Bonds. If the Community Facilities District determines to replace DTC with another qualified securities depository, the Community Facilities District will prepare or direct the preparation of a new single separate, fully-registered Bond for each maturity of the 2006 Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the Indenture. If the Community Facilities District fails to identify another qualified securities depository to replace the incumbent securities depository for the 2006 Bonds, then the 2006 Bonds shall no longer be restricted to being registered in the 2006 Bond registration books in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the 2006 Bonds shall designate. In the event that the Book-Entry System is discontinued, the following provisions would also apply: (i) the 2006 Bonds will be made availablein physical form, (ii) principal of, andredemption premiums if any, on the 2006 Bonds will be payable upon surrender thereof at the trust office of the Fiscal Agent identified in the Indenture,and (iii) the 2006Bonds will be transferable and exchangeable as provided in the Indenture. The Community Facilities District and the Fiscal Agent do not have any responsibility or obligation to DTC Participants, to the persons for whom they act as nominees, to Beneficial Owners, or to any other person who is not shown on the registration books as being an owner of the 2006 Bonds, with respect to (i) the accuracy of any records maintained by DTC or any DTC Participants; (ii) the payment by DTC or any DTC Participant of any amount in respect of the principal of, redemption price of or interest on the 2006 Bonds; (iii) the delivery of any notice which is permitted or required to be given to registered owners under the Indenture; (iv) the selection by DTC or any DTC Participant of any person to receive payment in the event of a partial redemption of the 2006 Bonds; (v) any consent given or other action taken by DTC as registered owner; or (vi) any other matter arising with respect to the 2006 Bonds or the Indenture. The Community Facilities District and the Fiscal Agent cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal of or interest on the 2006 Bonds paid to DTC or its nominee, as the registered owner, or any notices to the Beneficial Owners or that they will do so on a timely basis or will serve and act in a manner described in this Official Statement. The Community Facilities District and the Fiscal Agent are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner in respect to the 2006 Bonds or any error or delay relating thereto. I-3 PAGE INTENTIONALLY LEFT APPENDIX COMMUNITY FACILITIES DISTRICT BOUNDARY MAP PAGE INTENTIONALLY LEFT PROPOSED BOUNDARES OF mm mm POWAY UNIFIED SCHOOL DISTRICT ii' COMMUNITY FACILITIES DISTRICT NO. 14 SAN DIEGO COUNTY STATE OF CALIFORNIA I26 '7 - I 50*' 5 26 7 E3 at NAP NAP --fi VI .1 .. 6 16 ;94'7 .ofl it . I ?e?Ce??h$(I) iited In the office of the Secretary to the Board at I Education this otmoafi. I I S_eI:retorp of the Board hereby certify that the within map showing the boundaries of Community Facilities 3 District No. 14, San Diego County, State at California. has approved by the Board of l_ Education at the Poaop Unified Schooi District i ii at a regular meeting thereof. held on this /Secretary of the Board of Education LE GE I (3) flied this day of at the hour of o'clock am. in Book 0? '95 of Maps of Assessment and Community Facilities Districts Rood Easements (Not a port at page and as Instnimerrt in of CFD No- 14) the ottice of the County Recorder at San Diego County. State at Califomia. Assessors Purceiijne nnI--1n -- San Diego County Cou r3tSan Asaessofis Porcet Nunaber Exhibit A *5 lines and dimensions of I each let and parcel. PREPARED BY DAVID TAUSSIG 8c ASSOCIATES, INC. Z2005-lIl'7s2Q, I It SHEET 2 OF 2 EXHIBIT BOUNDARES OF POWAY UNIFIED SCHOOL DISTRICT NO.I4 Assessor's Parcel Numbers* 267~150--21 267~150--22 257~150*23 267~I50w24 267--230~01 267~230-04 *Current as of equaflzed tax Role of the Assesor of the County of San Diego for Fiscal Year 2005-06 2005-" M7523 SH 1 2 OF BOUNDARIES POWAY UNIFIED SCHOOL DISTRICT AREA NO. A OF 5. OFFICE COMMUNITY FACILITIES DISTRICT No. 14 SAN DIEGO COUNTY STATE OF CALIFORNIA 267~I50mi5 NIIM3 Ia - - . tied in the office of the Secretory to the Board of - Education this Lair day of 2092"'. .I I I . I Secretary of the Board of Education I . -- hounaenes of In iIo..n of Community I Fccititiee District No. 14, San flieqo County. State of was approved by the 'Board of Education of the Poesy Unified Schoot District et a regular meeting thereof. held on this Ie+-Dust ,1 Refifltutiflfi Ne flay the Board of Education" LEGEND Boundaries of IA No. A of Community District No. 14- (3) Filed this ii, doy of at the hour of o'clock f_m. in Book of Maps of Assessment and Community Districts Rood Easements (Not 0 port of IA and as Instrument in No. A of CPD No. 14) the office oi the County Recorder of Sen Diego County, State of California. Assessors Porcei Line Di nI an ego Gun 1n r11 ASMSOHS Parcel Number County Recorder of San Diego County I Reference is hereby mode to 'fit Part A A Of CFD the Assessor maps of the County of San Diego for an exact description of the Exhibit A I Ilnes and dimensions of 1 eoch tot and parcel. PREPARED BY DAVID TAUSSIG 84 ASSOCIATES, INC. 2005>> Bit no P6: no SHEET 2 OF 2 EXHIBH. BOUNDARES OF POWAY UNFED SCHOOL IMPROVEMENT AREA NO.A.OF NO.14 Assessofls Parcd 267~150w2O 267~150--21 267w150~22 267~150~23 267~150~24 267~150--25 267~230~01 267--230--O2 *Current as of equafized tax Role of the Assesor of the County of San Diego for Fiscal Year 2005- 3W0 "7 APPENDIX LAND USE PLAN AND UNIT AREAS MAPS PAGE INTENTIONALLY LEFT <