Agenda — Tracy City Council, March 7, 2023 (part 5 of 6)

• Bond Purchase Agreement. At the time the 2023 Bonds are sold, the City will enter into a Bond Purchase Agreement with the Underwriter, who will agree to underwrite the 2023 Bonds subject to satisfaction of the conditions described in the Bond Purchase Agreement. The resolution provides the Underwriter’s discount on the purchase of the 2023 Bonds may not exceed 2.00% of the par amount of the 2023 Bonds. The Underwriter was selected as underwriter for the 2023 Bonds based upon the combination of its qualifications and proposed fees following a competitive selection process. The proposed Bond Purchase Agreement is included here as Attachment C.

STRATEGIC PLAN
This agenda item supports Governance Strategic Goal 2: Ensure Short and Long-term fiscal health and Goal 3: Increase Public Awareness around City finances and other civic matters.

FISCAL IMPACT
The fees and expenses of the City’s outside financing team, including Bond Counsel, Disclosure Counsel, Underwriter, Municipal Advisor, Special Tax Consultant and Appraiser are paid from proceeds of the 2023 Bonds or paid through an existing Cost Recovery Agreement with the developer.

ACTION REQUESTED OF THE CITY COUNCIL
Staff recommends that the City Council adopt a resolution 1) authorizing the issuance and sale of special tax bonds for the purpose of financing authorized facilities and 2) approving and authorizing
related documents and actions, for Improvement Area No. 3 of the City of Tracy Community Facilities District No. 2016-2.

Prepared by: Sara Cowell, Finance Director
Reviewed by: Karin Schnaider, Assistant City Manager
Approved by: Midori Lichtwardt, Acting City Manager

ATTACHMENTS
A: Prelimin
ary Official Statement (including Continuing Disclosure Certificates) B: Fiscal Agent Agreement
C: Bond Purchase Agreement
PRELIMINARY OFFICIAL STATEMENT DATED MARCH [9], 2023
NEW ISSUE – BOOK-ENTRY ONLY NOT RATED
In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the 2023 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. Interest on the 2023 Bonds may be subject to the corporate alternative minimum tax. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes.

See “LEGAL MATTERS – Tax Exemption.”
$16,750,000*

IMPROVEMENT AREA NO. 3

OF THE CITY OF TRACY
COMMUNITY FACILITIES DISTRICT NO. 2016-2 (ECFD)
SPECIAL TAX BONDS, SERIES 2023
Dated:

Date of Delivery Due: September 1, as shown on inside cover.

Autho
rity for Issuance. The bonds captioned above (the “2023 Bonds”) are being issued by the City of Tracy (the “City”) for and on behalf of the City of Tracy Community Facilities District No. 2016-2 (ECFD) (the “District”) with respect to its Improvement Area No. 3 (“Improvement Area No. 3”) under the Mello-Roos Community Facilities Act of 1982, as amended (the “Act”), the Resolution of Issuance (as defined herein), and a Fiscal Agent Agreement dated as of April 1, 2023 (the “Fiscal Agent Agreement”), by and between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent”). See “THE 2023 BONDS – Authority for Issuance.” Security and Sources of Payment. The 2023 Bonds are payable from proceeds of Special Tax Revenues (as defined herein) levied on property within Improvement Area No. 3 according to the rate and method of apportionment of special tax approved by the City Council of the City (the “City Council”), acting as legislative body of the District, and the eligible landowner voters in Improvement Area No. 3 of the District.

The 2023 Bonds are secured by a first pledge of the Special Tax Revenues (as defined in the Fiscal Agent Agreement) and the moneys on deposit in certain funds held by the Fiscal Agent under the Fiscal Agent Agreement, on a parity with bonds that may be issued in the future, subject to the conditions set forth in the Fiscal Agent Agreement. See “SECURITY FOR THE 2023 BONDS.” The 2023 Bonds and any Parity Bonds (as defined herein) are referred to herein as the “Bonds.” Use of Proceeds. The 2023 Bonds are being issued to (i) finance the acquisition and construction of certain public improvements [and the payment of impact fees to be used to finance public facilities], (ii) fund a debt service reserve fund for the 2023 Bonds, and (iii) pay the costs of issuing the 2023 Bonds. See “FINANCING PLAN.”
Bond Terms
. Interest on the 2023 Bonds is payable on September 1, 2023, and semiannually thereafter on each March 1 and September

1. The 2023 Bonds will be issued in denominations of $5,000 or integral multiples of $5,000. The 2023 Bonds, when delivered, will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”). DTC will act as securities depository for the 2023 Bonds. See “THE 2023 BONDS – General Bond Terms” and “APPENDIX D – DTC and the Book-Entry Only System.” Redempt
ion*. The 2023 Bonds are subject to optional redemption, mandatory sinking fund redemption and special redemption from prepaid Special Taxes. See “THE 2023 BONDS – Redemption.” The 2023 Bond
s are not general obligations of the City, but are limited obligations, payable solely from the Special Tax Revenues and the funds pledged therefor under the Fiscal Agent Agreement. Neither the faith and credit nor the taxing power of the City (except to the limited extent set forth in the Fiscal Agent Agreement) or of the State of California (the “State”) or any political subdi vision thereof is pledged to the payment of the 2023 Bonds.

MATURITY SCHEDULE
(see inside cover)
This cover page contains certain information for quick reference only. It is not a summary of the issue. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Investment in the 2023 Bonds involves risks which may not be appropriate for some investors. See “BOND OWNERS' RISKS” for a discussion of special risk factors that should be considered in evaluating the investment quality of the 2023 Bonds.

The 2023 Bonds ar
e offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, and subject to certain other conditions. Jones Hall , A Professional Law Corporation, has served as disclosure counsel to the City. Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California, is serving as counsel to the Underwriter. Holland & Knight LLP, San Francisco, California, is serving as counsel to the Developer and Hefner, Stark & Marois, LLP, Sacramento, California, is serving as counsel to LS-Tracy LLC. It is anticipated that the 2023 Bonds, in book-entry form, will be available for delivery through the facilities of DTC on or about April __, 2023. [Piper Sandler Logo]
The date of this Official Statement is: ________________, 2023. * Preliminary; subject to change.

This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer solicitation or sale would be unlawful pr ior to registration or qualification under the securities laws of such jurisdiction.

ATTACHMENT A

MATURITY SCHEDULE*

$ _______________ Serial Bonds
(Base CUSIP†: ______)

Maturity Principal Interest
(September 1) Amount Rate Yield Price CUSIP†

$ ___ __% Term Bond due September 1, 20___, Yield: __%, Price: __% CUSIP† No. __

* Preliminary; subject to change.
† CUSIP Global Services (CGS) is managed on behalf of American Bankers Association by FactSet Research Systems Inc. Copyright 2023 CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database.

CUSIP numbers are provided for convenience of reference only. Neither the City nor the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers.

CITY OF TRACY

CITY COUNCIL

Nancy Young, Mayor
Eleassia Davis, Mayor Pro Tem
Dan Arriola, Council Member
Mateo Bedolla, Council Member
Dan Evans, Council Member

CITY STAFF

Michael Rogers, City Manager
Karin Schnaider, Assistant City Manager
Sara Cowell, Finance Director
Adrianne Richardson, City Clerk
Bijal Patel, City Attorney
___________________________________

PROFESSIONAL SERVICES

BOND COUNSEL and DISCLOSURE COUNSEL

Jones Hall, A Professional Law Corporation
San Francisco, California

MUNICIPAL ADVISOR

CSG Advisors Incorporated
San Francisco, California

SPECIAL TAX CONSULTANT

Goodwin Consulting Group, Inc.

Sacramento, California

APPRAISER

Integra Realty Resources
San Francisco, California

FISCAL AGENT

U.S. Bank Trust Company, National Association
San Francisco, California

[INSERT REGIONAL MAP]

[INSERT LOCATION MAP]

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations with respect to the 2023 Bonds other than as contained in this Official Statement, and if given or made, such other information or representation must not be relied upon as having been authorized.

No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.

Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official St atement nor any sale of the 2023 Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the City, the District, any other parties described in this Official Statement, or in the condition of property wit hin Improvement Area No. 3 of the District since the date of this Official Statement.

Use of this Official Statement. This Official Statement is submitted in connection with the sale of the 2023 Bond s referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract with the purchasers of the 2023 Bonds.

Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness.

The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

Document References and Summaries. All references to and summaries of the Fiscal Agent Agreement or other documents contained in this Official Statement are subject to the provisions of those documents and do not purport to be complete statements of those documents.

Stabilization of and Changes to Offering Prices. The Underwriter may overallot or take other steps that stabilize or maintain the market price s of the 2023 Bond s at level s above those that might otherwi se prevail in the open market. If commenced, the Underwriter may discontinue such market stabilization at any time. The Underwriter may offer and sell the 2023 Bonds to certain securities dealers, dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside cover page of this Official Statement, and those public offering prices may be changed from time to time by the Underwriter.

Bonds are Exempt from Securities Laws Registration. The issuance and sale of the 2023 Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exemptions for the issuance and sale of municipal securities provided under Section 3(a)(2) of the Securities Act of 1933 and Section 3(a)(12) of the Securities Exchange Act of 1934.

Estimates and Projections. Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words.

The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward -looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur.

The City maintains an Internet website, but the information on the website is not incorporated in this Official Statement.

TABLE OF CONTENTS

Page Page
INTRODUCTION ............................................... 1 FINANCING PLAN ............................................. 4 Authorized Facilities ....................................... 4 Sources and Uses of Funds .......................... 4
THE 2023 BONDS ............................................. 5 Authority for Issuance .................................... 5 General Bond Terms ..................................... 5 Redemption* .................................................. 6 Registration, Transfer and Exchange ............ 8
DEBT SERVICE SCHEDULE .......................... 10
Special Tax Revenues and Projected Debt
Service Coverage .................................... 10 SECURITY FOR THE 2023 BONDS ............... 11
General ........................................................ 11 Limited Obligation ........................................ 11 Special Taxes .............................................. 11 Rate and Method ......................................... 12 Covenant to Foreclose ................................. 16 Special Tax Fund ......................................... 18 Bond Fund ................................................... 19 2023 Reserve Fund ..................................... 20 Investment of Moneys in Funds ................... 21
Issuance of Future Parity Bonds for
Refunding Only ........................................ 22 Subordinate Bonds ...................................... 22

THE DISTRICT AND IMPROVEMENT AREA
NO. 3 ............................................................ 22 Formation and Background ......................... 22
Description and Location ............................. 23 Authorized Facilities ..................................... 25 Value of Property in Improvement Area No.
3 ............................................................... 26 Value-to-Lien Ratios .................................... 28 Direct and Overlapping Governmental
Obligations ............................................... 29 Estimated Tax Burden on Single-Family
Homes ..................................................... 31 Special Tax Collection and Delinquency
Rates ....................................................... 32 Potential Consequences of Special Tax
Delinquencies .......................................... 32

OWNERSHIP AND DEVELOPMENT OF
IMPROVEMENT AREA NO. 3 ..................... 33
The Ellis Project ........................................... 33 Property Ownership in Improvement Area
No. 3 ........................................................ 35 Environmental Matters ................................. 36 The Merchant Builder .................................. 37 Status of Infrastructure for Improvement Area
No. 3 ........................................................ 40 The Financing Plan in Improvement Area No.
3 ............................................................... 40 BOND OWNERS' RISKS ................................. 41 Limited Obligation of the City to Pay Debt
Service ..................................................... 41 Levy and Collection of the Special Tax ........ 41
Concentration of Ownership ........................ 42
Potential Early Redemption of Bonds from
Prepayments ............................................ 43 Property Tax Delinquencies ......................... 43 Risks Related to Homeowners with High
Loan to Value Ratios ............................... 44 Payment of Special Tax is Not a Personal
Obligation of the Property Owners .......... 44
Appraised Values ......................................... 44 Property Values ........................................... 44 Other Possible Claims Upon the Value of
Taxable Property ..................................... 46 Exempt Properties ....................................... 47 FDIC/Federal Government Interests in
Properties................................................. 47 Depletion of 2023 Reserve Fund ................. 48
Bankruptcy Delays ....................................... 49 Cyber Security ............................................. 49 Disclosure to Future Purchasers ................. 50
No Acceleration Provisions .......................... 50 Loss of Tax Exemption ................................ 50 IRS Audit of Tax-Exempt Bond Issues ........ 50
Impact of Legislative Proposals,
Clarifications of the Tax Code and Court
Decisions on Tax Exemption ................... 50
Voter Initiatives ............................................ 51 Increasing Mortgage Interest Rates ............. 52
COVID-19 Pandemic ................................... 52 Secondary Market for Bonds ....................... 53
LEGAL MATTERS ........................................... 53 Legal Opinions ............................................. 53 Tax Exemption ............................................. 53 Litigation ....................................................... 55 CONTINUING DISCLOSURE .......................... 55
NO RATING ..................................................... 56 UNDERWRITING ............................................. 57 MUNICIPAL ADVISOR .................................... 57 PROFESSIONAL FEES .................................. 57 EXECUTION .................................................... 57

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APPENDIX A – General Information About the City of Tracy and San Joaquin County APPENDIX B – Rate and Method of Apportionment for Improvement Area No. 3 of the City of Tracy Community Facilities District No. 2016-2 (ECFD)
APPENDIX C – Summary of Certain Provisions of the Fiscal Agent Agreement APPENDIX D – DTC and the Book-Entry Only System
APPENDIX E – Form of Issuer Continuing Disclosure Certificate APPENDIX F – Form of Property Owner Continuing Disclosure Certificate APPENDIX G – Form of Opinion of Bond Counsel
APPENDIX H – Appraisal Report

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_____________________

OFFICIAL STATEMENT
_____________________

$16,750,000*
IMPROVEMENT AREA NO. 3 OF THE CITY OF TRACY
COMMUNITY FACILITIES DISTRICT NO. 2016-2 (ECFD)
SPECIAL TAX BONDS, SERIES 2023

INTRODUCTION

This Official Statement, including the cover page, inside cover and attached appendices, is provided to furnish information regarding the bonds captioned above (the “2023 Bonds”) to be issued by the City of Tracy (the “City”) on behalf of the City of Tracy Community Facilities District No. 2016-2 (ECFD) (the “District”) with respect to its Improvement Area No. 3 (“Improvement Area No. 3”).

This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page, the inside cover and attached appendices, and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The offering of the 2023 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used but not defined in this Official Statement have the definitions given in the Fiscal Agent Agreement (as defined below).

The District and Improvement Area No. 3. The District is located in the southwestern part of the City. At the time of establishment of the District, a future annexation area was also established for the District (the “ Future Annexation Area”). Since the establishment of the District, certain parcels in the Future Annexation Area have annexed into Improvement Area No. 3 and further parcels may annex into one or more improvement areas in the future. Unless and until parcels annex into Improvement Area No. 3, they do not serve as security for the 2023 Bonds. The City does not currently expect that any future annexations of property into Improvement Area No. 3 will occur.

The District was formed and established by the City Council of the City (the “ City Council”), as legislative body of the District, under the Mello-Roos Community Facilities Act of 1982, as amended (the “Act”), pursuant to a resolution adopted by the City Council following a public hearing, and the landowners of the property included in Improvement Area No. 3, by unanimous approval, approved the annexation of Improvement Area No. 3 to the District, authorized the City to incur bonded indebtedness with respect to Improvement Area No. 3, and approved the levy of special taxes within Improvement Area No. 3. See “THE DISTRICT AND IMPROVEMENT AREA NO. 3 – Formation and Background.”

Authority for Issuance of the 2023 Bonds. The 2023 Bonds are issued under the Act, a resolution adopted by the City Council on December 17 , 2019 (the “ Annexation Resolution ”), a resolution adopted by the City Council on [March 7], 2023 (the “Resolution of Issuance”), and a Fiscal Agent Agreement, dated as of April 1, 2023 (the “Fiscal Agent Agreement”), by and between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “ Fiscal Agent”). The City Council, as legislative body of the District, has authorized the issuance of the 2023 Bonds in an aggregate principal amount not to exceed $20,000,000. See “THE 2023 BONDS – Authority for Issuance.”

* Preliminary; subject to change.

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Purpose of the 2023 Bonds. Proceeds of the 2023 Bonds will be used primarily to finance the acquisition and construction of certain authorized improvements [and the payment of impact fees to be used to finance public facilities]. Proceeds of the 2023 Bonds will also be used fund a debt service reserve fund for the 2023 Bonds and to pay the costs of issuing the 2023 Bonds. See “FINANCING PLAN.”

Redemption of Bonds before Maturity.* The 2023 Bonds are subject to optional redemption, mandatory sinking fund redemption and special redemption from prepaid Special Taxes (as defined below). See “THE 2023 BONDS – Redemption.”

Security and Sources of Payment for the 2023 Bonds. The City Council annually levies special taxes on the property in Improvement Area No. 3 (the “Special Taxes”) in accordance with the Rate and Method of Apportionment for Improvement Area No. 3 (the “Rate and Method”). As used in this Official Statement, Special Taxes refers only to the Facilities Special Tax levied under the Rate and Method. See “SECURITY FOR THE 2023 BONDS – Rate and Method.” The 2023 Bonds are secured by and payable from a first pledge of the net proceeds of the Special Taxes (as more particularly defined in the Fiscal Agent Agreement, the “Special Tax Revenues”), on a parity with any bonds that may be issued in the future, subject to the conditions set forth in the Fiscal Agent Agreement . The 2023 Bonds will be additionally secured by certain funds and accounts established and held under the Fiscal Agent Agreement. See “SECURITY FOR THE 2023 BONDS.”

Debt Service Reserve Fund. In order to further secure the payment of principal of and interest on the 2023 Bonds (and any series of Parity Bonds), certain proceeds of the 2023 Bonds will be deposited into the 2023 Reserve Fund in an amount equal to the 2023 Reser ve Requirement (as defined herein).

See “FINANCING PLAN” and “SECURITY FOR THE 2023 BONDS – 2023 Reserve Fund.”

Covenant to Foreclose. The City has covenanted in the Fiscal Agent Agreement to cause foreclosure proceedings to be commenced and prosecuted against certain parcels with delinquent installments of the Special Taxes. For a more detailed description of the foreclosure covenant see “SECURITY FOR THE 2023 BONDS – Covenant to Foreclose.”

Property Ownership and Development Status. The property in Improvement Area No. 3 (herein, the “Property”) consists of approximately 73.65 acres (41 net acres) being developed into 308 single-family lots by LS-Tracy LLC, a Delaware limited liability company (“LS-Tracy LLC”) and certain of its affiliates, all of which are affiliated with Landsea Homes Corporation, a publicly traded homebuilder (Nasdaq: LSEA) based in Newport Beach, California that has operations in several states and has been building homes in Northern California for over eight years . All off-site improvements for Improvement Area No. 3 required to be completed as a condition of receiving occupancy permits are complete. LS- Tracy LLC has completed substantially all site improvements, with only crosswalk pavers, entry monument, park and parkway landscaping remaining to be completed as of February 1, 2023. LS-Tracy LLC held a grand opening featuring 10 model homes in September 2022. As of February 1, 2023, LS- Tracy LLC had pulled 266 full building permits and 42 foundation-only permits, with the remaining 42 full- building permits expected to be pulled by December 2023. As of February 1, 2023, ownership of the 308 lots within Improvement Area No. 3 was as follows:

* Preliminary; subject to change.

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Status
# of
Lots
Developed Property
Individual Homeowners 173
LS-Tracy LLC or Affiliates - Completed Model Homes 10
LS-Tracy LLC or Affiliates - Homes Under Construction 51 Undeveloped Property
LS-Tracy LLC or Affiliates - Finished Lot 74

For additional information about the current development status and proposed development plans for the Property in Improvement Area No. 3, see “OWNERSHIP AND DEVELOPMENT OF IMPROVEMENT AREA NO. 3.”

The land in Improvement Area No. 3 is part of a larger residential community referred to as the “Ellis Development” being developed by Surland Communities LLC, a California limited liability company (the “Developer”), as the master developer, which includes property within Improvement Area No. 1 and Improvement Area No. 2, the Property within Improvement Area No. 3, and property identified as part of the Future Annexation Area that may annex into the District to a then-existing Improvement Area or to a new Improvement Area. The City currently expects that any future annexations will be into a new improvement area (Improvement Area No. 4).

Appraised Value of Property in Improvement Area No. 3 . An appraisal of certain property within Improvement Area No. 3 , dated February 21, 2023 (the “Appraisal”), was prepared by Integra Realty Resources, San Francisco, California (the “Appraiser”) in connection with issuance of the 2023 Bonds. The Appraisal has a date of value of January 3, 2023 and appraised property as of that date consisted of 179 completed single-family homes that did not have a complete assessed value for both land and improvements, 55 homes under construction, and 74 finished lots. The purpose of the Appraisal was to estimate the market value of t he fee simple estate, subject to lien of the Special Taxes and overlapping liens, for all the taxable property within Improvement Area No. 3 as of a January 3, 2023 date of value. Subject to the assumptions contained in the Appraisal, the Appraiser estimated that the taxable property within Improvement Area No. 3, subject to the lien of the Special Taxes and overlapping liens, had an estimated cumulative appraised and assessed value of $191,793,000. See “THE DISTRICT AND IMPROVEMENT AREA NO. 3 – Value of Property in Improvement Area No. 3” for further information on the Appraisal. A complete copy of the Appraisal is included in this Official Statement as APPENDIX H.

Value-to-Lien Ratios in Improvement Area No. 3. Based on the appraised value of the taxable property within Improvement Area No. 3 of $ 191,793,000 and a par amount of 2023 Bonds of $16,750,000*, the overall value- to-lien ratio of the taxable property within Improvement Area No. 3 is approximately 11.5* to 1, not including overlapping general obligation bond indebtedness. See “THE DISTRICT AND IMPROVEMENT AREA NO. 3 – Direct and Overlapping Governmental Obligations.” This is an overall estimate, however, and the value-to-lien ratios of individual parcels varies widely from this ratio.

Risk Factors Associated with Purchasing the 2023 Bonds. Investment in the 2023 Bonds involves risks that may not be appropriate for some investors. See “BOND OWNERS' RISKS” for a discussion of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in considering the investment quality of the 2023 Bonds.

* Preliminary; subject to change.

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FINANCING PLAN

Authorized Facilities

The net proceeds of the 2023 Bonds will be used to construct and/or acquire various facilities authorized to be financed by the District, including Improvement Area No. 3 [, and payment of certain impact fees to be used to finance public facilities]. For a complete list of the authorized facilities, see “THE DISTRICT AND IMPROVEMENT AREA NO. 3 – Authorized Facilities.”

Sources and Uses of Funds

The estimated proceeds from the sale of the 2023 Bonds will be used as follows:

SOURCES
Principal Amount of 2023 Bonds $
Plus/Less: Net Original Issue Premium/Discount
Total Sources $

USES
Deposit into Improvement Fund $
Deposit into 2023 Reserve Fund(1)
Costs of Issuance(2)
Total Uses $

(1) Equal to the 2023 Reserve Requirement with respect to the 2023 Bonds as of their date of delivery.
(2) Includes, among other things, the fees and expenses of Bond Counsel and Disclosure Counsel, printing the Preliminary and Final Official Statements, the Fiscal Agent, the Municipal Advisor, and the Special Tax Consultant, and Underwriter’s discount.

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THE 2023 BONDS

This section generally describes the terms of the 2023 Bonds contained in the Fiscal Agent Agreement, which is summarized in more detail in APPENDIX C. Capitalized terms used but not defined in this section are defined in APPENDIX C.

Authority for Issuance

The 2023 Bonds are issued under the Act, the Resolution of Issuance and the Fiscal Agent Agreement. Under the Resolution of Issuance, the 2023 Bonds may be issued in a maximum principal amount of $20,000,000.

General Bond Terms

Dated Date, Maturity and Authorized Denominations. The 2023 Bonds will be dated their date of delivery (the “Closing Date”) and will mature in the amounts and on the dates set forth on the inside cover page of this Official Statement. The 2023 Bonds will be issued in fully registered form in denominations of $5,000 each or any integral multiple of $5,000 in excess thereof.

Calculation of Interest. Interest will be calculated on the basis of a 360-day year composed of twelve 30-day months. The 2023 Bonds will bear interest at the annual rates set forth on the inside cover page of this Official Statement, payable semiannually on each March 1 and September 1, commencing September 1, 2023 (each, an “Interest Payment Date”).

Each 2023 Bond will bear interest from the Interest Payment Date next preceding its date of authentication unless:

(i) it is authenticated on an Interest Payment Date, in which event it will bear interest from such date of authentication, or

(ii) it is authenticated prior to an Interest Payment Date and after the close of business on the Record Date (as defined below) preceding such Interest Payment Date, in which event it will bear interest from such Interest Payment Date, or

(iii) it is authenticated prior to the Record Date preceding the first Interest Payment Date, in which event it will bear interest from the Closing Date;

provided, however, that if at the time of authentication of a 2023 Bond, interest is in default thereon, such 2023 Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon.

“Record Date” means the 15th day of the calendar month next preceding the applicable Interest Payment Date, whether or not such day is a Business Day.

DTC and Book-Entry Only System. DTC will act as securities depository for the 2023 Bonds .

The 2023 Bonds will be issued as fully-registered securities registered initially in the name of Cede & Co. (DTC’s partnership nominee). See APPENDIX D – “DTC AND THE BOOK-ENTRY ONLY SYSTEM.”

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Payments of Interest and Principal. For so long as DTC is used as depository for the 2023 Bonds, principal of, premium, if any, and interest payments on the 2023 Bonds will be made solely to DTC or its nominee, Cede & Co., as registered owner of the 2023 Bonds, for distribution to the beneficial owners of the 2023 Bonds in accordance with the procedures adopted by DTC.

Interest on the 2023 Bonds (including the final interest payment upon maturity or earlier redemption), is payable on the applicable Interest Payment Date by check of the Fiscal Agent mailed by first-class mail to the registered Owner thereof at such registered Owner’s address as it appears on the registration books maintained by the Fiscal Agent at the close of business on the Record Date preceding the Interest Payment Date, or by wire transfer made on such Interest Payment Date upon written instructions of any Owner of $1,000,000 or more in aggregate principal amount of 2023 Bonds delivered to the Fiscal Agent prior to the applicable Record Date, which will continue in effect until revoked in writing, or until such 2023 Bonds are transferred to a new Owner.

The principal of the 2023 Bonds and any premium on the 2023 Bonds are payable in lawful money of the United States of America upon surrender of the 2023 Bonds at the Principal Office of the Fiscal Agent.

Redemption*

Optional Redemption from any Source other than Prepayments. The 2023 Bonds maturing on or after September 1, 20___, are subject to optional redemption as directed by the City, from sources of funds other than prepayments of Special Taxes, prior to their stated maturity on any date on or after September 1, 20___, as a whole or in part, at a redemption price (expressed as a percentage of the principal amount of the 2023 Bonds to be redeemed), as set forth below, together with accrued interest thereon to the date fixed for redemption:

Redemption Dates
Redemption
Price
September 1, ____ through August 31, ____ ___%
September 1, ____ through August 31, ____ ___
September 1, ____ through August 31, ____ ___
September 1, ____ and any date thereafter ___

Mandatory Sinking Fund Redemption. The 2023 Bonds maturing on September 1, 20__ (the “Term Bonds”), are subject to mandatory redemption in part by lot, from sinking fund payments made by the City from the Bond Fund, at a redemption price equal to the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts all as set forth in the following table:

Sinking Fund
Redemption Date
(September 1)

Sinking Payments
$

(maturity)

* Preliminary; subject to change.

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However, if some but not all of the Term Bonds of a given maturity have been redeemed through optional redemption or mandatory prepayment redemption, the total amount of all future Sinking Fund Payments relating to such maturity will be reduced by the aggregate principal amount of Term Bonds of such maturity so redeemed, to be allocated among such Sinking Fund Payments on a pro rata basis in integral multiples of $5,000 as determined by the City, notice of which will be given by the City to the Fiscal Agent.

Redemption from Special Tax Prepayments. Special Tax Prepayments and any corresponding transfers from the 2023 Reserve Fund under the Fiscal Agent Agreement will be used to redeem 2023 Bonds on the next Interest Payment Date for which notice of redemption can timely be given under the Fiscal Agent Agreement, among series and maturities so as to maintain substantially the same debt service profile for the Bonds as in effect prior to such redemption and by lot within a maturity, at a redemption price (expressed as a percentage of the principal amount of the 2023 Bonds to be redeemed), as set forth below, together with accrued interest to the date fixed for redemption:

Redemption Dates Redemption Price
Any Interest Payment Date on or before March 1, ____ ___% September 1, ____ and March 1, ____ ___%
September 1, ____ and March 1, ____ ___%
September 1, ____ and any Interest Payment Date thereafter ___%

See “BOND OWNERS’ RISKS – Potential Early Redemption of Bonds from Prepayments” for a discussion of the potential for the 2023 Bonds to be priced with original issue premium and then be redeemed from Special Tax prepayments prior to maturity or the optional redemption date.

Purchase in Lieu of Redemption. In lieu of redemption, moneys in the Bond Fund may be used and withdrawn by the Fiscal Agent for purchase of Outstanding 2023 Bonds upon the filing with the Fiscal Agent of an Officer’s Certificate requesting such purchase, at public or private sale as and when, and at such prices (including brokerage and other charges) as such Officer’s Certificate may provide, but in no event may 2023 Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued to the date of purchase and any premium which would otherwise be due if such 2023 Bonds were to be redeemed in accordance with the Fiscal Agent Agreement.

Notice of Redemption. The Fiscal Agent will cause notice of any redemption to be mailed by first-class mail, postage prepaid, at least 20 days but not more than 60 days prior to the date fixed for redemption, to the Original Purchaser, the Securities Depositories, and to the respective registered Owners of any 2023 Bonds designated for redemption, at their addresses appearing on the 2023 Bond registration books in the Principal Office of the Fiscal Agent; but such mailing will not be a condition precedent to such redemption and failure to mail or to receive any such notice, or any defect therein, will not affect the validity of the proceedings for the redemption of such 2023 Bonds. In addition, the Fiscal Agent will file each notice of redemption with the MSRB through its EMMA system.

However, while the 2023 Bonds are subject to DTC’s book-entry system, the Fiscal Agent will be required to give notice of redemption only to DTC as provided in the letter of representations executed by the City and received and accepted by DTC. DTC and the Participants will have sole responsibility for providing any such notice of redemption to the Beneficial Owners of the 2023 Bonds to be redeemed.

Any failure of DTC to notify any Participant, or any failure of Participants to notify the Beneficial Owner of any 2023 Bonds to be redeemed, of a notice of redemption or its content or effect will not affect the validity of the notice of redemption, or alter the effect of redemption set forth in the Fiscal Agent Agreement.

Conditional Redemption Notice and Rescission of Redemption. Any redemption notice may specify that redemption on the specified date will be subject to receipt by the City of moneys sufficient to cause such redemption (and will specify the proposed source of such moneys), and neither the City nor

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the Fiscal Agent will have any liability to the Owners or any other party as a result of its failure to redeem the Series 2023 Bonds as a result of insufficient moneys.

The City will have the right to rescind any notice of the optional redemption of 2023 Bonds by written notice to the Fiscal Agent on or prior to the date fixed for redemption. Any notice of redemption will be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the 2023 B onds then called for redemption, and such cancellation will not constitute a default under the Fiscal Agent Agreement.

The City and the Fiscal Agent have no liability to the Owners or any other party related to or arising from such rescission of redempt ion. The Fiscal Agent will mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent under the Fiscal Agent Agreement.

Selection of 2023 Bonds for Redemption. Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all the 2023 Bonds of any maturity or any given portion thereof, the Fiscal Agent will select the 2023 Bonds to be redeemed by lot in any manner which the Fiscal Agent in its sole discretion deems appropriate.

Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of, and interest and any premium on, the 2023 Bonds called for redemption have been deposited in the Bond Fund, those 2023 Bonds will cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and no interest will accrue thereon on or after the redemption date specified in the notice of redemption.

Registration, Transfer and Exchange

The following provisions regarding the exchange and transfer of the 2023 Bonds apply only during any period in which the 2023 Bonds are not subject to DTC’s book-entry system. While the 2023 Bonds are subject to DTC’s book -entry system, their exchange and transfer will be effected through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC. See “APPENDIX D – DTC and the Book-Entry Only System.”

Registration. The Fiscal Agent will keep, or cause to be kept, at its Principal Office sufficient books for the registration and transfer of the 2023 Bonds, which will show the series number, date, amount, rate of interest and last known ow ner of each 2023 Bond and will at all times be open to inspection by the City during regular business hours upon reasonable notice; and, upon presentation for such purpose, the Fiscal Agent will, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, the ownership of the 2023 Bonds as provided in the Fiscal Agent Agreement.

The City and the Fiscal Agent will treat the Owner of any 2023 Bond whose name appears on the Bond register as the absolute Owner of such 2023 Bond for any and all purposes, and the City and the Fiscal Agent will not be affected by any notice to the contrary. The City and the Fiscal Agent may rely on the address of the Bondowner as it appears in the Bond register for any and all purposes.

Registration of Exchange or Transfer. Any 2023 Bond may, in accordance with its terms, be transferred, upon the Bond register by the person in whose name it is registered, in person or by such person’s duly authorized attorney, upon surrender of such 2023 Bond for cancellation, accompanied by delivery of a duly written instrument of transfer in a form acceptable to the Fiscal Agent.

2023 Bonds may be exchanged at the Principal Office of the Fiscal Agent solely for a like aggregate principal amount of 2023 Bonds of authorized denominations and of the same maturity.

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The cost for any services rendered or any expenses incurred by the Fiscal Agent in connection with any such transfer or exchange will be paid by the City. The Fiscal Agent will collect from the Owner requesting such transfer or exchange any tax or other governmental charge required to be paid with respect to such transfer or exchange. Whenever any 2023 Bond or 2023 Bonds are surrendered for transfer or exchange, the City will execute and the Fiscal Agent will authenticate and deliver a new 2023 Bond or 2023 Bonds, for a like aggregate principal amount.

No transfers or exchanges of 2023 Bonds will be required to be made (i) 15 days prior to the date established by the Fiscal Agent for selection of 2023 Bonds for redemption or (ii) with respect to a 2023 Bond after such 2023 Bond has been selected for redemption; or (iii) between a Record Date and the succeeding Interest Payment Date.

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DEBT SERVICE SCHEDULE

Debt Service Schedule. The following table presents the annual debt service on the 2023 Bonds (including mandatory sinking fund redemptions), assuming there are no optional redemptions or special redemptions from Special Tax Prepayments.

Year Ending
September 1
2023 Bonds
Principal
2023 Bonds
Interest
2023 Bonds
Total
2023 $ $ $
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
Total: $ $ $

Special Tax Revenues and Projected Debt Service Coverage

Debt service on the 2023 Bonds is structured so that commencing with Fiscal Year 2023 -24, annual Special Tax Revenues, if levied at the Maximum Special Tax rates in the Rate and Method and assuming all properties are classified as Developed Property, net of Administrative Expenses, will result in an annual debt service coverage ratio of at least 110%.

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SECURITY FOR THE 2023 BONDS

This section generally describes the security for the 2023 Bonds set forth in the Fiscal Agent Agreement, which is summarized in more detail in APPENDIX C. Capitalized terms used but not defined in the section are defined in APPENDIX C.

General

The 2023 Bonds and any Parity Bonds (collectively, the “ Bonds”) are secured by a first pledge (which will be effected in the manner and to the extent provided in the Fiscal Agent Agreement) of all of the Special Tax Revenues and all moneys deposited in the Bond Fund (including the Special Tax Prepayments Account), and, until disbursed as provided therein, in the Special Tax Fund.

The Special Tax Revenues and all moneys deposited into such funds (except as otherwise provided in the Fiscal Agent Agreement) are dedicated to the payment of the principal of, and interest and any premium on, the Bonds as provided in the Fiscal Agent Agreement and in the Act until all of the Bonds have been paid and retired or until moneys or Federal Securities have been set aside irrevocably for that purpose under the Fiscal Agent Agreement.

The 2023 Bonds and all Parity Bonds (as defined herein) will be secured by a first pledge (which will be effected in the manner and to the extent provided in the Fiscal Agent Agreement) of all moneys deposited in the 2023 Reser ve Fund. The moneys in the 2023 Reser ve Fund (except as otherwise provided in the Fiscal Agent Agreement) are dedicated to the payment of the principal of, and interest and any premium on, the 2023 Bonds and all Parity Bonds as provided in the Fiscal Agent Agreement and in the Act until all of the 2023 Bonds and all Parity Bonds have been paid and retired or until moneys or Federal Securities have been set aside irrevocably for that purpose under the Fiscal Agent Agreement.

Amounts in the Improvement Fund (and the accounts therein), the Administrative Expense Fund and the Costs of Issuance Fund are not pledged to the repayment of the Bonds. The Project is not pledged to the repayment of the Bonds, nor are the proceeds of any condemnation or insurance award received by the City with respect to the Project.

“Special Tax Revenues ”
are defined in the Fiscal Agent Agreement as the proceeds of the Special Taxes received by the City, including any scheduled payments thereof and any Special Tax Prepayments, interest thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon. However, Special Tax Revenues do not include any interest in excess of the interest due on the Bonds, or any penalties collected in connection with any such foreclosure.

Lim
ited Obligation

The 2023 Bonds are not general obligations of the City, but are limited obligations, payable solely from the Special Tax Revenues and the funds pledged therefor under the Fiscal Agent Agreement. Neither the faith and credit nor the taxing power of the City (except to the limited extent set forth in the Fiscal Agent Agreement) or of the State or any political subdivision thereof is pledged to the payment of the 2023 Bonds.

Special Taxes

Covenant to Levy Special Taxes. The Finance Director will fix and levy the amount of Special Taxes within Improvement Area No. 3 required to pay the following amounts, taking into account the balances in the applicable funds established under the Fiscal Agent Agreement:

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(i) the principal of and interest on any outstanding Bonds of the District with respect to Improvement Area No. 3 becoming due and payable during the ensuing calendar year,

(ii) any necessary replenishment or expenditure of the 2023 Reser ve Fund, to the exte nt such replenishment has not been included in the computation of the Special Taxes in a previous Fiscal Year,

(iii) the Administrative Expenses, including amounts necessary to discharge any rebate obligation, during such year,

(iv) an amount to cure delinquencies in the payment of principal or interest on Bonds that occurred in the previous Fiscal Year, and

(v) any Project costs to be paid from Special Taxes to the extent that paying for such costs does not increase the Special Taxes levied on Undeveloped Property.

During the Remainder Taxes Period, the Finance Director will fix and levy the Special Taxes at the Maximum Special Tax rate on Developed Property before considering any Capitalized Interest (as those terms are defined in the Rate and Method). The Special Taxes so levied may not exceed the authorized amounts as provided in the proceedings under the Resolution of Formation.

Manner of Collection. Except as set forth in the Ordinance, the Fiscal Agent Agreement provides that the Special Taxes will be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the ad valorem taxes on real property.

Because the Special Tax levy is limited to the maximum Special Tax rates set forth in the Rate and Method, no assurance can be given that, in the event of Special Tax delinquencies, the receipts of Special Taxes will, in fact, be collected in sufficient amounts in any given year to pay debt service on the Bonds. In addition, under the Fiscal Agent Agreement, the first use of Special Tax Revenues is the payment of Administrative Expenses in an amount not to exceed the amount included in the Special Tax levy for such Fiscal Year for Administrative Expenses. Further, under no circumstances will the Special Tax levied against any parcel of residential property for which an occupancy permit for private residential use has been issued be increased by more than 10% as a consequence of delinquency or default by the owner of any other parcel within the District. Finally, in no event shall Special Taxes be levied after fiscal year 2060-61. See “BOND OWNERS’ RISKS – Property Tax Delinquencies.”

Rate and Method

General. The Special Taxes will be levied and collected according to the Rate and Method, which provides the means by which the City Council may annually levy the Special Taxes within Improvement Area No. 3, up to the maximum Special Tax rates, and to determine the amount of the Special Taxes that will need to be collected each fiscal year from the “Taxable Property” within Improvement Area No. 3.

As used in this Official Statement, Special Tax refers only to the Facilities Special Tax levied under the Rate and Method; although a Services Special Tax is also authorized to be levied under the Rate and Method, the Services Special Tax is not pledged to repay the 2023 Bonds.

The following is a summary of the provisions of the Rate and Method, which should be read in conjunction with the complete text of the Rate and Method, including its attachments, which is attached as APPENDIX B. Capitalized terms used but not defined in this section have the meanings as set forth in APPENDIX B. This section provides only a summary of the Rate and Method, and is qualified by more complete and detailed information contained in the entire Rate and Method attached as APPENDIX B.

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Facilities Special Tax Requirement. Annually, at the time of levying the Special Tax, the District administrator (the “Administrator”) will determine the minimum amount of money to be levied on Taxable Property (the “ Facilities Special Tax Requirement ”), which will be the amount required in any Fiscal Year for the following purposes:

(i) to pay principal and interest on Bonds which are due in the calendar year which begins in such Fiscal Year,

(ii) to replenish reserve funds to the extent such replenishment has not been included in the computation of the Facilities Special Tax Requirement in a previous Fiscal Year,

(iii) to cure any delinquencies in the payment of principal or interest on Bonds which have occurred in the prior Fiscal Year,

(iv) to pay Administrative Expenses, and

(v) to pay the costs of Authorized Facilities to be funded directly from Facilities Special Tax proceeds to the extent that paying directly for such costs does not increase the Facilities Special Taxes levied on Undeveloped Property.

Annual Determination of Property Categories for Administration of Special Tax. Each Fiscal Year, the Administrator will: (i) categorize each parcel of Taxable Property as Developed Property, Undeveloped Property, Taxable Owners Association Property, or Taxable Public Property, (ii) for Developed Property, categorize each Parcel as Single Family Detached Residential Property or Other Property, (iii) based on Square Footage reflected on Building Permits issued by June 30 of the prior Fiscal Year, assign each Residential Unit to the appropriate Square Footage Category, (iv) determine the Facilities Special Tax Requirement and Services Special Tax Requirement for the Fiscal Year, and (v) determine if the Trigger Event occurred in the prior Fiscal Year. In addition, the Administrator shall, on an ongoing basis, monitor Final Maps and track the Square Footage on all Building Permits that have been issued to determine if there are any proposed Land Use Changes that would change the Expected Maximum Special Tax Revenues. If the Expected Maximum Special Tax Revenues will be revised pursuant to a proposed Land Use Change, the Administrator shall apply the steps set forth in the Rate and Method, as described further below.

In any Fiscal Year, if it is determined that:

(i) a parcel map for a portion of property in Improvement Area No. 3 was recorded after January 1 of the prior Fiscal Year (or any other date after which the Assessor will not incorporate the newly-created Parcels into the then-current tax roll),

(ii) because of the date the parcel map was recorded, the Assessor does not yet recognize the new Parcels created by the parcel map, and

(iii) one or more of the newly -created Parcels is in a different Development Class than other parcels created by the subdivision,

the Administrator will calculate the Special Tax for the property affected by recordation of the parcel map by determining the Special Tax that applies separately to the property within each Development Class , then applying the sum of the individual Special Taxes to the Parcel that was subdivided by recordation of the parcel map.

“ Trigger Event” is defined in the Rate and Method to occur when (i) all Bonds secured by the levy and collection of Facilities Special Taxes in Improvement Area No. 3 have been fully repaid, (ii) all

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Administrative Expenses from prior Fiscal Years have been paid, funded, and/or reimbursed to the City, and (iii) there are no other Authorized Facilities that the City intends to fund with Bonds and Facilities Special Taxes. In the first Fiscal Year in which the Administrator determines that the Trigger Event occurred in the prior Fiscal Year, and in each Fiscal Year thereafter, the Facilities Special Tax will cease to be levied and the maximum Services Special Tax (as defined below) will be adjusted pursuant to the Rate and Method.

Maximum Special Tax. The Maximum Special Tax for Fiscal Year 2023-24 for Parcels of Single- Family Detached Residential Property shall be the greater of (i) the Target Special Taxes set forth in Table 1 below, or, (ii) if there are Land Use Changes that would reduce debt service coverage on outstanding Bonds below the Required Coverage, the Maximum Special Tax determined pursuant to Section D of the Rate and Method.

Other Property. The Maximum Special Tax for Fiscal Year 2023-24 for Other Property is shown in Table 1. If Other Property is developed with condominium or town home units, the Administrator will apply the following steps to allocate the Maximum Special Tax to the Parcels within the condominium or town home buildings:

Step 1: Determine the Acreage of the underlying land Parcel on which the building(s) is located.

Step 2: Multiply the Acreage from Step 1 by the Maximum Special Tax for Other Property in the current Fiscal Year.

Step 3: Divide the product from Step 2 by the total number of townhomes or condominium units built or expected to be built on the underlying land Parcel to determine the Maximum Special Tax for each condominium or townhome unit, which amount will escalate by 2.0% in the next Fiscal Year and each following Fiscal Year.

Once a Special Tax has been levied and collected on a Parcel of Developed Property , the Maximum Special Tax applicable to that Parcel will not be reduced in future Fiscal Years regardless of changes in land use on the Parcel, except (i) in the event of a partial prepayment, and (ii) pursuant to Section D of the Rate and Method. Notwithstanding the foregoing, (i) if Bonds have yet to be issued for Improvement Area No. 3, the Parcels can be assigned to the appropriate Square Footage Category, and the Administrator will recalculate the Expected Maximum Special Tax Revenues based on the corresponding changes in revenues, and (ii) the actual Special Tax levied on the Parcel in any Fiscal Year may be less than the Maximum Special Tax if a lower Special Tax is calculated pursuant to the Rate and Method.

Undeveloped Property, Taxable Owners Association Property, and Taxable Public Property. The Maximum Special Tax for Fiscal Year 2023-24 for Undeveloped Property, Taxable Owners Association Property, and Taxable Public Property is set forth in Table 1. In addition, any amount levied on a landowner's Parcel(s) of Undeveloped Property due to such landowner's failure to make a prepayment pursuant to the Rate and Method will be added to the amount determined in the prior sentence to calculate the total Max imum Special Tax for the landowner's Parcel(s). For additional information, see APPENDIX B.
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Table 1
Improvement Area No. 3 of the City of Tracy
Community Facilities District No. 2016-2 (ECFD)
Fiscal Year 2023-24 Target and Maximum Facilities Special Tax Rates Target Facilities Special Tax Target Facilities Special Tax Prior to Trigger Event After Trigger Event
Type of Property (Fiscal Year 2023-24)(1) (Fiscal Year 2023-24) Single Family Detached Residential Property
Residential Units > 4,000 Square Feet $3,363.36 per Residential Unit $0 per Residential Unit Residential Units 2,000 - 4,000 Square Feet $3,262.26 per Residential Unit $0 per Residential Unit Residential Units < 2,000 Square Feet $2,126.22 per Residential Unit $0 per Residential Unit Other Property $24,571.22 per Acre $0 per Acre
Undeveloped Property $24,571.22 per Acre $0 per Acre
Taxable Owners Association Property $24,571.22 per Acre $0 per Acre Taxable Public Property $24,571.22 per Acre $0 per Acre (1) Represents the Target Facilities Special Tax for Residential Units and the Maximum Facilities Special Tax for all other special tax categories.

On each July 1, the target facilities special taxes shown in this table shall be increased by an amount equal to 2.0% of the amount in effect for the prior fiscal year.

Source: Goodwin Consulting Group, Inc.

Method
of Special Tax Levy. Under the Rate and Method, the Administrator will determine the Facilities Special Tax Requirement and levy the Special Tax as follows:

Step
1: In the first 15 Fiscal Years in which a Special Tax is levied within Improvement Area No. 3, the Maximum Special Tax shall be levied on each Parcel of Single Family Detached Residential Property and Other Property, prior to applying any Capitalized Interest that is available in the District accounts. Any Special Tax proceeds collected that are determined by the Administrator to be Remainder Taxes shall be deposited into the Improvement Fund to pay costs associated with the acquisition of Authorized Facilities eligible to be financed by the R emainder Taxes under the Acquisition Agreement and that were not paid with Bond proceeds or Facilities Special Taxes levied in prior Fiscal Years.

Beginni
ng in the 16th Fiscal Year in which a Special Tax is levied within Improvement Area No. 3 and continuing until the Trigger Event, the Special Tax shall be levied Proportionately on each Parcel of Single Family Detached Residential Property and Other Property up to 100% of the Maximum Special Tax for each Parcel for such Fiscal Year until the amount levied on Single Family Detached Residential Property and Other Property is equal to the Facilities Special Tax Requirement prior to applying any Capitalized Interest that is available in the District accounts.

Step
2: If additional revenue is needed after Step 1 and after applying Capitalized Interest to the Facilities Special Tax Requirement, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property up to 100% of the Maximum Special Tax for Undeveloped Property for such Fiscal Year.

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Step 3: If additional revenue is needed after Step 2, the Special Tax shall be levied Proportionately on each Parcel of Taxable Owners Association Property and Taxable Public Property, up to 100% of the Maximum Special Tax for each Parcel of Taxable Owners Association Property and Taxable Public Property, as applicable, for such Fiscal Year.

Exemptions. No Special Tax will be levied on the following:

(i) Public Property, except Taxable Public Property, and

(ii) Owners Association Popery, except Taxable Owners Association Property.

Partial Prepayment of Special Tax. A property owner may prepay up to 80% of the Special Tax obligation applicable to a Parcel in Improvement Area No. 3 , subject to certain conditions. The Prepayment Amount is calculated based on the Bond Redemption Amount plus Redemption Premium and other costs, all as specified in “APPENDIX B – Rate and Method of Apportionment of Special Tax – Section I.”

Services Special Tax. In addition to the Special Tax, taxable property in Improvement Area No. 3 is subject to a special tax for services (the “Services Special Tax”), pursuant to the Rate and Method.

The maximum Services Special Tax for Fiscal Year 2022-23 is set forth in Table 2. Table 2 is included for information only. The Services Special Tax does not secure, and is not pledged to the payment of, the 2023 Bonds.

Table 2
Improvement Area No. 3 of the City of Tracy
Community Facilities District No. 2016-2 (ECFD)
Fiscal Year 2022-23 Maximum Services Special Tax Rates

Maximum Services Special Tax Maximum Services Special Tax Prior to Trigger Event After Trigger Event
Type of Property (Fiscal Year 2022-23)(1) (Fiscal Year 2022-23)

Single Family Detached Residential Property
Residential Units > 4,000 Square Feet $1,816.92 per Residential Unit $2,528.36 per Residential Unit Residential Units 2,000 - 4,000 Square Feet $1,453.30 per Residential Unit $2,144.06 per Residential Unit Residential Units < 2,000 Square Feet $1,089.68 per Residential Unit $1,539.64 per Residential Unit

Other Property $5,901.58 per Acre $5,901.58 per Acre

Undeveloped Property $5,901.58 per Acre $5,901.58 per Acre

(1) On each July 1, the maximum services special taxes shown in this table shall be increased by an Escalation Factor as described in the Rate and Method.

Source: Goodwin Consulting Group, Inc.

Covenant to Foreclose

Sale of Property for Nonpayment of Taxes . The Fiscal Agent Agreement provides that the Special Taxes are to be collected in the same manner as ordinary ad valorem property taxes are collected and, except as provided in the special covenant for foreclosure described below and in the Act, is to be subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ad valorem property taxes. Under these procedures, if taxes are unpaid for a period of five years or more, the property is subject to sale by the County.

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Foreclosure Under the Act. Under Section 53356.1 of the Act, if any delinquency occurs in the payment of the Special Tax, the City may order the institution of a Superior Court action to foreclose the lien therefor within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at judicial foreclosure sale.

While judicial foreclosure is not mandatory under the Act, the City will agree in the Fiscal Agent Agreement that on or about June 30 of each Fiscal Year, the Finance Director will compare the amount of Special Taxes previously levied in Improvement Area No. 3 of the District to the amount of Special Tax Revenues received by the City, and if delinquencies have occurred, proceed as follows:

Individual Delinquencies. If the Finance Director determines that any single parcel subject to the Special Tax in Improvement Area No. 3 is delinquent in the payment of four or more installments of Special Taxes, then the Finance Director will send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) foreclosure proceedings will be commenced by the City within 90 days of such determination.

Not
withstanding the foregoing, the Finance Director may defer any such actions with respect to a delinquent parcel if (1) Improvement Area No. 3 is then participating in the “Teeter Plan” (as defined and described below), or an equivalent procedure and (2) the amount in the 2023 Reserve Fund is at least equal to the 2023 Reserve Requirement. For additional details on the Teeter Plan, see “– Special Tax Delinquencies; Teeter Plan” below.

Aggregate Delinquencies. I f the Finance Director determines that (i) the total amount of delinquent Special Tax for the prior Fiscal Year for the entire Improvement Area No. 3 (including the total of delinquencies described in the above two paragraphs), exceeds 5% of the total Special Tax due and payable for the prior Fiscal Year, determined by reference to the latest available secured property tax roll of the County, the Finance Director shall notify or cause to be notified property owners who are then delinquent in the payment of Special Taxes (and demand immediate payment of the delinquency) within 45 days of such determination, and shall commence foreclosure proceedings within 90 days of such determination against each parcel of land in Improvement Area No. 3 with a Special Tax delinquency.

Suf
ficiency of Foreclosure Sale Proceeds; Foreclosure Limitations and Delays. No assurances can be given that the real property subject to a judicial foreclosure sale will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Act does not require the City to purchase or otherwise acquire any lot or parcel of property foreclosed upon if there is no other purchaser at such sale.

Section 53356.6 of the Act requires that property sold pursuant to foreclosure under the Act be sold for not less than the amount of judgment in the foreclosure action, plus post -judgment interest and authorized costs, unless the consent of the owners of 75% of the outstanding Bonds is obtained.

However, under Section 53356.5 of the Act, the City, as judgment creditor, is entitled to purchase any property sold at foreclosure using a “credit bid,” where the City could submit a bid crediting all or part of the amount required to satisfy the judgment for the delinquent amount of the Special Taxes. If the City becomes the purchaser under a credit bid, the City must pay the amount of its credit bid into the redemption fund established for the Bonds, but this payment may be made up to 24 months after the date of the foreclosure sale.

Foreclosure by court action is subject to normal litigation delays, the nature and extent of which are largely dependent on the nature of the defense, if any, put forth by the debtor and the Superior Court calendar. In addition, the ability of the City to foreclose the lien of delinquent unpaid Special Taxes may

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be limited in certain instances and may require prior consent of the property owner if the property is owned by or in receivership of the Federal Deposit Insurance Corporation (the “ FDIC”). See “BOND OWNERS' RISKS – Bankruptcy Delays.”

Special Tax Delinquencies; Teeter Plan. In 1949, the California Legislature enacted an alternative method for the distribution of property taxes to local agencies. This method, known as the “Teeter Plan,” is found in Sections 4701- 4717 of the California Revenue and Taxation Code. Upon adoption and implementation of this method by a county board of supervisors, local agencies for which the county collects property taxes and certain other public agencies and taxing areas located in the county receive annually the full amount of their shares of property taxes and other levies collected on the secured roll, including delinquent property taxes which have yet to be collected. While the county bears the risk of loss on unpaid delinquent taxes, it retains the penalties associated with delinquent taxes when they are paid. In turn, the Teeter Plan provides participating local agencies with stable cash flow and the elimination of collection risk.

Once adopted, a county’s Teeter Plan will remain in effect in perpetuity unless the board of supervisors orders its discontinuance or unless, prior to the commencement of a fiscal year, a petition for discontinuance is received and joined in by resolutions of the governing bodies of not less than two-thirds of the participating districts in the county. An electing county may, however, decide to discontinue the Teeter Plan with respect to any levying agency in the county if the board of supervisors, by action taken not later than July 15 of a fiscal year, elects to discontinue the procedure with respect to such levying agency and the rate of secured tax delinquencies in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll by that agency.

The Board of Supervisors of San Joaquin County adopted the Teeter Plan in Fiscal Year 1994 -

95. The County has elected to apply its Teeter Plan to the collection of the Special Taxes in Improvement Area No. 3. To the extent that the County’s Teeter Plan continues in existence and is carried out as adopted, and to the extent the County does not discontinue the Teeter Plan with respect to the District, the County’s Teeter Plan may help protect owners of the 2023 Bonds from the risk of delinquencies in the payment of Special Tax. There can be no assurance that the County will not modify or eliminate its Teeter Plan, or choose to remove Improvement Area No. 3 from its Teeter Plan, while the 2023 Bonds are outstanding.

Special Tax Fund

Deposits. Under the Fiscal Agent Agreement, the Special Tax Fund is established as a separate fund to be held by the Fiscal Agent, to the credit of which the Fiscal Agent will deposit amounts received from or on behalf of the City consisting of Special Tax Revenues and am ounts transferred from the Administrative Expense Fund and the Bond Fund. The City will promptly remit any Special Tax Revenues received by it to the Fiscal Agent for deposit by the Fiscal Agent to the Special Tax Fund.

Notwithstanding the foregoing,

(i) Special Tax Revenues in an amount not to exceed the amount included in the Special Tax levy for such Fiscal Year for Administrative Expenses will be separately identified by the Finance Director and shall be deposited by the Fiscal Agent in the Administrative Expense Fund;

(ii) any Special Tax Revenues constituting the collection of delinquencies in payment of Special Taxes shall be separately identified by the Finance Director and will be disposed of by the Fiscal Agent first, for transfer to the Bond Fund to pay any past due debt service on the Bonds; second, for transfer to the 2023 Reser ve Fund to the extent

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needed to increase the amount then on deposit in the 2023 Reserve Fund up to the then 2023 Reserve Requirement; and third, to be held in the Special Tax Fund for use as described in “–Disbursements” below; and

(iii) any proceeds of Special Tax Prepayments will be separately identified by the Finance Director and will be deposited by the Fiscal Agent as follows (as directed in writing by the Finance Director): (a) that portion of any Special Tax Prepayment constituting a prepayment of construction costs (which otherwise could have been included in the proceeds of Parity Bonds) will be deposited by the Fiscal Agent into the Bond Proceeds Account of the Improvement Fund and (b) the remaining Special Tax Prepayment will be deposited by the Fiscal Agent in the Special Tax Prepayments Account established pursuant to the Fiscal Agent Agreement.

Disbursements. At least 7 Business Days prior to each Interest Payment Date, the Fiscal Agent will withdraw from the Special Tax Fund and transfer the following amounts in the following order of priority:

(i) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund and any expected transfers from the Improvement Fund, the 2023 Reserve Fund, and the Special Tax Prepayments Account to the Bond Fund such that the amount in the Bond Fund equals the principal (including any sinking payment), premium, if any, and interest due on the Bonds on such Interest Payment Date and any past due principal or interest on the Bonds not theretofore paid from a transfer described in the Fiscal Agent Agreement,

(ii) to the 2023 Reserve Fund an amount, taking into account amounts then on deposit in the 2023 Reser ve Fund, such that the amount in the 2023 Reserve Fund is equal to the 2023 Reserve Requirement, and

(iii) (A) on each October 1, beginning on October 1, 2023 and continuing through the Remainder Taxes Period, all of the moneys remaining in the Special Tax Fund will be transferred to the Remainder Taxes Account and (B) on each subsequent October 1 after the end of the Remainder Tax Period, all or a portion of the moneys remaining in the Special Tax Fund will be transferred to the Remainder Taxes Account as directed by the Finance Director.

“Remainder Taxes Period” is defined in the Fiscal Agent Agreement as the period through and including the earlier of (i) the end of the 15th Fiscal Year during which Special Taxes have been levied on the property in Improvement Area No. 3 or (ii) the date the City has fully satisfied its reimbursement obligations under the Acquisition Agreement.

Within 15 days after the end of each Bond Year after the Remainder Taxes Account is closed pursuant to the Fiscal Agent Agreement, and after the foregoing transfers have been made, the Fiscal Agent will transfer all amounts remaining on deposit in the Special Tax Fund for any lawful purpose, as directed by the City in an Officer’s Certificate.

Bond Fund

Deposits. The Fiscal Agent will hold the moneys in the Bond Fund for the benefit of the City and the Owners of the Bonds, and will disburse those funds for the payment of the principal of, and interest and any premium on, the Bonds as described below.

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There is also created in the Bond Fund a separate account to be held by the Fiscal Agent, designated the “Special Tax Prepayments Account” to the credit of which deposits will be made as provided in the Fiscal Agent Agreement.

Disbursements. At least 10 Business Days before each Interest Payment Date, the Fiscal Agent will notify the Finance Director in writing as to the principal and premium, if any, and interest due on the Bonds on the next Interest Payment Date (whether as a result of scheduled principal of and interest on the Bonds, optional redemption of the Bonds or a mandatory sinking fund redemption). On each Interest Payment Date, the Fiscal Agent will withdraw from the Bond Fund and pay to the Owners of the Bonds the principal of, and interest and any premium, due and payable on such Interest Payment Date on the Bonds.

At least 5 Business Days prior to each Interest Payment Date, the Fiscal Agent will determine if the amounts then on deposit in the Bond Fund are sufficient to pay the Debt Service due on the Bonds on the next Interest Payment Date. In the event that amounts in the Bond Fund are insufficient for such purpose, the Fiscal Agent promptly will notify the Finance Director by telephone (and confirm in writing) of the amount of the insufficiency.

In the event that amounts in the Bond Fund are insufficient for the purpose set forth in the preceding paragraph with respect to any Interest Payment Date, the Fiscal Agent will withdraw from the 2023 Reserve Fund, in accordance with the provisions of the Fiscal Agent Agreement, to the extent of any funds or Permitted Investments therein, amounts to cover the amount of such Bond Fund insufficiency related to the 2023 Bonds and any Parity Bonds. Amounts so withdrawn from the 2023 Reserve Fund will be deposited in the Bond Fund.

If, after the foregoing transfers, there are insufficient funds in the Bond Fund to make the payments provided for in the second sentence of the first paragraph under “Bond Fund – Disbursements” above, the Fiscal Agent will apply the available funds first to the payment of interest on the Bonds, then to the payment of principal due on the Bonds other than by reason of sinking payments, if any, and then to payment of principal due on the bonds by reason of sinking payments.

Disbursements from the Special Tax Prepayments Account. Moneys in the Special Tax Prepayments Account will be transferred by the Fiscal Agent to the Bond Fund on the next date for which notice of redemption of Bonds can timely be given under the Fiscal Agent Agreement, and notice to the Fiscal Agent can timely be given under the Fiscal Agent Agreement, and will be used (together with any amounts transferred pursuant to the Fiscal Agent Agreement) to redeem Bonds on the redemption date selected in accordance the Fiscal Agent Agreement.

2023 Reserve Fund

General. In order to further secure the payment of principal of and interest on the 2023 Bonds and any Parity Bonds, certain proceeds of the 2023 Bonds will be deposited into the 2023 Reserve Fund in an amount equal to the “ 2023 Reserve Requirement” for the 2023 Bonds (as defined below). See “FINANCING PLAN.”

2023 Reserve Requirement. The “2023 Reserve Requirement” is defined in the Fiscal Agent Agreement to mean the amount as of any date of calculation equal to the least of (a) Maximum Annual Debt Service on the 2023 Bonds and Parity Bonds, if any, (b) 125% of average Annual Debt Service on the 2023 Bonds and Parity Bonds, if any and (c) 10% of the original principal of the 2023 Bonds and Parity Bonds, if any; provided, however:

(A) that with respect to the calculation of clause (c) above, the issue price of the 2023 Bonds or any Parity Bonds excluding accrued interest shall be used rather than the original

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principal amount, if (i) the net original issue discount or premium of the 2023 Bonds or any Parity Bonds was less than 98% or more than 102% of the original principal amount of the 2023 Bonds or any Parity Bonds and (ii) using the issue price would produce a lower result than using the original principal amount;

(B) that in no event shall the amount calculated under the definition of 2023 Reser ve Requirement exceed the amount on deposit in the 2023 Reserve Fund on the date of issuance of the 2023 Bonds (if they are the only Bonds covered by the 2023 Reserve Fund) or the most recently issued series of Parity Bonds except in connection with any increase associated with the issuance of Parity Bonds; and

(C) that in no event shall the amount required to be deposited into the 2023 Reser ve Fund in connection with the issuance of a series of Parity Bonds exceed the maximum amount under the Tax Code that can be financed with tax-exempt bonds and invested at an unrestricted yield.

Disbursements. Except as otherwise provided in the Fiscal Agent Agreement, all amounts deposited in the 2023 Reserve Fund will be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of, and interest and any premium on, the 2023 Bonds and any Parity Bonds or, in accordance with the provisions of the Fiscal Agent Agreement, for the purpose of redeeming 2023 Bonds and any Parity Bonds from the Bond Fund. Whenever a transfer is made from the 2023 Reserve Fund to the Bond Fund due to a deficiency in the Bond Fund for payment of the principal of, and interest and any premium on, the 2023 Bonds and any Parity Bonds, the Fiscal Agent will provide written notice thereof to the Finance Director, specifying the amount withdrawn.

Qualified Reserve Fund Credit Instruments. The City has the right at any time to direct the Fiscal Agent to release funds from the 2023 Reserve Fund, in whole or in part, by tendering to the Fiscal Agent: (i) a Qualified Reserve Account Credit Instrument (as defined in the Fiscal Agent Agreement), and (ii) an opinion of Bond Counsel stating that neither the release of such funds nor the acceptance of such Qualified Reserve Account Credit Instrument will cause interest on the 2023 Bonds or any Parity Bonds the interest on which is excluded from gross income of the owners thereof for federal income tax purposes to become includable in gross income for purposes of federal income taxation.

The City will have no obligation to replace a Qualified Reserve Account Credit Instrum ent or to fund the 2023 Reserve Fund with cash if, at any time that the 2023 Bonds are Outstanding, the Qualified Reserve Account Credit Instrument (or its provider) is downgraded or the provider becomes insolvent, if there is an unscheduled termination of the Qualified Reserve Account or if for any reason insufficient amounts are available to be drawn upon under the Qualified Reserve Account Credit Instrument; provided, however, that the City will reimburse the provider, in accordance with the terms of the Qualified Reserve Account Credit Instrument, for any draws made thereon.

The City and the Fiscal Agent will comply with the terms of the Qualified Reserve Account Credit Instrument as will be required to receive payments thereunder in the event and to the extent required under the Fiscal Agent Agreement.

See APPENDIX C for a complete description of the timing, purpose and manner of disbursements from the 2023 Reserve Fund.

Investment of Moneys in Funds

Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Fiscal Agent will be invested by the Fiscal Agent in Permitted Investments, which in any event by

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their terms mature prior to the date on which such moneys a re required to be paid out under the Fiscal Agent Agreement. See APPENDIX C for a definition of “Permitted Investments.”

Issuance of Future Parity Bonds for Refunding Only

In addition to the 2023 Bonds, the City may issue one or more additional series of Refunding Bonds payable from the Special Tax Revenues on a parity with the 2023 Bonds (collectively, “Parity Bonds”), in such principal amount as may be determined by the City, under a Supplemental Agreement entered into by the City and the Fiscal Agent. Any such Parity Bonds will constitute Bonds under the Fiscal Agent Agreement and will be secured by a lien on the Special Tax Revenues and funds pledged for the payment of the Bonds under the Fiscal Agent Agreement on a parity with all other Bonds Outstanding thereunder.

“Refunding Bonds” is defined in the Fiscal Agent Agreement as bonds issued by the City for the District with respect to Improvement Area No. 3, the net proceeds of which are used to refund all or a portion of the then-Outstanding Bonds; provided that the principal and interest on the Refunding Bonds to their final maturity date is less than the principal and interest on the Bonds being refunded to their final maturity date, and the final maturity of the Refunding Bonds is not later than the final maturity of the Bonds being refunded.

See APPENDIX C for additional details regarding the conditions for issuing Parity Bonds.

Subordinate Bonds

Nothing in the Fiscal Agent Agreement prohibits the City from issuing any other bonds or otherwise incurring debt secured by a pledge of the Special Tax Revenues subordinate to the pledge thereof under the Fiscal Agent Agreement.

THE DISTRICT AND IMPROVEMENT AREA NO. 3

Formation and Background

Formation Proceedings. The District, Improvement Area No. 1 and the Future Annexation Area were established by the City Council under the Act on February 7, 2017, following a noticed public hearing. On December 17, 2019, the City Council approved the annexation of property into and the designation of Improvement Area No. 3, pursuant to the unanimous approval of landowners in Improvement Area No. 3 and, on the same date, an election was held in which the qualified electors within Improvement Area No. 3 approved a ballot proposition authorizing the District to incur bonded indebtedness for Improvement Area No. 3 of up to $25,000,000 to finance the acquisition and construction of the authorized facilities, to levy the Special Taxes within Improvement Area No. 3, and to establish an appropriations limit for Improvement Area No. 3. The District is authorized to finance the construction of authorized facilities. See “FINANCING PLAN – Authorized Facilities.”

Improvement Areas; Annexation Proceedings . In addition to Improvement Area No. 3, the District includes an Improvement Area No. 1, which consists of approximately 123.69 net acres (including approximately 46.08 acres that has been subdivided into 299 single- family residential lots and approximately 74.70 acres encompassing four larger parcels expected to be developed as commercial and other uses) , an Improvement Area No. 2 consisting of approximately 55.1 acres that has been subdivided into 222 single-family residential lots , and a Future Annexation Area consisting of approximately 41.80 acres. The property in the Future Annexation Area is currently expected to be annexed into a new improvement area , in which case such future improvement area will be separately

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authorized to issue special tax bonds secured only by special taxes levied within the applicable improvement area.

The 2023 Bonds are secured only by the Special Taxes levied within Improvement Area No. 3. If and to the extent the Future Annexation Area is annexed as additional improvement areas, there will be no cross-collateralization between or among improvement areas. The City does not have any current plans to annex any parcels within the Future Annexation Area into Improvement Area No. 3.

Description and Location

General. The District is located in the southwestern part of the City, at the Northwest intersection of Corral Hollow and Linne Roads . The land was formerly part of the County, and was annexed to the City in 2013. Improvement Area No. 3 encompasses approximately 73.65 acres. See APPENDIX A for demographic and other information regarding the City and the County.

Boundary Map. The map showing the boundaries of Improvement Area No. 3 is set forth on the following page.

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[Insert CFD Boundary Map]

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Authorized Facilities

General. Under the Resolution of Formation adopted by the City Council, as the legislative body of the Dist rict, on February 7, 2017, the District (and each improvement area therein) is authorized to finance all or a portion of the costs of acquisition, construction and improvement of facilities permitted under the Act and that are required as conditions of development of property in the District, the Future Annexation Area and any other property annexed to the District (collectively, the “ Facilities”). The Facilities include but are not limited to the following:

• Public Buildings and Facilities (excluding Aquatic or Swim Center);

• Wastewater Treatment Plant Improvements and Facilities;

• Wastewater Collection Pipeline Improvements and Facilities;

• Drainage Improvements and Facilities;

• Water Improvements and Facilities;

• Roadway Improvements and Facilities including street lights , traffic signals , landscaped parkways, landscaped medians, curb, gutter, sidewalk, pavement;

• Public Parks and Facilities (excluding Aquatic or Swim Center), including trails and bike paths; and

• Ancillary Improvements and Facilities, such as publicly-owned masonry walls and fences.

Any Facility authorized to be financed by the District and each Improvement Area as originally designated and as designated in the future in conjunction with subsequent annexations of all or any part of the Future Annexation Area or any other property may be financed through the construction and acquisition of the Facility or through the payment of fees for such Facility. The Facilities authorized to be financed may be located within or outside the boundaries of the District or any Improvement Area as originally designated and as designated in the future in conjunction with subsequent annexations of all or any part of the Future Annexation Area or any other property.

The Facilities to be financed shall include all hard and soft costs associated with the Facilities , including the costs of the acquisition of land and rights -of-way, the costs of design engineering and planning, the costs of any environmental or traffic studies , surveys, or other r eports, costs related to landscaping and irrigation, soils testing, permits, plan check, and inspection fees, insurance, legal, and related overhead costs, coordination and supervision, and any other costs or appurtenances related to any of the foregoing, as further defined in one or more acquisition agreements with the developer of the property in the District and each Improvement Area therein, in each case as originally designated and as designated in the future in conjunction with subsequent annexations of all or any part of the Future Annexation Area or any other property.

Status of Construction of Facilities. All infrastructure improvements for Improvement Area No. 3 have been completed by the Developer or LS-Tracy LLC . LS-Tracy LLC has also completed substantially all site improvements, with only crosswalk pavers, entry monument, park and parkway landscaping remaining to be completed as of February 1, 2023. S ee “OWNERSHIP AND DEVELOPMENT OF IMPROVEMENT AREA NO. 3 – Status of Infrastructure for Improvement Area No.

3.”

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Value of Property in Improvement Area No. 3

Appraisal. The City ordered preparation of an appraisal report dated February 21, 2023 (the “Appraisal”), of the estimated value of the taxable land within Improvement Area No. 3 as of a January 3, 2023 date of value. The Appraisal was prepared by Integra Realty Resources, Sacramento, California (the “Appraiser”). The Appraisal is set forth in APPENDIX H hereto. The description herein of the Appraisal is intended for limited purposes only; the Appraisal should be read in its entirety. The conclusions reached in the Appraisal are subject to certain assumptions, conditions and qualifications which are set forth in the Appraisal.

Parcels Appraised. The properties appraised represent various parcels within the Ellis Development. As of the date of value of the Appraisal, of the 308 assessor’s parcels representing the taxable parcels within Improvement Area No. 3 of the District, 179 have completed single-family homes, all of which do not have a complete assessed value for both land and improvements. As such, a “not - less than” estimate of market value for the smallest floor plans within each of the three product lines as appraised and assigned to each respective assessor’s parcel. The remaining 129 parcels consist of 74 finished lots and 55 homes under construction. This accounts for the entirety of Improvement Area No. 3 that is currently taxable.

Value Estimate. The
Appraisal provides a market value of the appraised properties , as well as a cumulative, or aggregate, value of properties as of the January 3, 2023 date of value. The aggregate value is not the market value of the appraised properties in bulk.

The appraised valuation excludes the value of all portions of the property in Improvement Area No. 3 designated for public and quasi-public purposes, assumes the proceeds of the 2023 Bonds have been used to reimburse the completion of certain improvements associated with Improvement Area No. 3, and accounts for the impact of the lien of the Special Tax. The following estimate represents the hypothetical market value of the property to be subject to the Special Tax. The value estimate for the property as of the January 3, 2023 date of value, using the methodologies described in the Appraisal and subject to the limiting conditions and special assumptions set forth in the Appraisal, is $191,793,000.

Value Method. Appraisers usually consider three approaches to estimating the market value of real property. These are the cost approach, sales comparison approach, and the income capitalization approach. Reconciliation of the various indications into a conclusion of value is based on an evaluation of the quantity and quality of available data in each approach and the applicability of each approach to the property type. The methodology employed in the Appraisal is the sales comparison approach.

Hypothetical Condition. The market value estimated in the Appraisal is based on a hypothetical condition that proceeds of the 2023 Bonds are available to reimburse the completion of certain improvements associated with Improvement Area No. 3.

Assumptions and Limiting Conditions . In addition to the hypothetical condition described above, the market value of the appraised parcels is subject to a number of other assumptions and conditions which affect the estimates as to value, including, among others, the following:

• The value estimate assumes that the transfer would reflect a cash transaction or terms considered to be equivalent to cash. The estimate is also premised on an assumed sale after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with buyer and seller each acting prudently, knowledgeably, for their own self -interest, and assuming that neither is under undue stress. Additionally, the estimate assumes that the appraised properties within the boundaries of the District are not marketed concurrently, which would suggest a market under duress.

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• The valuation analysis did not include review of a current title report of all properties to determine any possible conditions of title affecting the properties appraised. The Appraiser accepts no responsibility for matters pertaining to title.

• The Appraiser has also assumed that there is no hazardous material on or in the property that would cause a loss in value. Should future conditions and events involving hazardous material reduce the level of permitted development or delay the completion of any projected development, the value of the undeveloped land would likely be reduced from that estimated by the Appraiser. See “BOND OWNERS’ RISKS – Property Values” and “– Hazardous Substances” below.

See “APPENDIX H – Appraisal Report” hereto for a description of certain assumptions made by the Appraiser. Accordingly, because the Appraiser arrived at an estimate of current market value based upon certain assumptions which may or may not be fulfilled, no assurance can be given that should the parcels become delinquent due to unpaid Special Taxes, and be foreclosed upon and offered for sale for the amount of the delinquency, that any bid would be received for such property or, if a bid is received, that such bid would be sufficient to pay such delinquent Special Taxes.

Limitations of Appraisal Valuation. Property values may not be evenly distributed throughout Improvement Area No. 3; thus, certain parcels may have a greater value than others. This disparity is significant because in the event of nonpayment of the Special Tax, the only remedy is to foreclose against the delinquent parcel. No assurance can be given that the foregoing valuation can or will be maintained during the period of time that the 2023 Bonds are outstanding in that the City has no control over the market value of the property within Improvement Area No. 3 or the amount of additional indebtedness that may be issued in the future by other public agencies, the payment of which, through the levy of a tax or an assessment, may be on a parity with the Special Taxes. See “ BOND OWNERS’ RISKS – Other Possible Claims Upon the Value of Taxable Property” below.

For a description of certain risks that might affect the assumptions made in the Appraisal, see “BOND OWNERS’ RISKS” herein. Neither the City nor the Underwriter makes any representation as to the accuracy or completeness of the Appraisal. See APPENDIX H for the Appraisal Report.

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Value-to-Lien Ratios

The tables below show the approximate value-to-lien ratio for the parcels in Improvement Area No. 3, based on the appraised values set forth in the Appraisal and the proposed principal amount of the 2023 Bonds. The value-to-lien ratios in the tables below are based on the proposed par amount of the 2023 Bonds only. When including the general obligation bond indebtedness shown on the overlapping debt statement, the value-to-lien ratio is 11.3:1*.

No assurance can be given that the amounts shown in these tables will conform to those ultimately realized in the event of a foreclosure action following delinquency in the payment of the Special Taxes.

Table 3
Improvement Area No. 3 of the
City of Tracy Community Facilities District No. 2016-2 (ECFD) Estimated Property Values and Value-to-Lien Ratios
(Development Status as of January 3, 2023)
(1)

Property Ownership and
Development Status
Construction
Status(1)
Taxable
Parcels
Maximum
FY 2023-24
Special Tax
Revenue
Projected FY 2023-24
Special Tax Levy
% of Projected
Special Tax
Levy Appraised Value
Allocated 2023
Bond Debt*(2)
Estimated
Value-to-Lien
Ratio*

Developed Property (3)

Individual Homeowners
Completed
and Sold 169 $551,322 $551,322 60.3% $148,275,000 $10,099,811 14.7 LCG - CA Model, LLC (4) Model Homes 10 32,623 32,623 3.6 8,910,000 597,622 14.9 LS-Tracy LLC (4)
Under
Construction 55 179,424 179,424 19.6 14,784,000 3,286,921 4.5 Subtotal 234 $763,369 $763,369 83.5% $171,969,000 $13,984,354 12.3

Undeveloped Property
LS-Tracy LLC (4) Finished Lots 27 $86,638 $54,010 5.9% $7,218,000 $989,415 7.3 LS-LCF CA, LLC (4) Finished Lots 47 155,536 96,960 10.6 12,606,000 1,766,232 7.1 Subtotal 74 $242,174 $150,969 16.5% $19,824,000 $2,765,646 7.2 Total 308 $1,005,543 $914,338 100.0% $191,793,000 $16,750,000 11.5

* Preliminary; subject to change.
(1) Ownership information and construction status based on the Appraisal Report and as of the January 3, 2023 date of value of the Appraisal. (2) Allocated based on the projected fiscal year 2023-24 facilities special tax levy, based on development status as of January 3, 2023. The actual fiscal year 2023- 24 facilities special tax levy will be based on development status as of June 30, 2023. Does not take into account overlapping bonded indebtedness secured by ad valorem taxes on the property. (3) Under the Rate and Method, "Developed Property" includes Taxable Property for which a building permit for new construction was issued prior to June 30 of the prior fiscal year. (4) As described below, LS-Tracy LLC, LCG-CA Model, LLC, and LS-LCF CA, LLC are each affiliated with Landsea Homes Corporation, a publicly traded homebuilder. See “OWNERSHIP AND DEVELOPMENT OF IMPROVEMENT AREA NO. 3 – Property Ownership in Improvement Area No. 3.” Source: Integra Realty Resources; Goodwin Consulting Group, Inc.

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Table 4
Improvement Area No. 3 of the
City of Tracy Community Facilities District No. 2016-2 (ECFD) Summary Value-to-Lien Ratios

Value to Lien
Taxable
Parcels
Maximum
FY 2023-24
Special Tax
Revenue
Projected FY
2023-24
Special Tax
Levy
% of
Projected
Special
Tax Levy
Appraised
Value
Allocated
2023 Bond
Debt*(1)
Average
Value-to-
Lien
Ratio*
Greater than 10:1 179 $583,945 $583,945 63.9% $157,185,000 $10,697,433 14.7 5:1 to 10:1 70 222,345 138,608 15.2 18,752,000 2,539,198 7.4 3:1 to 5:1 59 199,253 191,786 21.0 15,856,000 3,513,369 4.5 Less than 3:1 0 0 0 0.0 0 0 0.0
Total 308 $1,005,543 $914,338 100.0% $191,793,000 $16,750,000 11.5

*Preliminary; subject to change.
(1) Allocated based on the projected fiscal year 2023-24 facilities special tax levy, based on development status as of January 3, 2023. The actual fiscal year 2023-24 facilities special tax levy will be based on development status as of June 30, 2023. Does not take not account overlapping bonded indebtedness secured by ad valorem taxes on the property.

Source: Integra Realty Resources; Goodwin Consulting Group, Inc.

Direct and Overlapping Governmental Obligations

Overlapping Debt Statement. Contained within the boundaries of Improvement Area No. 3 are certain overlapping local agencies providing public services. Many of these local agencies have outstanding debt. The direct and overlapping debt affecting Improvement Area No. 3 as of March 1, 2023 is shown in the table below, a direct and overlapping debt report (the " Debt Report ") prepared by California Municipal Statistics, Inc. The Debt Report is included for general information purposes only.

Neither the City nor the Underwriter has reviewed the Debt Report for completeness or accuracy and neither makes any representation in connection therewith.

The Debt Report generally includes long term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of Improvement Area No. 3 in whole or in part.

These long- term obligations are not payable from revenues of Improvement Area No. 3 (except as indicated) nor are they necessarily obligations secured by land within Improvement Area No. 3. In many cases long term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency.

The contents of the Debt Report are as follows: (1) the first column indicates the public agencies that have outstanding debt as of the date of the Debt Report and whose territory overlaps Improvement Area No. 3; (2) the second column shows the percentage of the assessed valuation of the overlapping public agency identified in column 1 which is represented by property located within Improvement Area No. 3 ; and (3) the third column is an apportionment of the dollar amount of each public agency's outstanding debt (which amount is not shown in the table) to property in Improvement Area No. 3, as determined by multiplying the total outstanding debt of each agency by the percentage of the public agency's assessed valuation represented in column 2.

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Table 5
Improvement Area No. 3 of the
City of Tracy Community Facilities District No. 2016-2 (ECFD) Direct and Overlapping Governmental Obligations
As of March 1, 2023

2022-23 Assessed Valuation: $15, 299,997 (Land & Improvements)

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 3/1/23 San Joaquin Delta Community College District General Obligation Bonds 0.014% $ 24,983 Tracy Unified School District General Obligation Bonds 0.059 16,973 Jefferson School District General Obligation Bonds 0.389 172,492 City of Tracy Community Facilities District No. 2016-2, I.A . No. 3 100.000 --(1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $214,448

Ratios to 2022-23 As sessed Valuation:

Direct Debt ................................................................................ 0.00% (1) Total Direct and Overlapping Tax and Assessment Debt ......... 1.40%

(1) Excludes the 2023 Bonds.

Source: California Municipal Statistics, Inc.

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Estimated Tax Burden on Single-Family Homes

The following table sets forth the estimated total tax burden on a developed single- family detached unit in Improvement Area No. 3, based on special tax rates for Fiscal Year 2022-23.

Table 6
Improvement Area No. 3 of the
City of Tracy Community Facilities District No. 2016-2 (ECFD) Fiscal Year 2022-23 Illustrative Tax Bill

Assumptions
Expected Assessed Value (1) $1,008,028
Homeowner's Exemption ($7,000)
Net Expected Assessed Value $1,001,028

Ad Valorem Tax Rate(2)

County General 1.000000 $10,010
Jefferson Elem 2010 Meas J 2011A Bond 0.024100 241
Jefferson Elem 2010 Meas J 2013B Bond 0.014400 144
Jefferson Elem 2010 Meas J 2014C Bond 0.011200 112
Total Ad Valorem Taxes 1.049700 $10,508

Direct Charges(3)
Tracy Rural Fire $108
SJC Mosq & VCTR Contr 9
Water Zone 2 2
CSA No 53 Haz Was 4
SJC Mosquito Abate 1
IA 3 CFD No. 2016-2 Facilities Special Tax 3,198
IA 3 CFD No. 2016-2 Services Special Tax 1,453
Total Direct Charges $4,776

Total Taxes and Direct Charges $15,284
Percentage of Expected Assessed Value 1.52%

(1) Based on the average base prices in the Appraisal Report. (2) Based on the Fiscal Year 2022-23 ad valorem tax rates for the tax rate area within the District.

Ad valorem tax rates are subject to change in future years. (3) Based on the Fiscal Year 2022-23 charges identified on the San Joaquin County -issued property tax bills. Charges subject to change in future years. Does not reflect any amounts for PACE liens.

Property owners in Improvement Area No. 3 may elect to have PACE assessment liens placed on their property.

Source: San Joaquin County Tax Collector’s Office; Integra Realty Resources; Goodwin Consulting Group, Inc.

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Special Tax Collection and Delinquency Rates

Fiscal Year 2022-23 is the first fiscal year in which the Special Tax was levied in Im provement Area No. 3, with the first installment due on November 1 and considered delinquent on December 10.

There were no delinquencies in the payment of the first installment of Special Taxes in Improvement Area No. 3 for Fiscal Year 2022-23.

Potential Consequences of Special Tax Delinquencies

General. Delinquencies in the payment of property taxes (including the Special Taxes) with respect to property in Improvement Area No. 3 could result in draws on the 2023 Reser ve Fund established for the 2023 Bonds, and perhaps, ultimately, a default in the payment on the 2023 Bonds.

See “BOND OWNERS’ RISKS.”

The Board of Supervisors of San Joaquin County adopted the Teeter Plan in Fiscal Year 1994 -

95. The County has elected to apply its Teeter Plan to the collection of the Special Taxes in Improvement Area No. 3. To the extent that the County’s Teeter Plan continues in existence and is carried out as adopted, and to the extent the County does not discontinue the Teeter Plan with respect to Improvement Area No. 3 , the County’s Teeter Plan may help protect owners of the 2023 Bonds from the risk of delinquencies in the payment of Special Tax. There can be no assurance that the County will not modify or eliminate its Teeter Plan, or choose to remove Improvement Area No. 3 from its Teeter Plan, while the 2023 Bonds are outstanding. See “SECURITY FOR THE 2023 BONDS – Covenant to Foreclose – Special Tax Delinquencies; Teeter Plan” for additional information.

Special Tax Enforcement and Collection Procedures. The City could receive additional funds for the payment of debt service through foreclosures sales of delinquent property, but no assurance can be given as to the amount of foreclosure sale proceeds or when foreclosure sale proceeds would be received. The City has covenanted in the Fiscal Agent Agreement to take certain enforcement actions and commence and pursue foreclosure proceedings against delinquent parcels under the terms and conditions described herein. See “SECURITY FOR THE 2023 BONDS — Covenant to Foreclose.”

Foreclosure actions would include, among other steps, formal City Council action to authorize commencement of foreclosure proceedings, mailing multiple demand letters to the record owners of the delinquent parcels advising them of the consequences of failing to pay the applicable Special Taxes and contacting secured lenders to obtain payment. If these efforts were unsuccessful, they would be followed (as needed) by the filing of an action to foreclose in superior court against each parcel that remained delinquent.

Limitations on Increases in Special Tax Levy. If owners are delinquent in the payment of Special Taxes, the City may not increase Special Tax levies to make up for delinquencies for prior Fiscal Years above the Maximum Special Tax rates specified for each category of property within Improvement Area No. 3. See “SECURITY FOR THE 2023 BONDS – Rate and Method.” In addition, Section 53321(d) of the Act provides that the special tax levied against any parcel for which an occupancy permit for private residential use has been issued may not be increased as a consequence of delinquency or default by the owner of any other parcel within a community facilities district by more than 10% above the amount that would have been levied in such Fiscal Year had there never been any such delinquencies or defaults.

In cases of significant delinquency, these factors may result in defaults in the payment of principal of and interest on the 2023 Bonds. See “BOND OWNERS’ RISKS.”

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OWNERSHIP AND DEVELOPMENT OF IMPROVEMENT AREA NO. 3
The information regarding the development and ownership of the Property contained under this caption, “OWNERSHIP AND DEVELOPMENT OF IMPROVEMENT AREA NO. 3,” has been provided by representatives of Surland Communities LLC, a California limited liability company (the “ Developer”), and LS -Tracy LLC, a Delaware limited liability company (“ LS-Tracy LLC ”), and has not been independently confirmed or verified by the Underwriter, the City, or the District. The Underwriter, the City, and the District make no representation as to the accuracy or adequacy of the information contained under this caption. There may be material adverse changes in this information after the date of this Official Statement. Neither the Bonds nor the Special Taxes securing the Bonds are personal obligations of the Developer or LS-Tracy LLC, or any affiliate thereof, or any other property owner and, in the event that any property owner defaults in the payment of its Special Taxes, the District may proceed with judicial foreclosure but has no direct recourse to the assets of any property owner or any affiliate thereof. See “BOND OWNERS’ RISKS” herein.

The Ellis Project
General. The Property in Improvement Area No. 3 is part of a larger residential community referred to as the “Ellis Development” being developed by the Developer, which includes the Property within Improvement Area No. 3, property within Improvement Area No. 1, Improvement Area No. 2, and the Future Annexation Area, and possibly future additional property that may annex into the District. The Ellis Development plan is ultimately expected to contain approximately 2,250 single-f amily residential dwelling units plus other uses.

Improvement Area No. 1. The property in Improvement Area No. 1 consists of approximately 150.75 acres, including approximately 55.01 acres within Final Tract Map. No. 3764 (Ellis Phase 1A) (Lots 1-168) and Final Tract Map No. 3872 (Ellis Phase 1B) (Lots 169-299), which has been subdivided into 299 single-family residential lots, and approximately 74.70 acres encompassing four larger parcels expected to be developed as commercial and other uses. As of February 1, 2023 , the property in Improvement Area No. 1 was owned by individual homeowners, Woodside Homes 05N, LP, a California limited partnership (“Woodside Homes”), and a limited liability company affiliated with the Developer. Of the 299 residential lots, 296 have been conveyed to individual homeowners as of February 1, 2023 and the remaining 3 lots were owned by Woodside Homes.

Improvement Area No. 2. The property in Improvement Area No. 2 consists of approximately

55.1 acres that has been subdivided into 222 single-family residential lots. As of February 1, 2023, the property in Improvement Area No. 2 was owned by individual homeowners and Woodside Homes. All of the 222 residential lots have been conveyed to individual homeowners as of February 1, 2023.

Improvement Area No. 3. See the discussion under “THE DISTRICT AND IMPROVEMENT AREA NO. 3” above for a discussion of Improvement Area No. 3.

Future Annexation Area. There is approximately 41.80 acres of Future Annexation Area. The property in the Future Annexation Area is intended to be annexed to a new improvement area (Improvement Area No. 4) at some point in the future and is anticipated to be developed as approximately 126 homes and a K-8 school.

Information on Improvement Area No. 1, Improvement Area No. 2, and the Future Annexation Area and any other land in the Ellis Development that is outside Improvement Area No. 3 is provided for informational purposes; only the taxable property in Improvement Area No. 3 is security for the 2023 Bonds.

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Surland Communiti es LLC. The Developer is a California limited liability company with its primary development executive team having both regional and national development experience in residential, commercial, and municipal projects.

Examples of some of the Developer’s projects in the City include the following:
• Redbridge, which is a residential neighborhood in the City, with parks, pools, and a community General Store, and consisted of 438 single family homes master planned by the Developer and development completed in approximately 2009.

• Laurel Brook, is a residential neighborhood in the City constructed and sold by the Developer consisting of 106 single family homes completed in 1999.

• Bridle Creek, is a residential neighborhood in the City consisting of 169 single family homes constructed and sold by the Developer and completed in 1998.

• Spring Meadows, which is a residential neighborhood consisting of 51 single family homes completed in 1993.

• The Developer has also provided pro bono municipal work in the City, including the architectural design of the Tracy City Hall and the Tracy Transit Station, and serving as an architectural advisor on the Tracy Grand Theatre.

Development Plan of the Developer. For each phase of the Ellis Development, the Developer has or will either construct infrastructure improvements necessary to serve that phase, or contract with merchant builders to construct the improvements. For Improvement Area No. 3, all of the infrastructure improvements necessary for the build- out of Improvement Area No. 3 is the responsibility of LS-Tracy LLC. See “– Status of Infrastructure for Improvement Area No. 3” below.

Acquisition Agreement. The City and the Developer are parties to an Amended and Restated Master Acquisition Agreement, dated as of September 1, 2021 (the “Acquisition Agreement”) related to the financing of Facilities. The Acquisition Agreement sets forth the terms upon which the City will acquire Facilities constructed by the Developer or merchant builders. Among other things, the Acquisition Agreement provides that through the 15th fiscal year in which the special tax is first levied in an improvement area (including Improvement Area No. 3), the Special Tax will be levied on Developed Property (as defined in the Rate and Method) in the amount of the Maximum Facilities Special Tax (as defined in the Rate and Method) and any Remainder Taxes will be used to finance the acquisition costs of Facilities, including components thereof and development fees.

City’s Growth Management Ordinance. On June 16, 1987, the City Council of the City adopted by ordinance a Residential Growth Management Plan (referred to as the “ Growth Management Ordinance”). The Growth Management Ordinance has been amended to -date. The Growth Management Ordinance requires an annual reservation of a certain number of building permits for the Ellis Project. The Growth Management Ordinance will not limit the development in Improvement Area No. 3 since all necessary permits for satisfaction of the Growth Management Ordinance as it applies to Improvement Area No. 3 have been pulled.

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Property Ownership in Improvement Area No. 3
Current Property Ownership. As of February 1, 2023, the Property was owned by individual homeowners and LS-Tracy LLC and its affiliates as follows:

Owner # of Lots
Individual Homeowners 173 Residential Lots
LS-Tracy LLC 78 Residential Lots
LCG-CA Model, LLC 10 Residential Lots
LS-LCF CA, LLC 47 Residential Lots

As described in more detail in the following paragraphs, LS-Tracy LLC, LCG-CA Model, LLC, and LS-LCF CA, LLC are all affiliated through their ultimate parent company Landsea Homes Corporation (“Landsea”), a publicly traded homebuilder (Nasdaq: LSEA) based in Newport Beach, California that has operations in several states and has been building homes in Northern California for over eight years.

LS-Tracy LLC and Affiliates. LS-Tracy LLC is wholly owned by Landsea Homes-WAB LLC, a Delaware limited liability company (“Landsea Homes-WAB LLC”). Landsea Homes-WAB LLC is in turn wholly owned by Landsea Homes US Corporation, a Delaware corporation (“ Landsea Homes US Corporation”). Landsea Homes US Corporation is wholly owned by Landsea.

LS-LCF CA, LLC, a Delaware limited liability company (“LS-LCF CA, LLC”), is owned by Landsea Homes US Corporation, as managing member, and Landsea Capital Fund I, LLC a Delaware limited liability company (“ Landsea Capital Fund I, LLC ”). [The members of Landsea Capital Fund I, LLC [include affiliates of Landsea and other entities unaffiliated with Landsea /consist of entities unaffiliated with Landsea]. [To be confirmed.]

LCG-CA Model, LLC, a Delaware limited liability company (“ LCG-CA Model LLC”) is owned by Landsea Capital Group, LLC, a Delaware limited liability company, as managing member, and Landsea Capital Fund I, LLC.

Improvement Area No. 3 consists of approximately 73.65 acres (41.00 net acres) expected to be developed into 308 single- family homes by LS-Tracy LLC. All required off -site improvements for Improvement Area No. 3 for occupancy are complete. LS-Tracy LLC has completed substantially all site improvements, with only crosswalk pavers, entry monument, park, and parkway landscaping remaining to be completed as of February 1, 2023. LS-Tracy LLC held a grand opening featuring 10 model homes on the Model Lots in September 2022. As of February 1, 2023, LS-Tracy LLC had pulled 266 full building permits and 42 foundation-only permits, with the remaining 42 full-building permits expected to be pulled by December 2023. As of February 1, 2023, LS-Tracy LLC had closed escrow on 173 residential lots to homebuyers, with an additional 28 under contract to be sold (but not yet closed), and 107 lots not yet sold or closed to individual homeowners. It should be noted that homes under contract may not result in closed escrows as sales contracts are subject to cancellation by the individual homebuyers.

LS-Tracy LLC has constructed or is constructing homes in three product lines known as Townsend, Kinbridge, and Hartwell. Four floor plans are available in each product line, ranging from 2,107-2,587 square feet in the Townsend product line, 2,382-2,894 square feet in the Kinbridge product line, and 2,297 -3,733 square feet in the Hartwell product line. The first home closing occurred in December 2021 and the final home closing is projected to occur in September 2024. See “ – The Merchant Builder – LS-Tracy LLC Development Plan” below.

Landbank Lots. The residential lots owned by LS-LCF CA, LLC (“Landbank Lots”) are subject to a land -banking arrangement and governed by an Option Agreement dated June 27, 2022 (the “Landbank Option Agreement”) by and between LS- LCF CA, LLC and LS-Tracy LLC. [As described

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above, the managing member of LS -LCF CA, LLC is Landsea Homes US Corporation; other unrelated entities are direct or indirect owners of LS-LCF CA, LLC’s other membership interests.] Pursuant to the Landbank Option Agreement, LS-LCF CA, LLC acquired the Landbank Lots from LS-Tracy LLC, and LS- LCF CA, LLC granted LS-Tracy LLC an option to re-acquire the Landbank Lots (the “Landbank Option”).

The Landbank Option Agreement required certain consideration for granting the Landbank Option, which has been paid by LS-Tracy LLC. The Landbank Option Agreement does not require any specified order or minimum takedown of the Landbank Lots, with LS-Tracy LLC having discretion as to the timing and order of any takedown(s). The term of the Landbank Option will terminate upon the first to occur of (i) LS-Tracy LLC’s uncured breach or default under the Landbank Option, (ii) LS-Tracy LLC’s acquisition of all Landbank Lots, and (iii) LS -Tracy LLC’s election to not exercise the option with respect to any Landbank Lots not already acquired by LS -Tracy LLC. During the term of the Landbank Option, LS- Tracy LLC shall be responsible for any and all homeowner’s association assessments, property taxes (including the Special Taxes), and maintenance of the Landbank Lots.

Model Lots. The residential lots owned by LCG-CA Model, LLC (“Model Lots”) are being leased to LS -Tracy LLC pursuant to the terms of a Model Home Purchase and Leaseback Agreement (the “Model Home Lease Agreement ”) by and between LCG -CA Model, LLC, as purchaser/landlord , and LS-Novato, LLC, a Delaware limited liability company (“LS-Novato, LLC”) and LS-Tracy LLC, collectively as seller/tenant. LS -Novato is a wholly owned subsidiary of Landsea Homes of California, Inc., a Delaware corporation (“Landsea Homes of California, Inc. ”). Landsea Homes of California, Inc. is wholly owned by Landsea Homes US Corporation. Pursuant to the Model Home Lease Agreement, LS- Tracy LLC and LS-Novato, LLC each sold certain real property described therein to LCG-CA Model, LLC, with LS-Tracy LLC leasing back certain real property, including the Model Lots. Under the Model Home Lease Agreement, LS-Tracy LLC is leasing the Model Lots for a period of 36 months during which term LS-Tracy LLC shall pay a rental amount as specified therein as well as paying all real property taxes (including the Special Taxes) on the Model Lots. During the lease term, LS-Tracy LLC shall be permitted to use the Model Lots for model homes as well as a portion of such Model Lots as a sales office, design center, and other uses consistent with the operation of model homes to facilitate home sales. At or prior to the end of the term of the Model Home Lease Agreement, it is expected that LCG-CA Model, LLC will sell the model homes to individual homeowners.

Environmental Matters

Flood Hazard Map Information. According to the Federal Emergency Management Agency’s flood insurance rate maps (Map Panel Number 06077C-0730F, dated October 16, 2009), the developable portions of the property in Improvement Area No. 3 are located within Flood Zone X, described as areas of minimal flooding (outside of the 100- and 500-year floodplains). Property in Improvement Area No. 3 is not subject to the Central Valley Flood Protection Plan.

Seismic Conditions. According to the Seismic Safety Commission, Improvement Area No. 3 is located within Zone 3, which is considered to be the lowest risk zone in California. There are only two zones in California: Zone 4, which is assigned to areas near major faults; and Zone 3, which is assigned to all other areas of more moderate seismic activity. In addition, Improvement Area No. 3 is not located within a Fault -Rupture Hazard Zone (formerly referred to as an Alquist -Priolo Special Study Zone), as defined by Special Publication 42 of the California Department of Conservation, Division of Mines and Geology.

Wetlands. No wetland mitigation was required for development within Improvement Area No. 3.

Environmental Status. According to the Environmental Impact Report approved in January 22, 2013 by the City, impacts of the development of land in Improvement Area No. 3 have been analyzed and addressed and no further actions are necessary in order to complete the final construction of the

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planned units, and continued development of the tracts in Improvement Area No. 3 will not result in any other direct or indirect adverse impacts.

Fire Hazard Zone. The property in Improvement Area No. 3 is not located within an area mapped by the California Department of Forestry and Fire Protection as a fire hazard severity zone.

Explosives Testing. The Lawrence Livermore National Laboratory (“LLNL”) Experimental Test Site (“ Site 300 ”) is a restricted -access facility operated for the U.S. Department of Energy National Nuclear Security Administration (“DOE/NNSA”) by Lawrence Livermore National Security, LLC. Site 300 is located approximately 6.4 miles to the southwest of the Ellis project. The Site 300 facility is used in the research, development, and testing of non- radioactive explosive materials to support DOE/NNSA stockpile stewardship, counterterrorism and counterproliferation programs. Site 300 has been in operation as an explosive testing and research facility since 1955.

Site 300 conducts explosive testing in both indoor and outdoor facilities. Explosive testing conducted at Site 300 is regulated by the San Joaquin Valley Air Pollution Control District (“SJVAPCD”).

Currently, Site 300 operates under a SJVAPCD air permit that allows detonations of explosives up to 100 pounds per day and 1,000 pounds per year. To minimize noise impacts to surrounding land uses, adjacent neighbors and other sensitive receptors, Site 300 constructed the Contained Firing Facility in 2000. The concrete, 28,000 square foot facility allows Site 300 to conduct explosive tests indoors.

Intermittent outdoor explosive tests (otherwise known as open detonations) are also conducted.

In the Fall of 2017, DOE/NNSA submitted a new SJVAPCD permit application and released a Draft Environmental Assessment proposing to increase the weight of explosives from the current limit of 100 lbs./day to 1,000 lbs./day, and from 1,000 lbs./year to 7,500 lbs./year. The proposed increase would allow larger single detonations and would result in more open detonations. The City and the County submitted comment letters expressing concern and questions in regards to potential increase in noise impacts. To date, the SJVAPCD has not taken any action on the permit application.

Utilities. All public utilities are available to each of the parcels within Improvement Area No. 3 .

Public utilities are provided by the following entities:

Utility Provider
Electricity Pacific Gas & Electric
Natural Gas Pacific Gas & Electric
Sewer/Water City of Tracy
Data/Phone Comcast/ATT

The Merchant Builder

LS-Tracy LLC. As previously defined in this Official Statement, “LS-Tracy LLC” is LS-Tracy LLC, a Delaware limited liability company that is the sole builder of homes in Improvement Area No. 3. LS- Tracy LLC’s ultimate parent company is Landsea.

Examples of some of projects completed by Landsea and its subsidiaries include the following:
• Kingswood in Dublin consisting of 109 Multifamily Townhomes completed in 2017. • Stoneyridge in Walnut Creek consisting of 30 Multifamily Townhomes completed in 2019.
• The Vale in Sunnyvale consisting of 171 Multifamily Townhomes completed in 2020. • Abigail Place in Danville consisting of 17 Single Family homes completed in 2020. • Catalina in Santa Clara consisting of 93 Multifamily Townhomes completed in 2021.

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• Sanctuary in Newark consisting of 108 Single Family homes completed in 2021. • Relevae in Orinda consisting of 34 Single Family homes 2022.

Projects currently under development by Landsea and its subsidiaries include the following:
• Alameda Marina in Alameda consisting of 182 Multifamily Townhomes. • Lavender in Sunnyvale consisting of 128 Multifamily Townhomes. • Verandah in Novato consisting of 80 Multifamily Townhomes.

LS-Tracy LLC Development Plan. LS-Tracy LLC is underway with its planned development within Improvement Area No. 3, which includes the expected construction and sale to individual homebuyers of 308 residential homes within Improvement Area No. 3 in three product lines known as Townsend, Kinbridge, and Stanford, and the construction of street, water, wastewater, and storm improvements for Improvement Area No. 3. As of February 1, 2023, LS-Tracy LLC had pulled 266 full building permits and 42 foundation- only building permits, with the remaining 42 full building permits expected to be pulled by December 2023. As of February 1, 2023, LS-Tracy LLC had closed escrow on 173 residential lots to homebuyers, with an additional 28 under contract to be sold (but not yet closed), and 107 lots not yet sold or closed to individual homeowners. It should be noted that homes under contract may not result in closed escrows as sales contracts are subject to cancellation by the individual homebuyers. Completion of the project and conveyance of the final homes to homebuyers is expected to occur by September 2024.

Table 8 below summarizes the product mix of the 308 proposed homes expected to be constructed by LS-Tracy LLC within the Townsend, Kinbridge, and Hartwell product lines in Improvement Area No. 3:

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Table 8
Summary of Development
Townsend, Kinbridge, and Hartwell at Ellis
(As of February 1, 2023)
Neighborhood Plan
Minimum
Square
Footage(1) No. of Lots
Base
Home Price(2)
Townsend
1 2,107 sq ft 24 $977,735
2 2,246 sq ft 26 $1,073,274
3 2,411 sq ft 26 $949,000
4 2,587 sq ft 28 $1,037,431
Townsend Total 104

Kinbridge
5 2,382 sq ft 17 $956,277
6 2,611sq ft 21 $976,552
7 2,717sq ft 24 $997,882
8 2,894 sq ft 21 $1,026,249
Kinbridge Total 83

Hartwell
9 2,297 sq ft 28 $942,990
10 3,231 sq ft 28 $1,019,990
11 3,376 sq ft 33 $1,030,990
12 3,733 sq ft 32 $1,107,971
Hartwell Total 121

Grand Total 308

(1) Square footage shown excludes room options which may be offered. (2) Base home prices shown exclude the builder’s estimate of lot premiums, the sales of options and extras and any incentives, concessions, or price reductions. Based on base home sale price as of February 1, 2023 or the last homes sold.

Source: LS-Tracy LLC.

LS-Tracy LLC’s development expectations described above are based on LS-Tracy LLC’s current plans. These plans may change due to changes in economic and market conditions or other factors. No assurance can be given that the remaining home construction and sales will be carried out according to the plans outlined herein. No representation is made as to the ability or willingness of LS-Tracy LLC to complete its property development in Improvement Area No. 3 as currently planned and as described in this Official Statement.

COVID-19 Impact . The COVID -19 pandemic and related public health and governmental authorities’ orders and actions is having a negative impact throughout the world, including in the County of San Joaquin, and could have a material adverse effect on LS-Tracy LLC’s ability to complete its development within Improvement Area No. 3 in the time frame and budget, and at the sales prices, described in this Official Statement.

As of February 1, 2023, LS-Tracy LLC has experienced increases in certain construction costs, supply chain delays, labor shortages, and increased cycle time for home deliveries. However, LS-Tracy LLC has not experienced any significant development delays resulting from work stoppages, reduced attendance of workers, or the ability to obtain necessary inspections and approvals for homes, which may be attributed, directly or indirectly, to the COVID-19 pandemic. While the cost increases and delays may have been and may continue to be intermittently affected by COVID -19, the majority of cost

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increases and delays can be attributable to the strength of the housing market and the result of vendors not anticipating the scale of the demand for housing materials.

Although the recent cost increases and construction delays are not currently having a significant impact on the overall development of LS-Tracy LLC’s development in Improvement Area No. 3, the impacts caused by the outbreak are evolving and no prediction can be made with respect to the ultimate effects of the COVID -19 outbreak and related public health and governmental authorities’ orders and actions (including, without limitation, the scope of restrictions under the current or any amended County of Joaquin or State of California orders), on LS-Tracy LLC’s ability to continue to sell and close homes in Improvement Area No. 3.

See the caption “BOND OWNERS’ RISKS —COVID-19 Pandemic” for certain risks ass ociated with the outbreak of the COVID-19 Pandemic.

Status of Infrastructure for Improvement Area No. 3

All infrastructure improvements required for the sale and closing of homes within Improvement Area No. 3 have been completed by the Developer or LS-Tracy LLC. LS-Tracy LLC has also completed substantially all site improvements, with only crosswalk pavers, entry monument, park and parkway landscaping remaining to be completed as of February 1, 2023.

The Financing Plan in Improvement Area No. 3

LS-Tracy LLC Financing Plan . Through February 1, 2023, LS -Tracy LLC had spent approximately $159.8 million related to its development within Improvement Area No. 3, not including land acquisition costs. As of such date, LS-Tracy LLC estimated it would spend approximately $57 million in additional direct and indirect construction costs, permit and impact fees, and other development, marketing and sales costs (exclusive of internal financing repayment, corporate overhead and other carry costs) between February 1, 2023 and full buildout of the 308 homes expected to be constructed by LS - Tracy LLC in Improvement Area No. 3, which is expected to occur by September 2024.

Through February 1, 2023, LS-Tracy LLC had financed its land acquisition costs and various site development costs related to its property within Improvement Area No. 3 through internally generated funds, including cash generated from its homebuilding operations and through a credit facility that its parent company, Landsea, has with Western Alliance Bank (the “Credit Facility”). The Credit Facility is used for project s in which Landsea is involved (see, e.g., the projects listed as currently under development under the heading “OWNERSHIP AND DEVELOPMENT OF IMPROVEMENT AREA NO. 3 – The Merchant Builder”). The Credit Facility is a senior unsecured borrowing base revolving line of credit with a total loan commitment of $675 million and an expiration date of October 6, 2025, subject to additional one-year extension options. As of February 1, 2023, approximately $160 million was available to be borrowed under the Credit Facility, subject to the terms thereof. LS-Tracy LLC expects to use the same sources of funding to complete its development activities within Improvement Area No. 3 (including the payment of property taxes and the Special Taxes).

Although LS-Tracy LLC expects to have sufficient funds available to complete its development activities in Improvement Area No. 3 in accordance with the development timing described in this Official Statement, there can be no assurance that amounts necessary to finance the remaining development and home construction costs will be available from LS -Tracy LLC or any other source when needed.

Neither LS-Tracy LLC nor any of its related entities are under any legal obligation of any kind to expend funds for the development of and construction of homes on LS -Tracy LLC’s property in Improvement Area No. 3. Any contributions by LS -Tracy LLC to fund the costs of such development and home construction are entirely voluntary.

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If and to the extent that internal funding, including but not limited to home sales revenues, is inadequate to pay the costs to complete the planned development by LS-Tracy LLC within Improvement Area No. 3 and other financing by LS-Tracy LLC is not put into place, there could be a shortfall in the funds required to complete the planned development by LS-Tracy LLC within Improvement Area No. 3.

BOND OWNERS' RISKS

The purchase of the 2023 Bonds described in this Official Statement involves a degree of risk that may not be appropriate for some investors. The following includes a discussion of some of the risks which should be considered before making an investment decision. This discussion does not purport to be comprehensive or definitive and does not purport to be a complete statement of all factors which may be considered as risks in evaluating the credit quality of the 2023 Bonds.

Limited Obligation of the City to Pay Debt Service

The City has no obligation to pay principal of and interest on the 2023 Bonds if Special Tax collections are delinquent or insufficient, other than from amounts, if any, on deposit in the 2023 Reserve Fund or funds derived from the tax sale or foreclosure and sale of parcels for Special Tax delinquencies.

The City is not obligated to advance funds to pay debt service on the 2023 Bonds.

Levy and Collection of the Special Tax

General. The principal source of payment of principal of and interest on the 2023 Bonds is the proceeds of the annual levy and collection of the Special Tax against property within Improvement Area No. 3.

Limitation on Maximum Special Tax Rate. The annual levy of the Special Tax is subject to the maximum annual Special Tax rate authorized in the Rate and Method. The levy cannot be made at a higher rate even if the failure to do so means that the estimated proceeds of the levy and collection of the Special Tax, together with other available funds, will not be sufficient to pay debt service on the 2023 Bonds.

No Relationship Between Property Value and Special Tax Levy. Because the Special Tax formula set forth in the Rate and Method is not based on property value, the levy of the Special Tax will rarely, if ever, result in a uniform relationship between the value of particular parcels of Taxable Property and the amount of the levy of the Special Tax against those parcels. Thus, there will rarely, if ever, be a uniform relationship between the value of the parcels of Taxable Property and their proportionate share of debt service on the 2023 Bonds, and certainly not a direct relationship.

Factors that Could Lead to Special Tax Deficiencies. The following are some of the factors that might cause the levy of the Special Tax on any particular parcel of Taxable Property to vary from the Special Tax that might otherwise be expected:

Transfers to Governmental Entities. The number of parcels of Taxable Property could be reduced through the acquisition of Taxable Property by a governmental entity and failure of the government to pay the Special Tax based upon a claim of exemption or, in the case of the federal government or an agency thereof, immunity from taxation, thereby resulting in an increased tax burden on the remaining taxed parcels. See “– Exempt Properties” below.

Property Tax Delinquencies. Failure of the owners of Taxable Property to pay property taxes (and, consequently, the Special Tax), or delays in the collection of or inability to collect the

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Special Tax by tax sale or foreclosure and sale of the delinquent parcels, could result in a deficiency in the collection of Special Tax revenues. See “– Property Tax Delinquencies” below.

Delays Following Special Tax Delinquencies and Foreclosure Sales. The Fiscal Agent Agreement generally provides that the Special Tax is to be collected in the same manner as ordinary ad valorem property taxes are collected and, except as provided in the special covenant for foreclosure described in “SECURITY FOR THE 2023 BONDS – Covenant to Foreclose” and in the Act, is subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ordinary ad valorem property taxes. Under these procedures, if taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County.

If sales or foreclosures of property are necessary, there could be a delay in payments to owners of the 2023 Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the City of the proceeds of sale if the 2023 Reser ve Fund is depleted. See “SECURITY FOR THE 2023 BONDS – Covenant to Foreclose.”

The ability of the City to collect interest and penalties specified by State law and to foreclose against properties having delinquent Special Tax installments may be limited in certain respects with regard to properties in which a federal governmental agency has or obtains an interest. See “ – FDIC/Federal Government Interests in Properties” below.

Other laws generally affecting creditors’ rights or relating to judicial foreclosure may affect the ability to enforce payment of Special Taxes or the timing of enforcement of Special Taxes. For example, the Soldiers and Sailors Civil Relief Act of 1940 affords protections such as a stay in enforcement of the foreclosure covenant, a six -month period after termination of such military service to redeem property sold to enforce the collection of a tax or assessment, and a limitation on the interest rate on the delinquent tax or assessment to persons in military service if the court concludes the ability to pay such taxes or assessments is materially affected by reason of such service.

Concentration of Ownership

All of the taxable property within Improvement Area No. 3 is currently owned by LS-Tracy LLC (or its affiliates) and individual homeowners. As of January 3, 2023, and assuming no further home closings after such date, the property owned by LS-Tracy LLC (and its affiliates) is estimated to be responsible for approximately 39.7 % of the projected Fiscal Year 2023-24 Facilities Special Tax levy. See “THE DISTRICT AND IMPROVEMENT AREA NO. 3 – Value-to-Lien Ratios” and “OWNERSHIP AND DEVELOPMENT OF IMPROVEMENT AREA NO. 3 – The Merchant Builder.”

The owners of property in Improvement Area No. 3 are not personally obligated to pay the Special Tax attributable to their property. Rather, the Special Tax is an obligation only against the parcel of property, secured by the amount which could be realized in a foreclosure proceeding against the property, and not by any promise of the owner to pay. If the value of the property is not sufficient, taking into account other obligations also constituting a lien against the property, the City, Fiscal Agent and owners of the 2023 Bonds have no recourse against the owner, such as filing a lawsuit to collect money.

Failure of LS-Tracy LLC (and its affiliates) or any future merchant builder or future owner of significant property subject to the Special Taxes in Improvement Area No. 3 to pay installments of Special Taxes when due could cause the depletion of the 2023 Reserve Funds prior to reimbursement from the resale of foreclosed property or payment of the delinquent Special Tax and, consequently, result in the delinquency rate reaching a level that would cause an insufficiency in collection of the Special Tax for the City to pay debt service with respect to the 2023 Bonds.

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Potential Early Redemption of Bonds from Prepayments

Property owners within Improvement Area No. 3, including LS-Tracy LLC , and individual homeowners, are permitted to prepay up to 80% of the Facilities Special Tax obligation applicable to their parcel, subject to certain notice and other provisions of the Rate and Method. Such prepayments will result in a redemption of the 2023 Bonds on the interest payment date for which timely notice may be given under the Fiscal Agent Agreement following the receipt of the prepayment. The resulting redemption of 2023 Bonds that were purchased at a price greater than par could reduce the otherwise expected yield on such 2023 Bonds.

Property Tax Delinquencies

General. Delinquencies in the payment of property taxes and, consequently, the Special Taxes, can occur because the owners of delinquent parcels may not have received property tax bills from the County in a timely manner, including situations in which the County initially sent property tax bills to the property developer or merchant builder at a time when the parcels in question had already been sold to individual homeowners. Delinquencies can also reflect economic difficulties and duress by the property owner.

Numerous future delinquencies by the owners of Taxable Property in Improvement Area No. 3 in the payment of property taxes (and, consequently, the Special Taxes, which are collected on the ordinary property tax bills) when due could result in a deficiency in Special Tax revenues necessary to pay debt service on the 2023 Bonds, which could in turn result in the depletion of the 2023 Reserve Fund, prior to reimbursement from the resale of foreclosed property or payment of the delinquent Special Tax. In that event, there could be a delay or failure in payments of the principal of and interest on the 2023 Bonds.

See “SECURITY FOR THE 2023 BOND S – 2023 Reser ve Fund,” and “THE DISTRICT AND IMPROVEMENT AREA NO. 3 – Potential Consequences of Special Tax Delinquencies.”

Measures to Mitigate Consequences of Continuing Delinquencies. The City intends to take certain actions designed to mitigate the impact of future delinquencies, including: enforcing the lien of the Special Taxes through collection procedures that will include foreclosure actions under certain circumstances (see “SECURITY FOR THE 2023 BONDS – Covenant to Foreclose”); and increasing the levy of Special Taxes against non-delinquent property owners in Improvement Area No. 3 to the extent permitted under the Rate and Method and the Act , and to the extent the Special Taxes are not already being levied at the maximum Special Tax rate. See “THE DISTRICT AND IMPROVEMENT AREA NO. 3 – Potential Consequences of Special Tax Delinquencies.”

Limitations on Increases in Special Tax Levy. If property owners are delinquent in the payment of the Special Tax, the City may not increase Special Tax levies to make up for delinquencies for prior fiscal years above the maximum annual Special Tax rates specified in the Rate and Method.

In addition, the City’s ability to increase Special Tax levies on residential property to make up for delinquencies for prior Fiscal Years is limited by Section 53321(d) of the Act, which provides that the special tax levied against any parcel for which an occupancy permit for private residential use has been issued may not be increased as a consequence of delinquency or default by the owner of any other parcel by more than 10% above the amount that would have been levied in such Fiscal Year had there never been any such delinquencies or defaults.

In cases of significant delinquency, these factors may result in defaults in the payment of principal of and interest on the 2023 Bonds.

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Risks Related to Homeowners with High Loan to Value Ratios

Any future decline in home values in Improvement Area No. 3 could result in property owner unwillingness or inability to pay mortgage payments, as well as ad valorem property taxes and Special Taxes, when due. Under such circumstances, bankruptcies are likely to increase. Bankruptcy by homeowners with delinquent Special Taxes would delay the commencement and completion of foreclosure proceedings to collect delinquent Special Taxes.

It is possible that laws could be enacted in the future to assist homeowners in default in the payment of mortgages and property taxes. It is further possible that federal laws could be enacted that would adversely impact the ability of the City to foreclose on parcels with delinquent Special Taxes. No assurance can be given that any such laws will be enacted, or if enacted will be effective in assisting affected homeowners.

Payment of Special Tax is Not a Personal Obligation of the Property Owners

An owner of Taxable Property is not personally obligated to pay the Special Taxes. Rather, the Special Taxes are an obligation running only against the parcels of Taxable Property. If, after a default in the payment of the Special Tax and a foreclosure sale by the City, the resulting proceeds are insufficient, taking into account other obligations also constituting a lien against the affected parcels of Taxable Property, the City has no recourse against the owner.

Appraised Values

The Appraisal summariz ed in APPENDIX H estimates the market value of the property that is currently Taxable Property within Improvement Area No. 3. This market value is merely the opinion of the Appraiser as of the date of value set forth in the Appraisal, and is subject to the assumptions and limiting conditions stated in the Appraisal. The City has not sought an updated opinion of value by the Appraiser subsequent to the date of value of the Appraisal, or an opinion of the value of the Taxable Property by any other appraiser. A different opinion of value might be rendered by a different appraiser.

The opinion of value assumes a sale by a willing seller to a willing buyer, each having similar information and neither being forced by other circumstances to sell or to buy. Consequently, the opinion is of limited use in predicting the selling price at a foreclosure sale, because the sale is forced and the buyer may not have the benefit of full information.

In addition, the opinion of value is made as of the date of value set forth in the Appraisal, based upon facts and circumstances existing as of the date of value. Differing facts and circumstances may lead to differing opinions of value. The appraised value is not evidence of future value because future facts and circumstances may differ significantly from the facts and circumstances at the time the Appraisal was prepared.

No assurance can be given that any of the Taxable Property in Improvement Area No. 3 could be sold for the estimated market value contained in the Appraisal if that property should become delinquent in the payment of Special Taxes and be foreclosed upon.

Property Values

The value of Taxable Property within Improvement Area No. 3 is a critical factor in determining the investment quality of the 2023 Bonds. If a property owner defaults in the payment of the Special Tax, the City’s only remedy is to foreclose on the delinquent property in an attempt to obtain funds with which to pay the delinquent Special Tax. Land values could be adversely affected by economic and other factors beyond the City’s control, such as a general economic downturn, relocation of employers out of

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the area, shortages of water, electricity, natural gas or other utilities, destruction of property caused by earthquake, flood, landslides, wildfires, or other natural disasters, environmental pollution or contamination, or unfavorable economic conditions.

The following is a discussion of specific risk factors that could affect the value of property in Improvement Area No. 3.

Natural Disasters. The value of the Taxable Property in the future can be adversely affected by a variety of natural occurrences, particularly those that may affect infrastructure and other public improvements and private improvements on the Taxable Property and the continued habitability and enjoyment of such private improvements.

The areas in and surrounding the District, like those in much of California, may be subject to unpredictable seismic activity, including earthquakes and landslides. Other natural disasters could include, without limitation, floods, landslides, wildfires, droughts or tornadoes. One or more natural disasters could occur and could result in damage to improvements of varying seriousness. The damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost, or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances there could be significant delinquencies in the payment of Special Taxes, and the value of the Taxable Property may well depreciate or disappear. See “ OWNERSHIP AND DEVELOPMENT OF IMPROVEMENT AREA NO. 3 – Environmental Matters” for additional details on certain environmental matters.

Drought. Wi
th respect to droughts specifically, California has a history of suffering periodic drought conditions. Most recently, on May 10, 2021, the governor proclaimed a State of Emergency for 41 of the State’s 58 counties (including San Joaquin County, where the District is located), citing above- average temperatures and dry conditions. In April 2022, the governor extended the State of Emergency to all counties in the State and asked all Californians to voluntarily reduce water usage by 15%. No assurance can be given that drought conditions will not continue in 2023 and future years or, subside only to return in the future, potentially impacting the development of property in Improvement Area No. 3, the value of Taxable Property within Improvement Area No. 3, or economic activity within Improvement Area No. 3.

Wildfire. In recent years, drought conditions in the State (see “ – Drought above”) have led to
increased risk of wildfire. In particular, certain electrical operators in the State have seen their distribution/transmission lines cause billions of dollars in property damage and the loss of lives. Although the land in Improvement Area No. 3 is not in a high-risk area (or a special fire hazard severity zone) for wildfires, landslides, floods, or tornadoes, natural disasters such as these are unpredictable and may occur anywhere throughout the State, with devastating consequences, including resulting in significant delinquencies in the payment of Special Taxes, and reduction in the value of the parcels. No assurance can be given that wildfires will not erupt in the developments being undertaken in Improvement Area No. 3 and negatively impact development of property in the Improvement Area No. 3 in the future.

Legal
Requirements. Other events that may affect the value of Taxable Property include changes in the law or application of the law. Such changes may include, without limitation, local growth control initiatives, local utility connection moratoriums and local application of statewide tax and governmental spending limitation measures.

Hazardous Substances. One of the most serious risks in terms of the potential reduction in the value of Taxable Property is a claim with regard to a hazardous substance. In general, the owners and operators of Taxable Property may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental

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Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well -known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Taxable Property be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.

The property values set forth in this Official Statement do not take into account the possible reduction in marketability and value of any of the Taxable Property by reason of the possible liability of the owner or operator for the remedy of a hazardous substance condition of the parcel. Although the City is not aware that the owner or operator of any of the Taxable Property has such a current liability with respect to any of the Taxable Property, it is possible that such liabilities do currently exist and that the City is not aware of them.

Further, it is possible that liabilities may arise in the future with respect to any of the Taxable Property resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but that has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently on the parcel of a substance not presently classified as hazardous but that may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of Taxable Property that is realizable upon a delinquency.

Other Possible Claims Upon the Value of Taxable Property

While the Special Taxes are secured by the Taxable Property, the security only extends to the value of such Taxable Property that is not subject to priority and parity liens and similar claims.

The tables in the sections entitled “THE DISTRICT AND IMPROVEMENT AREA NO. 3 – Direct and Overlapping Governmental Obligations” and “– Estimated Tax Burden on Single Family Homes ,” show the presently outstanding amount of governmental obligations, the tax or assessment for which is or may become an obligation of one or more of the parcels of Taxable Property. The tables do not specifically identify which of the governmental obligations are secured by liens on one or more of the parcels of Taxable Property.

In addition, other governmental obligations may be authorized and undertaken or issued in the future, the tax, assessment or charge for which may become an obligation of one or more of the parcels of Taxable Property and may be secured by a lien on a parity with the lien of the Special Tax securing the 2023 Bonds. Property owners can also voluntarily add Property Assessed Clean Energy (PACE) assessment liens on their property to finance energy efficiency improvements.

In general, as long as the Special Tax is collected on the County tax roll, the Special Tax and all other taxes, assessments and charges also collected on the tax roll are on a parity, that is, are of equal priority. Questions of priority become significant when collection of one or more of the taxes, assessments or charges is sought by some other procedure, such as foreclosure and sale. In the event of proceedings to foreclose for delinquency of Special Taxes securing the 2023 Bonds, the Special Tax will be subordinate only to existing prior governmental liens, if any. Otherwise, in the event of such foreclosure proceedings, the Special Taxes will generally be on a parity with the other taxes, assessments and charges, and will share the proceeds of such foreclosure proceedings on a pro-rata basis. Although the Special Taxes will generally have priority over non -governmental liens on a parcel of Taxable Property, regardless of whether the non -governmental liens were in existence at the time of the levy of

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the Special Tax or not, this result may not apply in the case of bank ruptcy. See “– Bankruptcy Delays” below.

Exempt Properties

Certain properties are exempt from the Special Tax in accordance with the Rate and Method and the Act, which provides that properties or entities of the state, federal or local government are ex empt from the Special Tax; provided, however, that property within Improvement Area No. 3 acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. See “SECURITY FOR THE 2023 BONDS – Rate and Method.”

In addition, although the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment, the constitutionality and operation of these provisions of the Act have not been tested, meaning that such property could become exempt from the Special Tax. The Act further provides that no other properties or entities are exempt from the Special Tax unless the properties or entities are expressly exempted in a resolution of consideration to levy a new special tax or to alter the rate or method of apportionment of an existing special tax.

FDIC/Federal Government Interests in Properties

General. The ability of the City to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the FDIC, the Federal National Mortgage Association, the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest.

Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest.

The supremacy clause of the United States Constitution reads as follows: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding.”

This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel that is subject to Special Taxes but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.

Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the City wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government’s mortgage interest. In Rust v. Johnson (9th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association (“FNMA”) is a federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States.
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The City has not undertaken to determine whether any federal governmental entity currently has, or is likely to acquire, any interest (including a mortgage interest) in any of the parcels subject to the Special Taxes, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the 2023 Bonds are outstanding.

FDIC
. In the event that any financial institution making any loan which is secured by real property within Improvement Area No. 3 is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, resulting in ownership of the property by the FDIC, then the ability of the City to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be limited.

The FDI
C’s policy statement regarding the payment of state and local real property taxes (the “Policy Statement”) provides that property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property’s value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution’s affairs, unless abandonment of the FDIC’s interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rat e provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC-owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC’s consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC’s consent.

The Poli
cy Statement states that the FDIC generally will not pay non-ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the Act and a special tax formula which determines the special tax due each year are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC’s federal immunity.

The Ninth Circuit has issued a ruling on August 28, 2001 in which it determined that the FDIC, as a federal agency, is exempt from Mello-Roos special taxes.

The City is
unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of Special Taxes on a parcel within Improvement Area No. 3 in which the FDIC has or obtains an interest, although prohibiting the lien of the Special Taxes to be foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a draw on the 2023 Reser ve Fund and perhaps, ultimately, if enough property were to become owned by the FDIC, a default in payment on the 2023 Bonds.

Deplet
ion of 2023 Reserve Fund
The 2023 Reserve
Fund is to be maintained at an amount equal to the Reserve Requirement for the 2023 Bonds. See “SECURITY FOR THE 2023 BONDS – 2023 Reserve Fund.” The 2023 Reserve Fund will be used to pay principal of and interest on the 2023 Bonds (and any Parity Bonds) if insufficient funds are available from the proceeds of the levy and collection of the Special Tax against property within Improvement Area No. 3. If the 2023 Reserve Fund is depleted, it can be replenished from the proceeds of the levy and collection of the Special Taxes that exceed the amounts to be paid to the owners of the 2023 Bonds (and any Parity Bonds) under the Fiscal Agent Agreement. However, because the Special

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Tax levy is limited to the maximum annual Special Tax rates, it is possible that no replenishment would be possible if the Special Tax proceeds, together with other available funds, remain insufficient to pay all such amounts. Thus, it is possible that the 2023 Reserve Fund will be depleted and not be replenished by the levy and collection of the Special Taxes.

Bankruptcy Delays

The payment of the Special Tax and the ability of the City to foreclose the lien of a delinquent unpaid Special Tax, as discussed in “SECURITY FOR THE 2023 BONDS,” may be limited by bankruptcy, insolvency or other laws generally affecting creditors' rights or by the laws of the State of California relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the 2023 Bonds (including Bond Counsel's approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.

Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, bankruptcy of a property owner or any other person claiming an interest in the property could result in a delay in superior court foreclosure proceedings and could result in the possibility of Special Tax installments not being paid in part or in full. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the 2023 Bonds.

In addition, the amount of any lien on property securing the payment of delinquent Special Taxes could be reduced if the value of the property were determined by the bankruptcy court to have become less than the amount of the lien, and the amount of the delinquent Special Taxes in excess of the reduced lien could then be treated as an unsecured claim by the court. Any such stay of the enforcement of the lien for the Special Tax, or any such delay or non- payment, would increase the likelihood of a delay or default in payment of the principal of and interest on the 2023 Bond s and the possibility of delinquent Special Taxes not being paid in full.

The chances are increased that the 2023 Reserve Fund established for the 2023 Bonds could be fully depleted during any such delay in obtaining payment of delinquent Special Taxes. As a result, sufficient moneys would not be available in the 2023 Reserve Fund to make up shortfalls resulting from delinquent payments of the Special Tax and thereby to pay principal of and interest on the 2023 Bonds on a timely basis.

Cyber Security

The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations. As a recipient and provider of personal, private or other sensitive electronic information, the City is potentially subject to multiple cyber threats, including without limitation hacking, viruses, ransomware, malware and other attacks. No assurance can be given that the Ci ty’s efforts to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City or the District, or the administration of the 2023 Bonds. The City is also reliant on other entities and service providers in connection with the administration of the 2023 Bonds, including without limitation the County tax collector for the levy and collection of Special Taxes, the Fiscal Agent, and the Dissemination Agent. No assurance can be given that the City, the District and these other entities will not be affected by cyber threats and attacks in a manner that may affect the Bond owners.

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Disclosure to Future Purchasers

The City has recorded a notice of the Special Tax lien in the Office of the County Recorder. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such special tax obligation in the purchase of a parcel of land or a home in Improvement Area No. 3 or the lending of money secured by property in Improvement Area No. 3. The Act requires the subdivider of a subdivision (or its agent or representative) to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit subject to a Mello-Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section 1102.6b requires that in the case of transfers other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with these requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.

No Acceleration Provisions

The 2023 Bonds do not contain a provision allowing for their acceleration in the event of a payment default or other default under the terms of the 2023 Bonds or the Fiscal Agent Agreement.

Under the Fiscal Agent Agreement, a Bondholder is given the right for the equal benefit and protection of all Bondowners similarly situated to pursue certain remedies. See “APPENDIX C – Summary of Certain Provisions of the Fiscal Agent Agreement.” So long as the 2023 Bonds are in book-entry form, DTC will be the sole Bondholder and will be entitled to exercise all rights and remedies of Bond holders.

Loss of Tax Exemption

As discussed under the caption “LEGAL MATTERS – Tax Exemption,” interest on the 2023 Bonds might become includable in gross income for purposes of federal income taxation retroactive to the date the 2023 Bonds were issued as a result of future acts or omissions of the City in violation of its covenants in the Fiscal Agent Agreement. The Fiscal Agent Agreement does not contain a special redemption feature triggered by the occurrence of an event of taxability. As a result, if interest on the 2023 Bonds were to become includable in gross income for purposes of federal income taxation, the 2023 Bonds would continue to remain outstanding until maturity unless earlier redeemed pursuant to optional or mandatory redemption or redemption upon prepayment of the Special Taxes. See “THE 2023 BOND S – Redemption.”

IRS Audit of Tax-Exempt Bond Issues

The Internal Revenue Service (the “ IRS”) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the 2023 Bonds will be selected for audit by the IRS. It is also possible that the market value of such 2023 Bonds might be affected as a result of such an audit of such 2023 Bonds (or by an audit of similar bonds or securities).

Impact of Legislative Proposals, Clarifications of the Tax Code and Court Decisions on Tax Exemption

Future legislative proposals, if enacted into law, clarification of the Tax Code (defined herein) or court decisions may cause interest on the 2023 Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Bondowners from realizing the full current benefit of the tax status of such interest.

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Voter Initiatives

Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Since 1978, the voters have exercised this power through the adoption of Proposition 13 and similar measures, including Proposition 218, which was approved in the general election held on November 5, 1996, and Proposition 26, which was approved on November 2, 2010.

Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the City. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter -approved initiatives, possibly to the extent of creating cash- flow problems in the payment of outstanding obligations such as the 2023 Bonds.

Proposition 218 —Voter Approval for Local Government Taxes —Limitation on Fees, Assessments, and Charges—Initiative Constitutional Amendment, added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges.

On November 2, 2010, California voters approved Proposition 26, entitled the “Supermajority Vote to Pass New Taxes and Fees Act”. Section 1 of Proposition 26 declares that Proposition 26 is intended to limit the a bility of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as “fees.” Proposition 26 amended Articles XIIIA and XIIIC of the State Constitution. The amendments to Artic le XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two- thirds vote of the Legislature. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes require a majority vote and taxes for specific purposes (“special taxes”) require a two-thirds vote.

The Special Taxes and the 2023 Bonds were each authorized by not less than a two-thirds vote of the landowners within Improvement Area No. 3 who constituted the qualified electors at the time of such voted authorization. The City believes, therefore, that issuance of the 2023 Bonds does not require the conduct of further proceedings under the Act, Proposition 218 or Proposition 26.

Like their antecedents, Proposition 218 and Proposition 26 are likely to undergo both judicial and legislative scrutiny before the impact on the City and its obligations can be determined. Certain provisions of Proposition 218 and Proposition 26 may be examined by the courts for their constitutionality under both State and federal constitutional law, the outcome of which cannot be predicted.

For example, in August 2014, in City of San Diego. v. Melvin Shapiro, an Appellate Court invalidated an election held by the City of San Diego to authorize the levying of special taxes on hotels city-wide pursuant to a city charter ordinance creating a convention center facilities district which specifically defined the electorate to consist solely of (1) the owners of real property in the city on which a hotel is located, and (2) the lessees of real property owned by a governmental entity on which a hotel is located. The court held that such landowners and lessees are neither “qualified electors” of the city for purposes of Articles XIII A, Section 4 of the California Constitution, nor a proper “electorate” under Article XIIIC, Section 2(d) of the California Constitution. The court specifically noted that the decision did not require the Court to consider the distinct question of whether landowner voting to impose special taxes under Section 53326(b) of the Act (which was the nature of the voter approval through which the District and Improvement Area No. 3 were formed) violates the California Constitution in districts that lack sufficient registered voters to conduct an election among registered voters. Accordingly, this case should have no effect on the levy of the Special Taxes by the City

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The City cannot predict the ultimate outcome or effect of any such judicial scrutiny, legislative actions, or future initiatives. These initiatives, and any future initiatives, may affect the collection of fees, taxes and other types of revenue by local agencies such as the City. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter -approved initiatives, possibly to the extent of creating cash-flow problems in the payment of outstanding obligations such as the 2023 Bonds.

Increasing Mortgage Interest Rates

Between approximately November 2021 and February 2023, fixed interest mortgage interest rates have increased from approximately 3.1% to 6.5%. Mortgage interest rates may continue to increase in the near term. Increases in mortgage interest rates could have a negative impact on the estimated pace of sales in Improvement Area No. 3 described herein. With respect to entry-level households, increased mortgage interest rates may adversely impact the affordability of homes and may increase mortgage payment levels for owning a lower -priced home relative to renting a residence, thereby making purchasing less attractive. With respect to move- up households, higher mortgage interest rates may impact the desire of current homeowners to move from their present home due to the fact that their present home likely has a relatively low mortgage interest rate. In addition, the new home would likely have a higher interest rate on a new mortgage loan as well as higher purchase price and property taxes.

Such considerations may decrease the desire for move-up households to purchase a new home

COVID-19 Pandemic

LS-Tracy LLC’s planned development within Improvement Area No. 3 is subject to disruption due to the COVID-19 pandemic and related public health and governmental authorities’ orders and actions, which could have a material adverse effect on LS-Tracy LLC’s ability to complete its proposed development within Improvement Area No. 3 and sell completed homes in the time frame and budget, and at the sales prices, described in this Official Statement . LS-Tracy LLC has largely continued, with certain modifications, its development in Improvement Area No. 3 to date.

As of February 1, 2023, LS-Tracy LLC has experienced increases in certain construction costs, supply chain delays, labor shortages, and increased cycle time for construction projects generally.

However, LS-Tracy LLC has not experienced any significant development delays resulting from work stoppages, reduced attendance of workers, or the ability to obtain necessary inspections and approvals for homes, which may be attributed, directly or indirectly, to the COVID -19 pandemic. While the cost increases and delays may have been and may continue to be intermittently affected by COVID -19, the majority of cost increases and delays can be attributable to production backlogs due to prior shutdowns or shelter in place orders, the strength of the housing market , inflation, and the result of vendors not anticipating the scale of the demand for housing materials . See “OWNERSHIP AND DEVELOPMENT OF IMPROVEMENT AREA NO. 3 – The Merchant Builder – COVID-19 Impact.”

The COVID-19 outbreak is ongoing and, among other things, the ultimate geographic spread of the virus, the emergence and spread of new strains or variants of COVID -19, the duration and severity of the outbreak, the availability and acceptance of effective vaccines, adequate testing and treatments and the prevalence of widespread immunity to COVID-19, and the economic and other actions that may be taken by governmental authorities to contain the outbreak or to address its impact remain uncertain.

The ultimate effects of COVID -19 on Improvement Area No. 3 and LS -Tracy LLC’s operations and financial condition, homebuyers' willingness and ability to pay the Special Tax when due, and the real estate market and United States economy in general are unknown. Such effects, if and as they arise, could have a material adverse effect on the ability to complete the development within Improvement Area No. 3 and/or sell homes as planned, and no assurance can be provided that LS-Tracy LLC will be able to (a) complete in whole or in any part, or within any particular time, its development within Improvement Area No. 3; (b) avoid additional material increases in development costs or delays resulting from work

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stoppages, reduced attendance of workers, shortages or delays in the delivery of building materials, and/or delays in obtaining necessary inspections and approvals; or (c) sell homes, and close home sales or not experience purchase contract cancellations, due in each case to public health or governmental restrictions, further spread of COVID -19, an economic downturn driven by the pandemic, or otherwise.

See “— Increasing Mortgage Interest Rates.”

Secondary Market for Bonds

There can be no guarantee that there will be a secondary market for the 2023 Bonds or, if a secondary market exists, that any 2023 Bonds can be sold for any particular price. Prices of bond issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price.

No assurance can be given that the market price for the 2023 Bonds will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Internal Revenue Code), or changes in interpretation of the Internal Revenue Code, or any action of the Internal Revenue Service, including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the 2023 Bonds for audit examination, or the course or result of any Internal Revenue Service audit or examination of the 2023 Bonds or obligations that present similar tax issues as the 2023 Bonds.

LEGAL MATTERS

Legal Opinions

The legal opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, approving the validity of the 2023 Bonds will be made available to purchasers at the time of original delivery and is attached in substantially final form as APPENDIX G.

Jones Hall, A Professional Law Corporation, San Francisco, California, has served as Disclosure Counsel to the District. Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California, is serving as counsel to the Underwriter.

Tax Exemption

Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the 2023 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. Interest on the Bonds may be subject to the corporate alternative minimum tax.

The opinions set forth in the preceding paragraph are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Tax Code") that must be satisfied subsequent to the issuance of the 2023 Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The City has made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the 2023 Bonds.

Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public at which a 2023 Bond is sold is less than the amount payable at maturity thereof, then such difference

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constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public at which a 2023 Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes “bond premium” for purposes of federal income taxes and State of California personal income taxes.

Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the 2023 Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight -line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such 2023 Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such 2023 Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the 2023 Bonds who purchase the 2023 Bonds after the initial offering of a substantial amount of such maturity. Owners of such 2023 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of 2023 Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering to the public at the first price at which a substantial amount of such 2023 Bonds is sold to the public.

Under the Tax Code, bond premium is amortized on an annual basis over the term of the 2023 Bond (said term being the shorter of the 2023 Bond’s maturity date or its call date). The amount of bond premium amortized each year reduces the adjusted basis of the owner of the 2023 Bond for purposes of determining taxable gain or loss upon disposition. The amount of bond premium on a 2023 Bond is amortized each year over the term to maturity of the 2023 Bond o n the basis of a constant interest rate compounded on each interest or principal payment date (with straight -line interpolations between compounding dates). Amortized bond premium is not deductible for federal income tax purposes.

Owners of premium 2023 Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such 2023 Bonds.

California Tax Status. In the further opinion of Bond Counsel, interest on the 2023 Bonds is exempt from California personal income taxes.

Other Tax Considerations. Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court decisions may cause interest on the 2023 Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the 2023 Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, such legislation would apply to bonds issued prior to enactment.

The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of such opinion, and Bond Counsel has expressed no opinion with respect to any proposed legislation or as to the tax treatment of interest on the 2023 Bonds, or as to the consequences of owning or receiving interest on the 2023 Bonds, as of any future date. Prospective purchasers of the 2023 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.

Owners of the 2023 Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the 2023 Bonds may have federal or state tax consequences other than

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as described above. Other than as expressly described above, Bond Counsel expresses no opinion regarding other federal or state tax consequences arising with respect to the 2023 Bonds, the ownership, sale or disposition of the 2023 Bonds, or the amount, accrual or receipt of interest on the 2023 Bonds.

Litigation

The City is a defendant in a lawsuit that challenged the legality of the Second Amendment to Amended and Restated Development Agreement By and Between the City of Tracy and Surland Communities LLC, approved and executed in 2018 (the “Second Amendment”), by which the City and Surland Communities LLC (“ Developer”) had attempted to amend the Amended and Restated Development Agreement by and between the City of Tracy and Surland Communities, LLC, approved and executed in 2013 (“ Development Agreement”), which co ncerns property within the Ellis Specific Plan area. The plaintiff is a third party, not the Developer or any of its affiliates, and the Developer is a party to the lawsuit as real party in interest. The lawsuit claims, among other things, that the Second Amendment is void ab initio and beyond the powers of the City because it purported to potentially allow for Developer to secure rights to residential growth allotments (“ RGAs”) outside the Ellis Specific Plan. On September 30, 2020, the Superior Court entered Judgment and issued a Writ of Mandate ruling that the Second Amendment is invalid and void ab initio and commanding the City to rescind it. The Court of Appeal upheld the Judgment and Writ. On September 20, 2022, the City Council set aside and rescinded the Second Amendment. It is not expected that the Judgment, Writ, or City Council rescission of the Second Amendment will adversely impact the 2023 Bonds or development in or the issuance of building permits in Improvement Area No. 3 because none of the improvements relate back to terms and conditions set forth in the Second Amendment.

At the time of delivery of the 2023 Bond s, the City will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, pending with respect to which the City has been served with process or threatened, which:

• in any way questions the powers of the City Council, City or District, or

• in any way questions the validity of any proceeding taken by the City Council in connection with the issuance of the 2023 Bonds, or

• wherein an unfavorable decision, ruling or finding could materially adversely affect the transactions contemplated by the purchase contract with respect to the 2023 Bonds, or

• which, in any way, could adversely affect the validity or enforceability of the resolutions of the City Council adopted in connection with the formation of the District and Improvement Area No. 3 or the issuance of the 2023 Bonds, the Fiscal Agent Agreement, the Continuing Disclosure Certificate or the purchase contract with respect to the 2023 Bonds, or

• to the knowledge of the City, which in any way questions the exclusion from gross income of the recipients thereof of the interest on the 2023 Bonds for federal income tax purposes, or

• in any other way questions the status of the 2023 Bonds under State tax laws or regulations.

CONTINUING DISCLOSURE

City Continuing Disclosure. The City will covenant for the benefit of owners of the 2023 Bonds to provide certain financial information and operating data relating to Improvement Area No. 3 and the 2023 Bonds by not later than nine months after the end of the City’s fiscal year (currently March 31 based

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on the City’s fiscal year end of June 30) (the “Annual Report”) and to provide notices of the occurrence of certain listed events.

These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2- 12(b)(5) (the “Rule ”). The specific nature of the information to be contained in the Annual Report or the notices of listed events is set forth in APPENDIX E.

The City, on its own behalf and on behalf of related entities, has entered into a number of prior continuing disclosure undertakings under the Rule in connection with the issuance of long -term obligations, and has provided annual financial information and event notices in accordance with those undertakings. During the past five years, the City or its related entities have failed to comply with prior undertakings as follows:

• The audited financial statements for Fiscal Years 2017 -18, 2018 -19, 2019- 20, and 2020-21 were not filed with the annual report, as permitted because they were unavailable at the time, and were later filed between 2 and 25 days after becoming available; and

• Certain operating and financial data for Fiscal Years 2018-19 and 2020-21 were 43 and 4 days late, respectively.

• Certain information was omitted from the operating and financial data for filed Fiscal Years 2016-17, 2017-18 and 2019-20 because it was unavailable at the time the filing was due, but that information was subsequently filed when it became available.

The City has engaged Goodwin Consulting Group to serve as its dissemination agent and assist the City in complying with its continuing disclosure undertakings. To further ensure such compliance, the City has adopted policies and procedures related thereto.

LS-Tracy LLC Continuing Disclosure. LS-Tracy LLC will covenant in a continuing disclosure certificate, the form of which is set forth in APPENDIX F (the “Property Owner Continuing Disclosure Certificate”), for the benefit of holders and beneficial owners of the 2023 Bonds, to provide certain information relating to itself and the status of its property within Improvement Area No. 3 on a semi-annual basis, beginning on September 30, 2023, and to provide notices of the occurrence of certain enumerated events. LS-Tracy LLC is not an obligated person as defined under the Rule.

The obligations of LS-Tracy LLC under its Property Owner Continuing Disclosure Certificate will terminate when LS-Tracy LLC owns less than 62 residential lots (or property that will be subdivided into less than 62 residential lots) in Improvement Area No. 3.

LS-Tracy LLC represents that, to the actual knowledge of LS-Tracy LLC, neither LS-Tracy LLC nor its developer affiliates has failed in any material respect to comply with any previous undertaking by it to provide periodic continuing disclosure reports or notices of material events with respect to community facilities districts or assessment districts in California within the past five years.

NO RATING

The City has not obtained a credit rating on the 2023 Bonds. Nothing should be assumed from any credit rating that the City may obtain for other purposes. Prospective purchasers of the 2023 Bonds are required to make independent determinations as to the credit quality of the 2023 Bonds and their appropriateness as an investment.

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UNDERWRITING
The 2023 Bonds a
re being purchased by Piper Sandler & Co. (the “Underwriter”), at a purchase price of $________ (which represents the aggregate principal amount of the 2023 Bonds ($________), plus an original issue premium /less an original issue discount of $_________, less an Underwriter's discount of $________).

The purc
hase agreement relating to the 2023 Bonds provides that the Underwriter will purchase all of the 2023 Bonds, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase agreement.

The Under
writer may offer and sell the 2023 Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page hereof. The offering prices may be changed from time to time by the Underwriter.

MUNICI

PAL ADVISOR
The Cit
y has retained CSG Advisors Incorporated, San Francisco, California, as Municipal Advisor for the sale of the 2023 Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.

CSG Advisors Incorporated, is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities.

PROF

ESSIONAL FEES
In conne
ction with the issuance of the 2023 Bonds, fees or compensation payable to certain professionals are contingent upon the issuance and deliv ery of the 2023 Bonds. Those professionals include:
• the Under
writer;
• Jones Hall, A Professional Law Corporation, as Bond Counsel and Disclosure Counsel; • Stradling Yocca Carlson & Rauth, A Professional Corporation, as Underwriter’s Counsel; • A portion of the fees of CSG Advisors Incorporated, as municipal advisor; • A portion of the fees of Goodwin Consulting Group, Inc., as special tax consultant; and • U.S. Bank Trust Company, National Association, as Fiscal Agent.

EXECUT
ION
The execu
tion and delivery of the Official Statement has been duly authorized by the City Council, acting as the legislative body of the District.

CITY

OF TRACY
By:

Finance Director
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A-1

APPENDIX A

GENERAL INFORMATION ABOUT THE CITY OF TRACY

AND SAN JOAQUIN COUNTY

The following information concerning the City of Tracy (the "City") and San Joaquin County (the “County”) are included only for the purpose of supplying general information regarding the communit y.

The 2023 Bonds are not a debt of the City, the County, the State of California (the “State”) or any of its political subdivisions, and neither the City, the County, the State nor any of its political subdivisions is liable therefor.

Population

Population figures for the City, the County and the State for the last five years are shown in the following table.

CITY OF TRACY, SAN JOAQUIN COUNTY AND THE STATE OF CALIFORNIA Population Estimates
Calendar Years 2018 through 2022 as of January 1

Calendar
Year
City of
Tracy
San Joaquin
County
State of
California
2018 92,395 752,958 39,519,535
2019 94,326 764,373 39,605,361
2020 95,861 773,505 39,648,938
2021 93,624 782,372 39,303,157
2022 94,538 784,298 39,185,605

Source: State Department of Finance estimates.

A-2
Employment and Industry

The City is included in the Stockton Metropolitan Statistical Area (“ MSA”), which includes all of San Joaquin County. The unemployment rate in the County was 5.5% in November 2022, up from a revised 5.0 % in October 2022, and below the year -ago estimate of 6.5%. This compares with an unadjusted unemployment rate of 4.0% for the State and 3.4% for the nation during the same period.

Set forth below is data from calendar years 2017 to 2021 reflecting the County’s civilian labor force, employment and unemployment. These figures are county-wide statistics and may not necessarily accurately reflect employment trends in the City.

STOCKTON-LODI MSA
(San Joaquin County)
Annual Average Labor Force and Employment by Industry
Calendar Years 2017 through 2021
(March 2021 Benchmark)

2017 2018 2019 2020 2021
Civilian Labor Force (1) 323,000 324,100 327,100 334,300 334,300 Employment 300,200 304,200 307,500 295,600 305,300
Unemployment 22,700 19,900 19,600 38,700 29,000
Unemployment Rate 7.0% 6.1% 6.0% 11.6% 8.7%
Wage and Salary Employment: (2)
Agriculture 16,400 15,600 15,400 14,600 13,700
Mining and Logging 100 100 100 100 100
Construction 11,700 12,800 13,100 13,000 13,800
Manufacturing 20,300 20,600 20,600 20,200 20,900
Wholesale Trade 11,200 11,800 11,700 10,600 10,800
Retail Trade 26,800 26,700 26,200 24,600 26,100
Transportation, Warehousing and Utilities 26,200 28,400 31,300 38,800 41,700 Information 1,800 1,800 1,600 1,200 1,200
Finance and Insurance 4,900 4,800 4,700 4,600 4,600
Professional and Business Services 19,200 19,600 20,200 21,300 22,400 Educational and Health Services 38,200 38,800 39,100 37,300 38,400 Leisure and Hospitality 21,500 22,000 22,600 18,500 21,100 Other Services 7,600 7,600 7,800 6,800 7,100
Federal Government 3,100 3,100 3,200 3,300 3,100
State Government 6,600 6,700 6,800 6,800 6,000
Local Government 32,800 33,700 34,900 33,000 32,800
Total, All Industries (3) 251,200 257,000 262,500 257,800 267,100

(1) Labor force data is by place of residence; includes self -employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self -employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(3) Totals may not add due to rounding.

Source: State of California Employment Development Department.

A-3
Largest Employers

The following table lists the major employers within the County, listed in alphabetical order without regard to the number of employees, as of January 2023.

SAN JOAQUIN COUNTY
Major Employers
As of January 2023

Employer Name Location Industry
A Sambado & Sons Inc Linden Nuts-Edible
Adventist Health Lodi Memorial Lodi Hospitals
Amazon Fulfillment Ctr Stockton Mail Order Fulfillment Service Ashley Lane LP Stockton Real Estate
Blue Shield of California Lodi Insurance
Dameron Hospital Stockton Hospitals
Deuel Vocational Instn Fire Tracy Fire Departments
Foster Care Svc Stockton Government Offices-County
Leprino Foods Co Tracy Cheese Processors (mfrs)
Lodi Health Home Health Agency Lodi Home Health Service NA Chaderjian Youth Stockton State Govt-Correctional Institutions Pacific Coast Producers Lodi Canning (mfrs)
Prima Frutta Packing Inc Linden Fruit & Produce Packers Safeway Distribution Ctr Tracy Distribution Centers (whls) San Joaquin County CA Pubc Stockton Government Offices-County San Joaquin County Human Svc Stockton Government Offices-County San Joaquin County Sch Stockton School Districts
San Joaquin General Hospital French Camp Hospitals
San Joaquin Sheriff's Office French Camp Government Offices-County Sjgov Stockton Government Offices-County
St Joseph's Regional Health Stockton Hospitals
Stockton Police Dept Stockton Police Departments
Stockton Unified School Dist Stockton School Districts
Walmart Supercenter Stockton Department Stores
Waste Management-Lodi Transfer Lodi Consultants-Business NEC

Source: State of California Employment Development Department, extracted from The America’s Labor Market Information System (ALMIS) Employer Database, 2023 1st Edition.

A-4
The following table lists the twenty -five principal employers within the City, by number of employees, as of June 30, 2021.

CITY OF TRACY
Principal Employers
As of June 30, 2021

Employer Name Number of Employees
Amazon.com Services LLC 7,325
FedEx Ground Package System, Inc 925
Taylor Farms Pacific Inc 795
Medline Industries Inc 651
Randstad Inhouse Services LLC 632
DHL Supply Chain 463
Walmart #2025 402
Leprino Foods 349
Costco Wholesale #658 240
Randstad Inhouse Services LP 234
Crate & Barrell 233
Pacific Medical Inc 214
The Home Depot #5641 211
The Home Depot #1020 211
Ingram Micro Inc. 200
Randstad Inhouse Service LP 194
International Paper 185
Macy’s 179
Glassfab Tempering 177
Target Stores T738 173
Olive Garden #1582 165
Winco Foods #103 144
Zinus Inc. 137
The Permanente Medical 128
American Custom Meats 128

Source: City of Tracy Annual Comprehensive Financial Report for fiscal year ended June 30, 2021.

A-5
Commercial Activity

Summaries of historic taxable sales within the City and the County during the past five years in which data is available are shown in the following tables.

Total taxable sales during the first three quarters of calendar year 2022 in the City were $4,455,852,282, a 4.31% increase over the total taxable sales of $4,271,816,717 reported during the first three quarters of calendar year 2021.

CITY OF TRACY
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)

Retail Stores Total All Outlets

Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions

2017 1,150 $1,371,679 1,803 $2,042,411
2018 1,192 1,489,764 1,921 2,319,543
2019 1,224 1,473,584 2,000 2,694,120
2020 1,395 1,479,810 2,284 2,854,012
2021 1,238 4,160,817 2,082 5,868,567

Source: State Department of Tax and Fee Administration.

Total taxable sales during the first three quarters of calendar year 202 2 in the County were $17,206,745,286, a 5.92% increase over the total taxable sales of $16,245,046,367 reported during the first three quarters of calendar year 2021.

SAN JOAQUIN COUNTY
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)

Retail Stores Total All Outlets

Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions

2017 9,506 $7,994,473 14,758 $12,153,268
2018 9,660 8,855,169 15,437 13,457,721
2019 9,978 9,073,238 16,144 14,383,854
2020 11,188 10,215,896 18,358 15,752,225
2021 10,642 15,153,915 17,665 22,306,576

Source: State Department of Tax and Fee Administration.

A-6
Effective Buying Income

“Effective Buying Income” is defined as personal income less personal tax and nontax payments, a number often referred to as “disposable” or “after -tax” income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor’s income, rental income (which includes imputed rental income of owner -occupants of non- farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance.

According to U.S. government definitions, the resultant figure is commonly known as “disposable personal income.”

The following table summarizes the median household effective buying income for the City, the County, the State and the United States for the period 2019 through 2023.

CITY OF TRACY AND SAN JOAQUIN COUNTY
Median Household Effective Buying Income
2019 through 2023

2019 2020 2021 2022 2023

City of Tracy $73,172 $76,142 $78,492 $89,938 $90,240
San Joaquin County 55,534 58,141 59,914 68,971 68,912
California 62,637 65,870 67,956 77,058 77,175
United States 52,841 55,303 56,790 64,448 65,326

Source: Claritas, LLC.

A-7
Building Activity

The tables below summarize building activity in the City and the County for the past five available years.

CITY OF TRACY
Building Permit Activity
For Calendar Years 2017 through 2021
(Dollars in Thousands)

2017 2018 2019 2020 2021
Permit Valuation
New Single-family $98,767.2 $214,928.9 $223,795.2 $239,658.3 $244,205.8 New Multi-family 9,686.4 84,832.3 0.0 0.0 945.7
Res. Alterations/Additions 2,982.3 6,058.5 9,178.8 4,504.7 4,558.9 Total Residential $111,435.9 $305,819.7 $232,974.0 $244,163.0 $249,710.4

New Commercial $184,438.3 $331,633.7 $189,205.1 $168,307.4 $105,916.9 New Industrial 38,978.1 74,814.4 13,881.6 526,301.0 60.8 New Other 4,769.2 8,265.5 7,006.5 4,828.5 9,099.3
Com. Alterations/Additions 93,059.7 60,479.7 60,676.8 62,904.6 80,618.6 Total Nonresidential $321,245.3 $475,193.3 $270,770.0 $762,341.5 $195,695.6

New Dwelling Units
Single Family 236 534 551 692 670
Multiple Family 65 507 0 0 2
TOTAL 301 1,041 551 692 672

Source: Construction Industry Research Board, Building Permit Summary.

SAN JOAQUIN COUNTY
Building Permit Activity
For Calendar Years 2017 through 2021
(Dollars in Thousands)

2017 2018 2019 2020 2021
Permit Valuation
New Single-family $652,308.1 $883,071.1 $843,700.9 $870,859.6 $1,179,358.0 New Multi-family 62,635.8 99,601.4 57,271.1 38,411.8 69,775.2 Res. Alterations/Additions 86,516.1 95,073.4 98,681.9 40,144.4 108,647.1 Total Residential $801,460.0 $1,077,745.9 $999,654.0 $949,415.8 $1,357,780.3

New Commercial $357,856.9 $498,359.0 $380,383.3 $255,761.2 $272,617.0 New Industrial 179,728.4 240,073.7 120,003.8 534,199.5 43,401.3 New Other 27,794.7 31,904.4 61,991.7 33,112.3 58,264.9
Com. Alterations/Additions 269,172.8 249,142.4 363,840.9 135,285.4 272,064.7 Total Nonresidential $834,552.8 $1,019,479.5 $926,219.7 $958,358.4 $646,347.9

New Dwelling Units
Single Family 2,078 2,765 2,564 2,843 3,665
Multiple Family 516 293 461 245 178
TOTAL 2,304 2,594 3,025 3,088 3,843

Source: Construction Industry Research Board, Building Permit Summary.

B-1

APPENDIX B

RATE AND METHOD OF APPORTIONMENT FOR
IMPROVEMENT AREA NO. 3 OF THE CITY OF TRACY
COMMUNITY FACILITIES DISTRICT NO. 2016-2 (ECFD)

C-1

APPENDIX C

SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT

D-1

APPENDIX D

DTC AND THE BOOK-ENTRY ONLY SYSTEM

The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the 2023 Bonds (herein, the “Securities”) to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Securities and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

Neither the issuer of the Securities (the “Issuer”) nor the trustee, fiscal agent or paying agent appointed with respect to the Securities (the “Agent”) takes any responsibility for the information contained in this Appendix.

No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Securities, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Securities, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Securities, or that the y will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC.

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the securities (the “Securities”). The Securities will be issued as fully -registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC.

If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.

2. DTC, the world’s largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non- U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC.

DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non- U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the

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DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information contained on this Internet site is not incorporated herein by reference.

3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase.

Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities ar e credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date.

The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

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8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.

11. The information in this section concerning DTC and DTC’s book -entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.

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APPENDIX E

FORM OF CONTINUING DISCLOSURE CERTIFICATE

CONTINUING DISCLOSURE CERTIFICATE

$________
IMPROVEMENT AREA NO. 3 OF THE CITY OF TRACY
COMMUNITY FACILITIES DISTRICT NO. 2016-2 (ECFD)
SPECIAL TAX BONDS, SERIES 2023

This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the City of Tracy (the “City”) in connection with the issuance of the bonds captioned above (the “ 2023 Bonds”). The 2023 Bonds are being issued pursuant to a Fiscal Agent Agreement dated as of April 1, 2023 (the “Fiscal Agent Agreement”), by and between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent”). The City hereby covenants and agrees as follows:

Section 1. P urpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the 2023 Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

Section 2. Def initions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual
Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Annual Report Date” means the date that is nine months after the end of the City's fiscal year (currently March 31 based on the City’s fiscal year end of June 30).

“Community Facilities District” means Improvement Area No. 3 of the City of Tracy Community Facilities District No. 2016-2 (ECFD).

“Dissemination Agent” means Goodwin Consulting Group, Inc., or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.

“Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.

“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule.

“Official Statement” means the final official statement dated ______________, 2023, executed by the District in connection with the issuance of the 2023 Bonds.

“Participating Underwriter” means Piper Sandler & Co., the original underwriter of the 2023 Bonds required to comply with the Rule in connection with offering of the 2023 Bonds.

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“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as it may be amended from time to time.

Section 3. Provision of Annual Reports.

(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 31, 2024, with the report for the 2022-23 fiscal year, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate ; provided, however, that the audited financial statements of the City shall be filed by March 31 of each year, or such later date that the audited financial statements become available. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by the Annual Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c).

(b) If the City does not provide, or cause the Dissemination Agent to provide, an Annual Report by the Annual Report Date as required in subsection (a) above, the Dissemination Agent shall provide a notice to the MSRB, in a timely manner, in an electronic format as prescribed by the MSRB.

(i) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and

(ii) if the Dissemination Agent is other than the City, file a report with the City and the Participating Underwriter certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.

Section 4. Content of Annual Reports. The City's
Annual Report shall contain or
incorporate by reference the following documents and information:

(a) The Cit
y's audited financial statements for the most recently completed fiscal year, prepared in accordance with Generally Accepted Accounting Principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board, together with the following statement:

THE CITY'S ANNUAL FINANCIAL STATEMENT IS PROVIDED SOLELY TO COMPLY WITH THE SECURITIES EXCHANGE COMMISSION STAFF’S INTERPRETATI ON OF RULE 15c2-12. NO FUNDS OR ASSETS OF THE CITY, OTHER THAN SPECIAL TAX REVENUES, ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE 2023 BONDS, AND THE CITY IS NOT OBLIGATED TO ADVANCE AVAILABLE FUNDS TO COVER ANY DELINQUENCIES.

INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE CITY IN EVALUATING WHETHER TO BUY, HOLD OR SELL THE 2023 BONDS.

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If the City’s audited financial statements are not available by the time the Annual Report is required to be filed, the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) To the extent not included in the audited financial statements, the following information:

(i) Total assessed value (per the San Joaquin County Assessor’s records) of all parcels currently subject to the Special Tax within Improvement Area No. 3, showing the total secured assessed valuation for all property subject to the Special Tax.

(ii) Tables showing the owners of property in Improvement Area No. 3 and value-to- lien ratios based on the San Joaquin County Assessor's last equalized tax roll available to the City based on the most recent special tax levy , substantially in the form of the Table 3 in the Official State ment, excluding information regarding maximum special taxes at buildout and construction status.

(iii) The amount of prepayments of the Special Tax for the prior Fiscal Year.

(iv) A table showing a history of special tax collections and delinquencies within Improvement Area No. 3 for the prior Fiscal Year.

(v) Any change to the County’s Teeter Plan affecting Improvement Area No. 3.

(vi) The principal amount of the 2023 Bonds outstanding and the balance in the 2023 Reserve Fund (along with a statement of the 2023 Reser ve Requirement) as of the Septe mber 30 next preceding the Annual Report Date, including the issuance date and principal amount of any additional bonds or obligations issued under the Fiscal Agent Agreement on a parity with the 2023 Bonds.

(vii) Any changes to the Rate and Method of Apportionment of Special Tax for Improvement Area No. 3.

(c) In addition to any of the information expressly required to be provided under paragraph (b) above, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

(d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The District shall clearly identify each such other document so included by reference.

Section 5. Reporting of Listed Events.

(a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the 2023 Bonds:

(1) Principal and interest payment delinquencies.

(2) Non-payment related defaults, if material.

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(3) Unscheduled draws on debt service reserves reflecting financial difficulties.

(4) Unscheduled draws on credit enhancements reflecting financial difficulties.

(5) Substitution of credit or liquidity providers, or their failure to perform.

(6) Adverse tax opinions, the issuance by the Internal R evenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of the 2023 Bonds , or other material events affecting the tax status of the 2023 Bonds.

(7) Modifications to rights of security holders, if material.

(8) Bond calls, if material, and tender offers.

(9) Defeasances.

(10) Release, substitution, or sale of property securing repayment of the securities, if material.

(11) Rating changes.

(12) Bankruptcy, insolvency, receivership or similar event of the City.

(13) The consummation of a merger, consolidation, or acquisition involving the City, or the sale of all or substantially all of the assets of the City (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.

(14) Appointment of a successor or additional Fiscal Agent or the change of name of the Fiscal Agent, if material.

(15) Incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the obligated person, any of which affect security holders, if material.

(16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the obligated person, any of which reflect financial difficulties.

(b) Upon the occurrence of a Listed Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 Business Days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsection (a)(8) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Fiscal Agent Agreement.

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(c) The City acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), (a)(14), and (a)(15) of this Section 5 contain the qualifier “if material” and that subparagraph (a)(6) also contains the qualifier "material" with respect to certain notices, determinations or other events affecting the tax status of the 2023 Bonds. The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that it determines the event’s occurrence is material for purposes of U.S. federal securities law. Upon occurrence of any of these Listed Events, the City will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the City will cause a notice to be filed as set forth in paragraph (b) above.

(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City.

(e) For purposes of Section 5(a)(15) and (16), “financial obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule.

Section 6. Identifying Information for Filings with the MSRB.

All documents provided to the MSRB
under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.

Section 7. Term
ination of Reporting Obligation. The City 's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2023 Bonds. If such termination occurs prior to the final maturity of the 2023 Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

Section 8. Dissemination Agent. The City may
, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent will be Goodwin Consulting Group, Inc.

Section 9. Am
endment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) i
f 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 2023 Bonds, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the

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primary offering of the 2023 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the 2023 Bonds in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of the Fiscal Agent or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the 2023 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 City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(c).

Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 11. Def
ault. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the 2023 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.

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of the City u nder this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2023 Bonds.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the 2023 Bonds, and shall create no rights in any other person or entity.

Section 14. Count erparts. This Disclosure Certific ate 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.

Dat
e: __________, 2023

CITY OF TRACY

By:

Sara Cowell,
Finance Director

AGREED AND ACCEPTED:

Goodwin Consulting Group, Inc.,
as Dissemination Agent

By:

Name:

Title:

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APPENDIX F

FORM OF PROPERTY OWNER CONTINUING DISCLOSURE CERTIFICATE

CONTINUING DISCLOSURE CERTIFICATE
(LS-Tracy LLC)

$___________
IMPROVEMENT AREA NO. 3 OF THE CITY OF TRACY
COMMUNITY FACILITIES DISTRICT NO. 2016-2 (ECFD)
SPECIAL TAX BONDS, SERIES 2023

Dated: ___________, 2023

This Continuing Disclosure Certificate ( LS-Tracy LLC) (this “Disclosure Certificate”) is executed and delivered by LS-Tracy LLC, a Delaware limited liability company (the “Property Owner”), in connection with the issuance by the City of Tracy (the “City”) of the bonds captioned above (the “2023 Bonds”). The 2023 Bonds are being issued under a Fiscal Agent Agreement dated as of April 1, 2023 (the “Fiscal Agent Agreement”), by and between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent”). The Property Owner covenants and agrees as follows:

Section 1. P urpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Property Owner for the benefit of the holders and beneficial owners of the 2023 Bonds.

“Af
filiate” means any Person presently directly (or indirectly through one or more intermediaries) under managerial control of the Property Owner, and about whom information could be material to potential investors in their investment decisi on regarding the 2023 Bonds (including without limitation information relevant to the proposed development of the Property or to the Property Owner’s ability to pay the Special Taxes levied on the Property prior to delinquency).

“Assumption Agreement” means an undertaking of a Major Owner, for the benefit of the holders and beneficial owners of the 2023 Bonds, containing terms substantially similar to this Disclosure Certificate (as modified for such Major Owner’s development and financing plans with respect to the District), whereby such Major Owner 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 Improvement Area No. 3 owned by such Major Owner and agrees to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of Section 12 hereof.

“Dissemination Agent ” means the Property Owner , or any successor Dissemination Agent designated in writing by the Property Owner, with the written consent of the City, and which has filed with the Property Owner and the City a written acceptance of such designation, and which is experienced in providing dissemination agent services such as those required under this Disclosure Certificate.

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“District” means the City of Tracy Community Facilities District No. 2016-2 (ECFD).

“Improvement Area No. 3” means Improvement Area No. 3 of the District.

“Landbank Owner” means LS-LCF CA, LLC, a Delaware limited liability company, the landbank for the Property Owner pursuant to the Option Agreement.

“Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.

“Major Owner” means, as of any Report Date, a Person that, together with the Person’s Affiliates, owns 62 or more residential lots (or property intended to be subdivided into 62 or more residential lots) in Improvement Area No. 3.

“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information.

“Official Statement” means the final Official Statement dated _____________, 2023, executed by the City in connection with the issuance of the 2023 Bonds.

“Option Agreement” means the Option Agreement dated June 27, 2022 by and between the Landbank Owner and the Property Owner.

“Participating Underwriter” means Piper Sandler & Co., the original underwriter of the 2023 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 (i) the property owned by the Property Owner in Improvement Area No. 3 as of the Report Date, (ii) during the term of the Option Agreement, the property owned by the Landbank Owner in Improvement Area No. 3 as of the date for which information is provided in the Semi -Annual Report, and (iii) the property in Improvement Area No. 3 that the Property Owner sold to a Major Owner who has not assumed the undertakings of this Disclosure Certificate under Section 7(b) that is owned by such Major Owner.

“Report Date” means (a) September 30 of each year, and (b) March 31 of each year.

“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 Certificate.

“Special Taxes” means the special taxes for facilities levied by the City on the Property.

Section 3. P
rovision of Semi-Annual Reports.

(a) So long as the Property Owner’s obligations under this Disclosure Certificate have not been terminated pursuant to Section 7 herein, the Property Owner shall, or upon written direction of the Property Owner the Dissemination Agent shall, not later than the Report Date, commencing September 30, 2023, provide to the MSRB, in an electronic format as prescribed by the MSRB, a Semi-Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate with a copy to the Participating Underwriter and the City. Not later than 15 calendar days prior to the Report Date, the Property Owner shall provide the Semi -Annual Report to the Dissemination Agent (if different from the

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Property Owner). The Property Owner shall provide a written certification with (or included as a part of) each Semi-Annual Report furnished to the Dissemination Agent (if different from the Property Owner), Participating Underwriter and the City to the effect that such Semi -Annual Report constitutes the Semi- Annual Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent, the Participating Underwriter and the City 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 comprising a package, and may incorporate by reference other information as provided in Section 4 of this Disclosure Certificate.

(b) If the Dissemination Agent does not receive a Semi -Annual Report by 15 calendar 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 Certificate have terminated (pursuant to Section 7 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 MSRB by the Report Date as required in subsection (a) above, the Dissemination Agent shall provide a notice to the MSRB, in an electronic format as prescribed by the MSRB.

(i) determine prior to each Report Date the then- applicable rules and electronic format prescribed by the MSRB for the filing of continuing disclosure reports; 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 City and the Participating Underwriter certifying that the Semi-Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.

Section 4. C
ontent of Semi -Annual Reports. The Property Owner’s Semi -Annual Report shall contain or incorporate by reference the information set forth in Exhibit A, any or all of which may be included by specific reference to other documents, including official statements of debt issues of the Property Owner or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The Property Owner shall clearly identify each such other document so included by reference.

In
addition to any of the information expressly required to be provided in Exhibit A, each Semi - Annual Report shall include such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

Section 5. R eporting of Significant Events.

(a) So long as the Property Owner’s obligations under this Disclosure Certificate have not been terminated pursuant to Section 7 herein, the Property Owner shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to itself or the Property, 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;

F-4
(ii) failure to pay any taxes, special taxes (including the Special Taxes) or assessments due with respect to the Property prior to the delinquency date, to the extent such failure is not promptly cured by the Property Owner upon discovery thereof;

(iii) filing of a lawsuit against the Property Owner or, if known, an Affiliate of the Property Owner, seeking damages which, if successful, could have a material and adverse impact on the Property Owner’s ability to pay Special Taxes prior to delinquency or to sell or develop the Property;

(iv) material damage to or destruction of any of the improvements on the Property;

(v) material default by the Property Owner under the Option Agreement to which the Property Owner has been provided a notice of default; and

(vi) any payment default or other material default by the Property Owner that continues to exist beyond any applicable notice and cure periods on any loan with respect to the construction of improvements on the Property.

(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 appl icable Federal securities law.

(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 MSRB, in an electronic format as prescribed by the MSRB, with a copy to the City and the Participating Underwriter.

Section 6. Identifying Information for Filings with the MSRB.

All documents provided to the MSRB
under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.

Section 7. D
uration 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 12) on the earliest to occur of the following:

(i) upon the legal defeasance, prior redemption or payment in full of all the 2023 Bonds, or

(ii) when the Property owned by the Property Owner (or which the Property Owner has an option to purchase under the Option Agreement) is fewer than 62 residential lots (or property that will be subdivided into fewer than 62 residential lots), or

(iii) the date on which the Property Owner prepays in full all of the Special Taxes attributable to the Property.

The Property Owner shall give notice of the termination of its obligations under this Disclosure Certificate in the same manner as for a Listed Event under Section 5.

F-5
(b) If a portion of the Property is conveyed to a person or entity that, upon such conveyance, will be a Major Owner, the obligations of the Property Owner hereunder with respect to the property conveyed to such Major Owner may be assumed by such Major Owner and the Property Owner’s obligations hereunder with respect to the property conveyed will be terminated.

In order to effect such assumption, such Major Owner shall enter into an Assumption Agreement in form and substance equivalent to this Disclosure Certificate or as otherwise satisfactory to the City and the Participating Underwriter. However, a Major Owner shall not be required to enter into an Assumption Agreement if such Major Owner is already a party to a continuing disclosure certificate in form and substance similar to this Disclosure Certificate with respect to the 2023 Bonds, and under which the property conveyed to such Major Owner will become subject to future Semi-Annual Reports.

Section 8. Di
ssemination Agent. The Property Owner may, from t ime to time, with the written consent of the City, appoint or engage a Dissemination Agent to assist the Property Owner in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with the written consent of the City, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing 30 days’ written notice to the City and the Property Owner.

Section 9. A mendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Property Owner may amend this Disclosure Certificate, and any provision of this Disclosure Certificate 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) i
f 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, or change in law;

(b) the proposed amendment or waiver either (i) is approved by holders of the 2023 Bonds in the manner provided in the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the 2023 Bonds.

Section 10. Addi
tional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Property Owner from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Semi-Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the 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 Certificate, the Property Owner shall have no obligation under this Disclosure Certificate to update such information or include it in any future Semi- Annual Report or notice of occurrence of a Listed Event.

Section 11. Def
ault. In the event of a failure of the Property Owner to comply with any provision of this Disclosure Certificate, the Fiscal Agent shall (upon written direction and only to the extent indemnified to its sati sfaction from any liability, cost or expense, including fees and expenses of its attorneys), and the Participating Underwriter and any holder or beneficial owner of the 2023 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 Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of

F-6
any failure of the Property Owner to comply with this Disclosure Certificate shall be an action to compel performance. Neither the Property Owner nor the Dissemination Agent shall have any liability to any holder or beneficial owner of the 2023 Bonds or any other party for monetary damages or financial liability of any kind whatsoever arising from or relating to this Disclosure Certificate.

Section 12. Dut
ies, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Property Owner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities 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 claim of liability, but excluding (i) losses, expenses and liabilities due to the Dissemination Agent’s, and its officers, directors, employees, and agents’ negligence or willful misconduct, or failure to perform its duties hereunder, and (ii) l osses, expenses and liabilities due to the failure of the City to pay the fees and expenses of the Dissemination Agent. The Dissemination Agent shall be paid compensation for its services provided hereunder from the Administrative Expense Fund established under the Fiscal Agent Agreement in accordance with the Dissemination Agent’s 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 City, the Property Owner, the Fiscal Agent, the 2023 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 2023 Bonds, but shall be assumed by a Major Owner from and after the date of such assumption when property is sold to a Major Owner and such Major Owner enters into an assumption agreement.

Section 13. Not
ices. Any notice or communications to be among any of the parties to thi s Disclosure Certificate may be given by electronic, overnight, or regular mail as follows:

To the
Issuer: City of Tracy
333 Civic Plaza
Tracy, CA 95376
Email: [email protected]

To the Participating Underwriter: Piper Sandler & Co.
3626 Fair Oaks Boulevard
Sacramento, California 95864
Email: [email protected]

To the Property Owner: LS-Tracy LLC
________________
_____________, California _________
Attn: ___________
Email: ________________

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 14. B
eneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the 2023 Bonds, and

F-7
shall create no rights in any other person or entity. All obligations of the Property Owner hereunder shall be assumed by any legal successor to the obligations of the Property Owner as a result of a sale, merger, consolidation or other reorganization.

Section 15. Count erparts. This Disclosure Certificate 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.

LS-TRA

CY LLC,
A Delaware limited liability company

By: Landsea Homes-WAB LLC, a Delaware
limited liability company
Its: Manager

By:

Name: _____________________

Title:

F-8
EXHI
BIT A

SEMI-ANNUA

L REPORT
[MA
RCH 31, ____ / SEPTEMBER 30, _____]
$________
IM
PROVEMENT AREA NO. 3 OF THE CITY OF TRACY
COMMUNITY FACILITIES DISTRICT NO. 2016-2 (ECFD)
SPECIAL TAX BONDS, SERIES 2023
This
Semi-Annual Report is hereby submitted under Section 4 of the Continuing Disclosure Certificate (LS-Tracy LLC) (the “Disclosure Certificate”) dated as of ___________, 2023, executed by the undersigned (the “Property Owner”) in connection with the issuance by the City of Tracy (the “City”) of the bonds captioned above (the “2023 Bonds”) for Improvement Area No. 3 (“Improvement Area No. 3”) of the City of Tracy Community Facilities District No. 2016-2 (ECFD) (the “District”).

Capit
alized terms used in this Semi-Annual Report but not otherwise defined have the meanings given to them in the Disclosure Certificate.

I. Proper
ty Ownership and Development
The info
rmation 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. Desc
ription of the Property currently owned by the Property Owner, or for which t he Property Owner has an option to purchase under the Option Agreement, in Improvement Area No. 3 of the District (the “Property”), in substance and form similar to such information in the Official Statement for the 2023 Bonds:
________________________________________________________________________ ________________________________________________________________________

B. Updated
information regarding land development and home construction activities with respect to the Property described in the Official Statement for the 2023 Bonds or the Semi-Annual Report last filed in accordance with the Disclosure Certificate:
________________________________________________________________________ ________________________________________________________________________

C. Stat
us of building permits and any material changes to the description of land use or development entitlements for the Property described in the Official Statement for the 2023 Bonds or the Semi-Annual Report last filed in accordance with the Disclosure Certificate:
________________________________________________________________________ ________________________________________________________________________

F-9
D. Status of any land purchase contracts with regard to the Property, whether acquisition of land in Improvement Area No. 3 by the Property Owner under the Option Agreement or sales of land to other property owners (other than individual homeowners). ________________________________________________________________________ ________________________________________________________________________

II. Legal and Financial Status of Property Owner

Unless such information has previously been included or incorporated by reference in a Semi - Annual Report, describe any material change in the legal structure of the Property Owner or the financial condition and financing plan of the Property Owner that would materially and adversely interfere with its ability to complete the development plan with respect to the Property described in the Official Statement.

To the extent that the ownership of the Property Owner has changed, describe all material terms of the new ownership structure.

________________________________________________________________________ ________________________________________________________________________

III. Change in Development or Financing Plans

Unless such information has previously been included or incorporated by reference in a Semi - Annual Report, describe any development plans or financing plans relating to the Property that are materially different from the proposed development and financing plan for the Property described in the Official Statement or in a previous Semi-Annual Report. ________________________________________________________________________ ________________________________________________________________________

IV. Official Statement Updates

Unless such information has previously been included or incorporated by reference 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 heading “ OWNERSHIP AND DEVELOPMENT OF IMPROVEMENT AREA NO. 3” that would materially and adversely interfere with the Property Owner’s ability to develop and sell the Property as described in the Official Statement. ________________________________________________________________________ ________________________________________________________________________

F-10
V. 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 the Property Owner and its Affiliates.

________________________________________________________________________ ________________________________________________________________________

VI. Other Material Information

In addition to any of the information expressly required above, provide such further information, if any, with respect to the Property and the Property Owner as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

________________________________________________________________________ ________________________________________________________________________

Certification

On behalf of the Property Owner, the undersigned Authorized Representative, based on actual knowledge after reasonable inquiry of employees of Property Owner and its affiliates, hereby certifies that this Semi-Annual Report constitutes the Semi-Annual Report required to be furnished by the Property Owner under the Disclosure Certificate.

ANY OTHER STATEMENTS REGARDING THE PROPERTY OWNER, THE DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER’S FINANCING PLAN OR FINANCIAL CONDITION, OR THE 2023 BONDS, OTHER THAN STATEMENTS MADE BY THE PROPERTY OWNER IN AN

OFFICIAL RELEASE, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD, 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 CERTIFICATE.

Dated:

LS-TRACY LLC,
A Delaware limited liability company

By: Landsea Homes-WAB LLC, a Delaware limited liability company
Its: Manager

By:

Name:

Title:

G-1

APPENDIX G

FORM OF OPINION OF BOND COUNSEL

April __, 2023

City Council
City of Tracy
333 Civic Center Plaza
Tracy, California 95376

OPINION: $ _________
Improvement Area No. 3 of the City of Tracy Community Facilities District No. 2016-2 (ECFD) Special Tax Bonds, Series 2023

Members of the Council:

We have acted as bond counsel to the City of Tracy (the “City”) in connection with the issuance by the City of the special tax bonds captioned above, dated as of the date first written above (the "Bonds").

In such capacity, we have examined such law and such certified proceedings, opinions, certifications and other documents as we have deemed necessary to render this opinion.

The Bonds are issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, being sections 53311 et seq. of the California Government Code (the “Act”), a resolution of the City Council adopted on [March 7], 2023 (the “Resolution”), and a Fiscal Agent Agreement dated as of April 1, 2023 (the “Fiscal Agent Agreement”), between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent”).

Under the Fiscal Agent Agreement, the City has pledged certain revenues (“Special Tax Revenues”) for the payment of principal, premium (if any) and interest on the Bonds when due.

Regarding questions of fact material to our opinion, we have relied on representations of the City contained in the Fiscal Agent Agreement, and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation.

Based on the foregoing, we are of the opinion that, under existing law:

1. The City is a duly created and validly existing municipal corporation and general law city with the power to adopt the Resolution, enter into the Fiscal Agent Agreement and perform the agreements on its part contained therein, and issue the Bonds.

2. The Fiscal Agent Agreement has been duly authorized, executed and delivered by the City, and constitutes a valid and binding obligation of the City, enforceable against the City.

3. The Fiscal Agent Agreement creates a valid lien on the Special Tax Revenues and other funds pledged by the Fiscal Agent Agreement for the security of the Bonds, on a parity with other bonds (if any) issued or to be issued in accordance with the Fiscal Agent Agreement.

G-2

4. The Bonds have been duly authorized and executed by the City and are valid and binding limited obligations of the City, payable solely from the Special Tax Revenues and other funds provided therefor in the Fiscal Agent Agreement.

5. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for pur poses of the federal alternative minimum tax. It should be noted however that interest on the Bonds may be subject to the corporate alternative minimum tax. The opinions set forth in the preceding sentences are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The City has made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the Bonds.

6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California.

We express no opinion regarding any other tax consequences arising with respect to the ownership, sale or disposition of, or the amount, accrual or receipt of interest on, the Bonds.

The rights of the owners of the Bonds and the enforceability of the Bonds and the Fiscal Agent Agreement are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally, and by equitable principles, whether considered at law or in equity.

This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Moreover, our opinions are not a guarantee of a particular result, and are not binding on the Internal Revenue Service or the courts; rather, our opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations, covenants and opinions referenced above. Our engagement with respect to this matter has terminated as of the date hereof.

Respectfully submitted,

A Professional Law Corporation

H-1

APPENDIX H

APPRAISAL REPORT

FISCAL AGENT AGREEMENT
by and bet
ween the
CITY

OF TRACY
and
U.S.

BANK TRUST COMPANY, NATIONAL ASSOCIATION
as Fiscal Agent
Dated
as of April 1, 2023
Rela
ting to:
$_________
Improvement Area No. 3 of the
City of Tracy
Community Facilities District No. 2016-2 (ECFD)
Special Tax Bonds, Series 2023

ATTACHMENT B
i

TABLE OF CONTENTS

ARTICLE I

AUTHORITY AND DEFINITIONS
Section 1.01. Authority for this Agreement ............................................................................................ 2 Section 1.02. Agreement for Benefit of Owners of the Bonds ............................................................... 2 Section 1.03. Definitions ........................................................................................................................ 2

ARTICLE II

THE BONDS
Section 2.01. Principal Amount; Designation ....................................................................................... 12 Section 2.02. Terms of Bonds .............................................................................................................. 12 Section 2.03. Redemption .................................................................................................................... 14 Section 2.04. Form of Bonds................................................................................................................ 17 Section 2.05. Execution and Authentication of Bonds ......................................................................... 18 Section 2.06. Transfer or Exchange of Bonds ..................................................................................... 18 Section 2.07. Bond Register ................................................................................................................ 18 Section 2.08. Temporary Bonds .......................................................................................................... 18 Section 2.09. Bonds Mutilated, Lost, Destroyed or Stolen .................................................................. 19 Section 2.10. Book-Entry Only System ................................................................................................ 19

ARTICLE III

ISSUANCE OF BONDS
Section 3.01. Issuance and Delivery of 2023 Bonds ........................................................................... 21 Section 3.02. Pledge of Special Tax Revenues ................................................................................... 21 Section 3.03. Limited Obligation .......................................................................................................... 21 Section 3.04. No Acceleration .............................................................................................................. 21 Section 3.05. Validity of Bonds ............................................................................................................ 22 Section 3.06. Parity Bonds ................................................................................................................... 22

ARTICLE IV

PROCEEDS, FUNDS AND ACCOUNTS
Section 4.01. Application of 2023 Bond Proceeds ............................................................................... 23 Section 4.02. Costs of Issuance Fund ................................................................................................. 23 Section 4.03. 2023 Reserve Fund ....................................................................................................... 24 Section 4.04. Bond Fund...................................................................................................................... 26 Section 4.05. Special Tax Fund ........................................................................................................... 27 Section 4.06. Administrative Expense Fund ........................................................................................ 29 Section 4.07. Improvement Fund ......................................................................................................... 29

ARTICLE V

COVENANTS
Section 5.01. Collection of Special Tax Revenues .............................................................................. 32 Section 5.02. Covenant to Foreclose ................................................................................................... 33 Section 5.03. Punctual Payment .......................................................................................................... 34 Section 5.04. Extension of Time for Payment ...................................................................................... 34 Section 5.05. Against Encumbrances .................................................................................................. 34 Section 5.06. Books and Records ........................................................................................................ 34 Section 5.07. Protection of Security and Rights of Owners ................................................................. 35 Section 5.08. Further Assurances ........................................................................................................ 35 Section 5.09. Private Activity Bond Limitations .................................................................................... 35 Section 5.10. Federal Guarantee Prohibition ....................................................................................... 35 Section 5.11. Rebate Requirement ...................................................................................................... 35 Section 5.12. No Arbitrage ................................................................................................................... 35 Section 5.13. Yield of the 2019 Bonds ................................................................................................. 36 Section 5.14. Maintenance of Tax-Exemption; Record Retention; Compliance with Tax Certificate .. 36 Section 5.15. Continuing Disclosure .................................................................................................... 36 Section 5.16. Limits on Special Tax Waivers and Bond Tenders ........................................................ 36 Section 5.17. City Bid at Foreclosure Sale .......................................................................................... 36 ii

Section 5.18. Amendment of Rate and Method .................................................................................... 37 Section 5.19. Determination of Required Coverage ............................................................................. 37

ARTICLE VI
INVESTMENTS; LIABILITY OF THE CITY
Section 6.01. Deposit and Investment of Moneys in Funds ................................................................. 38 Section 6.02. Liability of City ................................................................................................................ 39 Section 6.03. Employment of Agents by City ....................................................................................... 40

ARTICLE VII

THE FISCAL AGENT
Section 7.01. The Fiscal Agent ............................................................................................................ 41 Section 7.02. Liability of Fiscal Agent .................................................................................................. 42 Section 7.03. Information; Books and Accounts .................................................................................. 43 Section 7.04. Notice to Fiscal Agent .................................................................................................... 43 Section 7.05. Compensation, Indemnification...................................................................................... 44

ARTICLE VIII

MODIFICATION OR AMENDMENT
Section 8.01. Amendments Permitted ................................................................................................. 46 Section 8.02. Owners’ Meetings .......................................................................................................... 47 Section 8.03. Procedure for Amendment with Written Consent of Owners ......................................... 47 Section 8.04. Disqualified Bonds ......................................................................................................... 47 Section 8.05. Effect of Supplemental Agreement ................................................................................ 48 Section 8.06. Endorsement or Replacement of Bonds Issued After Amendments ............................. 48 Section 8.07. Amendatory Endorsement of Bonds .............................................................................. 48

ARTICLE IX

MISCELLANEOUS
Section 9.01. Benefits of Agreement Limited to Parties ...................................................................... 49 Section 9.02. Successor and Predecessor .......................................................................................... 49 Section 9.03. Discharge of Agreement ................................................................................................ 49 Section 9.04. Execution of Documents and Proof of Ownership by Owners ....................................... 50 Section 9.05. Waiver of Personal Liability ............................................................................................ 50 Section 9.06. Notices to and Demands on the City and Fiscal Agent ................................................. 51 Section 9.07. Partial Invalidity .............................................................................................................. 51 Section 9.08. Unclaimed Moneys ........................................................................................................ 51 Section 9.09. Applicable Law ............................................................................................................... 51 Section 9.10. Conflict with Act.............................................................................................................. 51 Section 9.11. Conclusive Evidence of Regularity ................................................................................ 51 Section 9.12. Payment on Business Day ............................................................................................. 52 Section 9.13. State Reporting Requirements....................................................................................... 52 Section 9.14. Counterparts .................................................................................................................. 53

EXHIBIT A: FORM OF 2023 BOND
EXHIBIT B: OFFICER’S CERTIFICATE REQUESTING DISBURSEMENT FROM

IMPROVEMENT FUND
EXHIBIT C: OFFICER’S CERTIFICATE REQUESTING DISBURSEMENT FROM COSTS OF

ISSUANCE FUND
EXHIBIT D: OFFICER’S CERTIFICATE REQUESTING DISBURSEMENT FROM

ADMINISTRATIVE EXPENSE FUND

1 FISCAL AGENT AGREEMENT

THIS FISCAL AGENT AGREEMENT (the “Agreement”) is made and entered into as of April 1, 2023, by and between the CITY OF TRACY, a municipal corporation and general law city organized and existing under the laws of the State of California (the “City”) for and on behalf of the "City of Tracy Community Facilities District No. 2016-2 (ECFD)" (the “CFD”) with respect to its “Improvement Area No. 3 of the City of Tracy Community Facilities District No. 2016-2 (ECFD)" (“Improvement Area No. 3”), and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States of America with a corporate trust office located in San Francisco, California, as fiscal agent (the “Fiscal Agent”).

WITNESSETH:

WHEREAS, the City Council of the City has formed the CFD, including Improvement Area No. 3, under the provisions of the Mello- Roos Community Facilities Act of 1982, as amended (section 53311 et seq. of the California Government Code) (the “Act”); and

WHEREAS, the City Council, as the legislative body with respect to the CFD, is authorized under the Act to levy special taxes within Improvement Area No. 3 to pay for the costs of facilities and to authorize the issuance of bonds secured by said special taxes under the Act; and

WHEREAS, on ______, 2023, the City Council adopted Resolution No. 2023-___ (the “Resolution”) authorizing the issuance of special tax bonds (the “ 2023 Bonds”) on behalf of the CFD with respect to Improvement Area No. 3; and

WHEREAS, it is in the public interest and for the benefit of the City, the CFD, Improvement Area No. 3 and the persons responsible for the payment of special taxes that the City enter into this Agreement to provide for the issuance of the Bonds (as defined below) hereunder to finance the acquisition and construction of facilities for the City and to provide for the disbursement of proceeds of the Bonds, the disposition of the special taxes securing the Bonds and the administration and payment of the Bonds; and

WHEREAS, the City has determined that all things necessary to cause the 2023 Bonds, when authenticated by the Fiscal Agent and issued as provided in the Act, the Resolution and this Agreement, to be legal, valid, binding and limited obligations in accordance with their terms, and all things necessary to cause the creation, authorization, execution and delivery of this Agreement and the creation, authorization, execution and issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized.

NOW, THEREFORE, in consideration of the covenants and provisions herein set forth and for other valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows:
2 ARTICLE I

AUTHORITY AND DEFINITIONS

Section 1.01. Authority for this Agreement . This Agreement is entered into pursuant to the Act (as herein defined) and the Resolution.

Section 1.02. Agreement for Benefit of Owners of the Bonds. The provisions, covenants and agreements herein set forth to be performed by or on behalf of the City shall be for the equal benefit, protection and security of the Owners of the Bonds. All of the Bonds, without regard to the time or times of their issuance or maturity, shall be of equal rank without preference, priority or distinction of any of the Bonds over any other thereof, except as expressly provided in or permitted by this Agreement.

Section 1.03. Definitions. Unless the context otherwise requires, the terms defined in this Section 1.03 shall, for all purposes of this Agreement, of any Supplemental Agreement, and of any certificate, opinion or other document herein mentioned, have the meanings herein specified. All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement, and the words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof.

“Acquisition Agreement” means that certain Amended and Restated Master Acquisition Agreement, dated as of September 1, 2021, by and between the City and the Developer.

“Act” means the Mello- Roos Community Facilities Act of 1982, as amended, being sections 53311 et seq. of the California Government Code.

“Administrative Expenses” means costs directly related to the administration of the CFD consisting of: the actual costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by a City employee or consultant or both) and the actual costs of collecting the Special Taxes (whether by the County or otherwise); the actual costs of remitting the Special Taxes to the Fiscal Agent; actual costs of the Fiscal Agent (including its legal counsel) in the discharge of its duties under this Agreement; the actual costs of the City or its designee of complying with the disclosure provisions of the Act and this Agreement, including those related to public inquiries regarding the Special Tax and disclosures to Owners of the Bonds and the Original Purchaser; costs of th e dissemination agent, whether for the City or another party that has undertaken to provide continuing disclosure; the actual costs of the City or its designee related to an appeal of the Special Tax; any amounts required to be rebated to the federal government; an allocable share of the salaries of the City staff directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto. Administrative Expenses shall also include amounts advanced by the City for any administrative purpose of the CFD, including costs related to prepayments of Special Taxes, recordings related to such prepayments and satisfaction of Special Taxes, amounts advanced to ensure maintenance of tax exemption, and the costs of prosecuting foreclosure of delinquent Special Taxes, which amounts advanced are subject to reimbursement from other sources, including proceeds of foreclosure.

3 “Administrative Expense Fund” means the fund designated the “Improvement Area No. 3 of the City of Tracy Community Facilities District No. 2016-2 ( ECFD) Administrative Expense Fund" established and administered under Section 4.06.

“Agreement” means this Fiscal Agent Agreement, as it may be amended or supplemented from time to time by any Supplemental Agreement adopted pursuant to the provisions hereof.

“Annual Debt Service” means, for each Bond Year, the sum of (i) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled, and (ii) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking payment due in such Bond Year).

“Auditor” means the audi tor/controller of the County, or such other official at the County who is responsible for preparing property tax bills.

“Authorized Officer” means the Mayor, City Manager, Assistant City Manager, Finance Director, City Clerk or any other officer or employee authorized by the City Council of the City or by an Authorized Officer to undertake the action referenced in this Agreement as required to be undertaken by an Authorized Officer.

“Bond" or "Bonds” means the 2023 Bonds and, if the context requires, any Parity Bonds, at any time Outstanding under this Agreement or any Supplemental Agreement.

“Bond Counsel” means Jones Hall, A Professional Law Corporation or any other attorney or firm of attorneys acceptable to the City and nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities.

“Bond Fund” means the fund designated the “Improvement Area No. 3 of the City of Tracy, Community Facilities District No. 2016-2 (ECFD) Special Tax Bonds, Bond Fund” established and administered under Section 4.04.

“Bond Proceeds Account” means the account of that name within the Improvement Fund to be established and administered by the Fiscal Agent under Section 4.07.

“Bond Year” means the one- year period beginning on September 2nd in each year and ending on September 1 in the following year, except that the first Bond Year shall begin on the Closing Date and shall end on September 1, 2023.

“Business Day” means any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the state in which the Fiscal Agent has its principal corporate trust office are authorized or obligated by law or executive order to be closed.

“CDIAC” means the California Debt and Investment Advisory Commission of the Office of the State Treasurer, or any successor agency, board or commission.

“CFD” means the "City of Tracy Community Facilities District No. 2016-2 (ECFD)" formed under the Resolution of Formation.

“City” means the City of Tracy, and any successor thereto.

4 “City Attorney ” means any attorney or firm of attorneys employed by the City in the capacity of general counsel.

“City Council” means the City Council of the City, in its capacity as the legislative body of the CFD.

“Closing Date” means the date upon which there is a physical delivery of the applicable series of Bonds in exchange for the amount representing the purchase price of such Bonds by the Original Purchaser.

“Continuing Disclosure Certificate ” means that certain Continuing Disclosure Certificate executed by the City and dated the date of issuance and delivery of the 2023 Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

“Costs of Issuance” means items of expense payable or reimbursable directly or indirectly by the City and related to the authorization, sale, delivery and issuance of the Bonds, which items of expense shall include, but not be limited to, printing costs, costs of reproducing and binding documents, closing costs, appraisal costs, filing and recording fees, fees and expenses of counsel to the City, initial fees and charges of the Fiscal Agent including its first annual administration fees and its legal fees and charges, including the allocated costs of in- house attorneys, expenses incurred by the City in connection with the issuance of the Bonds, Bond (underwriter’s) discount, legal fees and charges, including bond counsel, and counsel to any financial consultant, financial consultant’s fees, charges for execution, authentication, transportation and safekeeping of the Bonds and other costs, charges and fees in connection with the foregoing.

“Costs of Issuance Fund” means the fund designated the “Improvement Area No. 3 of the City of Tracy, Community Facilities District No. 2016-2 ( ECFD) Special Tax Bonds, Costs of Issuance Fund” established and administered under Section 4.02.

“County” means the County of San Joaquin, California.

“Dated Date” means April __, 2023, the dated date of the 2023 Bonds, which is the Closing Date of the 2023 Bonds.

“Debt Service ” means the scheduled amount of interest and amortization of principal payable on the 2023 Bonds under Sections 2.02 and 2.03 and the scheduled amount of interest and amortization of principal payable on any Parity Bonds during the period of computation, in each case excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period.

“Depository” means (a) initially, DTC, and (b) any other Securities Depository acting as Depository for book-entry under Section 2.10.

“Developer” means Surland Communities, LLC, a California limited liability company, and its successors and assigns.

“DTC” means The Depository Trust Company, New York, New York, and its successors and assigns.

“Fair Market Value” means with respect to the Bonds the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm’s length transaction 5 (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Tax Code) and, otherwise, the term “Fair Market Value” means the acquisition price in a bona fide arm’s length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code, (iii) the investment is a United States Treasury Security —State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the City and related parties do not own more than a 10% beneficial interest if the return paid by such fund is without regard to the source of the investment.

“Federal Securities” means: (a) any direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), the payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America; and (b) any obligations the principal of and interest on which are unconditionally guaranteed by the United States of America.

“Finance Director” means the official of the City, or such official's designee, who acts in the capacity as the chief financial officer of the City, including the controller or other financial officer.

“Fiscal Agent” means U.S. Bank Trust Company, National Association, the Fiscal Agent appointed by the City and acting as an independent fiscal agent with the duties and powers herein provided, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in Section 7.01.

“Fiscal Year” means the twelve-month period extending from July 1 in a calendar year to June 30 of the succeeding year, both dates inclusive.

“Improvement Area No. 3” means “ Improvement Area No. 3 of the City of Tracy Community Facilities District No. 2016-2 (ECFD)” formed under the Act and in accordance with the Resolution of Formation.

“Improvement Fund” means the fund designated “ Improvement Area No. 3 of the City of Tracy, Community Facilities District No. 2016-2 (ECFD), Special Tax Bonds, Improvement Fund,” established under Section 4.07.

“Independent Financial Consultant ” means any consultant or firm of such consultants appointed by the City or the Treasurer, and who, or each of whom:

(i) is judged by the Treasurer to have experience in matters relating to the issuance and/or administration of bonds under the Act;

(ii) is in fact independent and not under the domination of the City;

6 (iii) does not have any substantial interest, direct or indirect, with or in the City, or any owner of real property in Improvement Area No. 3, or any real property in Improvement Area No. 3; and

(iv) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City.

“Interest Payment Date” means each September 1 and March 1 of every calendar year, commencing with September 1, 2023.

“Maximum Annual Debt Service” means the largest Annual Debt Service for any Bond Year after the calculation is made through the final maturity date of any Outstanding Bonds.

“Moody’s” means Moody’s Investors Service, Inc., and its successors.

“MSRB” means the Municipal Securities Rulemaking Board, through its EMMA system, and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such services providing information with respect to called bonds as the City may designate in an Officer’s Certificate delivered to the Fiscal Agent.

“Officer’s Certificate” means a written certificate of the City signed by an Authorized Officer of the City.

“Ordinance” means any ordinance of the City Council of the City levying the Special Taxes, including but not limited to Ordinance No. 1230 introduced by the City Council on February 7, 2017, and adopted by the City Council on February 21, 2017.

“Original Purchaser” means Piper Sandler & Co., the first purchaser of the 2023 Bonds from the City.

“Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 8.04) all Bonds except (i) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (ii) Bonds paid or deemed to have been paid within the meaning of Section 9.03; and (iii) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the City under this Agreement or any Supplemental Agreement.

“Owner” or “Bondowner ” means any person who shall be the registered owner of any Outstanding Bond.

“Parity Bonds” means additional bonds issued and payable on a parity with the Bonds under Section 3.06.

“Participating Underwriter” shall have the meaning ascribed thereto in the Continuing Disclosure Certificate.

“Permitted Investments” means the following, but onl y to the extent that the same are acquired at Fair Market Value:

(a) Federal Securities.

7 (b) any of the following direct or indirect obligations of the following agencies of the United States of America: (i) direct obligations of the Export-Import Bank; (ii) certificates of beneficial ownership issued by the Farmers Home Administration; (iii) participation certificates issued by the General Services Administration; (iv) mortgage- backed bonds or pass -through obligations issued and guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Federal Housing Administration; (v) project notes issued by the United States Department of Housing and Urban Development; and (vi) public housing notes and bonds guaranteed by the United States of America;

(c) interest-bearing demand or time deposits (including certificates of deposit), including those placed by a third party pursuant to a separate agreement between the City and the Fiscal Agent, banking deposit products, trust funds, trust accounts, overnight bank deposits, interest bearing deposits, interest bearing money market accounts or deposit accounts in federal or state chartered savings and loan associations or in federal or State of California banks (including the Fiscal Agent, its parent, if any, and affiliates), provided that (i) the unsecured short -term obligations of such commercial bank or savings and loan association shall be rated in the highest short-term rating category by any Rating Agency, or (ii) such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation;

(d) commercial paper rated at the time of purchase in the highest short - term rating category by any Rating Agency, issued by corporations which are organized and operating within the United States of America, and which matures not more than 180 days following the date of investment therein;

(e) bankers acceptances, consisting of bills of exchange or time drafts drawn on and accepted by a commercial bank, including its parent (if any), affiliates and subsidiaries, whose short-term obligations are rated in the highest short-term rating category by any Rating Agency, or whose long-term obligations are rated A or better by any Rating Agency, which mature not more than 270 days following the date of investment therein;

(f) obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code and which are either (a) rated A or better by any Rating Agency, or (b) fully secured as to the payment of principal and interest by Federal Securities;

(g) obligations issued by any corporation organized and operating within the United States of America having assets in excess of $500,000,000, which obligations are rated A or better by any Rating Agency;

(h) money market mutual funds (including money market funds for which the Fiscal Agent, its affiliates or subsidiaries provide investment advisory, transfer agency, custodial or other management services for which it receives and retains a fee for such services to the fund) which invest in Federal Securities or which are rated in the highest short -term rating category by any Rating Agency including those funds for which the Fiscal Agent or an affiliate receives and retains a fee for 8 services provided to the fund, whether as a custodian, transfer agent, investment advisor or otherwise; and

(i) any investment agreement representing general unsecured obligations of a financial institution rated A or better by any Rating Agency, by the terms of which the Fiscal Agent is permitted to withdraw all amounts invested therein in the event any such rating falls below A.

(j) the Local Agency Investment Fund established pursuant to Section 16429.1 of the Government Code of the State of California, provided, however, that the Fiscal Agent shall be permitted to make investments and withdrawals in its own name and the Fiscal Agent may restrict investments in the such fund if necessary to keep moneys available for the purposes of this Fiscal Agent Agreement.

(k) the California Asset Management Program.

“Principal Office ” means such corporate trust office of the Fiscal Agent as may be designated from time to time by written notice from the Fiscal Agent to the City, initially being at the address set forth in Section 9.06, or such other office designated by the Fiscal Agen t from time to time.

“Proceeds” when used with reference to the Bonds, means the face amount of the Bonds, plus any accrued interest and premium, less any original issue and/or underwriter’s discount.

“Project” means those items described as the “Facilities” in the Resolution of Formation.

"Qualified Reserve Account Credit Instrument" means an irrevocable standby or direct- pay letter of credit, insurance policy, or surety bond issued by a commercial bank or insurance company and deposited with the Fiscal Agent, provided that all of the following requirements are met at the time of acceptance thereof by the Fiscal Agent: (a) in the case of a commercial bank, the long-term credit rating of such bank at the time of delivery of the irrevocable standby or direct- pay letter of credit is at least "A" from S&P or "A" from Moody’s and, in the case of an insurance company, the claims paying ability of such insurance company at the time of delivery of the insurance policy or surety bond is at least "A" from S&P, or "A" from Moody’s or, if not rated by S&P or Moody’s but is rated by A.M. Best & Company, is rated at the time of delivery in the highest rating category by A.M. Best & Company; (b) such letter of credit, insurance policy or surety bond has a term of at least 12 months; (c) such letter of credit or surety bond has a stated amount at least equal to the portion of the 2023 Reserve Requirement with respect to which funds are proposed to be released; and (d) the Fiscal Agent is authorized pursuant to the terms of such letter of credit, insurance policy or surety bond to draw thereunder an amount equal to any deficiencies which may ex ist from time to time in the Bond Fund for the purpose of making payments with respect to the 2023 Bonds and any Parity Bonds.

“Rate and Method” means the Rate and Method of Apportionment of the Special Taxes for Improvement Area No. 3.

“Record Date ” mea ns the fifteenth day of the calendar month next preceding the applicable Interest Payment Date, whether or not such day is a Business Day.

9 “Refunding Bonds” means bonds issued by the City for the CFD with respect to Improvement Area No. 3, the net proceeds of which are used to refund all or a portion of the then- Outstanding Bonds and for other lawful purposes; provided that the principal and interest on the Refunding Bonds to their final maturity date is less than the principal and interest on the Bonds being refunded to their final maturity date, and the final maturity of the Refunding Bonds is not later than the final maturity of the Bonds being refunded.

“Regulations” means temporary and permanent regulations promulgated under the Tax Code.

“Remainder Taxes ” means the Special Taxes available for disbursement pursuant to Section 4.05(B)(iii).

“Remainder Taxes Account” means the account of that name within the Improvement Fund to be established and administered by the Fiscal Agent under Section 4.07.

“Remainder Taxes Period” means the period through and including the date that is the earlier of (i) the end of the 15th Fiscal Year during which Special Taxes have been levied on the property in Improvement Area No. 3 or (ii) the date the City has fully satisfied its reimbursement obligations under the Acquisition Agreement.

“Resolution” or “Resolution of Issuance” has the meaning given that term in the recitals hereof.

“Resolution of Formation” means (i) Resolution No. 2017-021, entitled “Resolution of Formation of Community Facilities District, ” adopted by the City Council on February 7, 2017, forming the CFD and (ii) to the extent applicable with respect to Improvement Area No. 3 , Resolution No. 2019-244, entitled “Confirming Annexation of Property (Ellis Phase 3 Town and Country Neighborhood) Into Improvement Area No. 3 of the City of Tracy Community Facilities District No. 2016 -2 (ECFD) and Confirming, Ordering and Directing Other Related Matters,” adopted by the City Council on December 17, 2019.

“S&P” means S&P Global, a division of McGraw-Hill, and its successors and assigns.

“Securities Depositories” means DTC and, in accordance with then current guidelines of the Securities and Exchange Commission, such other securities depositories as the City may designate in an Officer’s Certificate delivered to the Fiscal Agent.

“Special Tax Fund” means the special fund designated “Improvement Area No. 3 of the City of Tracy, Community Facilities District No. 2016-2 (ECFD), Special Tax Fund” established and administered under Section 4.05.

“Special Tax Prepayments” means the proceeds of any Special Tax prepayments received by the City , as calculated pursuant to the Rate and Method, less any administrative fees or penalties collected as part of any such prepayment.

“Special Tax Prepayments Account” means the account by that name established within the Bond Fund under Section 4.04(A).

“Special Tax Revenues” means the proceeds of the Special Taxes received by the City, including any scheduled payments thereof and any Special Tax Prepayments, interest thereon 10 and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon, but shall not include any interest in excess of the interest due on the Bonds or any penalties collected in connection with any such foreclosure.

“Special Taxes ” means the Facilities Special Tax levied by the City Council within Improvement Area No. 3 under the Act, the Rate and Method, the Ordinance and this Agreement.

“State” means the State of California.

“Supplemental Agreement” means an agreement the execution of which is authorized by a resolution which has been duly adopted by the City under the Act and which agreement is amendatory of or supplemental to this Agreement, but only if and to the extent that such agreement is specifically authorized hereunder.

“Tax Code” means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable temporary and final regulations promulgated, and applicable official public guidance published, under the Tax Code.

“Tax Consultant” means an independent financial or tax consultant retained by the City for the purpose of computing the Special Taxes.

“Term Bonds” means the (i) 2023 Bonds maturing on September 1, 20__, September 1, 20__, September 1, 20__, and September 1, 20__ and (ii) Parity Bonds identified as term bonds in a Supplemental Agreement.

“2023 Bonds” means the Bonds so designated and authorized to be issued under Section

2.01 hereof.

“2023 Reserve Fund” means the fund designated the “Improvement Area No. 3 of the City of Tracy, Community Facilities District No. 2016-2 (ECFD), Special Tax Bonds, Reserve Fund” established and administered under Section 4.03.

“2023 Reserve Requirement” means the amount as of any date of calculation equal to the least of (a) Maximum Annual Debt Service on the 2023 Bonds and Parity Bonds, if any, (b) 125% of average Annual Debt Service on the 2023 Bonds and Parity Bonds, if any and (c) 10% of the original principal of the 2023 Bonds and Parity Bonds, if any; provided, however:

(A) that with respect to the calculation of clause (c), the issue price of the 2023 Bonds or any Parity Bonds excluding accrued interest shall be used rather than the original principal amount, if (i) the net original issue discount or premium of the 2023 Bonds or any Parity Bonds was less than 98% or more than 102% of the original principal amount of the 2023 Bonds or any Parity Bonds and (ii) using the issue price would produce a lower result than using the original principal amount;

(B) that in no event shall the amount calculated hereunder exceed the amount on deposit in the 2023 Reserve Fund on the date of issuance of the 2023 Bonds (if they are the only Bonds covered by the 2023 Reserve Fund) or the most recently issued series of Parity Bonds except in connection with any increase associated with the issuance of Parity Bonds; and 11 (C) that in no event shall the amount required to be deposited into the 2023 Reserve Fund in connection with the issuance of a series of Parity Bonds exceed the maximum amount under the Tax Code that can be financed with tax-exempt bonds and invested at an unrestricted yield.
12 ARTICLE II

THE BONDS

Section 2.01. Principal Amount; Designation. Bonds in the aggregate principal amount of $25,000,000 are hereby authorized to be issued by the City for the CFD with respect to Improvement Area No. 3 under and subject to the terms of the Act, the Resolution, this Agreement and other applicable laws of the State of California. For the avoidance of doubt, Refunding Bonds shall not count against the limit set forth in the previous sentence.

The 2023 Bonds shall be designated as the “Improvement Area No. 3 of the City of Tracy Community Facilities District No. 2016-2 (ECFD) Special Tax Bonds, Series 2023,” and shall be in the initial principal amount of $____________.

Section 2.02. Terms of the 2023 Bonds.

(A) Form; Denominations. The 2023 Bonds shall be issued as fully registered Bonds without coupons. The 2023 Bonds shall be lettered and numbered in a customary manner as determined by the City. The 2023 Bonds shall be issued in the denominations of $5,000 or any integral multiple of $5,000 in excess thereof.

(B) Date of 2023 Bonds. The 2023 Bonds shall be dated the Closing Date.

(C) CUSIP Identification Numbers. “CUSIP” identification numbers may, at the election of the Original Purchaser of the Bonds, be imprinted on the Bonds, but such numbers shall not constitute a part of the contract evidenced by the Bonds and any error or omission with respect thereto shall not constitute cause for refusal of any purchaser to accept delivery of and pay for the Bonds. In addition, failure on the part of the City or the Fiscal Agent to use such CUSIP numbers in any notice to Owners shall not constitute an event of default or any violation of the City’s contract with such Owners and shall not impair the effectiveness of any such notice.

13 (D) Maturities; Interest Rates. The 2023 Bonds shall mature and become payable on each September 1, and shall bear interest at the rates per annum indicated in the below table.

Maturity
(September 1)
Principal
Amount
Interest
Rate
$ %

* Term Bond

(E) Interest. The 2023 Bonds shall bear interest at the rates set forth above payable on the Interest Payment Dates in each year. Interest on all Bonds shall be calculated on the basis of a 360-day year composed of twelve 30- day months. Each Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless

(i) it is authenticated on an Interest Payment Date, in which event it shall bear interest from such date of authentication, or

(ii) it is authenticated prior to an Interest Payment Date and after the close of business on the Record Date preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or

(iii) it is authenticated on or before the Record Date preceding the first Interes t Payment Date, in which event it shall bear interest from the Dated Date;

provided, however, that if at the time of authentication of a Bond, interest is in default thereon, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon.

(F) Method of Payment. Interest on the Bonds (including the final interest payment upon maturity or earlier redemption), is payable on the applicable Interest Payment Date by check of the Fiscal Agent mailed by first class mail to the registered Owner thereof at such registered Owner’s address as it appears on the registration books maintained by the Fiscal Agent at the close of business on the Record Date preceding the Interest Payment Date, or by wire transfer to an account located in the United States made on such Interest Payment Date upon written instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds delivered to the Fiscal Agent prior to the applicable Record Date, which shall continue in effect until revoked in writing, or until such Bonds are transferred to a new Owner.

14 The principal of the Bonds and any premium on the Bonds are payable in lawful money of the United States of America upon surrender of the Bonds at the Principal Office of the Fiscal Agent. All Bonds paid by the Fiscal Agent pursuant to this Section shall be canceled by the Fiscal Agent. The Fiscal Agent shall destroy the canceled Bonds and, upon request of the City, issue a certificate of destruction of such Bonds to the City.

Section 2.03. Redemption.

(A) Redemption Provisions.

(i) Optional Redemption. The 2023 Bonds maturing on or after September 1, 20__, are subject to optional redemption as directed by the City, from sources of funds other than prepayments of Special Taxes, prior to their stated maturity on any date on or after September 1, 20__ as a whole or in part, at a redemption price (expressed as a percentage of the principal amount of the Bonds to be redeemed), as set forth below , together with accrued interest thereon to the date fixed for redemption:

Redemption Dates
Redemption
Price
September 1, 20__ through August 31, 20__ %
September 1, 20__ through August 31, 20__
September 1, 20__ through August 31, 20__
September 1, 20__ and any date thereafter

(ii) Mandatory Sinking Fund Redemption. The Term Bond maturing on September 1, 20__, is subject to mandatory redemption in part by lot, from sinking fund payments made by the City from the Bond Fund, at a redemption price equal to the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts all as set forth in the following table:

Sinking Fund
Redemption Date
(September 1)

Sinking Fund
Payments
20__ $
20__
20__
20__
20__ (maturity)

15 The Term Bond maturing on September 1, 20__, is subject to mandatory redemption in part by lot, from sinking fund payments made by the City from the Bond Fund, at a redemption price equal to the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts all as set forth in the following table:

Sinking Fund
Redemption Date
(September 1)

Sinking Fund
Payments
20__ $
20__
20__
20__
20__ (maturity)

The Term Bond maturing on September 1, 20__, is subject to mandatory redemption in part by lot, from sinking fund payments made by the City from the Bond Fund, at a redemption price equal to the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts all as set forth in the following table:

Sinking Fund
Redemption Date
(September 1)

Sinking Fund
Payments
20__ $
20__
20__
20__
20__(maturity)

Sinking Fund
Redemption Date
(September 1)

Sinking Fund
Payments
20__ $
20__
20__
20__
20__ (maturity)

Provided, however, if some but not all of the Term Bonds of a given maturity have been redeemed under subsection (i) above or subsection (iii) below, the total amount of all future Sinking Fund Payments relating to such maturity shall be reduced by the 16 aggregate principal amount of Term Bonds of such maturity so redeemed, to be allocated among such Sinking Fund Payments on a pro rata basis in integral multiples of $5,000 as determined by the City, notice of which shall be given by the City to the Fiscal Agent and the notice shall include a revised sinking fund schedule.

(iii) Redemption from Special Tax Prepayments. Special Tax Prepayments and any corresponding transfers from the 2023 Reserve Fund pursuant to Section 4.03(F) shall be used to redeem 2023 Bonds on the next Interest Payment Date for which notice of redemption can timely be given under Section 2.03(D), among series and maturities so as to maintain substantially the same debt service profile for the Bonds as in effect prior to such redemption and by lot within a maturity, at a redemption price (expressed as a percentage of the principal amount of the 2023 Bonds to be redeemed), as set forth below, together with accrued interest to the date fixed for redemption:

Redemption Dates
Redemption
Price
Any Interest Payment Date on or before March 1, 20__ %
September 1, 20__ and March 1, 20__
September 1, 20__ and March 1, 20__
September 1, 20__ and any Interest Payment Date thereafter

(B) Notice to Fiscal Agent. The City shall give the Fiscal Agent written notice of its intention to redeem Bonds under subsection (A)(i) and (A)(iii) not less than 45 days prior to the applicable redemption date or such lesser number of days as shall be acceptable to the Fiscal Agent.

2.03(A), moneys in the Bond Fund may be used and withdrawn by the Fiscal Agent for purchase of Outstanding 2023 Bonds, upon the filing with the Fiscal Agent of an O fficer’s Certificate requesting such purchase, at public or private sale as and when, and at such prices (including brokerage and other charges) as such Officer’s Certificate may provide, but in no event may 2023 Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued to the date of purchase and any premium which would otherwise be due if such 2023 Bonds were to be redeemed in accordance with this Agreement.

(D) Redemption Procedure by Fiscal Agent.

(i) Notices. The Fiscal Agent shall cause notice of any redemption to be mailed by first class mail, postage prepaid, or posted, at least twenty (20) days but not more than sixty (60) days prior to the date fixed for redemption, to the Securities Depositories and to the respective registered Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books in the Principal Office of the Fiscal Agent; but such mailing shall not be a condition precedent to such redemption and failure to mail or to receive any such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of such Bonds. In addition, the Fiscal Agent shall file each notice of redemption with the MSRB through its EMMA system.

(ii) Contents of Notices. Such notice shall state the redemption date and the redemption price and, if less than all of the then Outstanding Bonds are to be called for redemption shall state as to any Bond called in part the principal amount thereo f to be redeemed, and shall require that such Bonds be then surrendered at the Principal Office 17 of the Fiscal Agent for redemption at the said redemption price, and shall state that further interest on such Bonds will not accrue from and after the redemption date. The cost of mailing any such redemption notice and any expenses incurred by the Fiscal Agent in connection therewith shall be paid by the City.

Any redemption notice may be conditioned upon the receipt of moneys by the City sufficient to cause such redemption. T he City has the right to rescind any notice of the optional redemption of Bonds by written notice to the Fiscal Agent on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute a default under this Agreement. The City and the Fiscal Agent have no liability to the Owners or any other party related to or arising from such rescission of redemption.

The Fiscal Agent shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent under this Section.

(iii) Selection of Bonds for Redemption. Whenever provision is made in this Agreement for the redemption of less than all of the Bonds of any maturity or any given portion thereof, the Fiscal Agent shall select the Bonds to be redeemed by lot in any manner which the Fiscal Agent in its sole discretion deems appropriate.

(iv) New Bonds. Upon surrender of Bonds redeemed in part only, the City shall execute and the Fiscal Agent shall authenticate and deliver to the registered Owner, at the expense of the City , a new Bond or Bonds, of the same series and maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond or Bonds of such registered Owner.

(E) Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of, and interest and any premium on, the Bonds so called for redemption shall have been deposited in the Bond Fund, such Bonds so called shall cease to be entitled to any benefit under this Agreemen t other than the right to receive payment of the redemption price, and no interest shall accrue thereon on or after the redemption date specified in the notice of redemption. All Bonds redeemed and purchased by the Fiscal Agent under this Section 2.03 shall be canceled by the Fiscal Agent. The Fiscal Agent shall destroy the canceled Bonds in accordance with the Fiscal Agent’s retention policy then in effect.

Section 2.04. Form of Bonds . The 2023 Bonds, the Fiscal Agent’s certificate of authentication and the assignment, to appear thereon, shall be substantially in the forms, respectively, set forth in Exhibit A attached hereto and by this reference incorporated herein, with necessary or appropriate variations, omissions and insertions, as permitted or required by this Agreement, the Resolution and the Act.

18 Section 2.05. Execution and Authentication of Bonds.

(A) Execution. The Bonds shall be executed on behalf of the City by the manual or facsimile signatures of its Mayor and its City Clerk who are in office on the date of execution of this Agreement or at any time thereafter. If any officer whose signature appears on any Bond ceases to be such officer before delivery of the Bonds to the Owner, such signature shall nevertheless be as effective as if the officer had remained in office until the delivery of the Bonds to the Owner. Any Bond may be signed and attested on behalf of the City by such persons as at the actual date of the execution of such Bond shall be the proper officers of the City although at the nominal date of such Bond any such person shall not have been such officer of the City.

(B) Authentication. Only such Bonds as shall bear thereon a certificate of authentication in substantially the form set forth in Exhibit A, executed and dated by the Fiscal Agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Agreement, and such certificate of authentication of the Fiscal Agent shall be conclusive evidence that the Bonds registered hereunder have been duly authenticated, registered and delivered hereunder and are entitled to the benefits of this Agreement.

Section 2.06. Transfer or Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the books required to be kept under the provisions of Section 2.07 by the person in whose name it is registered, in person or by such person’s duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a duly written instrument of transfer in a form acceptable to the Fiscal Agent. Bonds may be exchanged at the Principal Office of the Fiscal Agent solely for a like aggregate principal amount of Bonds of authorized denominations and of the same maturity. The cost for any services rendered or any expenses incurred by the Fiscal Agent in connection with any such transfer or exchange shall be paid by the City . The Fiscal Agent shall collect from the Owner requesting such transfer or exchange any tax or other governmental charge required to be paid with respect to such transfer or exchange. Whenever any Bond or Bonds shall be surrendered for transfer or exchange, the City shall execute and the Fiscal Agent shall authenticate and deliver a new Bond or Bonds, for a like aggregate principal amount. No transfers or exchanges of Bonds shall be required to be made (i) fifteen days prior to t he date established by the Fiscal Agent for selection of Bonds for redemption or (ii) with respect to a Bond after such Bond has been selected for redemption; or (iii) between a Record Date and the succeeding Interest Payment Date.

Section 2.07. Bond Register . The Fiscal Agent will keep, or cause to be kept, at its Principal Office sufficient books for the registration and transfer of the Bonds which books shall show the series number, date, amount, rate of interest and last known owner of each Bond and shall at all times be open to inspection by the City during regular business hours upon reasonable notice; and, upon presentation for such purpose, the Fiscal Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, the ownership of the Bonds as hereinbefore provided. The City and the Fiscal Agent will treat the Owner of any Bond whose name appears on the Bond register as the absolute Owner of such Bond for any and all purposes, and the City and the Fiscal Agent shall not be affected by any notice to the contrary. The City and the Fiscal Agent may rely on the address of the Owner as it appears in the Bond register for any and all purposes.

Section 2.08. Temporary Bonds. The Bonds may be initially issued in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be printed, lithographed or typewritten, shall be of such authorized denominations as may be determined by the City, and may contain such reference to any of the provisions of this Agreement as may be 19 appropriate. Every temporary Bond shall be executed by the City upon the same conditions and in substantially the same manner as the definitive Bonds. If the City issues temporary Bonds, it will execute and furnish definitive Bonds without delay and thereupon the temporary Bonds shall be surrendered, for cancellation, in exchange for the definitive Bonds at the Principal Office of the Fiscal Agent or at such other location as the Fiscal Agent shall designate, and the Fiscal Agent shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under this Agreement as definitive Bonds authenticated and delivered hereunder.

Section 2.09. Bonds Mutilated, Lost, Destroyed or Stolen.

(A) Mutilated. If any Bond shall become mutilated, at the expense of the Owner of such Bond, the City shall execute and the Fiscal Agent shall authenticate and deliver a replacement Bond of like tenor and principal amount 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 by it and destroyed by the Fiscal Agent, in accordance with the Fiscal Agent’s retention policy then in effect.

(B) Destroyed or Stolen. If any Bond shall be lost, destroyed or stolen, the City shall execute and the Fiscal Agent shall authenticate and deliver a replacement Bond of like tenor and principal amount in lieu of and in substitution for the Bond so lost, destroyed or stolen, at the expense of the Owner, but only following provision by the Owner to the Fiscal Agent of indemnity for the City and the Fiscal Agent satisfactory to the Fiscal Agent and the City. The City may require payment of a sum not exceeding the actual cost of preparing each replacement Bond delivered under this Section and the City and the Fiscal Agent may require payment of the expenses which may be incurred by the City and the Fiscal Agent for the preparation, execution, authentication and delivery thereof. Any Bond delivered under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City whether or not the Bond so alleged to be lost, destroyed or stolen is at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Agreement with all other Bonds issued under this Agreement.

(C) Additional Stock. If the Fiscal Agent has an insufficient stock of unauthenticated printed Bonds for such purpose, it shall communicate with the Finance Director with respect to the printing of an additional stock of Bonds, in such quantities and as otherwise approved in writing by the Finance Director.

Section 2.10. Book-Entry Only System. DTC shall act as the initial Depository for the Bonds. One Bond for each maturity of the Bonds shall be initially executed, authenticated, and delivered as set forth herein with a separate fully registered certificate (in print or typewritten form).

Upon initial execution, authentication, and delivery, the ownership of the Bonds shall be registered in the Bond register kept by the Fiscal Agent for the Bonds in the name of Cede & Co., as nominee of DTC or such nominee as DTC shall appoint in writing.

The Authorized Officers of the City and the Fiscal Agent are hereby authorized to take any and all actions as may be necessary and not inconsistent with this Agreement to qualify the Bonds for the Depository's book -entry system, including the execution of the Depository's required representation letter.

20 With respect to Bonds registered in the Bond register in the name of Cede & Co., as nominee of DTC, neither the City nor the Agent shall have any responsibility or obligation to any broker-dealer, bank, or other financial institution for which DTC holds Bonds as D epository from time to time (the “DTC Participants”) or to any person for which a DTC Participant acquires an interest in the Bonds (the “Beneficial Owners”). Without limiting the immediately preceding sentence, neither the City nor the Fiscal Agent shall have any responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co., or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant, any Beneficial Owner, or any other person, other than DTC, of any notice with respect to the Bonds, including any Bonds to be redeemed in the event the City elects to redeem the Bonds, in part, (iii) the selection by the Depository of the beneficial interests in the Bonds to be redeemed in the event the City elects to redeem the Bonds in part, (iv) the payments to any DTC Participant, any Beneficial Owner, or any person, other than DTC, of any amount with respect to the principal of or interest or premium on the Bonds, or (v) any consent given or other action taken by the Depository as Owner of the Bonds.

Except as set forth above, the City and the Fiscal Agent may treat as and deem DTC to be the absolute Owner of each Bond, for which DTC is acting as Depository for the purpose of payment of the principal of and premium and interest on such Bonds, for the purpose of giving notices of redemption and other matters with respect to such Bonds, for the purpose of registering transfers with respect to such Bonds, and for all purposes whatsoever. The Fiscal Agent on behalf of the City shall pay all principal of and premium and interest on the Bonds only to or upon the order of the Owners as shown on the Bond register, and all such payments shall be valid and effective to fully satisfy and discharge all obligations with respect to the principal of and premium and interest on the Bonds to the extent of the sums or sums so paid.

No person other than an Owner, as shown on the Bond register, shall receive a physical Bond. Upon delivery by DTC to the City and the Fiscal Agent of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the transfer provisions in Section 2.06 hereof, references to “Cede & Co.” in this Section 2.10 shall refer to such new nominee of DTC.

DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving written notice to the City and to the Fiscal Agent during any time that the Bonds are Outstanding, and discharging its responsibilities with respect thereto under applicable law. The City may terminate the services of DTC with respect to the Bonds if it determines that DTC is unable to discharge its responsibilities with respect to the Bonds or that continuation of the system of book-entry transfer through DTC is not in the best interest of the Beneficial Owners, and the City shall mail notice of such termination to the Fiscal Agent.

Upon termination of the services of DTC as provided in the previous paragraph, and if no substitute Depository willing to undertake the functions hereunder can be found which is willing to undertake such functions upon reasonable or customary terms, or if the City determines that it is in the best interest of the Beneficial Owners of the Bonds that they be able to obtain certified Bonds, the Bonds shall no longer be restricted to being registered in the Bond register of the Fiscal Agent in the name of Cede & Co., as nominee of DTC, but may be registered in whatever name or names the Owners shall designate at that time, in accordance with Section 2.06.

To the extent that the Beneficial Owners are designated as the transferee by the Owners, in accordance with Section 2.06, the Bonds will be delivered to such Beneficial Owners. 21 ARTICLE III

ISSUANCE OF BONDS

Section 3.01. Issuance and Delivery of 2023 Bonds. At any time after the execution of this Agreement, the City may issue the 2023 Bonds for the CFD with respect to Improvement Area No. 3 in the aggregate principal amount set forth in Section 2.01 and deliver the 2023 Bonds to the Fiscal Agent for authent ication and delivery to the Original Purchaser. The Authorized Officers of the City are hereby authorized and directed to execute and deliver any and all documents and instruments necessary to cause the issuance of the 2023 Bonds in accordance with the pr ovisions of the Act, the Resolution and this Agreement, to authorize the payment of Costs of Issuance and costs of the Project by the Fiscal Agent from the proceeds of the 2023 Bonds and to do and cause to be done any and all acts and things necessary or c onvenient for the timely delivery of the 2023 Bonds to the Original Purchaser. The Fiscal Agent is hereby authorized and directed to authenticate the 2023 Bonds and deliver them to the Original Purchaser, upon receipt of the purchase price for the 2023 Bonds.

Section 3.02. Pledge of Special Tax Revenues. The Bonds shall be secured by a first pledge (which pledge shall be effected in the manner and to the extent herein provided) of all of the Special Tax Revenues and all moneys deposited in the Bond Fund (including the Special Tax Prepayments Account), and, until disbursed as provided herein, in the Special Tax Fund. The Special Tax Revenues and all moneys deposited into such funds (except as otherwise provided herein) are hereby dedicated to the payment of the principal of, and interest and any premium on, the Bonds as provided herein and in the Act until all of the Bonds have been paid and retired or until moneys or Federal Securities have been set aside irrevocably for that purpose under Section

9.03. The 2023 Bonds and all Parity Bonds shall be secured by a first pledge (which pledge shall be effected in the manner and to the extent herein provided) of all moneys deposited in the 2023 Reserve Fund. The moneys in the 2023 Reserve Fund (except as otherwise provided herein) are hereby dedicated to the payment of the principal of, and interest and any premium on, the 2023 Bonds and all Parity Bonds as provided herein and in the Act until all of the 2023 Bonds and all Parity Bonds have been paid and retired or until moneys or Federal Securities have been set aside irrevocably for that purpose under Section 9.03.

Section 3.03. Limited Obligation. All obligations of the City under this Agreement and the Bonds shall not be general obligations of the City, but shall be limited obligations, payable solely from the Special Tax Revenues and the funds pledged therefor hereunder. Neither the faith and credit nor the taxing power of the City (except to the limited extent set forth herein) or of the State of California or any political subdivision thereof is pledged to the payment of the Bonds.

Section 3.04. No Acceleration. The principal of the Bonds shall not be subject to acceleration hereunder. Nothing in this Section shall in any way prohibit the redemption of Bonds 22 under Section 2.03, or the defeasance of the Bonds and discharge of this Agreement under Section 9.03.

Section 3.05. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be dependent upon the completion of the acquisition of the Project or upon the performance by any person of his obligation with respect to the Project.

Section 3.06. Parity Bonds. In addition to the 2023 Bonds, the City may issue Refunding Bonds as Parity Bonds in such principal amount as shall be determined by the City, under a Supplemental Agreement entered into by the City and the Fiscal Agent. Any such Parity Bonds shall constitute Bonds hereunder and shall be secured by a lien on the Special Tax Revenues and funds pledged for the payment of the Bonds hereunder on a parity with all other Bonds Outstanding hereunder. The City may issue such Parity Bonds subject to the following specific conditions precedent:

(A) Compliance. Following issuance of the Parity Bonds, the City shall be in compliance with all covenants set forth in this Agreement and all Supplemental Agreements, and issuance of the Parity Bonds shall not cause the City to exceed the bonded indebtedness limit of Improvement Area No. 3.

(B) Same Payment Dates . The Supplemental Agreement providing for the issuance of such Parity Bonds shall provide that interest thereon shall be payable on the Interest Payment Dates, and principal thereof shall be payable on September 1 (provided that there shall be no requirement that any Parity Bonds pay interest on a current basis).

(C) Debt Service Reserve Fund. The Supplemental Agreement providing for issuance of the Parity Bonds shall provide for a deposit to the 2023 Reserve Fund in an amount necessary such that the amount deposited therein shall equal the 2023 Reserve Requirement following issuance of the Parity Bonds.

(D) Certificates. The City shall deliver to the Fiscal Agent an Officer's Certificate certifying that the conditions precedent to the issuance of such Parity Bonds set forth in subsections (A), (B), and (C) of this Section 3.06 have been satisfied.

Nothing in this Section 3.06 shall prohibit the City from issuing any other bonds or otherwise incurring debt secured by a pledge of the Special Tax Revenues subordinate to the pledge thereof under Section 3.02 of this Agreement.
23 ARTICLE IV

PROCEEDS, FUNDS AND ACCOUNTS

Section 4.01. Application of 2023 Bond Proceeds. The Proceeds of the 2023 Bonds received from the Original Purchaser in the amount of $_________ (which is equal to the initial principal amount of the 2023 Bonds, plus an original issue premium of $____________, less an underwriter’s discount in the amount of $_________) shall be paid to the Fiscal Agent, which shall deposit the Proceeds on the Closing Date as follows:

(i) $ ______ into the Costs of Issuance Fund;

(ii) $ ______ into the 2023 Reserve Fund equaling the initial 2023 Reserve Requirement; and

(iii) $ ______ into the Bond Proceeds Account of the Improvement Fund.

The Fiscal Agent may, in its discretion, establish a temporary fund or account to facilitate the foregoing deposits.

Section 4.02. Costs of Issuance Fund.

(A) Establishment of Costs of Issuance Fund. The Costs of Issuance Fund is hereby established as a separate fund to be held by the Fiscal Agent, to the credit of which a deposit shall be made as required by Section 4.01.

Moneys in the Costs of Issuance Fund shall be held by the Fiscal Agent for the benefit of the City and shall be disbursed as provided in subsection (B) of this Section for the payment or reimbursement of Costs of Issuance.

(B) Disbursement. Amounts in the Costs of Issuance Fund shall be disbursed from time to time to pay Costs of Issuance, as set forth in a requisition substantially in the form of Exhibit C hereto, executed by the Finance Director, containing respective amounts to be paid to the designated payees and delivered to the Fiscal Agent. Each such requisition shall be sufficient evidence to the Fiscal Agent of the facts stated therein and the Fiscal Agent shall have no duty to confirm the accuracy of such facts.

(C) Investment. Moneys in the Costs of Issuance Fund shall be invested and deposited by the Fiscal Agent under Section 6.01. Interest earnings and profits resulting from such investment shall be retained by the Fiscal Agent in the Costs of Issuance Fund to be used for the purposes of such fund.

(D) Closing of Fund. The Fiscal Agent shall maintain the Costs of Issuance Fund for a period of 90 days from the Closing Date and then the Fiscal Agent shall transfer any moneys remaining therein, including any investment earnings thereon, to the Bond Proceeds Account of the Improvement Fund and used for the purposes thereof.

24 Section 4.03. 2023 Reserve Fund.

(A) Establishment of Fund. The 2023 Reserve Fund is hereby established as a separate fund to be held by the Fiscal Agent to the credit of which a deposit shall be made as required by Section 4.01, which deposit, as of the Closing Date, is equal to the initial 2023 Reserve Requirement with respect to the 2023 Bonds, and deposits shall be made as provided in Sections 3.06(C) and

4.05(A) and (B). Moneys in the 2023 Reserve Fund shall be held by the Fiscal Agent for the benefit of the Owners of the 2023 Bonds and any Parity Bonds as a reserve for the payment of the principal of, and interest and any premium on, the 2023 Bonds and any Parity Bonds and shall be subject to a lien in favor of the Owners of the 2023 Bonds and any Parity Bonds.

(B) Use of Reserve Fund . Except as otherwise provided in this Section, all amounts deposited in the 2023 Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of, and interest and any premium on, the 2023 Bonds and any Parity Bonds or, in accordance with the provisions of this Section, for the purpose of redeeming 2023 Bonds and any Parity Bonds from the Bond Fund. Whenever a transfer is made from the 2023 Reserve Fund to the Bond Fund due to a deficiency in the Bond Fund for payment of the principal of, and interest and any premium on, the 2023 Bonds and any Parity Bonds, the Fiscal Agent shall provide written notice thereof to the Finance Di rector, specifying the amount withdrawn.

(C) Transfer of Excess of Reserve Requirement . Whenever, on or before any Interest Payment Date, or on any other date at the request of the Finance Director, the amount in the 2023 Reserve Fund exceeds the 2023 Reserve Requirement, the Fiscal Agent shall transfer an amount equal to the excess from the 2023 Reserve Fund to the Bond Fund, to be used to pay interest on the 2023 Bonds and any Parity Bonds on the next Interest Payment Date.

(D) Transfer for Rebate Purposes. Amounts in the 2023 Reserve Fund shall be withdrawn for purposes of making payment to the federal government to comply with Section 5.11, upon receipt by the Fiscal Agent of an Officer's Certificate specifying the amount to be withdrawn and to the effect that such amount is needed for rebate purposes; provided, however, that no amounts in the 2023 Reserve Fund shall be used for rebate unless the amount in the 2023 Reserve Fund following such withdrawal equals the 2023 Reserve Requirement.

(E) Transfer When Balance Exceeds Outstanding Bonds.

Whenever the balance in the 2023 Reserve Fund exceeds the amount required to redeem or pay the Outstanding 2023 Bonds and all Outstanding Parity Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall, upon the written request of the Finance Director, transfer any cash or Permitted Investments in the 2023 Reserve Fund to the Bond Fund to be applied, on the redemption date to the payment and redemption, in accordance with Section 4.04 or 2.03 and the provisions of the Supplemental Agreement related to the Parity Bonds, as applicable, of all of the Outstanding 2023 Bonds and Outstanding Parity Bonds . In the event that the 25 amount so transferred from the 2023 Reserve Fund to the Bond Fund exceeds the amount required to pay and redeem the Outstanding 2023 Bonds and Outstanding Parity Bonds, the balance in the 2023 Reserve Fund shall be transferred to the Finance Director to be used by the City for any lawful purpose.

Notwithstanding the provisions of the first paragraph of this Section

4.03(E), no amounts shall be transferred from the 2023 Reserve Fund under this Section 4.03(E) until after: (i) the calculation of any amounts due to the federal government under Section 5.11 and withdrawal of any such amount under Section

4.03(D) for purposes of making such payment to the federal government; and (ii) payment of any fees and expenses due to the Fiscal Agent.

(F) Transfer Upon Special Tax Prepayment. Whenever Special Taxes are prepaid and 2023 Bonds or any Parity Bonds are to be redeemed with the proceeds of such prepayment pursuant to Section 2.03(A)(iii) or a Supplemental Agreement related to any Parity Bonds, any resulting reduction in the 2023 Reserve Requirement shall be transferred on the Business Day prior to the redemption date by the Fiscal Agent to the Bond Fund to be applied to the redemption of the 2023 Bonds pursuant to Section 2.03(A)(iii) or a Supplemental Agreement related to any Parity Bonds. The Finance Director shall deliver to the Fiscal Agent an Officer’s Certificate specifying any amount to be so transferred, and the Fiscal Agent may rely on any such Officer’s Certificate.

(G) Investment. Moneys in the 2023 Reserve Fund shall be invested by the Fiscal Agent under Section 6.01.

(H) Qualified Reserve Account Credit Instrument s. The City shall have the right at any time to direct the Fiscal Agent to release funds from the 2023 Reserve Fund, in whole or in part, by tendering to the Fiscal Agent: (i) a Qualified Reserve Account Credit Instrument, and (ii) an opinion of Bond Counsel stating that neither the release of such funds nor the acceptance of such Qualified Reserve Account Credit Instrument will cause interest on the 2023 Bonds or any Parity Bonds the interest on which is excluded from gross income of the owners thereof for federal income tax purposes to become includable in gross income for purposes of federal income taxation. Upon tender of such items to the Fiscal Agent, and upon delivery by the City to the Fiscal Agent of a written calculation of the amount permitted to be released from the 2023 Reserve Fund (upon which calculation the Fiscal Agent may conclusively rely), the Fiscal Agent shall transfer such funds from the 2023 Reserve Fund to the Bond Proceeds Account of the Improvement Fund to be used for the purposes thereof. The Fiscal Agent shall comply with all documentation relating to a Qualified Reserve Account Credit Instrument as shall be required to maintain such Qualified Reserve Account Credit Instrument in full force and effect and as shall be required to receive pay ments thereunder in the event and to the extent required to make any payment when and as required under this Section. Upon the scheduled expiration of any Qualified Reserve Account Credit Instrument, the City shall either (i) replace such Qualified Reserve Account Credit Instrument with a new Qualified Reserve Account Credit Instrument, or (ii) deposit or cause to be deposited with the Fiscal Agent an amount of funds equal to the 2023 Reserve Requirement, to be derived from the first available Special Tax Revenues. If the 2023 Reserve Requirement is being maintained partially in cash and partially with a Qualified Reserve Account Credit 26 Instrument, the cash shall be first used to meet any deficiency which may exist from time to time in the Bond Fund with respect to the 2023 Bonds and any Parity Bonds. If the 2023 Reserve Requirement is being maintained with two or more Qualified Reserve Account Credit Instruments, any draw to meet a deficiency which may exist from time to time in the Bond Fund with respect to the 2023 Bonds and any Parity Bonds shall be pro-rata with respect to each such instrument.

In the event that a Qualified Reserve Account Credit Instrument is available to be drawn upon for only one or more particular series of Bonds, a separate subaccount in the 2023 Reserve Fund may be established for such series, and the calculation of the 2023 Reserve Requirement with respect to any Bonds shall exclude the debt service on such issue of Bonds.

The City will have no obligation to replace a Qualified Reserve Account Credit Instrument or to fund the 2023 Reserve Fund with cash if, at any time that the 2023 Bonds are Outstanding, the Qualified Reserve Account Credit Instrument (or its provider) is downgraded or the provider becomes insolvent, if there is an unscheduled termination of the Qualified Reserve Account or if for any reason insufficient amounts are available to be drawn upon under the Qualified Reserve Account Credit Instrument ; provided, however, that the City shall reimburse the provider, in accordance with the terms of the Qualified Reserve Account Credit Instrument, for any draws made thereon.

The City and the Fiscal Agent shall comply with the terms of the Qualified Reserve Account Credit Inst rument as shall be required to receive payments thereunder in the event and to the extent required under this Section.

Section 4.04. Bond Fund.

(A) Establishment of Bond Fund . The Bond Fund is hereby established as a separate fund to be held by the Fiscal Agent to the credit of which deposits shall be made as required by Section 4.07, Section 4.05 and Section 4.03 and as otherwise set forth in this Agreement. Moneys in the Bond Fund shall be held by the Fiscal Agent for the benefit of the City and the Owners of the Bonds, and shall be disbursed for the payment of the principal of, and interest and any premium on, the Bonds as provided below.

There is also hereby created in the Bond Fund a separate account to be held by the Fiscal Agent, designated the “Special Tax Prepayments Account,” to the credit of which deposits shall be made as provided in clause (iii) of the second paragraph of Section 4.05(A).

(B) Disbursements. At least 10 Business Days before each Interest Payment Date, the Fiscal Agent shall notify the Finance Director in writing as to the principal and premium, if any, and interest due on the Bonds on the next Interest Payment Date (whether as a result of scheduled principal of and interest on the Bonds, optional redemption of the Bonds or a mandatory sinking fund redemption). On each Interest Payment Date, the Fiscal Agent shall withdraw from the Bond Fund and pay to the Owners of the Bonds the principal of, and interest and any premium, due and payable on such Interest Payment Date on the Bonds. 27 At least 5 Business Days prior to each Interest Payment Date, the Fiscal Agent shall determine if the amounts then on deposit in the Bond Fund are sufficient to pay the Debt Service due on the Bonds on the next Interest Payment Date. In the event that amounts in the Bond Fund are insufficient for such purpose, the Fiscal Agent promptly shall notify the Finance Director by telephone (and confirm in writing) of the amount of the insufficiency.

In the event that amounts in the Bond Fund are insufficient for the purpose set forth in the preceding paragraph with respect to any Interest Payment Date, the Fiscal Agent shall withdraw from the 2023 Reserve Fund, in accordance with the provisions of Section 4.03, to the extent of any funds or Permitted Investments therein, amounts to cover the amount of such Bond Fund insufficiency related to the 2023 Bonds and any Parity Bonds. Amounts so withdrawn from th e 2023 Reserve Fund shall be deposited in the Bond Fund.

If, after the foregoing transfers, there are insufficient funds in the Bond Fund to make the payments provided for in the second sentence of the first paragraph of this Section 4.04(B), the Fiscal Agent shall apply the available funds first to the payment of interest on the Bonds, then to the payment of principal due on the Bonds other than by reason of sinking payments, if any, and then to payment of principal due on the Bonds by reason of sinking payments.

Moneys in the Special Tax Prepayments Account shall be transferred by the Fiscal Agent to the Bond Fund on the next date for which notice of redemption of Bonds can timely be given under Section 2.03(A)(iii), and notice to the Fiscal Agent can timely be given under Section 2.03(B), and shall be used (together with any amounts transferred pursuant to Section 4.03(F)) to redeem Bonds on the redemption date selected in accordance with Section 2.03.

(D) Investment. Moneys in the Bond Fund and the Special Tax Prepayments Account shall be invested under Section 6.01. Interest earnings and profits resulting from such investment shall be retained in the Bond Fund.

(E) Deficiency. If at any time it appears to the Fiscal Agent that there is a danger of deficiency in the Bond Fund and that the Fiscal Agent may be unable to pay Debt Service on the Bonds in a timely manner, the Fiscal Agent shall report to the Finance Director such fact. The City covenants to increase the levy of the Special Taxes in the next Fiscal Year (subject to the maximum amount authorized by the Resolution of Formation) in accordance with the procedures set forth in the Act for the purpose of curing Bond Fund deficiencies.

(F) Excess. Any excess moneys remaining in the Bond Fund following the payment of Debt Service on the Bonds on any September 1, shall be transferred to the Special Tax Fund.

Section 4.05. Special Tax Fund.

(A) Establishment of Special Tax Fund. The Special Tax Fund is hereby established as a separate fund to be held by the Fiscal Agent, to the credit 28 of which the Fiscal Agent shall deposit amounts received from or on behalf of the City consisting of Special Tax Revenues and amounts transferred from the Administrative Expense Fund and the Bond Fund. The City shall promptly remit any Special Tax Revenues received by it to the Fiscal Agent for deposit by the Fiscal Agent to the Special Tax Fund.

Notwithstanding the foregoing,

(i) Special Tax Revenues in an amount not to exceed the amount included in the Special Tax levy for such Fiscal Year for Administrative Expenses shall be separately identified by the Finance Director and shall be deposited by the Fiscal Agent in the Administrative Expense Fund;

(ii) any Special Tax Revenues constituting the collection of delinquencies in payment of Special Taxes shall be separately identified by the Finance Director and shall be disposed of by the Fiscal Agent first, for transfer to the Bond Fund to pay any past due Debt Service on the Bonds; second, for transfer to the 2023 Reserve Fund to the extent needed to increase the amount then on deposit in the 2023 Reserve Fund up to the then 2023 Reserve Requirement; and third, to be held in the Special Tax Fund for use as described in Section 4.05(B) below; and

(iii) any proceeds of Special Tax Prepayments shall be separately identified by the Finance Director and shall be deposited by the Fiscal Agent as follows (as directed in writing by the Finance Director): (a) that portion of any Special Tax Prepayment constituting a prepayment of construction costs (which otherwise could have been included in the proceeds of Parity Bonds) shall be deposited by the Fiscal Agent to the Bond Proceeds Account of the Improvement Fund and (b) the remaining Special Tax Prepayment shall be deposited by the Fiscal Agent in the Special Tax Prepayments Account established pursuant to Section

4.04(A).

(B) Disbursements. At least 7 Business Days prior to each Interest Payment Date, the Fiscal Agent shall withdraw from the Special Tax Fund and transfer the following amounts in the following order of priority:

(i) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund and any expected transfers from the Improvement Fund, the 2023 Reserve Fund and the Special Tax Prepayments Account to the Bond Fund such that the amount in the Bond Fund equals the principal (including any sinking payment), premium, if any, and interest due on the Bonds on such Interest Payment Date and any past due principal or interest on the Bonds not theretofore paid from a transfer described in subparagraph (ii) of the second paragraph of Section 4.05(A),

(ii) to the 2023 Reserve Fund an amount, taking into account amounts then on deposit in the 2023 Reserve Fund, such that the amount in the 2023 Reserve Fund is equal to the 2023 Reserve Requirement, and

29 (iii) (A) on each October 1, beginning on October 1, 2023 and continuing through t he Remainder Taxes Period, all of the moneys remaining in the Special Tax Fund shall be transferred to the Remainder Taxes Account and (B) on each subsequent October 1 after the end of the Remainder Tax Period, all or a portion of the moneys remaining in t he Special Tax Fund shall be transferred to the Remainder Taxes Account as directed by the Finance Director.

Within 15 days after the end of each Bond Year after the Remainder Taxes Account is closed pursuant to Section 4.07, and after the foregoing transfers have been made, the Fiscal Agent shall transfer all amounts remaining on deposit in the Special Tax Fund for any lawful purpose, as directed by the City in an Officer’s Certificate.

(C) Investment. Moneys in the Special Tax Fund shall be invested and deposited by the Fiscal Agent under Section 6.01. Interest earnings and profits resulting from such investment and deposit shall be retained in the Special Tax Fund to be used for the purposes thereof.

Section 4.06. Administrative Expense Fund.

(A) Establishment of Administrative Expense Fund. The
Administrative Expense Fund is hereby established as a separate fund to be held by the Fiscal Agent, to the credit of which deposits shall be made as required by Section 4.05(A). Moneys in the Administrative Expense Fund shall be held by the Fiscal Agent for the benefit of the City, and shall be disbursed as provided below.

(B) Disbursement. Amounts in the Administrative Expense Fund shall be withdrawn by the Fiscal Agent and paid to the City or its order upon receipt by the Fiscal Agent of an Officer’s Certificate, in substantially the form of Exhibit D hereto, stating the amount to be withdrawn, that such amount is to be used to pay an Administrative Expense or a Cost of Issuance and the nature of such Administrative Expense or such Cost of Issuance.

Annually, on the last day of each Fiscal Year, the Fiscal Agent shall withdraw from the Administrative Expense Fund and transfer to the Special Tax Fund any amount in excess of that which is needed to pay any Administrative Expenses incurred but not yet paid, and which are not otherwise encumbered, as identified by the Finance Director in an Officer's Certificate.

(C) Investment. Moneys in the Administrative Expense Fund shall be invested by the Fiscal Agent under Section 6.01. Interest earnings and profits resulting from such investment shall be retained by the Fiscal Agent in the Administrative Expense Fund to be used for the purposes of such fund.

(D) Order of Expenditure. Proceeds of the 2023 Bonds deposited into the Administrative Expense Fund (if any) shall be spent before any other moneys in the Administrative Expense Fund.

Section 4.07. Improvement Fund.

30 (A) Establishment of Improvement Fund. The Improvement Fund is hereby established as a separate fund to be held by the Fiscal Agent and to the credit of which fund deposits shall be made as required by Sections 4.01, 4.02(D) and 4.05(A). The Remainder Taxes Account and the Bond Proceeds Account are hereby established as separate accounts within the Improvement Fund to be held by the Fiscal Agent.

Moneys in the Improvement Fund shall be disbursed, except as otherwise provided in subsections (B) and (D) of this Section, for the payment or reimbursement of costs of the Project.

(B) Procedure for Disbursement . Disbursements from the Improvement Fund shall be made by the Fiscal Agent upon receipt of an Officer's Certificate substantially in the form of Exhibit B attached hereto which shall:

(i) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made (which shall be for payment of a Project cost or to reimburse expenditures of the City or any other party for Project costs previously paid), and the person to which the disbursement is to be paid; and

(ii) certify that no portion of the amount then being requested to be disbursed was set forth in any Officers Certificate previously filed requesting disbursement.

Each such requisition shall be sufficient evidence to the Fiscal Agent of the facts stated therein and the Fiscal Agent shall have no duty to confirm the accuracy of such facts.

Disbursements for the payment or reimbursement of costs of the Project shall be made from the Bond Proceeds Account and the Remainder Taxes Account in the following order:

First: payments or reimbursements shall be made from the Bond Proceeds Account so long as there are moneys available therein and such costs can be paid from Bond proceeds without violating the covenants set forth in Sections 5.09-5.14 and

Second: payments or reimbursements shall be made from the Remainder Taxes Account (1) even if Bond proceeds remain in the Bond Proceeds Account, if such payment or reimbursement would violate the covenants set forth in Sections

5.09-5.14 and (2) when no Bond proceeds remain in the Bond Proceeds Account.

At the direction of the Finance Director, and so long as such amounts have not been previously approved for payment of a Project cost, the Fiscal Agent shall transfer amounts from the Remainder Taxes Account to the Bond Fund to pay Debt Service on the Bonds, Administrative Expense Fund to pay Administ rative Expenses and 2023 Reserve Fund to increase the amount therein to the 2023 Reserve Requirement.

31 (C) Investment. Moneys in the Improvement Fund shall be invested in accordance with Section 6.01. Interest earnings and profits from such investment shall be retained in the Improvement Fund to be used for the purpose of such fund.

(D) Closing of Fund. When the City believes that the Project has been completed, it shall provide a written notice to the Developer that the City believes the Project has been completed and that the Improvement Fund, Bond Proceeds Account and Remainder Taxes Account should be closed. The Developer shall have 30 days after receipt of such notice to dispute the City’s finding or to concur that the Project is complete. If the Developer concurs that the Project is complete, or fails to respond to the notice by the end of the 30-day period, the City may file an Officer’s Certificate directing the Fiscal Agent to close the Improvement Fund, Bond Proceeds Account and Remainder Taxes Account.

Upon the filing of an Officer’s Certificate stating that the Project has been completed and that all costs of the Project have been paid or are not required to be paid from the Improvement Fund, Bond Proceeds Account and Remainder Taxes Account, the Fiscal Agent shall transfer the amount, if any, remaining in the Improvement Fund, Bond Proceeds Account and Remainder Taxes Account to the Bond Fund for application to Debt Service payments due on the next succeeding Interest Payment Date and the Improvement Fund, Bond Proceeds Account and Remainder Taxes Account shall be closed. Moneys transferred from the Improvement Fund to the Bond Fund shall be used to pay Debt Service on the Bonds in the manner specified by the City in an Officer’s Certificate.

32 ARTICLE V

COVENANTS

Section 5.01. Collection of Special Tax Revenues. The City shall comply with all requirements of the Act so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of delinquent Special Taxes.

(A) Processing. On or within five (5) Business Days of each June 1, the Fiscal Agent shall provide the Finance Director with a notice stating (i) the amount then on deposit in the Bond Fund and the 2023 Reserve Fund, and (ii) if the amount in the 2023 Reserve Fund is less than the 2023 Reserve Requirement, informing the City that replenishment of the 2023 Reserve Fund is necessary. The receipt of or failure to receive such notice by the Finance Director shal l in no way affect the obligations of the Finance Director under the following two paragraphs and the Fiscal Agent shall not be liable for failure to provide such notices to the Finance Director. Upon receipt of such notice, the Finance Director shall communicate with the Auditor to ascertain the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits or combinations during the preceding and then current year.

(B) Levy. The Finance Director shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance by each August 1 that the Bonds are outstanding, or otherwise such that the computation of the levy is complete before the final date on which Auditor will accept the transmission of the Special Tax amounts for the parcels within Improvement Area No. 3 for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the Finance Director shal l prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll.

(C) Computation. The Finance Director shall fix and levy the amount of Sp ecial Taxes within Improvement Area No. 3 required to pay the following amounts, taking into account the balances in the applicable funds established under this Agreement: (i) the principal of and interest on any outstanding Bonds of the CFD with respect to Improvement Area No. 3 becoming due and payable during the ensuing calendar year, (ii) any necessary replenishment or expenditure of the 2023 Reserve Fund, to the extent such replenishment has not been included in the computation of the Special Taxes in a previous Fiscal Year , (iii) the Administrative Expenses, including amounts necessary to discharge any rebate obligation, during such year, (iv) an amount to cure delinquencies in the payment of principal or interest on Bonds that occurred in the previous Fiscal Year, and (v) any Project costs to be paid from Special Taxes to the extent that paying for such costs does not increase the Special Taxes levied on Undeveloped Property (as defined in the Rate and Method). During the Remainder Taxes Period, the Finance Director shall fix and levy the Special Taxes at the Maximum Special Tax rate on Developed Property before considering any Capitalized Interest (as those terms are defined in the Rate and Method). The Special Taxes so levied shall not exceed 33 the authorized amounts as provided in the proceedings under the Resolution of Formation.

(D) Collection. Except as set forth in the Ordinance, Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the ad valorem taxes on real property.

Section 5.02. Covenant to Foreclose. Under the Act, the City hereby covenants with and for the benefit of the Owners of the Bonds that it will order, and cause to be commenced as hereinafter provided, and thereafter diligently prosecute to judgment (unless such delinquency is theretofore brought current), an action in the superior court to foreclose the lien of any S pecial Tax or installment thereof not paid when due as provided in the following two paragraphs. The Finance Director shall notify the City Attorney of any such delinquency of which the Finance Director is aware, and the City Attorney shall commence, or c ause to be commenced, such proceedings.

On or about June 30 of each Fiscal Year, the Finance Director shall compare the amount of Special Taxes theretofore levied in Improvement Area No. 3 to the amount of Special Tax Revenues theretofore received by the City, and:

(A) Individual Delinquencies. If the Finance Director determines that any single parcel subject to the Special Tax in Improvement Area No. 3 is delinquent in the payment of Special Taxes in the aggregate amount of $5,000 or more, then the Finance Director shall send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) foreclosure proceedings shall be commenced by the City within 90 days of such determination. Notwithstanding the foregoing, the Finance Director may defer any such actions with respect to a delinquent parcel if (1) Improvement Area No. 3 is then participating in the Alternative Method of Distribution of Tax Levies and Collections described in Revenue & Taxation Code Section 4701 et seq., or an equivalent procedure and (2) the amount in the 2023 Reserve Fund is at least equal to the 2023 Reserve Requirement.

(B) Aggregate Delinquencies. If the Finance Director determines that (i) the total amount of delinquent Special Tax for the prior Fiscal Year for the entire Improvement Area No. 3 (including the total of delinquencies under subsection (A) above), exceeds 5% of the total Special Tax due and payable for the prior Fiscal Year, determined by reference to the latest available secured property tax roll of the County, the Finance Director shall notify or cause to be notified property owners who are then delinquent in the payment of Special Taxes (and demand immediate payment of the delinquency) within 45 days of such determination, and shall commence foreclosure proceedings within 90 days of such determination against each parcel of land in Improvement Area No. 3 with a Special Tax delinquency.

(C)
Individual Owner Delinquencies. As to any owner of more than one parcel within Improvement Area No. 3, if the Finance Director determines that 34 the aggregate amount of delinquent Special Taxes for all preceding tax years on all parcels owned by such owner (whether such parcels are owned solely by such owner or jointly by such owner and one or more others) exceeds $10,000, then the Finance Director shall send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) shall commence foreclosure proceedings within 90 days of such determination, regardless of when such delinquencies occurred.

The Finance Director and the City Attorney, as applicable, are hereby authorized to employ counsel to conduct any such foreclosure proceedings. The fees and expenses of any such counsel (including a charge for City staff time) in conducting foreclosure proceedings shall be an Administrative Expense hereunder.

Section 5.03. Punctual Payment. The City will punctually pay or cause to be paid the principal of, and interest and any premium on, the Bonds when and as due in strict conformity with the terms of this Agreement and any Supplemental Agreement, and it will faithfully observe and perform all of the conditions covenants and requirements of this Agreement and all Supplemental Agreements and of the Bonds.

Section 5.04. Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the City shall not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and shall not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the City , such claim for interest so extended or funded shall not be entitled, in case of default hereunder, to the benefits of this Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded.

Section 5.05. Against Encumbrances. The City will not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien herein created for the benefit of the Bonds, or their Owners, except as permitted by this Agreement.

Section 5.06. Books and Records.

(A) City. The City will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the City, in which complete and correct entries shall be made of all transactions relating to the Special Tax Revenues. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Fiscal Agent (who shall have no duty to inspect) and the Owners of not less than 10% of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.

(B) Fiscal Agent . The Fiscal Agent will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Fiscal Agent, in which complete and correct entries shall be made of all transactions made by it relating to the expenditure of amounts disbursed from the funds, and, if any, accounts in such funds held by the Fiscal Agent hereunder.

Such books of record and accounts shall at all times during business hours be 35 subject to the inspection of the City and the Owners of not less than 10% of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing upon reasonable prior notice.

Section 5.07. Protection of Security and Rights of Owners. The City will preserve and protect the security of the Bonds and the rights of the Owners, and will warrant and defend their rights against all claims and demands of all persons. From and after the delivery of any of the Bonds by the City, the Bonds shall be incontestable by the City.

Section 5.08. Further Assurances. The City will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Agreement, and for the better assuring and confirming unto the Owners of the rights and benefits provided in this Agreement.

Section 5.09. Private Activity Bond Limitations. The City shall assure that the proceeds of the 2023 Bonds are not so used as to cause the 2023 Bonds to satisfy the private business tests of section 141(b) of the Tax Code or the private loan financing test of section 141(c) of the Code.

Section 5.10. Federal Guarantee Prohibition . The City shall not tak e any action or permit or suffer any action to be taken if the result of the same would be to cause the 2023 Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Tax Code.

Section 5.11. Rebate Requirement. The City shall take any and all actions necessary to assure compliance with section 148(f) of the Tax Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the 2023 Bonds. The Finance Director shall take note of any investment of monies hereunder in excess of the yield on the 2023 Bonds, and shall take such actions as are necessary to ensure compliance with this Section 5.11, such as increasing the portion of the Special Tax levy for Administrative Expenses as appropriate to have funds available in the Administrative Expense Fund to satisfy any rebate liability under this Section. If necessary to satisfy its obligations under this Section 5.11, the City may use:

(A) Amounts in the 2023 Reserve Fund if the amount on deposit in the 2023 Reserve Fund, following the proposed transfer, is at least equal to the 2023 Reserve Requirement;

(B) Amounts on deposit in the Administrative Expense Fund; and

(C) Any other funds available to the City, including amounts advanced by the City, in its sole discretion, to be repaid as soon as practicable from amounts described in the preceding clauses (A) and (B).

Section 5.12. No Arbitrage. The City shall not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the proceeds of the 2023 Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the 2023 Bonds would have caused the 2023 Bonds to be “arbitrage bonds” within the meaning of section 148 of the Tax Code.

36 Section 5.13. Yield of the 2023 Bonds . In determining the yield of the 2023 Bonds to comply with Sections 5.11 and 5.12, the City will take into account redemption (including premium, if any) in advance of maturity based on the reasonable expectations of the City, as of the Closing Date, regarding prepayments of Special Taxes and use of prepayments for redemption of the 2023 Bonds, without regard to whether or not prepayments are received or 2023 Bonds redeemed.

Section 5.14. Maintenance of Tax- Exemption; Record Retention; Compliance with Tax Certificates. The City shall take all actions necessary to assure the exclusion of interest on the 2023 Bonds from the gross income of the Owners of the 2023 Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the date of issuance of the 2023 Bonds.

The City will retain its records of all accounting and monitoring it carries out with respect to the 2023 Bonds for at least 3 years after the 2023 Bonds mature or are redeemed (whichever is earlier); however, if the 2023 Bonds are redeemed and refunded, the City will retain its records of accounting and monitoring at least 3 years after the earlier of the maturity or redemption of the obligations that refunded the 2023 Bonds.

The City will comply with the provisions of the Certificate as to Arbitrage and the Certificate Regarding Use of Proceeds with respect to the 2023 Bonds. The covenants of thi s paragraph will survive payment in full or defeasance of the 2023 Bonds.

Section 5.15. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate.

Notwithstanding any other provision of this Agreement, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered an event of default for the purposes of this Agreement. However, any Owner or Beneficial Owner of the 2023 Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

One or more owners of the real property in Improvement Area No. 3 as of the Closing Date may also have executed a continuing disclosure agreement for the benefit of the Bondowners and Beneficial Owners of the 2023 Bonds. Any Participating Underwriter or Bondowner or Beneficial Owner may take such actions as may be necessary and appropriate directly against any such landowner to compel performance by it of its obligations thereunder, including seeking mandate or specific performance by court order; however the City shall have no obligation whatsoever to enforce any obligations under any such agreement.

Section 5.16. Limits on Special Tax Waivers and Bond Tenders. The City covenants not to exercise its rights under the Act to waive delinquency and redemption penalties related to the Special Taxes or to declare a Special Tax penalties amnesty program if to do so would materially and adversely affect the interests of the Owners of the Bonds and further covenants not to permit the tender of Bonds in payment of any Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such tender will not result in the City having insufficient Special Tax Revenues to pay the principal of and interest on the Bonds and any Parity Bonds remaining Outstanding following such tender.

Section 5.17. City Bid at Foreclosure Sale. The City will not bid at a foreclosure sale of property in respect of delinquent Special Taxes, unless it expressly agrees to take the property 37 subject to the lien for Special Taxes imposed by the City and that the Special Taxes levied on the property are payable while the City owns the property.

Section 5.18. Amendment of Rate and Method.

(A) General. The City shall not initiate proceedings under the Act to modify the Rate and Method if such modification would adversely affect the security for the Bonds. If an initiative is adopted that purports to modify the Rate and Method in a manner that would adversely affect the security for the Bonds, the City shall, to the extent permitted by law, commence and pursue reasonable legal actions to prevent the modification of the Rate and Method in a manner that would adversely affect the security for the Bonds.

(B) Exception. Notwithstanding clause (A) of this section, the City may initiate proceedings to reduce the maximum Special Tax rates under the Rate and Method, if, in connection therewith: (i) the City receives a certificate from one or more Independent Financial Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in Improvement Area No. 3 as of the July 1 preceding the reduction, the maximum amount of the Special Tax which may be levied on then-existing Taxable Property (as such term is defined in the Rate and Method) in each Bond Year for any Bonds and Parity Bonds Outstanding will equal at least the sum of the estimated Administrative Expenses and 110% of the Debt Service in each Bond Year on all Bonds and Parity Bonds to remain Outstanding after the reduction is approved; (ii) the reduction does not adversely affect the financing of the Project and (iii) the City is not delinquent in the payment of the principal of or interest on the Bonds or any Parity Bonds. For purposes of estimating Administrative Expenses for the foregoing calculation, the Independent Financial Consultants will compute the Administrative Expenses for the current Fiscal Year and escalate such amounts by 2% in each subsequent Fiscal Year.

Section 5.19. Determination of Required Coverage. The City hereby determines that Required Coverage (as that term is defined in the Rate and Method) for each Fiscal Year is 110% of ( A) the total Annual Debt Service of the then Outstanding Bonds for the Bond Year that commences in such Fiscal Year and ( B) estimated Administrative Expenses for such Fiscal Year”?
38 ARTICLE VI

INVESTMENTS; LIABILITY OF THE CITY

Section 6.01. Deposit and Investment of Moneys in Funds.

(A) General. Moneys in any fund or account created or established by this Agreement and held by the Fiscal Agent shall be invested by the Fiscal Agent in Permitted Investments, which in any event by their terms mature prior to the date on which such moneys are required to be paid out hereunder, as directed pursuant to an Officer’s Certificate filed with the Fiscal Agent at least two Business Days in advance of the making of such investments. In the absence of any such Officer’s Certificate, the Fiscal Agent shall hold such funds uninvested. The Finance Director shall make note of any investment of funds hereunder in excess of the yield on the Bonds so that appropriate actions can be taken to assure compliance with Section 5.11. Interest earnings on moneys invested in each fund or account created or established by this Agreement shall be credited to such fund or account, unless otherwise required by this Agreement.

(B) Moneys in Funds. Moneys in any fund or account created or established by this Agreement and held by the Finance Director shall be invested by the Finance Director in any Permitted Investment or in any other lawful investment for City funds, which in any event by its terms matures prior to the date on which such moneys are required to be paid out hereunder.

Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account, subject, however, to the requirements of this Agreement for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts.

Whenever in this Agreement any moneys are required to be transferred by the City to the Fiscal Agent, such transfer may be accomplished by transferring a like amount of Permitted Investments.

(C) Actions of Officials . The Fiscal Agent and its affiliates or the Finance Director may act as sponsor, advisor, depository, principal or agent in the acquisition or disposition of any investment. Neither the Fiscal Agent nor the Finance Director shall incur any liability for losses arising from any investments made pursuant to this Section. The Fiscal Agent shall not be required to determine the legality of any investments.

(D) Valuation of Investments. Except as otherwise provided in the next sentence, all investments of amounts deposited in any fund or account created by or pursuant to this Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of section 148 of the Tax Code) shall be acquired, disposed of, and valued (as of the date that valuation is required by this Agreement or the Tax Code) at Fair Market Value. Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under the applicable provisions of the Tax Code and (unless valuation is undertaken at least annually) investments in the subaccounts within the 2023 Reserve Fund shall be valued at their present value (within the meaning of section 148 of the Tax Code). The Fiscal Agent shall not be liable for verifi cation of the application of such sections of the Tax Code or for any determination of Fair Market Value or present value and may conclusively rely upon an Officer’s Certificate as to such valuations.

(E) Commingled Money . Investments in any and all funds and accounts may be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions herein for transfer to or holding in or to the credit of particular funds or accounts of amounts received or held by the Fiscal Agent or the Finance 39 Director hereunder, provided that the Fiscal Agent or the Finance Director, as applicable, shall at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in this Agreement.

(F) Confirmations Waiver. The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City specifically waives receipt of such confirmations to the extent permitted by law. The Fiscal Agent will furnish the City periodic cash transaction statements which include shall detail for all investment transactions made by the Fiscal Agent hereunder.

(G) Sale of Investments . The Fiscal Agent or the Finance Director, as applicable, shall sell at Fair Market Value, or present for redemption, any investment security whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such investment security is credited and neither the Fiscal Agent nor the Finance Director shall be liable or responsible for any loss resulting from the acquisition or disposition of such investment security in accordance herewith.

Section 6.02. Liability of City.

(A) General. The City shall not incur any responsibility or liability in respect of the Bonds or this Agreement other than in connection with the duties or obligations explicitly herein or in the Bonds assigned to or imposed upon it. The City shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful default. The City shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements of the Fiscal Agent herein or of any of the documents executed by the Fiscal Agent in connection with the Bonds, or as to the existence of a default or event of default thereunder.

(B) Reliance. In the absence of bad faith, the City, including the Finance Director, may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the City by the Fiscal Agent or an Independent Financial Consultant and conforming to the requirements of this Agreement. The City, including the Finance Director, shall not be liable for any error of judgment made in good faith unless it shall be proved that it was negligent in ascertaining the pertinent facts. The City may rely and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The City may consult with counsel, who may be the City Attorney, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith.

(C) No General Liability . No provision of this Agreement shall require the City to expend or risk its own general funds or otherwise incur any financial liability (other than with respect to the Special Tax Revenues) in the performance of any of its obligations hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

40 (D) Owner of Bonds . The City shall not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed.

Section 6.03. Employment of Agents by City. In order to perform its duties and obligations hereunder, the City may employ such persons or entities as it deems necessary or advisable. The City shall not be liable for any of the acts or omissions of such persons or entities employed by it in good faith hereunder, and shall be entitled to rely, and shall be fully protected in doing so, upon the opinions, calculations, determinations and directions of such persons or entities.

41 ARTICLE VII

THE FISCAL AGENT

Section 7.01. The Fiscal Agent.

(A) Appointment. The Fiscal Agent is hereby appointed as the fiscal, authentication, paying and transfer agent hereunder for the Bonds. The Fiscal Agent undertakes to perform such duties, and only such duties, as are specifically set forth in this Agreement, and no implied duties, covenants or obligations shall be read into this Agreement against the Fiscal Agent.

(B) Merger. Any company into which the Fiscal Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Fiscal Agent may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under the following paragraph of this Section 7.01 shall be the successor to such Fiscal Agent without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. The Fiscal Agent shall give the Finance Director written notice of any such succession hereunder.

(C) Removal. Upon 30 days written notice, the City may remove the Fiscal Agent initially appointed, and any successor thereto, and may appoint a successor or successors thereto, but any such successor shall be a bank, national banking association or trust company having a combined capital (exclusive of borrowed capital) and surplus of at least $50,000,000, and subject to supervision or examination by federal or state authority. If such bank, national banking association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section 7.01, combined capital and surplus of such bank, national banking association or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.

(D) Resignation. The Fiscal Agent may at any time resign by giving written notice to the City by certified mail return receipt requested, and by giving to the Owners notice by mail of such resignation. Upon receiving notice of such resignation, the City shall promptly appoint a successor Fiscal Agent by an instrument in writing. Any resignation or removal of the Fiscal Agent shall become effective upon acceptance of appointment by the successor Fiscal Agent.

(E) No Successor . If no appointment of a successor Fiscal Agent shall be made pursuant to the foregoing provisions of this Section 7.01 within 45 days after the Fiscal Agent shall have given to the City written notice or after a vacancy in the office of the Fiscal Agent shall have occurred by reason of its inability to act, the Fiscal Agent, at the expense of the City, or any Owner may apply to any court of competent jurisdiction to appoint a successor Fiscal Agent. Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a successor Fiscal Agent.

(F) Court Order . If, by reason of the judgment of any court, the Fiscal Agent is rendered unable to perform its duties hereunder, all such duties and all of the rights and powers of the Fiscal Agent hereunder shall be assumed by and vest in the Finance Director of the City in trust for the benefit of the Owners. The City covenants for the direct benefit of the Owners that its 42 Finance Director in such case shall be vested with all of the rights and powers of the Fiscal Agent hereunder, and shall assume all of the responsibilities and perform all of the duties of the Fiscal Agent hereunder, in trust for the benefit of the Owners of the Bonds.

Section 7.02. Liability of Fiscal Agent.

(A) General. The recitals of facts, covenants and agreements herein and in the Bonds contained shall be taken as statements, covenants and agreements of the City, and the Fiscal Agent assumes no responsibility for the correctness of the same, nor makes any representations as to the validity or sufficiency of this Agreement or of the Bonds, nor shall the Fiscal Agent incur any responsibility in respect thereof, other than in connection with the duties or obligations herein or in the Bonds assigned to or imposed upon it. The Fiscal Agent shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct.

The Fiscal Agent assumes no responsibility or liability for any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds. All indemnifications and releases from liability granted to the Fiscal Agent hereunder shall extend to the directors, officers and employees of the Fiscal Agent.

The Fiscal Agent shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of enforced delay (“unavoidable delay”) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Fiscal Agent.

(B) Reliance. The Fiscal Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates, documents, written instructions or opinions furnished to the Fiscal Agent and conforming to the requirements of this Agreement; but in the case of any such certificates, documents, written instructions or opinions by which any provision hereof are specifically required to be furnished to the Fiscal Agent, the Fiscal Agent shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement. Except as provided above in this paragraph, the Fiscal Agent shall be protected and shall incur no liability in acting or proceeding, or in not acting or not proceeding, in accordance with the terms of this Agreement, upon any resolution, order, notice, request, consent or waiver, certificate, statement, affidavit, facsimile transmission, electronic mail, or other paper or document which it shall reasonably believe to be genuine and to have been adopted or signed by the proper person or to have been prepared and furnished pursuant to any provision of this Agreement, and the Fiscal Agent shall not be under any duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument.

(C) No Duty to Inquire. The Fiscal Agent shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements of the City or the CFD herein or of any of the documents executed by the City or the CFD in connection with the Bonds, or as to the existence of a default or event of default thereunder.

43 (D) Errors in Judgment. The Fiscal Agent shall not be liable for any error of judgment made in good faith by a responsible officer of the Fiscal Agent unless it shall be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts.

(E) No Expenditures. No provision of this Agreement shall require the Fiscal Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers.

(F) No Action. The Fiscal Agent shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement at the request or direction of any of the Owners under this Agreement unless such Owners shall have offered to the Fiscal Agent reasonable security or indemnity satisfactory to the Fiscal Agent against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

(G) Owner of Bonds. The Fiscal Agent may become the owner of the Bonds with the same rights it would have if it were not the Fiscal Agent.

Section 7.03. Information; Books and Accounts. The Fiscal Agent shall provide to the City such information relating to the Bonds and the funds and accounts maintained by the Fiscal Agent hereunder as the City shall reasonably request, including but not limited to monthly statements reporting funds held and transactions by the Fiscal Agent, including the value of any investments held by the Fiscal Agent. The Fiscal Agent will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Fiscal Agent, in which complete and correct entries shall be made of all transactions relating to the expenditure of amounts disbursed from the Bond Fund, the Special Tax Fund, the 2023 Reserve Fund, the Improvement Fund and the Cost of Issuance Fund. Such books of record and accounts shall, upon reasonable notice, during business hours be subject to the inspection of the City and the Owners of not less than 10% of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.

Section 7.04. Notice to Fiscal Agent. The Fiscal Agent may rely and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, facsimile transmission, electronic mail, written instructions, report, warrant, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The Fiscal Agent may consult with counsel, who may be the City Attorney, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in accordance therewith.

The Fiscal Agent shall not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed.

Whenever in the administration of its duties under this Agreement the Fiscal Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of willful misconduct on the part of the Fiscal Agent, be deemed to be conclusively proved and established by an Officer’s Certificate of the City , and such certificate shall be full warrant to the Fiscal Agent for any action taken or suffered under the provisions of this Agreement or any Supplemental Agreement upon the faith thereof, but in its 44 discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable.

The Fiscal Agent shall have the right to accept and act upon instructions, including funds transfer instructions (“Instructions”) given pursuant to this Agreement and delivered using Electronic Means (“Electronic Means” shall mean the following communications methods: e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Fiscal Agent, or another method or system specified by the Fiscal Agent as available for use in connection with its services hereunder); provided, however, that the City shall provide to the Fiscal Agent an incumbency certificate listing officers with the authority to provide such Instructions (“Authorized Officers”) and cont aining specimen signatures of such Authorized Officers, which incumbency certificate shall be amended by the City whenever a person is to be added or deleted from the listing. If the City elects to give the Fiscal Agent Instructions using Electronic Means and the Fiscal Agent in its discretion elects to act upon such Instructions, the Fiscal Agent’s understanding of such Instructions shall be deemed controlling. The City understands and agrees that the Fiscal Agent cannot determine the identity of the actual sender of such Instructions and that the Fiscal Agent shall conclusively presume that directions that purport to have been sent by an Authorized Officer listed on the incumbency certificate provided to the Fiscal Agent have been sent by such Authorized Officer. The City shall be responsible for ensuring that only Authorized Officers transmit such Instructions to the Fiscal Agent and that the City and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the City. The Fiscal Agent shall not be liable for any losses, costs or expenses arising directly or indirectly from the Fiscal Agent’s reliance upon and compliance with such Instructions notwithstanding such directions conflict or are inconsistent with a subsequent written instruction. The City agrees: (i) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Fiscal Agent, including without limitation the risk of the Fiscal Agent acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to the Fiscal Agent and that there may be more secure methods of transmitting Instructions than the method(s) selected by the City; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions prov ide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify the Fiscal Agent immediately upon learning of any compromise or unauthorized use of the security procedures.

The Fiscal Agent shall not be concerned with or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions hereof.

The Fiscal Agent may execute any of the duties or powers hereof and perform the duties required of it hereunder either directly or by or through attorneys or agents, and shall be entitled to rely on advice of counsel concerning all matters of its duty hereunder.

The permissive right of the Fiscal Agent to do things enumerated in this Agreement shall not be construed as a duty and it shall not be answerable for such actions other than as a result of its negligence or willful misconduct.

Section 7.05. Compensation, Indemnification. The City shall pay to the Fiscal Agent from time to time reasonable compensation for all services rendered as Fiscal Agent under this Agreement, and also all reasonable expenses, charges, counsel fees and other disbursements, 45 including those of its attorneys (including the allocated costs of in- house attorneys), agents and employees, incurred in and about the performance of their powers and duties under this Agreement, but the Fiscal Agent shall not have a lien therefor on any funds at any time held by it under this Agreement. The City further agrees, to the extent permitted by applicable law, to indemnify and save the Fiscal Agent, its officers, employees, directors and agents harmless against any liabilities, costs, claims or expenses, including fees and expenses of its attorneys, which it may incur in the exercise and performance of its powers and duties hereunder which are not due to its negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Fiscal Agent under this Agreement, and payment of the Bonds and discharge of this Agreement, but any monetary obligation of the City arising under this Section shall be limited solely to amounts on deposit in the Administrative Expense Fund. 46 ARTICLE VIII

MODIFICATION OR AMENDMENT

Section 8.01. Amendments Permitted.

(A) With Consent. This Agreement and the rights and obligations of the City and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting, of the Owners of at least 60% in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in Section 8.04. No such modification or amendment shall (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the City to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) permit the creation by the City of any pledge or lien upon the Special Taxes superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the laws of the State of California or this Agreement), or reduce the percentage of Bonds required for the amendment hereof.

(B) Without Consent. This Agreement and the rights and obligations of the City and of the Owners may also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes:

(i) to add to the covenants and agreements of the City herein, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power herein reserved to or conferred upon the City;

(ii) to make modifications not adversely affecting any Outstanding Bonds in any material respect;

(iii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in this Agreement, or in regard to questions arising under this Agreement, as the City and the Fiscal Agent may deem necessary or desirable and not inconsistent with this Agreement, and which shall not adversely affect the rights of the Owners of the Bonds;

(iv) to make such additions, deletions or modifications as may be necessary or desirable to assure exclusion from gross income for federal income tax purposes of interest on the Bonds;

(v) in connection with the issuance of any Parity Bonds under and pursuant to Section 3.06; and

(vi) to amend the provisions related to the use of Remainder Taxes.

(C) Fiscal Agent’s Consent. Any amendment of this Agreement may not modify any of the rights or obligations of the Fiscal Agent without its written consent. The Fiscal Agent shall be furnished an opinion of counsel that any such Supplemental Agreement entered into by the 47 City and the Fiscal Agent complies with the provisions of this Section 8.01 and the Fiscal Agent may conclusively rely on such opinion and shall be absolutely protected in so relying.

Section 8.02. Owners’ Meetings. The City may at any time call a meeting of the Owners.

In such event the City is authorized to fix the time and place of said meeting and to provide for the giving of notice thereof and to fix and adopt rules and regulations for the conduct of said meeting.

Section 8.03. Procedure for Amendment with Written Consent of Owners. The City and the Fiscal Agent may at any time adopt a Supplemental Agreement amending the provisions of the Bonds or of this Agreement or any Supplemental Agreement, to the extent that such amendment is permitted by Section 8.01(A), to take effect when and as provided in this Section

8.03. A copy of such Supplemental Agreement, together with a request to Owners for their consent thereto, shall be mailed by first class mail, by the Fiscal Agent, at the expense of the City, to each Owner of Bonds Outstanding, but failure to mail copies of such Supplemental Agreement and request shall not affect the validity of the Supplemental Agreement when assented to as in this Section 8.03 provided.

Such Supplemental Agreement shall not become effective unless there shall be filed with the Fiscal Agent the written consents of the Owners of at least 60% in aggregate principal amount of the Bonds then Outstanding (exclusive of Bonds disqualified as provided in Section 8.04) and a notice shall have been mailed as hereinafter in this Section 8.03 provided. Each such consent shall be effective only if accompanied by proof of ownership of the Bonds for which such consent is given, which proof shall be such as is permitted by Section 9.04. Any such consent shall be binding upon the Owner of the Bonds giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Fiscal Agent prior to the date when the notice hereinafter in this Section 8.03 provided for has been mailed.

After the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Agreement, the City shall mail a notice to the Owners in the manner hereinbefore provided in this Section 8.03 for the mailing of the Supplemental Agreement, stating in substance that the Supplemental Agreement has been consented to by the O wners of the required percentage of Bonds and will be effective as provided in this Section 8.03 (but failure to mail copies of said notice shall not affect the validity of the Supplemental Agreement or consents thereto). Proof of the mailing of such notice shall be filed with the Fiscal Agent. A record, consisting of the papers required by this Section 8.03 to be filed with the Fiscal Agent, shall be proof of the matters therein stated until the contrary is proved. The Supplemental Agreement shall become effective upon the filing with the Fiscal Agent of the proof of mailing of such notice, and the Supplemental Agreement shall be deemed conclusively binding (except as otherwise hereinabove specifically provided in this Article) upon the City and the Owners of all Bonds at the expiration of 60 days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such 60-day period.

Section 8.04. Disqualified Bonds . Bonds owned or held for the account of the City, excepting any pension or retirement fund, shall not be deemed Outstanding for the purpose of any vote, consent or other action or any calculation of Outstanding Bonds provided for in this Article VIII, and shall not be entitled to vote upon, consent to, or take any other action provided for in this Article VIII. Upon request of the Fiscal Agent, the City shall specify in a certificate to the 48 Fiscal Agent those Bonds disqualified pursuant to this Section and the Fiscal Agent may conclusively rely on such certificate.

Section 8.05. Effect of Supplemental Agreement . From and after the time any Supplemental Agreement becomes effective under this Article VIII, this Agreement shall be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations under this Agreement of the C ity, the Fiscal Agent and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Agreement shall be deemed to be part of the terms and conditions of this Agreement for any and all purposes.

Section 8.06. Endorsement or Replacement of Bonds Issued After Amendments .

The City may determine that Bonds issued and delivered after the effective date of any action taken as provided in this Article VIII shall bear a notation, by endorsement or otherwise, in form approved by the City, as to such action. In that case, upon demand of the Owner of any Bond Outstanding at such effective date and upon presentation of his Bond for that purpose at the Principal Office of the Fiscal Agent or at such other office as the City may select and designate for that purpose, a suitable notation shall be made on such Bond. The City may determine that new Bonds, so modified as in the opinion of the City is necessary to conform to such Owners’ action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Bonds then Outstanding, such new Bonds shall be exchanged at the Principal Office of the Fiscal Agent without cost to any Owner, for Bonds then Outstanding, upon surrender of such Bonds.

Section 8.07. Amendatory Endorsement of Bonds. The provisions of this Article VIII shall not prevent any Owner from accepting any amendment as to the particular Bonds held by him, provided that due notation thereof is made on such Bonds. 49 ARTICLE IX

MISCELLANEOUS

Section 9.01. Benefits of Agreement Limited to Parties . Nothing in this Agreement, expressed or implied, is intended to give to any person other than the City, the Fiscal Agent and the Owners, any right, remedy, claim under or by reason of this Agreement. Any covenants, stipulations, promises or agreements in this Agreement contained by and on behalf of the City shall be for the sole and exclusive benefit of the Owners and the Fiscal Agent.

Section 9.02. Successor and Predecessor . Whenever in this Agreement or any Supplemental Agreement either the City or the Fiscal Agent is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Agreement contained by or on behalf of the City or the Fiscal Agent shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not.

Section 9.03. Discharge of Agreement . The City may pay and discharge the entire indebtedness on all or a portion of the Bonds Outstanding in any one or more of the following ways:

(A) by paying or causing to be paid the principal of, and interest and any premium on, all or a portion of such Bonds Outstanding, as and when the same become due and payable;

(B) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the funds and accounts provided for in the Bond Fund and the 2023 Reserve Fund hereof, is fully sufficient to pay all or a portion of such Bonds Outstanding, including all principal, interest and redemption premiums; or

(B) by irrevocably depositing with the Fiscal Agent, in trust, cash and/or Federal Securities in such amount as the City shall determine, as confirmed by an independent certified public accountant, will, together with the interest to accrue thereon and moneys then on deposit in the fund and accounts provided for in the Bond Fund and the 2023 Reserve Fund (to the extent invested in Federal Securities), be fully sufficient to pay and discharge the indebtedness on such Bonds Outstanding (including all principal, interest and redemption premiums) at or before their respective maturity dates.

If the City shall have taken any of the actions specified in (A), (B) or (C) above, and if such Bonds are to be redeemed prior to the maturity thereof and notice of such redemption shall have been given as in this Agreement provided or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, then, at the election of the City, and notwithstanding that any such Bonds shall not have been surrendered for payment, the pledge of the Special Taxes and other funds provided for in this Agreement and all other obligations of the City under this Agreement with respect to such Bonds Outstanding shall cease and terminate. Notice of s uch election shall be filed with the Fiscal Agent.
50 Notwithstanding the foregoing, the following obligations and pledges of the City shall continue in any event: (i) the obligation of the City to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon, (ii) the obligation of the City to pay amounts owing to the Fiscal Agent pursuant to Section 7.05, and (iii) the obligation of the City to assure that no action is taken or failed to be taken if such action or failure adversely affects the exclusion of interest on such Bonds from gross income for federal income tax purposes.

Upon compliance by the City with the foregoing with respect to all such Bonds Outstanding, any funds held by the Fiscal Agent after payment of all fees and expenses of the Fiscal Agent, which are not required for the purposes of the preceding paragraph, shall be paid over to the City and any Special Taxes thereafter received by the City shall not be remitted to the Fiscal Agent but shall be retained by the City to be used for any purpose permitted under the Act and the Resolution of Formation.

Section 9.04. Execution of Documents and Proof of Ownership by Owners . Any request, declaration, consent or other instrument which this Agreement may require or permit to be executed by Owners may be in one or more instruments of similar tenor, and shall be executed by Owners in person or by their attorneys appointed in writing.

Except as otherwise herein expressly provided, the fact and date of the execution by any Owner or his attorney of such request, declaration, consent or other instrument, or of such writing appointing such attorney, may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which he purports to act, that the person signing such request, declaration or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer.

Except as otherwise herein expressly provided, the ownership of registered Bonds and the amount, maturity, number and date of holding the same shall be proved by the registration books maintained by the Fiscal Agent under Section 2.07.

Any request, declaration, consent or other instrument or writing of the Owner of any Bond shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the City or the Fiscal Agent in good faith and in accordance therewith.

Section 9.05. Waiver of Personal Liability . No member, officer, agent or employee of the City shall be individually or personally liable for the payment of the principal of or interest or any premium on the Bonds; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law.

51 Section 9.06. Notices to and Demands on City and Fiscal Agent . Any notice or demand which by any provision of this Agreement is required or permitted to be given or served by the Fiscal Agent to or on the City may be given or served by facsimile transmission receipt of which has been confirmed or by being deposited postage prepaid in a post office letter box addressed (until another address is filed by the City with the Fiscal Agent) as follows:

City of Tracy
333 Civic Center Plaza
Tracy, CA 95376
Fax: (209) 835-1113
Attention: Finance Director

Any notice or demand which by any provision of this Agreement is required or permitted to be given or served by the City to or on the Fiscal Agent may be given or served by facsimile transmission receipt of which has been confirmed or by being deposited postage prepaid in a post office letter box addressed (until another address is filed by the Fiscal Agent with the City) as follows:

U.S. Bank Trust Company, National Association
One California Street, Suite 1000
San Francisco, CA 94111
Attn: Global Corporate Trust Services

Section 9.07. Partial Invalidity . If any Section, paragraph, sentence, clause or phrase of this Agreement shall for any reason be held by a court of competent jurisdiction to be illegal or unenforceable, such holding shall not affect the validity of the remaining portions of this Agreement.

Section 9.08. Unclaimed Moneys . Anything contained herein to the contrary notwithstanding, any moneys held by the Fiscal Agent in trust for the payment and discharge of the principal of, and the interest and any premium on, the Bonds which remains unclaimed for two (2) years after the date when the payment of such principal, interest and premium have become payable, if such moneys were held by the Fiscal Agent at such date, shall be repaid by the Fiscal Agent to the City as its absolute property free from any trust, and the Fiscal Agent shall thereupon be released and discharged with respect thereto and the Owners of such Bonds shall look only to the City for the payment of the principal of, and interest and any premium on, such Bonds. Any right of any Owner to look to the City for such payment shall survive only so long as required under applicable law.

Section 9.09. Applicable Law . This Agreement shall be governed by and enforced in accordance with the laws of the State applicable to contracts made and performed in the State.

Section 9.10. Conflict with Act. In the event of a conflict between any provision of this Agreement with any provision of the Act as in effect on the Closing Date, the provision of the Act shall prevail over the conflicting provision of this Agreement.

Section 9.11. Conclusive Evidence of Regularity. Bonds issued under this Agreement shall constitute conclusive evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the Special Taxes.

52 Section 9.12. Payment on Business Day. In any case where the date of the maturity of interest or of principal (and premium, if any) of the Bonds, or the date fixed for redemption of any Bonds, or the date any action is to be taken under this Agreement, is other than a Business Day, the payment of interest or principal (and premium, if any) or the action shall be made on the next succeeding day which is a Business Day with the same force and effect as if made on the date required and no interest shall accrue for the period from and after such date.

Section 9.13. State Reporting Requirements. In addition to Section 5.15, the following requirements shall apply to the Bonds:

(A) Annual Reporting. Not lat er than October 30 of each calendar year, beginning with the October 30 first succeeding the date of the 2023 Bonds, and in each calendar year thereafter until the October 30 following the final maturity of the Bonds, the Finance Director shall cause the information required by California Government Code Section 53359.5(b) to be supplied to CDIAC. The annual reporting shall be made using such form or forms as may be prescribed by CDIAC.

(B) Other Reporting. If at any time the Fiscal Agent fails to pay principal and interest due on any scheduled payment date for the Bonds due to insufficiency of funds on deposit in the Bond Fund, or if funds are withdrawn from the 2023 Reserve Fund to pay principal and interest on the Bonds so as to reduce the amount in the 2023 Reserve Fund to less than the 2023 Reserve Requirement, the Fiscal Agent shall notify the Finance Director of such failure or withdrawal in writing. The Finance Director shall notify CDIAC and the Original Purchasers of such failure or withdrawal within 10 days of such failure or withdrawal.

(C) Special Tax Reporting. The Finance Director shall file a report with the City no later than January 1, 2024, and at least once a year thereafter, which annual report shall contain:
(i) the amount of Special Taxes collected and expended with respect to the CFD, (ii) the amount of Bond proceeds collected and expended with respect to the CFD, and (iii) the status of the Project. It is acknowledged that the Special Tax Fund and the Special Tax Prepayments Account are the accounts into which Special Taxes collected on the City will be deposited for purposes of Section 50075.1(c) of the California Government Code, and the funds and accounts listed in Section 4.01 are the funds and accounts into which Bond proceeds will be deposited for purposes of Section 53410(c) of the California Government Code, and the annual report described in the preceding sentence is intended to satisfy the requirements of Sections 50075.1(d), 50075.3(d) and 53411 of the California Government Code.

(D) Compliance with Section 53343.2. The City shall comply with the provisions of California Government Code Section 53343.2, which require the City, within seven months after the last day of each fiscal year of the CFD, to display prominently on its Internet Web site all of the following information:

(a) A copy of an annual report for that fiscal year if requested pursuant to Section 53343.1.

(b) A copy of the report provided to the California Debt and Investment Advisory Commission pursuant to Section 53359.5.

53 (E) Amendment. The reporting requirements of this Section 9.13 shall be amended from time to time, without action by the City or the Fiscal Agent (i) with respect to subparagraphs (A) and (B) above, to reflect any amendments to Section 53359.5(b) or Section 53359.5(c) of the Act, (ii) with respect to subparagraph (C) above, to reflect any amendments to Section 50075.1, 50075.3, 53410 or 53411 of the California Government Code and (iii) with respect to subparagraph (D) above, to reflect any amendments to Section 53343.2. Notwithstanding the foregoing, any such amendment shall not, in itself, affect the City ’s obligations under the Continuing Disclosure Certificate. The City shall notify the Fiscal Agent in writing of any such amendments which affect the reporting obligations of the Fiscal Agent under this Agreement.

(E) No Liability. None of the City and its officers, agents and employees, the Finance Director or the Fiscal Agent shall be liable for any inadvertent error in reporting the information required by this Section 9.13.

The Finance Director shall provide copies of any such reports to any Bondowner upon the written request of a Bondowner and payment by the person requesting the information of the cost of the City to photocopy and pay any postage or other delivery cost to provide the same, as determined by the Finance Director. The term “Bondowner” for purposes of this Section 9.13 shall include any Beneficial Owner of the Bonds as described in Section 2.10.

Section 9.14. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original.

* * * * * * * * * *
54 IN WITNESS WHEREOF, the City and the Fiscal Agent have caused this Agreement to be executed as of the date first written above.

CITY OF TRACY,
for and on behalf of

CITY OF TRACY COMMUNITY FACILITIES
DISTRICT NO. 2016-2 (ECFD)

By:

Finance Director

U.S. BANK TRUST COMPANY, NATIONAL

ASSOCIATION,
as Fiscal Agent

By:

Authorized Officer

Exhibit A

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Tracy City CouncilMarch 7, 2023

Tracy City Council
March 7, 2023