Agenda packet — Upland City Council, March 14, 2022 (part 2 of 4)

MATURITY SCHEDULE*

$[$5,025,000]*
COMMUNITY FACILITIES DISTRICT NO. 2015-1
(SYCAMORE HILLS)

OF THE CITY OF UPLAND, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA

SPECIAL TAX BONDS
SERIES 2022A (IMPROVEMENT AREA NO. 2)

$1,470,000* ____% Term Bond due September 1, 2042,* Yield ___% CUSIP† 91535N___ $3,555,000* ____% Term Bond due September 1, 2052,* Yield ___% CUSIP† 91535N___

$[$4,110,000]*
COMMUNITY FACILITIES DISTRICT NO. 2015-1 (SYCAMORE HILLS)

OF THE CITY OF UPLAND, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA

SPECIAL TAX BONDS
TAXABLE SERIES 2022B (IMPROVEMENT AREA NO. 2)

$1,280,000* ____% Term Bond due September 1, 2027,* Yield ___% CUSIP† 91535N___ $1,320,000* ____% Term Bond due September 1, 2032,* Yield ___% CUSIP† 91535N___ $1,510,000* ____% Term Bond due September 1, 2037,* Yield ___% CUSIP† 91535N___

_______________
* Preliminary, subject to change.
† CUSIP is a registered trademark of the American Bankers Association. Copyright© 2022 American Bankers Association.

CUSIP data herein is provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of the American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers are provided for convenience of reference only. Neither the District, the City nor the Underwriter takes any responsibility for the accuracy of such numbers.

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CITY OF UPLAND
San Bernardino County, California

City Council Members
Bill Velto, Mayor
Shannan Maust, Mayor Pro Tem
Janice Elliott, Council Member
Carlos Garcia, Council Member
Rudy Zuniga, Council Member
City Staff
Michael Blay, City Manager
Stephen Parker, Assistant City Manager
Londa Bock-Helms, Finance Officer
Keri Johnson, City Clerk
Stephen Deitsch, City Attorney
__________________________________

SPECIAL SERVICES
Bond and Disclosure Counsel
Richards, Watson & Gershon
A Professional Corporation
Los Angeles, California

Municipal Advisor
Urban Futures, Inc.

Tustin, California
Special Tax Consultant and Dissemination Agent
Willdan Financial Services
Temecula, California
Appraiser
Kitty Siino & Associates, Inc.

Tustin, California
Trustee
U.S. Bank Trust Company, National Association
Los Angeles, California

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No dealer, broker, salesperson or other person has been authorized by the City, the District or the Underwriter to give any information or to make any representations, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts.

The information set forth herein has been obtained from the City, the District and other sources believed to be reliable, but the accuracy or completeness of such information is not guaranteed by, and should not be construed as a representation by, the Underwriter. The information and expressions of opinions herein are subject to change without notice and neither delivery of the Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or the City since the date hereof. All summaries contained herein of the Indenture or other documents are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. All statements made herein are made as of the date of this document by the City except statistical information or other statements where some other date is indicated in the text.

The Preliminary Official Statement has been “deemed final” as of its date by the District pursuant to Rule 15c2-12 of the Securities and Exchange Commission. The District has also undertaken to provide continuing disclosure on certain matters, including annual financial information and specific enumerated events, as more fully described herein under “CONTINUING DISCLOSURE.” 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 its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

The Bonds are exempt from registration with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended. The Bonds have not been registered or qualified under the securities laws of any state. The Bonds will not be listed on any stock or securities exchange. Neither the Securities and Exchange Commission nor any other federal, state or other governmental entity or agency will have passed upon the accuracy or adequacy of the Official Statement or approved the Bonds for sale.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR

EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL ON THE OPEN MARKET.

SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE

UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER

BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC

OFFERING PRICES STATED ON THE INSIDE FRONT COVER PAGE HEREOF AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” 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 involves 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. Neither the District nor the City plans to issue any updates or revisions to those forward-looking statements if or when the expectations or events, conditions or circumstances on which such statements are based change.

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TABLE OF CONTENTS
Page

INTRODUCTION ............................................................................................................................................. 1 Purpose of Official Statement ............................................................................................................... 1 Authority for Issuance and Use of Proceeds ......................................................................................... 1 The City ................................................................................................................................................ 2 The District ........................................................................................................................................... 2 Property Ownership .............................................................................................................................. 2 Appraisal ............................................................................................................................................... 2 Security and Sources of Payment .......................................................................................................... 3 Risk Factors .......................................................................................................................................... 4 Miscellaneous ....................................................................................................................................... 4 ESTIMATED SOURCES AND USES OF FUNDS.......................................................................................... 4 PLAN OF FINANCE ......................................................................................................................................... 5 THE BONDS ..................................................................................................................................................... 6 General ................................................................................................................................................. 6 Authority for Issuance ........................................................................................................................... 6 Debt Service Schedule .......................................................................................................................... 8 Redemption ........................................................................................................................................... 9 Book-Entry Only System .................................................................................................................... 12 SECURITY FOR THE BONDS ...................................................................................................................... 12 Pledge of Special Taxes ...................................................................................................................... 12 Special Tax Fund ................................................................................................................................ 13 Covenant to Commence Foreclosure Proceedings .............................................................................. 17 Issuance of Parity Bonds ..................................................................................................................... 18 Rate and Method of Apportionment of Special Taxes ........................................................................ 19 THE DISTRICT ............................................................................................................................................... 21 General ............................................................................................................................................... 21 Estimated Special Taxes and Debt Service Coverage ......................................................................... 22 Appraised Property Value ................................................................................................................... 25 Appraised Value to Lien Ratio ............................................................................................................ 26 Direct and Overlapping Governmental Obligations............................................................................ 28 Estimated Tax Burden on Townhomes ............................................................................................... 29 PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT................................................................ 30 Master Developer ................................................................................................................................ 30 KB HOME Coastal Inc ....................................................................................................................... 31 Plan of Development ........................................................................................................................... 31 Status of Regulatory Permits, Agreements and Procedures ................................................................ 33 Tax Delinquencies of KB Coastal and Its Affiliates and Other Matters ............................................. 34 Financing Plan .................................................................................................................................... 34 COVID-19 Impact............................................................................................................................... 34 RISK FACTORS .............................................................................................................................................. 35 COVID-19 Pandemic .......................................................................................................................... 35 Limited Obligations of the District ..................................................................................................... 36 Levy and Collection of the Special Taxes........................................................................................... 37 Payment of Special Tax is not a Personal Obligation of the Landowner ............................................ 38 Appraised Values ................................................................................................................................ 38 Property Values and Property Development ....................................................................................... 38 Concentration of Landownership ........................................................................................................ 41 Other Possible Claims Upon the Value of Taxable Property .............................................................. 41

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Exempt Properties ............................................................................................................................... 42 Depletion of Reserve Account ............................................................................................................ 42 Bankruptcy and Foreclosure Delays and Limitations ......................................................................... 43 Disclosure to Future Purchasers .......................................................................................................... 46 Limitation on Remedies ...................................................................................................................... 46 Investment of Funds ............................................................................................................................ 46 Loss of Tax Exemption ....................................................................................................................... 46 IRS Audit of Tax-Exempt Bond Issues ............................................................................................... 47 Impact of Legislative Proposals, Clarifications of the Tax Code and Court Decisions on Tax Exemption .............................................................................................................................. 47 Proposition 218 and the Initiative Power ............................................................................................ 47 Limited Secondary Market .................................................................................................................. 48 LEGAL MATTERS ......................................................................................................................................... 49 TAX MATTERS .............................................................................................................................................. 49 Tax-Exempt Bonds ............................................................................................................................. 49 Taxable Bonds..................................................................................................................................... 51 Forms of Opinions .............................................................................................................................. 54 ABSENCE OF LITIGATION.......................................................................................................................... 55 CONTINUING DISCLOSURE ....................................................................................................................... 55 The District ......................................................................................................................................... 55 The Landowner ................................................................................................................................... 55 NO RATING .................................................................................................................................................... 56 UNDERWRITING ........................................................................................................................................... 56 PROFESSIONAL FEES .................................................................................................................................. 56 EXECUTION ................................................................................................................................................... 57 APPENDIX A – GENERAL INFORMATION ABOUT THE CITY OF UPLAND AND SAN BERNARDINO COUNTY ................................................................ A-1 APPENDIX B – RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES ......... B-1 APPENDIX C-1– APPRAISAL REPORT ..................................................................................... C-1-1 APPENDIX C-2 APPRAISAL SUPPLEMENT ........................................................................... C-2-1 APPENDIX D – FORMS OF OPINIONS OF BOND COUNSEL ................................................ D-1 APPENDIX E – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE ................... E-1 APPENDIX F – BOOK-ENTRY ONLY SYSTEM ......................................................................... F-1 APPENDIX G – FORM OF CONTINUING DISCLOSURE AGREEMENT(ISSUER) ............... G-1 APPENDIX H – FORM OF CONTINUING DISCLOSURE CERTIFICATE
(MAJOR PROPERTY OWNER) ......................................................................... H-1 APPENDIX I – DISTRICT BOUNDARY MAP ............................................................................. I-1

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1 OFFICIAL STATEMENT
$[$5,025,000]*
COMMUNITY FACILITIES DISTRICT NO. 2015-1
(SYCAMORE HILLS)

OF THE CITY OF UPLAND, COUNTY OF SAN

BERNARDINO, STATE OF CALIFORNIA

SPECIAL TAX BONDS
SERIES 2022A (IMPROVEMENT AREA NO. 2)
$[$4,110,000]*
COMMUNITY FACILITIES DISTRICT NO. 2015-1
(SYCAMORE HILLS)

OF THE CITY OF UPLAND, COUNTY OF SAN

BERNARDINO, STATE OF CALIFORNIA

SPECIAL TAX BONDS
TAXABLE SERIES 2022B (IMPROVEMENT AREA NO. 2)

INTRODUCTION
This Introduction is qualified by reference to the more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, 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 Bonds to potential investors is made only by means of the entire Official Statement.

Purpose of Official Statement
The purpose of this Official Statement, which includes the cover page, table of contents and appendices hereto (the “Official Statement”), is to provide information concerning the sale of $[$5,025,000]* aggregate principal amount of the Community Facilities District No. 2015-1 (Sycamore Hills) of the City of Upland, County of San Bernardino, State of California, Special Tax Bonds, Series 2022A (Improvement Area No. 2) (the “Series 2022A Bonds” or the “Tax-Exempt Bonds”) and $[$4,110,000]* aggregate principal amount of the Community Facilities District No. 2015-1 (Sycamore Hills) of the City of Upland, County of San Bernardino, State of California, Special Tax Bonds, Taxable Series 2022B (Improvement Area No. 2) (the “Series 2022B Bonds” or the “Taxable Bonds” and together with the Series 2022A Bonds/Tax-Exempt Bonds, the “Bonds”). Capitalized terms used but not defined herein shall have the meanings set forth in the Bond Indenture, dated as of [March] 1, 2022 (the “Indenture”), by and between the Community Facilities District No. 2015-1 (Sycamore Hills) of the City of Upland, County of San Bernardino, State of California (the “District”) and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). See “APPENDIX E – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE” herein.

Authority for Issuance and Use of Proceeds
The Bonds are authorized by and are being issued by the District pursuant to certain resolutions adopted by the City Council of the City of Upland, California (the “City Council”), acting as the legislative body of the District, the Indenture, and in accordance with the Mello-Roos Community Facilities Act of 1982, as amended, constituting Chapter 2.5 (commencing with Section 53311) of Part 1 of Division 2 of Title 5 of the California Government Code (the “Act”). See “THE BONDS – Authority for Issuance” herein.

Proceeds of the Bonds will be used to (i) finance certain public facility improvements necessary to serve or mitigate impacts of the development within Improvement Area No. 2 of the District, including development impact fees therefore, (ii) fund a reserve account, and (iii) pay costs of issuance of the Bonds.

See “ESTIMATED SOURCES AND USES OF FUNDS” and “PLAN OF FINANCE”.

* Preliminary, subject to change.

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2 The City
The City of Upland, California (the “City”) is located in the western border of San Bernardino County (the “County”), bordered by the cities of Claremont, Montclair, Ontario and Rancho Cucamonga. The City is nestled at the base of the San Gabriel Mountains and encompasses 15.2 square miles. The City was incorporated on May 15, 1906. It has a council-manager form of government, with the Mayor and the Councilmembers elected at-large for staggered four-year terms. For certain information regarding the City and the County, see “APPENDIX A – GENERAL INFORMATION ABOUT THE CITY OF UPLAND AND SAN BERNARDINO COUNTY.”
The District
The District and improvement areas contained therein were formed and established by the City on November 23, 2015 pursuant to the Act. The District is located within the western portion of the City, north of Foothill Boulevard (Historic Route 66) and Interstate 10. The District includes two improvement areas which are being developed into housing communities consisting of a total of 321 attached and detached townhomes.

Improvement Area No. 1 occupies the eastern portion of the District and Improvement Area No. 2 occupies the western portion of the District. The development known as Westridge at Sycamore Hills is situated within the boundaries of Improvement Area No. 1 and has been built out and sold to individual homeowners with a total of 145 detached townhome units on approximately 16.2 acres of land. Improvement Area No. 2 is expected to be developed into two communities known as La Cresta at Sycamore Hills (which will consist of 83 attached townhomes), and Montara at Sycamore Hills (which will consist of 93 detached townhomes on cluster lots), totaling 176 townhomes on approximately 15.84 acres of land. The Bonds are only secured by the Special Taxes from taxable property within Improvement Area No. 2. See “THE DISTRICT.” Property Ownership
The largest owner of taxable property within Improvement Area No. 2 is KB HOME Coastal Inc., a California corporation (“KB Coastal” or “Landowner”). KB Coastal is developing the property in Improvement Area No. 2 that is subject to the Special Tax. As of the November 15, 2021 date of value of the Appraisal (defined below; see “-Appraisal”), of the 176 lots in Improvement Area No. 2, KB Coastal owned 130 lots (approximately 73.9%) and the remaining 46 lots were owned by individual homeowners. As of February 23, 2022, of the 176 lots in Improvement Area No. 2, KB Coastal owned 92 lots (approximately

52.3%) and the remaining 84 lots were owned by individual homeowners. For more detailed information about the Landowner and proposed development plans for the property in Improvement Area No. 2, see “PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT.”
Appraisal
An appraisal of the property within Improvement Area No. 2 of the District, dated January 4, 2022 (the “Appraisal”), was prepared by Kitty Siino & Associates, Inc., Tustin, California (the “Appraiser”) in connection with issuance of the Bonds. The purpose of the Appraisal was to ascertain the “as is” market value of the fee simple estate as of the November 15, 2021 date of value for the taxable property in Improvement Area No. 2 of the District, which consisted of 176 lots, of which 46 were completed homes and owned by individual homeowners, and 130 lots owned by KB Coastal. As of the date of value of the Appraisal, of the 130 lots owned by KB Coastal, 7 were completed model homes but not yet released for sale, 26 homes were over 95% complete (all of which were in escrow), 70 homes were under construction (of which 49 were in escrow) and 27 were physically finished lots (of which 6 were in escrow). Subject to the assumptions and limitations contained in the Appraisal, the Appraiser estimated that the fee simple interest in the subject property, subject to the lien of the Special Taxes, had an estimated aggregate value of $65,372,171.

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3 The Appraiser has prepared a Supplement to Appraisal Report, dated February 28, 2022 (the “Appraisal Supplement”), in which the Appraiser concludes that the estimated market value of the property within Improvement Area No. 2 subject to the levy of the Special Taxes as of February 23, 2022, was not less than the concluded value as of the November 15, 2021 date of value set forth in the Appraisal. As of the February 23, 2022 date of value of the Appraisal Supplement, of the 92 lots owned by KB Coastal, 7 were completed model homes (all of which were in escrow), 27 homes were over 95% complete (all of which were in escrow), 49 homes were under construction (of which 45 were in escrow) and 9 were physically finished lots (all of which were in escrow). See APPENDIX C-2 “APPRAISAL SUPPLEMENT.” There is no assurance that any of the property within Improvement Area No. 2 can be sold for the appraised value described herein, or for a price sufficient to pay the principal of and interest on the Bonds in the event of a default in payment of Special Taxes by the curre nt landowner or future landowners within Improvement Area No. 2. See “RISK FACTORS — Appraised Values,” APPENDIX C-1 — “APPRAISAL REPORT” and APPENDIX C-2 “APPRAISAL SUPPLEMENT” herein.

Security and Sources of Payment
The Bonds will be payable solely from and secured by a first pledge of Net Taxes and moneys deposited in the Special Tax Fund (and the accounts therein including the Interest Account, the Principal Account, the Redemption Account and the Reserve Account, to the extent provided in the Indenture, but excluding the Administrative Expenses Account). Net Taxes mean, generally, Special Taxes received by the District, less amounts set aside to pay the Administrative Expenses (as defined in the Indenture, see “APPENDIX E- SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE - Definitions”) not to exceed the Administrative Expenses Priority Amount (defined in the Indenture as $20,000 per Bond Year). “Special Taxes” is defined in the Indenture to mean the taxes authorized to be levied by the District on property within Improvement Area No. 2 in accordance with the Ordinance, the Resolution of Formation, the Act and the voter approval obtained at the November 23, 2015 election in Improvement Area No. 2, including any scheduled payments and any Prepayments thereof, the net 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 penalties and interest thereon.

The Special Taxes will be levied by the District and collected by the San Bernardino County Treasurer-Tax Collector in the same manner and at the same time as ad valorem property taxes. The District has covenanted in the Indenture to cause foreclosure proceedings to be commenced and prosecuted against parcels with delinquent Special Taxes under certain circumstances. For a more detailed description of the foreclosure covenant see “SECURITY FOR THE BONDS - Covenant to Commence Foreclosure Proceedings.” There is no assurance that the property within Improvement Area No. 2 can be sold for the appraised value described herein, or for a price sufficient to pay the principal of and interest on the Bonds in the event of a default in payment of Special Taxes by the current landowners or future landowners within Improvement Area No. 2. See “RISK FACTORS — Appraised Values”, APPENDIX C-1 — “APPRAISAL REPORT” and APPENDIX C-2 — “APPRAISAL SUPPLEMENT” herein.

The District has established a Reserve Account pursuant to the Indenture. The Reserve Requirement shall be calculated separately with respect to each Series of Bonds and is defined in the Indenture to mean that fixed amount equal to the least of the following, determined as of the Delivery Date for the applicable Series of Bonds; (i) Maximum Annual Debt Service on the then Outstanding Bonds of such Series; (ii) 10% of the original amount of the Bonds of such Series (“amount” meaning the principal amount of such Series of the Bonds, unless the Series was issued with original issue discount greater than two percent of the principal amount, or original issue premium greater than the sum of two percent of the principal amount plus original issue premium attributable exclusively to reasonable underwriters’ compensation, in which case “amount”

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4 means issue price); or (iii) 125% of average Annual Debt Service on the then Outstanding Bonds of such Series. See “SECURITY FOR THE BONDS – Special Tax Fund – Reserve Account.” Risk Factors
Investment in the Bonds involves risks that may not be appropriate for some investors. See “RISK FACTORS” 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 Bonds.

Miscellaneous
The summaries of and references to all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to each such document, statute, report or other instrument. Included in this Official Statement are summaries of certain provisions of the Indenture and Appraisal. Copies of the Indenture and Appraisal are available for inspection at the offices of the City, and copies of such documents will be provided by the City upon request and payment of duplication costs.

ESTIMATED SOURCES AND USES OF FUNDS
The proceeds from the sale of the Bonds will be deposited into the following funds and accounts established under the Indenture:

SOURCES Tax-Exempt Bonds Taxable Bonds
Principal Amount of Bonds $ $
Plus/Less: Original Issue Premium/Discount
Less: Underwriter’s Discount ( ) ( )
Total Sources $ $

USES
Improvement Fund $ $
Costs of Issuance Fund (1)
Reserve Account (2)
Total Uses $ $
___________________________
(1) Includes printing costs, appraisal costs, filing and recording fees, fees and charges of the Trustee and its legal counsel, expenses incurred by the City in connection with the issuance of the Bonds, legal fees and charges, including bond counsel and disclosure counsel, and municipal advisor’s fees, and other costs, charges and fees in connection with the foregoing. (2) Equal to the Reserve Requirement for the Bonds as of their date of delivery.

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5 PLAN OF FINANCE
Tax-Exempt Bonds. A portion of the proceeds of the Tax-Exempt Bonds will used to finance certain public facility improvements that serve properties within the District and Improvement Area No. 2 therein, such as street improvements (including new medians, landscape and irrigation, pavement, lighting, signage and striping, parkway improvements, adjacent sidewalk, driveway entrances, curb and gutter), traffic signalization, park improvements, storm drain, sewer and water lines, and undergrounding of dry utility lines .

All the facilities to be financed with Bond proceeds have been completed. The following table lists the facilities expected to be financed with the proceeds of the Bonds and the estimated costs:

Description of Facilities
Baseline Street Improvements $2,765,583.89
Parkview Street Improvements 286,000.50
Baseline/Parkview Traffic Signalization 75,177.72
Traffic Signal Interconnect 68,518.70
Parkview Promenade street, water, sewer, and storm
drain improvements 600,000.00
Park Improvements (Lineal Park) 335,174.00
Pro rata allocation of costs 308,831.01
Construction Management fee 159,212.86
Storm drain, sewer and water line extension, traffic
signal and undergrounding of dry utility lines (1) 224,457.37 Total $4,822,956.06
___________
(1) Remaining costs of various facilities financed primarily by Improvement Area No. 1 bonds issued in 2019.

Source: Bravepark Property LLC

Taxable Bonds. A portion of the proceeds of the Taxable Bonds will used to finance certain capital facilities fees relating to public facility improvements necessary to meet the increased demands placed upon the public infrastructure and the City as a result of the development of the property within Improvement Area No. 2, or to the extent that the proceeds are not needed to finance such fees as a result of application of certain fee credits under the development agreement, to pay the costs of certain dry utilities serving properties within Improvement Area No. 2. Such eligible fees and estimated costs are set forth in the following table.

Description of Facilities
General $163,148.00
Fire 82,728.00
Police 148,128.00
Parks 1,757,206.00
Traffic 274,099.00
Water 591,124.00
Sewer 197,559.00
Storm Drain 457,753.00
Water Meter 13,200.00
Subtotal $3,684,945.00
Less: Estimated Fee Credits ($250,529.00)
Gas Main Extension in Baseline 65,221.14
Relocation of Edison Poles 80,038.67
Construction Management fee 2,870.35
Total $3,582,546.16
___________
Source: Bravepark Property LLC

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6 THE BONDS
General
The Bonds will be dated the date of their delivery and will mature in the amounts and on the dates set forth on the cover page of this Official Statement. The Bonds will be issued in fully registered form in denominations of $5,000 each or any integral multiple of $5,000. The Bonds will bear interest at the annual rates set forth on the cover page of this Official Statement, payable semiannually on each March 1 and September 1, commencing [September] 1, 2022 (each, an “Interest Payment Date”). Interest will be calculated on the basis of a 360-day year composed of twelve 30-day months.

Principal of and interest on the Bonds (including the final interest payment upon maturity or earlier redemption), is payable by check of the Trustee 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 Trustee 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 Bonds delivered to the Trustee prior to the applicable Record Date. Each Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless: (i) such date of authentication is an Interest Payment Date in which event interest shall be payable from such date of authentication, (ii) the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment D ate, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication, or (iii) the date of authentication is prior to the close of business on the first Record Date occurring after the date of issuance of the Bonds, in which event interest shall be payable from the dated date of the Bonds.

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 Trustee.

Authority for Issuance
District Proceedings. The Bonds are issued pursuant to the Act and the Indenture. In addition, as required by the Act, the City Council has taken the following actions with respect to establishing the District and authorizing issuance of the Bonds:

Resolutions of Intention: On October 12, 2015, the City Council adopted a resolution stating its intention to establish the District, to designate improvement areas therein, to authorize the levy of a special tax therein. On that same day, the City Council adopted a resolution stating its intention to incur bonded indebtedness in an amount not to exceed $10,000,000 for Improvement Area No. 1 and $14,000,000 for Improvement Area No. 2 within the District and submitting t hat proposition to the respective qualified electors of each improvement area in the District.

Resolution of Formation and Resolution Declaring Necessity to Incur Bonded Indebtedness: Following a noticed public hearing, the City Council adopted, on November 23, 2015, a resolution (the “Resolution of Formation”) which established the District, designated Improvement Area No. 1 and Improvement Area No. 2 therein and authorized the levy of a special tax within the improvement areas of the District. On that same day, the City Council adopted a resolution declaring the necessity to incur bonded indebtedness in an amount not to exceed $10,000,000 for Improvement Area No. 1 and $14,000,000 for Improvement Area No. 2 within the District and submitting that propositi on to the respective qualified electors of each improvement area in the District. The City Council called an election by the landowners within each improvement area of the District for the same date on the issues of the levy of the respective special taxes, and the incurring of bonded indebtedness.

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7 Landowner Election and Declaration of Results: On November 23, 2015, an election was held within Improvement Area No. 1 and Improvement Area No. 2 of the District in which the qualified landowner electors approved ballot propositions authorizing the issuance of bonds in the not to exceed amount of $10,000,000 for Improvement Area No. 1 and $14,000,000 for Improvement Area No. 2 to finance the construction of the facilities, the levy of a special tax within Improvement Area No. 1 and Improvement Area No. 2 and the establishment of an appropriations limit for the District. On November 23, 2015, the City Council adopted a resolution under which the City Council approved the canvass of the votes and declared the District to be fully formed with the authority to levy special taxes for each improvement area, to incur the bonded indebtedness and to have the established appropriations limit.

Ordinance Levying Special Taxes and Change Proceedings: On December 14, 2015, the City Council adopted Ordinance 1899 authorizing the levy of the Special Tax within Improvement Area No. 2 of the District (“Ordinance 1899”). Subsequent to the adoption of Ordinance No. 1899, on February 12, 2018, the City Council, acting as legislative body of the District, adopted its Resolution No. 6430 (the “Resolution of Consideration”) pursuant to which the City Council determined that public convenience and necessity required that the original rate and method for Improvement Area No. 2 (the “Original RMA”), described in Ordinance No. 1899, should be changed and replaced by an amended and restated rate and method of apportionment of special tax for Improvement Area No. 2 (the “Amended and Restated RMA”), as requested by Bravepark Property, LLC (“Bravepark”), the then owner of all of the taxable property within Improvement Area No. 2, to accommodate Bravepark’s revised development plans and reduction in density for the property within Improvement Area No. 2 of the District. On March 26, 2018, the City Council, acting as legislative body of the District, held a public hearing regarding the proposed alterations to the rate and method of apportionment of special tax for Improvement Area No. 2 of the District. At the conclusion of such public hearing, the City Council adopted on March 26, 2018 a resolution calling for a special election of the qualified electors within Improvement Area No. 2 of the District. Pursuant to the terms of the Resolution Calling Election, a special election was held on March 26, 2018, and thereafter on March 26, 2018, the City Clerk canvassed the election results and certified that more than two-thirds of the votes cast in Improvement Area No. 2 of the District were in favor of change and replacing the Original RMA with the Amended and Restated Area RMA.

On March 26, 2018, the City Council adopted a resolution entitled, “A Resolution of the City Council of the City of Upland, California, Acting as Legislative Body of Community Facilities District No. 2015-1 (Sycamore Hills) of the City of Upland, Declaring the Results of a Special Election Within Improvement Area No. 2 Thereof, Changing the Rate and Method of Apportionment of the Special Tax for Improvement Area No. 2 Special Taxes, and Directing the Recording of an Amended Notice of Special Tax Lien” (the “Resolution of Change”), which declared that the Original Area RMA has been changed and replaced by the Amended and Restated RMA.

On April 9, 2018, the City Council adopted Ordinance No. 1930 (the “Ordinance”), which amends Ordinance No. 1899 to authorize the levy of a special tax within Improvement Area No. 2 in accordance with the Amended and Restated RMA commencing with Fiscal Year 2018-19 and for each Fiscal Year thereafter.

Special Tax Lien and Respective Levy: An Amended Notice of Special Tax Lien for Improvement Area No. 2 was recorded in the real property records of San Bernardino County on April 4, 2018 as Document No. 2018-0117989.

Resolution Authorizing Issuance of the Bonds: On [February 14], 2022, the City Council adopted a resolution approving issuance of the Bonds in an amount not to exceed $14,000,000 for Improvement Area No. 2.

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8 City’s Goals and Policies. As required by the Act, the City adopted “Amended and Restated Goals and Policies for Mello-Roos Community Facilities District Financings” by Resolution No. 6472 adopted on October 22, 2018 (the “Goals and Policies”). The Goals and Policies establish certain credit quality requirements for bonds issued by community facilities districts and improvement areas therein, namely a 3:1 ratio of property value to the lien of the Bonds and other public indebtedness secured by a lien on real property currently existing against the properties to be taxed. Property value may be based on an appraisal or on assessed values as indicated on the county assessor’s tax roll. The Goals and Policies also require that, for residential property, the maximum annual special tax, together with ad valorem property taxes, and all other special assessments or special taxes collected or to be collected on the annual tax bill for each developed parcel at the time of bond issuance, may not exceed 2% of such parcel’s projected assessed value.

Debt Service Schedule*
The following table presents the annualized debt service on the Bonds (including sinking fund redemptions), assuming there are no optional redemptions.

Year Ending September 1* Tax-Exempt Bonds* Taxable Bonds* Total Debt Service* 2022 $ 80,400 $271,744.00 $352,144.00
2023 201,000 371,160.00 572,160.00
2024 201,000 367,960.00 568,960.00
2025 201,000 369,555.00 570,555.00
2026 201,000 370,740.00 571,740.00
2027 201,000 371,515.00 572,515.00
2028 201,000 366,880.00 567,880.00
2029 201,000 371,440.00 572,440.00
2030 201,000 370,347.50 571,347.50
2031 201,000 368,820.00 569,820.00
2032 201,000 366,857.50 567,857.50
2033 226,000 344,460.00 570,460.00
2034 230,000 346,810.00 576,810.00
2035 228,800 343,470.00 572,270.00
2036 227,600 344,670.00 572,270.00
2037 226,400 345,180.00 571,580.00
2038 440,200 - 440,200.00
2039 440,400 - 440,400.00
2040 440,200 - 440,200.00
2041 439,600 - 439,600.00
2042 438,600 - 438,600.00
2043 437,200 - 437,200.00
2044 440,400 - 440,400.00
2045 438,000 - 438,000.00
2046 440,200 - 440,200.00
2047 436,800 - 436,800.00
2048 438,000 - 438,000.00
2049 438,600 - 438,600.00
2050 438,600 - 438,600.00
2051 438,000 - 438,000.00
2052 436,800 - 436,800.00
Total: $9,810,800 $5,691,609.00 $15,502,409.00

* Preliminary, subject to change.

Source: Underwriter

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9 Redemption
Optional Redemption.* The Bonds maturing on or before [September 1, 2031] are not subject to optional redemption prior to maturity. The Bonds maturing on or after [September 1, 2032] shall be subject to optional redemption prior to maturity and may be redeemed, at the option of the District, from any source of funds on any date on or after [September 1, 2031] in whole, or in part, from such maturities as are selected by the District and by lot within a maturity, at [a redemption price equal to 100% of the principal amount to be redeemed, without premium, together with accrued interest to the date of redemption.] Mandatory Sinking Fund Redemption.*
Tax-Exempt Bonds.* The Tax-Exempt Bonds maturing on September 1, 2042* and September 1, 2052* (collectively, the “Tax-Exempt Term Bonds”) shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account, on each September 1 in accordance with the respective schedules of Sinking Fund Payments set forth below. The Tax-Exempt Term Bonds so called for redemption will be selected by the Trustee by lot and will be redeemed at a redemption price for each redeemed Tax-Exempt Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows:

Tax-Exempt Term Bonds Maturing on September 1, 2042*
Redemption Date*
(September 1) Principal Amount*
2033 $ 25,000
2034 30,000
2035 30,000
2036 30,000
2037 30,000
2038 245,000
2039 255,000
2040 265,000
2041 275,000
2042 (maturity) 285,000

Tax-Exempt Term Bonds Maturing on September 1, 2052*
Redemption Date*
(September 1) Principal Amount*
2043 $295,000
2044 310,000
2045 320,000
2046 335,000
2047 345,000
2048 360,000
2049 375,000
2050 390,000
2051 405,000
2052 (maturity) 420,000

* Preliminary, subject to change.

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10 Taxable Bonds.* The Taxable Bonds maturing on September 1, 2027,* September 1, 2032* and September 1, 2037* (collectively, the “Taxable Term Bonds”) shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account, on each September 1 in accordance with the respective schedules of Sinking Fund Payments set forth below. The Taxable Term Bonds so called for redemption will be selected by the Trustee by lot and will be redeemed at a redemption price for each redeemed Taxable Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows:

Taxable Term Bonds Maturing on September 1, 2027*
Redemption Date**
(September 1)

Principal Amount*
2022 $200,000
2023 200,000
2024 205,000
2025 215,000
2026 225,000
2027 (maturity) 235,000

Taxable Term Bonds Maturing on September 1, 2032*
Redemption Date*
(September 1)

Principal Amount*
2028 $240,000
2029 255,000
2030 265,000
2031 275,000
2032 (maturity) 285,000

Taxable Term Bonds Maturing on September 1, 2037*
Redemption Date*
(September 1)

Principal Amount*
2033 $275,000
2034 290,000
2035 300,000
2036 315,000
2037 (maturity) 330,000

In the event of a partial optional redemption or extraordinary redemption of the Tax-Exempt Term Bonds or the Taxable Term Bonds, each of the remaining Sinking Fund Payments for such Tax-Exempt Term Bonds or Taxable Term Bonds, as applicable, will be reduced, as nearly as practicable, on a pro rata basis, in integral multiples of $5,000.

Extraordinary Redemption. The Bonds are subject to extraordinary redemption as a whole, or in part proportionately between the Series 2022A Bonds and the Series 2022B Bonds as described further below, and on a pro rata basis among maturities of each such Series in integral multiples of $5,000, as nearly as possible, on any Interest Payment Date, and shall be redeemed by the Trustee, from Prepayments deposited to the Redemption Account, plus any amounts authorized to be transferred from the Reserve Account pursuant to the

* Preliminary, subject to change.

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11 Indenture, at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the redemption date:

Redemption Dates Redemption Price
[On or before March 1, 2029] [103]%
[September 1, 2029 and March 1, 2030] [102]
[September 1, 2030 and March 1, 2031] [101]
[September 1, 2031 and thereafter] [100]

For purposes of the proportionate allocation of any such extraordinary redemption from Prepayments between the Series 2022A Bonds and the Series 2022B Bonds described above, “proportionately” shall mean calculated with respect to the then Outstanding principal amount of each such Series, as nearly as possible in view of the $5,000 minimum denomination of the Bonds per the Indenture; provided, if the implementation of such a proportionate allocation requires more Bonds of one Series to be redeemed than Bonds of the other Series to accommodate the $5,000 minimum denominations or otherwise, the District shall give priority to redeem more Series 2022A Bonds than Series 2022B Bonds.

Purchase in Lieu of Redemption. As provided in the Indenture, in lieu or partially in lieu of any optional redemption, extraordinary redemption or mandatory sinking fund redemption, moneys deposited in the Redemption Account, other than Prepayments, may be used to purchase Outstanding Bonds. Such purchases of Bonds may be made by the District at public or private sale as and when and at such prices as the District may in its discretion determine but only at prices (including brokerage or other expenses) not more than par plus accrued interest, plus, in the case of moneys set aside for an optional redemption or an extraordinary redemption, the premium applicable at the next following call date. Any accrued interest payable upon the purchase of Bonds may be paid from the amount reserved in the Interest Account of the Special Tax Fund for the payment of interest on the next following Interest Payment Date.

Selection of Bonds for Redemption. If less than all of any Series of Bonds or Parity Bonds Outstanding are to be redeemed, the Trustee shall select the Bonds or Parity Bonds to be redeemed from all Outstanding Bonds or Parity Bonds of such Series or such given portion thereof not previously called for redemption, on a pro rata basis among the maturities (unless the maturity or maturities are otherwise specified in the Indenture or in writing by the District) and by lot within a maturity in any manner which the Trustee in its discretion shall deem appropriate. For purposes of such selection, all Bonds or Parity Bonds of a denomination of more than $5,000 shall be deemed to be comprised of separate $5,000 portions, and such portions shall be treated as separate Bonds which may be separately redeemed. The T rustee shall promptly notify the District in writing of the Bonds or Parity Bonds, or portions thereof, selected for redemption.

Notice of Redemption. When Bonds are due for redemption, the Trustee shall give notice, in the name of the District, of the redemption of such Bonds. At least 30 days but no more than 45 days prior to the redemption date, the Trustee shall mail a copy of the notice of redemption, by first class mail, postage prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register. The actual receipt by the Owner of any Bond of notice of such redemption shall not be a condition precedent to redemption, and neither the failure to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. A certificate by the Trustee that notice of such redemption has been given as herein provided shall be conclusive as against all parties and the Owner shall not be entitled to show that he or she failed to receive notice of such redemption.

The District will have the right to rescind any optional redemption by written notice to the Trustee one (1) Business Day prior to the date fixed for redemption. Any notice of optional 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 Bonds then called for redemption, and such cancellation will not constitute an Event of Default under the Indenture. The District and the Trustee will have no liability to the Owners or any other

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12 party related to or arising from such rescission of redemption. The Trustee will mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent.

Partial Redemption of Bonds. Upon surrender of any Bond to be redeemed in part only, the District shall execute and the Trustee shall authenticate and deliver to the Bondowner, at the expense of the District, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered, with the same interest rate and the same maturity.

Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in the Indenture, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption:
(1) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in the Indenture, anything in the Indenture or in the Bonds to the contrary notwithstanding;
(2) Upon presentation and surrender thereof at the Principal Office of the Trustee, the redemption price of such Bonds shall be paid to the Owners thereof; (3) As of the redemption date the Bonds, or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Bonds, or portions thereof, shall cease to bear further interest; and
(4) As of the date fixed for redemption no Owner of any of the Bonds, or portions thereof so designated for redemption, shall be entitled to any of the benefits of the Indenture or any Supplemental Indenture, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available.

Book-Entry Only System
The Depository Trust Company (“DTC”) will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered initially in the name of Cede & Co. (DTC’s partnership nominee). One fully-registered bond will be issued for the Bonds of each maturity and each interest rate, in the initial aggregate principal amount of such maturity of such series. See APPENDIX F – “Book-Entry Only System.”

SECURITY FOR THE BONDS
Pledge of Special Taxes
General. The Bonds will be payable solely from, and secured by, a first pledge of Net Taxes and moneys on deposit in the Special Tax Fund (and the designated accounts therein but excluding the Administrative Expenses Account) established and held under the Indenture. Net Taxes consist of a portion of the Special Taxes levied on the taxable property in Improvement Area No. 2 pursuant to the Rate and Method.

The Indenture defines “Net Taxes” as Gross Taxes minus amounts set aside to pay Administrative Expenses not to exceed the Administrative Expenses Priority Amount. The term “Gross Taxes” means (i) the amount of all Special Taxes received by Improvement Area No. 2, together with (ii) the proceeds collected from the sale of property pursuant to the foreclosure provisions of the Indenture for the delinquency of such Special Tax es remaining after the payment of all costs related to such foreclosure actions. The Administrative Expenses Priority Amount is equal to $20,000 per Bond Year.

The District has levied the Special Tax for Fiscal Year 2021-22, and so long as any Bonds issued under the Indenture are Outstanding, the District has covenanted in the Indenture to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such

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13 purpose, to pay (1) the principal of and interest on the Bonds when due, (2) the Administrative Expenses, and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement.

The Special Taxes will be levied by the District and collected by the San Bernardino County Treasurer-Tax Collector in the same manner and at the same time as ad valorem property taxes In the event that the Special Tax are not received when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Trustee in the Special Tax Fund (other than the Administrative Expenses), including amounts held in the Reserve Account therein, for the exclusive benefit of the owners of the Bonds, and foreclosure proceeds resulting from the sale of delinquent parcels if and when available.

Special Taxes. The Indenture defines “Special Taxes” as the taxes authorized to be levied by the District on property within Improvement Area No. 2 in accordance with the Ordinance, the Rate and Method, the Act and the voter approvals obtained at the November 23, 2015 and March 16, 2018 elections in Improvement Area No. 2 of the District, including any scheduled payments and any Prepayments thereof, the net proceeds of the redemption or sale of property sold as a res ult of foreclosure of the lien of the Special Taxes to the amount of said lien, and penalties and interest thereon.

The District covenants in the Indenture that, subject to the Rate and Method, the District will levy Special Taxes on taxable property within Improvement Area No. 2 in an amount equal to the Special Tax Requirement for Improvement Area No. 2. The District further covenants that it will take no action that would discontinue or cause the discontinuance of the Special Tax levy or the District’s authority to levy the Special Tax on taxable property within Improvement Area No. 2 for so long as the Bonds are Outstanding. See “— Rate and Method” below and “APPENDIX E – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
The Special Tax levy is limited to the maximum rates set forth in the Rate and Method. In the event of a significant delinquency, the Trustee may have to make a draw on the Reserve Account to pay interest of, and principal on, the Bonds then coming due. The Bonds are not subject to acceleration under the Indenture. Although Special Taxes, when levied, will constitute a lien on parcels subject to taxation within Improvement Area No. 2, it does not constitute a personal indebtedness of the owners of such parcels. There is no assurance that such property owners will be financially able to pay the Special Taxes or that they will pay such taxes even if financially able to do so. See “RISK FACTORS” for a discussion of certain factors which may affect property owners’ ability or willingness to pay Special Taxes.

Limited Obligation. THE BONDS ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE

SOLELY FROM NET TAXES AND CERTAIN MONEYS ON DEPOSIT IN THE SPECIAL TAX FUND (AND DESIGNATED ACCOUNTS THEREIN BUT EXCLUDING THE ADMINISTRATIVE EXPENSES ACCOUNT) PLEDGED UNDER THE INDENTURE. NEITHER THE FULL FAITH AND CREDIT NOR

THE GENERAL TAXING POWER OF THE CITY, THE COUNTY OF SAN BERNARDINO, THE STATE

OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE PORTION OF THE SPECIAL TAXES THAT CONSTITUTE NET

TAXES UNDER THE INDENTURE, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS.

Special Tax Fund
Pursuant to the Indenture, there is established a “Special Tax Fund” to be held and maintained by the Trustee. In the Special Tax Fund, there is further established and created an Interest Account, a Principal Account, a Redemption Account, a Reserve Account (in which the Indenture establishes (A) a Series 2022A Reserve Subaccount for the benefit of the Series 2022A Bonds and (B) a Taxable Series 2022B Reserve Subaccount for the benefit of the Series 2022B Bonds), and an Administrative Expense Account.

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14 The amounts on deposit in the foregoing funds will be held by the Trustee, and the Trustee shall invest and disburse the amounts in such funds and accounts in accordance with the provisions of the Indenture and shall disburse investment earnings thereon in accordance with the provisions of the Indenture.

The District will transfer the Special Taxes to the Trustee for deposit in the Special Tax Fund in accordance with the terms of the Indenture. The Trustee will transfer the amounts on deposit in the Special Tax Fund on the dates and in the amounts set forth in the Indenture in the following order of priority:
(a) The Administrative Expense Account of the Special Tax Fund; (b) The Interest Account of the Special Tax Fund;
(c) The Principal Account of the Special Tax Fund;
(d) The Redemption Account of the Special Tax Fund;
(e) The Reserve Account of the Special Tax Fund; and
(f) The Rebate Fund; and
(g) The Surplus Fund.

Notwithstanding the foregoing and any other provision of the Indenture to the contrary, in the event of a shortfall of amounts on deposit in the Special Tax Fund (such shortfall being determined excluding amounts on deposit in, and prior to drawing upon, the Reserve Account) to make the transfers, pursuant to the Indenture, to the Principal Account of the Special Tax Fund and to the Redemption Account of the Special Tax Fund necessary to pay in full both (x) the principal payment due on the Bonds and any Parity Bonds maturing on the applicable September 1 and (y) the Sinking Fund Payment due on any Outstanding Bonds and any Parity Bonds on such September 1, the Trustee shall transfer the available amount from the Special Tax Fund to the Principal Account and the Redemption Account on a pro rata basis (calculated with reference to the respective principal payment and Sinking Fund Payment coming due and payable on such September 1) at least three (3) Business Days prior to such September 1.

Administrative Expense Account. As set forth in the Indenture, the District may periodically provide the Trustee with a certificate requesting the payment of Administrative Expenses. Upon its receipt of any such certificate, the Trustee shall transfer from the Special Tax Fund and deposit in the Administrative Expenses Account of the Special Tax Fund amounts necessary to make timely payment of any such Administrative Expenses as set forth in such Certificate; provided, however, that, except as set forth in the following sentence, the total amount transferred in a Bond Year shall not exceed the Administrative Expenses Priority Amount (defined in the Indenture as $20,000 per Bond Year) until such time as there has been deposited (a) to the Interest Account and the Principal Account an amount, together with any amounts already on deposit therein, that is sufficient to pay the interest and principal on all Bonds and any Parity Bonds due in such Bond Year, (b) to the Redemption Account an amount, together with any amounts already on deposit therein, that is sufficient to call and redeem Term Bonds in accordance with the Sinking Fund Payment schedules set forth in the Indenture and to redeem Parity Bonds in accordance with any Sinking Fund Payment schedule in the Supplemental Indenture for such Parity Bonds, and (c) to the Subaccounts of the Reserve Account such amounts, together with any amounts already on deposit therein, that is sufficient to restore each Subaccount of the Reserve Account to the applicable Reserve Requirement. Notwithstanding the foregoing, amounts in excess of the Administrative Expenses Priority Amount may be transferred to the Administrative Expenses Account to the extent necessary to collect delinquent Special Taxes. Moneys in the Administrative Expenses Account are not pledged to the repayment of the Bonds.

Interest Account and Principal Account. The principal of and interest due on the Bonds until maturity, other than principal due upon redemption, shall be paid by the Trustee from the Principal Account

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15 and the Interest Account of the Special Tax Fund, respectively. For the purpose of assuring that the payment of principal of and interest on the Bonds will be made when due and after making the transfer required by th e Indenture, at least three (3) Business Days prior to each March 1 and September 1, the Trustee shall make the following transfers from the Special Tax Fund first to the Interest Account and then to the Principal Account; provided, however, that to the extent that deposits have been made in the Interest Account or the Principal Account from the proceeds of the sale of an issue of the Bonds or any Parity Bonds, or otherwise, the transfer from the Special Tax Fund need not be made; and provided, further, that, if amounts in the Special Tax Fund (exclusive of the Reserve Account) are inadequate to make the foregoing transfers, then any deficiency shall be made up by transfers from the applicable Subaccounts of the Reserve Account:
(a) To the Interest Account, an amount such that the balance in the Interest Account three (3) Business Days prior to each Interest Payment Date shall be equal to the installment of interest due on the Bonds and any Parity Bonds on said Interest Payment Date and any installment of int erest due on a previous Interest Payment Date which remains unpaid. Moneys in the Interest Account shall be used for the payment of interest on the Bonds and any Parity Bonds as the same become due. (b) To the Principal Account, an amount such that the balance in the Principal Account three (3) Business Days prior to September 1 of each year, commencing September 1, 2022, shall equal the principal payment due on the Bonds and any Parity Bonds maturing on such September 1 and any principal payment due on a previous September 1 which remains unpaid. Moneys in the Principal Account shall be used for the payment of the principal of such Bonds and any Parity Bonds as the same become due at maturity.

Redemption Account. On each September 1 on which a Sinking Fund Payment is due, after the deposits have been made to the Administrative Expenses Account, the Interest Account and the Principal Account of the Special Tax Fund, the Trustee shall next transfer into the Redemption Account of the Special Tax Fund from the Special Tax Fund the amount needed to make the balance in the Redemption Account three (3) Business Days prior to each September 1 equal to the Sinking Fund Payment due on any Outstanding Bonds on such September 1; provided, however, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency shall be made up by an immediate transfer from the applicable Subaccounts of the Reserve Account, if funded pursuant to the Indenture. Moneys so deposited in the Redemption Account shall be used and applied by the Trustee to call and redeem Term Bonds in accordance with the Sinking Fund Payment schedule set forth in the Indenture.

Reserve Account. There shall be maintained in each Subaccount of the Reserve Account of t he Special Tax Fund an amount equal to the applicable Reserve Requirement. The Reserve Requirement may be satisfied by crediting to the applicable Subaccount of the Reserve Account moneys or one or more Reserve Policies or any combination thereof, which in the aggregate make funds available in the applicable Subaccount of the Reserve Account in an amount equal to the corresponding Reserve Requirement. Upon the deposit with the Trustee of any such Reserve Policy, the Trustee shall release moneys from the a pplicable Subaccount of the Reserve Account to the Interest Account of the Special Tax Fund, in an amount equal to the face amount of such Reserve Policy.

If funded and subject to paragraph (f) below, the amounts in the Subaccounts of the Reserve Account shall be applied as follows:
(a) Transfers from Reserve Subaccounts in the Event of Insufficiency for Interest, Principal and Sinking Fund Payments. Except as otherwise provided in the Indenture, moneys in each Subaccount of the Reserve Account shall be used solely for the purpose of paying the principal of, including Sinking Fund Payments, and interest on the Bonds and any Parity Bonds corresponding to such Subaccount when due in the event that the moneys in the Interest Account and the Principal Account of t he Special Tax Fund are insufficient therefor or moneys in the Redemption Account of the Special Tax Fund are insufficient to make a Sinking Fund Payment when due and for the purpose of making any required transfer to the Rebate Fund pursuant to the Indenture upon written direction from the District. If the amounts in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund are insufficient to pay the principal of,

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16 including Sinking Fund Payments, or interest on any Bonds and Parity Bonds when due, or amounts in the Special Tax Fund are insufficient to make transfers to the Rebate Fund when required, the Trustee shall withdraw from the corresponding Subaccounts of the Reserve Account for deposit (in order of priority) in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund (subject to the pro rata allocation between the Principal Account and the Redemption Account described in the following sentence) or the Rebate Fund, as applicable, moneys necessary for such purposes. Any such withdrawal from a Subaccount of the Reserve Account for the principal of, including Sinking Fund Payments, then due on the Bonds and Parity Bonds corresponding to such Subaccount shall be deposited on a pro rata basis (calculated with reference to the respective principal payment and Sinking Fund Payment coming due and payable on such September 1 with respect to such Bonds and Parity Bonds) into the Principal Account and the Redemption Account, respectively.
(b) Replenishment of Reserve Subaccounts to Applicable Reserve Requirements. On or after March 2 and September 2 of each year, after making the required transfers under the Indenture to the Administrative Expenses Account, the Interest Account, the Principal Account and the Redemption Account, the Trustee shall transfer to each Subaccount of the Reserve Account from available moneys in the Special Tax Fund, or from any other legally available funds which the District elects to apply to such purpose, the respective amount needed to restore the amount of such Subaccount of the Reserve Account to the applicable Reserve Requirement. Moneys in the Special Tax Fund shall be deemed available for transfer to the Reserve Account and the Subaccounts therein only if the Trustee determines that such amounts will not be needed to make the deposits required to be made to the Administrative Expenses Account, the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund on or before the next Se ptember 1. If amounts available in the Special Tax Fund together with any other amounts transferred to replenish the Subaccounts of the Reserve Account are inadequate to restore each Subaccount of the Reserve Account to the applicable Reserve Requirement, then the District shall include the amount necessary fully to restore the Subaccounts of the Reserve Account to the Reserve Requirement in the next annual Special Tax levy to the extent of the maximum permitted Special Tax rates.
(c) Application of Moneys in Reserve Subaccounts to Optional or Extraordinary Redemption or Defeasance. In connection with an optional redemption or extraordinary redemption of Bonds pursuant to the Indenture, or Parity Bonds in accordance with any Supplemental Indenture, or a partial defeasance of Bonds or Parity Bonds in accordance with the Indenture, amounts in the Reserve Account Subaccount corresponding to such Bonds or Parity Bonds may be applied to such redemption or partial defeasance so long as the amount on deposit in the subject Subaccount of the Reserve Account following such redemption or partial defeasance equals the applicable Reserve Requirement (taking into account Outstanding Bonds and Parity Bonds corresponding to the subject Subaccount after such redemption or partial defeasance). The District shall set forth in a Certificate of an Authorized Representative the amount in the applicable Subaccount of the Reserve Account to be transferred to the Redemption Account on a redemption date or to be transferred pursuant to the Indenture to partially defease Bonds, and the Trustee shall make such transfer on the applicable redemption or defeasance date.
(d) Application of Moneys in Reserve Subaccounts to Debt Service Payments in Final Bond Year.

To the extent that a Subaccount of the Reserve Account is at the applicable Reserve Requirement as of the first day of the final Bond Year for the Bonds corresponding to such Subaccount in accordance with the Indenture or, if applicable, with any Supplemental Indenture for a Series of Parity Bonds corresponding to such Subaccount, amounts in such Subaccount of the Reserve Account may be applied to pay the principal of and interest due on the corresponding Bonds and Parity Bonds, as applicable, in the final Bond Year for such Series.
(e) Moneys in Reserve Subaccounts in Excess of Applicable Reserve Requirement. Moneys in a Subaccount of the Reserve Account in excess of the applicable Reserve Requirement not transferred in accordance with the provisions of the Indenture hall be withdrawn from such Subaccount of the Reserve Account on the fifth (5th) Business Day before each March 1 and September 1, and such moneys shall be

Page 30 of 210 ends

17 transferred and deposited into the Interest Account of the Special Tax Fund; provided, however, to the extent that, as of a date ninety (90) days prior to the next occurring Interest Payment Date, the amount on deposit in a Subaccount of the Reserve Account is equal to or greater than the aggregate remaining principal payments to be paid on the Bonds and any Parity Bonds corresponding to such Subaccount, any and all amounts in such Subaccount of the Reserve Account may be applied to effect a redemption of all such corresponding Outstanding Bonds pursuant to the Indenture and any such Outstanding Parity Bonds in accordance with any Supplemental Indenture. .
(f) Provisions Relating to Reserve Policy in a Reserve Subaccount. If and to the extent that a Subaccount of the Reserve Account has been funded with a combination of cash (or Authorized Investments) and a Reserve Policy, then all such cash (or Authorized Investments) shall be completely used before any demand is made on such Reserve Policy, and replenishment of the Reserve Policy shall be made prior to any replenishment of any such cash (or Authorized Investments). If a Subaccount of the Reserve Account is funded, in whole or in part, with more than one Reserve Policy, then any draws made against each such Reserve Policy shall be made pro-rata among those Reserve Policies (calculated by reference to the coverage then available thereunder).

Covenant to Commence Foreclosure Proceedings
The District covenants in the Indenture for the benefit of the Owners of the Bonds that it will: (i) commence judicial foreclosure proceedings against any parcel with either (A) at least four (4) consecutive installments of delinquent Special Taxes or (B) delinquent Special Taxes in excess of $10,000 on any one parcel, in each instance by the December 1 following the close of each Fiscal Year in which such Special Taxes were due; and (ii) commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes by the December 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied for such Fiscal Year, and (iii) diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid; provided, however, that the District may elect to defer foreclosure proceedings on any parcel so long as the amount on deposit in the Reserve Account is at least equal to the Reserve Requirement, and such delinquencies will not cause moneys in the Reserve Account to be withdrawn on the next succeeding Interest Payment Date. In no event shall such foreclosure actions exceed the time periods specified in Section 53356.1 of the Act.

The District covenants that it will deposit the net proceeds of any foreclosure in the Special Tax Fund and will apply such proceeds remaining after the payment of Administrative Expenses to make current payments of principal and interest on the Bonds, to bring the amount on deposit in the Reserve Account up to the Reserve Requirement and to pay any delinquent installments of principal or interest due on the Bonds.

Notwithstanding the foregoing, the District may elect (but is not obligated) to advance the amount of any particular delinquency (excluding penalties and interest) and deposit such amount to the Special Tax Fund.

Upon a deposit of such money in the Special Tax Fund, the District will not need to initiate a foreclosu re action as provided above; provided, however, the District may reimburse itself for such advance when the Special Tax on such property is paid in the amount of such advance plus interest on such amount at a rate equal to the yield on the Outstanding Bonds. Interest and penalties paid in excess of the amount advanced by the District shall be deposited in the Special Tax Fund.

Notwithstanding the foregoing, if at any time, the County’s Teeter Plan (adopted pursuant to Sections 4701 through 4717 of the California Revenue and Taxation Code) is in effect and is made applicable to the District and the Special Taxes being levied in connection with the Bonds, the District may, in its discretion, elect not to commence any judicial foreclosure proceeding pursuant t o the Indenture or defer the commencement of such proceedings until such time as the District deems appropriate.

IN THE EVENT FORECLOSURE OR FORECLOSURES ARE NECESSARY, THERE MAY BE A

DELAY IN PAYMENTS TO BOND OWNERS PENDING PROSECUTION OF THE FORECLOSURE

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18 PROCEEDINGS AND RECEIPT BY THE DISTRICT OF THE PROCEEDS OF THE FORECLOSURE SALE; IT IS ALSO POSSIBLE THAT NO BID FOR THE PURCHASE PRICE OR APPLICABLE PROPERTY WOULD BE RECEIVED AT THE FORECLOSURE SALE. SEE “RISK FACTORS.”

NOTWITHSTANDING ANY OTHER PROVISION OF THE INDENTURE TO THE CONTRARY, THE

CITY IS NOT OBLIGATED TO ADVANCE AVAILABLE FUNDS FROM THE CITY TREASURY TO CURE ANY DEFICIENCY IN THE SPECIAL TAX FUND ESTABLISHED UNDER THE INDENTURE.

Issuance of Parity Bonds
For the sole purpose of refunding all or a portion of the Bonds or any Parity Bonds then Outstanding, the District may at any time after the issuance and delivery of the Bonds issue Parity Bonds payable from the Net Taxes and other amounts deposited in the Special Tax Fund (other than in the Administrative Expenses Account therein and any Subaccounts of the Reserve Account not designated in the Indenture for the benefit of the Bonds or Parity Bonds) and secured by a lien and charge upon such amounts equal to the lien and charge securing the Outstanding Bonds and any other Parity Bonds theretofore issued under the Indenture or any Supplemental Indenture. Parity Bonds issued are subject to the following additional specific conditions, which are conditions precedent to the issuance of any such Parity Bonds:
(a) The District shall be in compliance with all covenants set forth in the Indenture and any Supplemental Indenture then in effect and a certificate of the District to that effect shall have been filed with the Trustee; provided, however, that Parity Bonds may be issued notwithstanding that the District is not in compliance with all such covenants so long as immediately following the issuance of such Parity Bonds the District will be in compliance with all such covenants. (b) The issuance of such Parity Bonds shall have been duly authorized pursuant to the Act and all applicable laws, and the issuance of such Parity Bonds shall have been provided for by a Supplemental Indenture duly adopted by the District which shall specify the following:
(1) that such Parity Bonds are to be issued for the purpose of refunding all or a portion of the Bonds or Parity Bonds then Outstanding, as applicable, and the fund or funds into which the proceeds thereof are to be deposited, including, a provision requiring the proceeds of such Parity Bonds to be applied solely for the purpose of refunding any Outstanding Bonds or Parity Bonds, including payment of all costs and the funding of all reserves incidental to or connected with such refunding;
(2) the authorized principal amount of such Parity Bonds; (3) the date and the maturity date or dates of such Parity Bonds; provided that (i) each maturity date shall fall on a September 1, (ii) all such Parity Bonds of like maturity shall be identical in all respects, except as to number, and (iii) fixed serial maturities or Sinking Fund Payments, or any combination thereof, shall be established to provide for the retirement of all such Parity Bonds on or before their respective maturity dates;
(4) the description of the Parity Bonds, the place of payment thereof and the procedure for execution and authentication;
(5) the denominations and method of numbering of such Parity Bonds; (6) the amount and due date of each mandatory Sinking Fund Payment, if any, for such Parity Bonds;
(7) the amount, if any, to be deposited from the proceeds of such Parity Bonds in the Reserve Account of the Special Tax Fund to increase the amount therein to the Reserve Requirement;

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19 (8) the form of such Parity Bonds; and
(9) such other provisions as are necessary or appropriate and not inconsistent with the Indenture.
(c) The District shall have received the following documents or money or securities, all of such documents dated or certified, as the case may be, as of the date of delivery of such Parity Bonds by the Trustee (unless the Trustee shall accept any of such documents bearing a prior date):
(1) a certified copy of the Supplemental Indenture authorizing the issuance of such Parity Bonds;
(2) a written request of the District as to the delivery of such Parity Bonds; (3) an opinion of Bond Counsel and/or general counsel to the District to the effect that (a) the District has the right and power under the Act to adopt the Indenture and the Supplemental Indentures relating to such Parity Bonds, and the Indenture and all such Supplemental Indentures have been duly and lawfully adopted by the District, are in full force and effect and are valid and binding upon the District and enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of creditors’ rights); (b) the Indenture creates the valid pledge which it purports to create of the Net Taxes and other amounts as provided in the Indenture, subject to the application thereof to the purposes and on the conditions permitted by the Indenture; and (c) such Parity Bonds are valid and binding limited obligations of the District, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of creditors’ rights) and the terms of the Indenture and all Supplemental Indentures thereto and entitled to the benefits of the Indenture and all such Supplemental Indentures, and such Parity Bonds have been duly and validly authorized and issued in accordance with the Act (or other applicable laws) and the Indenture and all such Supplemental Indentures; and a further opinion of Bond Counsel to the effe ct that, assuming compliance by the District with certain tax covenants, the issuance of the Parity Bonds will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds and any Parity Bonds theretofore issued on a Tax-exempt basis, or the exemption from State of California personal income taxation of interest on any Outstanding Bonds and Parity Bonds theretofore issued;
(4) a certificate of the District containing such statements as may be reasonably necessary to show compliance with the requirements of the Indenture; (5) a certificate of an Independent Financial Consultant certifying that in each Bond Year the Annual Debt Service on the Bonds and Parity Bonds to remain Outstanding following the issuance of the Parity Bonds proposed to be issued is less than the Annual Debt Service on the Bonds and Parity Bonds Outstanding prior to the issuance of such Parity Bonds; and (6) such further documents, money and securities as are required by the provisions of the Indenture and the Supplemental Indenture providing for the issuance of such Parity Bonds.

Rate and Method of Apportionment of Special Taxes
The following is a synopsis of the provisions of the Amended and Restated Rate and Method of Apportionment of Special Tax for Improvement Area No. 2 of the District (“Rate and Method”). This synopsis does not purport to be comprehensive and should be read in conjunction with the complete text of the Rate and Method, including its attachments, which is attached hereto as “APPENDIX B – Rate and Method of

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20 Apportionment of Special Taxes.” All capitalized terms not defined in this section have the meanings set forth in APPENDIX B.

Each Fiscal Year, each Assessor’s Parcel within the boundaries of Improvement Area No. 2 shall be classified as Taxable Property or Exempt Property. In addition, all Taxable Property within Improvement Area No. 2 shall be classified as Developed Property, Undeveloped Property or Provisional Property, and all such Taxable Property shall be subject to the levy of Special Taxes in accordance with the Rate and Method. Under the Rate and Method and subject to certain exceptions described therein, an Assessor’s Parcel within Improvement Area No. 2 generally is classified as “Developed Property” if a building permit has been issued by the City for construction of a residential dwelling unit prior to May 1 immediately preceding the Fiscal Year for the subject Special Tax levy. Furthermore, each Assessor’s Parcel of Developed Property shall be classified to its applicable Land Use Class based on its Building Square Footage.

For each Fiscal Year, the CFD Administrator shall calculate the Special Tax Requirement and levy Special Tax on all Taxable Property in accordance with the following steps:

Step 1: The Special Tax shall be levied Proportionately on each Assessor’s Parcel of Developed Property at 100% of the applicable Assigned Special Tax; Step 2: If additional monies are needed to satisfy the Special Tax Requirement after Step 1 has been completed, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property up to 100% of the Maximum Special Tax for Undeveloped Property; Step 3: If additional monies are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Provisional Property up to 100% of the Maximum Special Tax for Provisional Property; and Step 4: If additional monies are needed to satisfy the Special Tax Requirement after the first three steps have been completed, then the Special Tax amount determined in Step 1 shall be increased Proportionately on each Assessor’s Parcel of Developed Property up to 100% of the Maximum Special Tax for Developed Property.
“Special Tax Requirement” is defined in the Rate and Method to mean that amount required in any Fiscal Year to: (i) pay regularly scheduled Debt Service on all Outstanding Bonds; (ii) pay period ic costs on the Outstanding Bonds, including but not limited to, credit enhancement and rebate payments on the Outstanding Bonds; (iii) pay Administrative Fees and Expenses; (iv) pay any amounts required to establish or replenish any reserve funds for all Outstanding Bonds; (v) accumulate funds to pay directly for acquisition or construction of facilities provided that the inclusion of such amount does not cause an increase in the Special Tax to be levied on Undeveloped Property; and (vi) pay for reasonably anticipated delinquent Special Taxes based on the delinquency rate for Special Taxes levied in the previous Fiscal Year; less (vii) a credit for funds available to reduce the Annual Special Tax levy, as det ermined by the CFD Administrator pursuant to the Indenture.

Notwithstanding the above, under no circumstances will the Special Tax levied in any Fiscal Year against any Assessor’s Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased as a result of delinquency or default in the payment of the Special Tax applicable to any other Assessor’s Parcel within Improvement Area No. 2 by more than 10% above what would have been levied in the absence of such delinquencies or defaults.

The Special Tax shall be levied for as long as necessary to meet the Special Tax Requirement for period not to exceed 40 Fiscal Years, which commenced with Fiscal Year 2016-17, provided however that the Special Tax will cease to be levied in an earli er Fiscal Year if the CFD Administrator has determined that all required principal and interest payments on all outstanding Bonds have been paid.

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21 THE DISTRICT
General
Description. The District includes two improvement areas which will be developed into housing communities. Improvement Area No. 1 occupies the eastern portion of the District and Improvement Area No. 2 occupies the western portion of the District. The development known as Westridge at Sycamore Hills is situated within the boundaries of Improvement Area No. 1 and is a community consisting of a total of 145 built detached townhomes owned by individual homeowners on approximately 16.26 gross acres of land, with a minimum of 14.27 taxable acres. Improvement Area No. 2 is expected to be developed into two communities known as La Cresta at Sycamore Hills (which will consist of 83 attached townhomes), and Montara at Sycamore Hills (which will consist of 89 detached townhomes), totaling 176 townhomes on approximately 15.84 acres of land. The two communities in Improvement Area No. 2 will share a community pool and park. The Bonds are only secured by the Special Taxes from taxable property within Improvement Area No. 2.

Location and Immediate Surroundings. The District is located within the western portion of the City, north of Foothill Boulevard (Historic Route 66) and Interstate 10. The District is located at the northwest corner of Baseline Road and Park View Promenade. Improvement Area No. 2 of the District is located to the west of Improvement Area No. 1 and borders the south side of the 210 Foothill Freeway. To the east of the District is a 15 to 20 year-old single family residential community known as Mountain Shadows. To the north of the District is open space which is proposed to be developed into a city park. Sand and gravel quarries are located south of Baseline Road. See APPENDIX A – “GENERAL INFORMATION ABOUT THE CITY OF UPLAND AND SAN BERNARDINO COUNTY” for certain demographic information on the City and the County. The boundary map of the District and the two improvement areas within the District is attach ed hereto as APPENDIX I.

The District is located within a portion of the Park View Specific Plan area (“Specific Plan”). The Specific Plan provides for a development of a mix of single family residential detached and attached housing, with open space recreational areas, as well as a commercial center to serve the neighborhood, on approximately 42 acres. There are five planning areas covered by the Specific Plan. Planning Areas 1 and 2 are located within Improvement Area No. 1 and will consist of detached townhomes on 16.26 acres. Planning Area 3 is located within Improvement Area No. 2 of the District, directly west of and adjacent to Improvement Area No. 1, with Planning Area 3 to be developed into townhomes and single family detached cluster homes on 15.8 acres. Planning Area 4 is approximately 7.5 acres, is located directly west of and adjacent to Improvement Area No. 2 of the District, and comprises an area that coincides with the territory designated as “Future Excluded Area” on the District boundary map. See “APPENDIX I - DISTRICT BOUNDARY MAP.” Directly to the west of and adjacent to Planning Area 4 is Planning Area 5, which is located in the City of Claremont and is approximately 4.0 acres. Planning Areas 4 and 5 have been developed into an 80,000 square foot shopping center known as Sycamore Hills Plaza, which is anchored by Whole Foods 365 and consists of a variety of commercial tenants including CVS, Starbucks, Supercuts, UPS, a nail bar, Union Bank, Orange Theory Fitness, a dry cleaners, and a variety of restaurants such as Jersey Mike’s Subs, WaBa Grill , Wendy’s, Menchies and a pizza restaurant.

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22 The table below shows comparable residential projects in the area:

Table 1
Upland Market Area
Comparable Residential Project Summary
(As of November 15, 2021)

Project Name/Location/Developer Plan
Room
Count Square feet
Floors /
Parking
Density/Product/
Absorption
Base Sales
Price
Price per
square foot
Montara at Sycamore Hills, Base Line
Road (West 16th Street) and Park
View Promenade, Upland / KB Home
1719
1741
2283
3 / 2.5
3 / 2.5
4 / 3
1,719
1,741
2,283
2 / 2
2 / 2
2 / 2
3,600 /
Detached
Cluster / 8.1
$672,990
$690,990
$766,990
$391.50
$396.89
$335.96
La Cresta at Sycamore Hills, Base Line
Road (West 16th Street) and Park View
Promenade, Upland / KB Home
1665
1705
1832
1837
1922
3 / 2.5
3 / 2.5
3 / 2.5
4 / 3
3 / 2.5
1,666
1,705
1,832
1,837
1,922
2 / 2
2 / 2
2 / 2
2 / 2
3 / 2
16 du/ac /
Attached
Townhome / 5.8
$590,990
$594,990
$614,990
$637,990
$604,990
$354.74
$348.97
$335.69
$347.30
$314.77
Sage @ Ninth Street, SEC 9th
Street and Bodenhamer, Upland /
RC Homes
1 2
3 2 / 2.5
3 / 2.5
3 / 2.5
1,211
1,280
1,594
2 / 2
2 / 2
2 / 2

14.7 du/ac /
Attached
Townhome / 4.1
$484,900
$509,900
$553,900
$400.41
$398.36
$347.49
Nova at The Resort, 4th Street and The
Resort Parkway, Rancho Cucamonga /
The New Home Company
1A
2A
3A
3V
2 / 2
2 / 2.5
2 / 2.5
3 / 2.5
995
1,164
1,263
1,467
2 / 2
3 / 2
3 / 2
3 / 2
20 du/ac /
Attached
Townhome / 4.6
$482,900
$542,900
$565,900
$599,900
$485.33
$466.41
$448.06
$408.93
Aspire at The Resort, 4th Street and
The Resort Parkway, Rancho
Cucamonga / Van Daele Homes
1 2
3 4
5 2 / 2
2 / 2
2 / 2
3 / 2
3 / 2
1,176
1,257
1,300
1,371
1,706
1 / 2
1 / 2
1 / 2
1 / 2
1 / 2
24 du/ac /
Stacked
Flats / 4.9
$559,990
$539,990
$509,990
$548,990
$699,990
$476.18
$429.59
$392.30
$400.43
$410.31
Lumin at The Resort, 6th Street and
The Resort Parkway, Rancho
Cucamonga / Van Daele Homes
1 3
2 3 / 2.5
3 / 2.5
4 / 3
1,448
1,528
1,538
2 / 2
2 / 2
2 / 2
16 du/ac /
Detached
Triplexes / 3.7
$639,990
$690,850
$682,450
$441.98
$452.13
$443.73
Highline, North Campus Avenue &
Colonies Parkway, Upland / Watt
Communities
2 3
1 3 / 3.5
3 / 3
4 / 3.5
1,838
2,017
2,026
3 / 2
3 / 2
3 / 2
16 du/ac /
Attached
Townhome / 1.9
N/A
$649,145
N/A
N/A
$321.83
N/A
Tempo at The Resort, 4th Street and
The Resort Parkway, Rancho
Cucamonga / TRI Pointe Homes
1 2
3 3 / 2.5
3 / 2.5
4 / 3.5
1,890
2,105
2,243
3 / 2
3 / 2
3 / 2
16 du/ac /
Detached
Alley-Load / 3.1
$798,197
$826,929
$848,800
$422.32
$392.84
$378.42
_________________
Source: Appraiser
Estimated Special Taxes and Debt Service Coverage
The Rate and Method is structured to produce Special Tax revenues from the Special Tax and the Maximum Special Tax which, when applied to the projected debt service on the Bonds, is anticipated to result in a debt service coverage ratio of at least 110% for the anticipated life of the Bonds. The following table shows the revenue projections for Improvement Area No. 2 of the District.

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23 Table 2
Estimated Special Taxes based on
Fiscal Year 2021-22 Development Status Under the Rate and Method and at Buildout

Land Use
Class

Building Square
Footage
Developed
Property Fiscal
Year 2021-22(1)
Assigned
Special Tax Per
Residential Unit
Estimated Special Taxes
for Fiscal Year 2021-22
Developed Property(2)
Number
of Units at
Buildout
Projected Special
Tax Revenues at
Buildout(3)
1 greater than 2,200 17 $4,701 $79,917 21 $98,721
2 2,001 - 2,200 0 4,495 -- 0 --
3 1,801 - 2,000 32 3,882 $124,224 60 $232,920
4 1,601 - 1,800 68 3,569 $242,692 95 $339,055
5 1,600 or less 0 3,264 -- 0 --

___________________
Source: Willdan Financial Services.
(1) Under the Rate and Method, property is classified as “Developed Property” for special tax levy purposes if a building permit has been issued for the parcel prior to May 1 of the previous fiscal year. See “SECURITY FOR THE BONDS – Rate and Method of Apportionment of Special Taxes” and “APPENDIX B – Rate and Method of Apportionment of Special Taxes.” Based on building permits issued as of May 1, 2021 (as amended February 2022). See “[refer to discussion regarding 2021-22 tax levy after input from City Attorney]. (2) Represents the total Assigned Special Tax applicable to Developed Property, including the Administrative Expenses Priority Amount of $20,000 per Bond Year to be used to pay administrative expenses. (3) Assumes that all building permits will be issued for all residential units in accordance with the Landowner’s currently proposed development. Represents the annual Special Tax revenues to be collected each Bond Year in accordance with the Rate and Method and KB Coastal’s proposed development, and includes the Administrative Expenses Priority Amount of $20,000 per Bond Year to be used to pay administrative expenses. See “PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT” and “APPENDIX B – Rate and Method of Apportionment of Special Taxes.”

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24 The following table shows the estimated debt service coverage for the Bonds.

Table 3
Estimated Debt Service Coverage*
Bond Year Ending
(September 1)
Maximum
Annual Special
Tax Annual Costs
Net Maximum
Special Tax Debt Service(1)*
Debt Service
Coverage*
2022 $446,833 $20,000 $426,833 $352,144 121.21%
2023 $670,696 $20,000 $650,696 $572,160 113.73%
2024 $670,696 $20,000 $650,696 $568,960 114.37%
2025 $670,696 $20,000 $650,696 $570,555 114.05%
2026 $670,696 $20,000 $650,696 $571,740 113.81%
2027 $670,696 $20,000 $650,696 $572,515 113.66%
2028 $670,696 $20,000 $650,696 $567,880 114.58%
2029 $670,696 $20,000 $650,696 $572,440 113.67%
2030 $670,696 $20,000 $650,696 $571,348 113.89%
2031 $670,696 $20,000 $650,696 $569,820 114.19%
2032 $670,696 $20,000 $650,696 $567,858 114.59%
2033 $670,696 $20,000 $650,696 $570,460 114.07%
2034 $670,696 $20,000 $650,696 $576,810 112.81%
2035 $670,696 $20,000 $650,696 $572,270 113.70%
2036 $670,696 $20,000 $650,696 $572,270 113.70%
2037 $670,696 $20,000 $650,696 $571,580 113.84%
2038 $670,696 $20,000 $650,696 $440,200 147.82%
2039 $670,696 $20,000 $650,696 $440,400 147.75%
2040 $670,696 $20,000 $650,696 $440,200 147.82%
2041 $670,696 $20,000 $650,696 $439,600 148.02%
2042 $670,696 $20,000 $650,696 $438,600 148.36%
2043 $670,696 $20,000 $650,696 $437,200 148.83%
2044 $670,696 $20,000 $650,696 $440,400 147.75%
2045 $670,696 $20,000 $650,696 $438,000 148.56%
2046 $670,696 $20,000 $650,696 $440,200 147.82%
2047 $670,696 $20,000 $650,696 $436,800 148.97%
2048 $670,696 $20,000 $650,696 $438,000 148.56%
2049 $670,696 $20,000 $650,696 $438,600 148.36%
2050 $670,696 $20,000 $650,696 $438,600 148.36%
2051 $670,696 $20,000 $650,696 $438,000 148.56%
2052 $670,696 $20,000 $650,696 $436,800 148.97%
______________
Source: Underwriter
* Preliminary, subject to change.
(1) Debt service for each Bond Year ending September 1 will be paid from Special Taxes collected during the immediately preceding fiscal year. For example, debt service for the Bond Year ending September 1, 2022 will be paid from Special Taxes levied and collected during Fiscal Year ending June 30, 2022.

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25 Pursuant to Section 53321(d) of the Act, the special tax levied in any fiscal year against any assessor’s parcel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other assessor’s parcel within Improvement Area No. 2 by more than 10% above the amounts that would have been levied in that fiscal year had there never been any such delinquencies or defaults. As a result, it is possible that the District may not be able to i ncrease the tax levy to the assigned special tax in all years. However, subject to the limitations on the District’s ability to levy the necessary amount of Special Taxes as imposed by Section 53321(d) of the Act and the terms and provisions of the Rate and Method, the District can levy Special Taxes on Undeveloped Property in Improvement Area No. 2 to make up all or a portion of such shortfall.

Appraised Property Value
The information below is only a summary of certain information contained in the Appraisal and Appraisal Supplement. The Appraisal and Appraisal Supplement are reprinted herein as APPENDIX C-1 and APPENDIX C-2. The information below is qualified in its entirety by the complete Appraisal and Appraisal Supplement. The District makes no representation as to the accuracy or completeness of the Appraisal and the Appraisal Supplement.

The Appraisal and Appraisal Supplement. The Bonds are secured by Special Taxes which may include amounts realized upon foreclosure sale of delinquent parcels. Therefore, the ability of the District to meet debt service on the Bonds may depend on the ability of delinquent parcels to generate sufficient proceeds upon foreclosure sale to pay delinquent Special Taxes. The City commissioned Kitty Siino & Associates, Inc., Tustin, California (the “Appraiser”) to ascertain the “as is” market value of the fee simple estate for the taxable property in Improvement Area No. 2. As of the November 15, 2021 date of value of the Appraisal, of the 176 lots in Improvement Area No. 2, 46 were completed homes owned by individual homeowners, and 130 lots were owned by KB Coastal. Of the 130 lots owned by KB Coastal, 7 were completed model homes but not yet released for sale, 26 homes were over 95% complete (all of which were in escrow ), 70 homes were under construction (of which 49 were in escrow) and 27 were physically finished lots (of which 6 were in escrow).

The Appraiser estimated that, as of the November 15, 2021 date of value of the Appraisal, the “as is” market value of the fee simple estate (subject to the lien of the Special Taxes) of all the taxable land and improvements within Improvement Area No. 2 was $65,372,171, which is approximately [__]* times the aggregate principal amount of the Bonds.

The Appraiser has also prepared the Appraisal Supplement, in which the Appraiser concludes that the estimated market value of the property within Improvement Area No. 2 subject to the levy of Special Taxes as of February 23, 2022, was not less than the concluded value of $65,372,171 set forth in the Appraisal. In the Appraisal Supplement, the Appraiser states that subsequent to the November 15, 2021 date of value, within the District, there were additional home closings and homes in escrow and additional homes have been constructed. As of the February 23, 2022 date of value of the Appraisal Supplement, of the 92 lots owned by KB Coastal, 7 were completed model homes (all of which were in escrow), 27 homes were over 95% complete (all of which were in escrow), 49 homes were under construction (of which 45 were in escrow) and 9 were physically finished lots (all of which were in escrow). In connection with the preparation of the Appraisal Supplement, the Appraiser inspected the property within Improvement Area No. 2 of the District and was provided information with respect to the additional home closings, sales and construction activity by KB Coastal within Improvement Area No. 2.

The Appraisal’s value estimates reflect certain assumptions set forth in the Appraisal and Appraisal Supplement including that the sales information and remaining development costs reported by KB Coastal are accurate. Any variance in costs could impact the value conclusions reported in the Appraisal and Appraisal Supplement. For a full description of the assumptions relied upon by the Appraiser, as well as a description of

* Preliminary, subject to change.

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26 the valuation methodology, see APPENDIX C-1 – “APPRAISAL REPORT” and APPENDIX C-2 - “APPRAISAL SUPPLEMENT.” The Appraisal and Appraisal Supplement were prepared in accordance with and subject to the requirements of the Appraisal Standards for Land-Secured Financings as published by the California Debt and Investment Advisory Commission, the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation, and the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. See APPENDIX C-1 – “APPRAISAL REPORT” and APPENDIX C-2 – “APPRAISAL SUPPLEMENT” herein.

Appraised Value to Lien Ratio
The following table shows the projected value to burden ratio for the 176 units that were the subject of the Appraisal based on the appraised values set forth in the Appraisal and the original principal amount of the Bonds. The following value-to-lien ratios only represent estimated averages for the property within Improvement Area No. 2. No assurance can be given that the amounts shown in this table will conform to those ultimately realized in the event of a foreclosure action following delinquency in the payment of the Special Taxes.

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27 Table 4
City of Upland
Community Facilities District No. 2015-1 (Sycamore Hills) (Improvement Area No. 2)
Appraised Values and Value to Lien Ratio
(As of November 15, 2021)
Property Owner Land Use Classification(1)
# of
Residential
Lots
Appraised
Value(2)
Percentage
of
Appraised
Value 2022 Bonds(3)*
Value to
Lien
Ratio(4)*
Fiscal Year
2021-22
Special Tax(5)
Percentage of
Total Fiscal
Year 2021-22
Special Tax
Levy
Individuals Developed (fully built homes) 46 $29,611,645 45.3% $2,390,900 12.39:1 $175,541 26.2% KB Coastal Developed (model homes) 7 $3,718,859 5.7% $368,480 10.09:1 $27,054 4.0% KB Coastal Developed (over 95% complete) 26 $12,776,319 19.5% $1,350,128 9.46:1 $99,127 14.8% KB Coastal Developed (under construction) 70 $13,902,828 21.3% $3,643,807 3.82:1 $267,530 39.9% KB Coastal Developed (finished lots) 27 $5,362,520 8.2% $1,381,686 3.88:1 $101,444 15.1% Totals 176 $65,372,171 100.0% $9,135,000 7.16:1 $670,696 100.0% ___________________________
Source: Willdan Financial Services
* Preliminary, subject to change.
(1) Based on building permits issued as of May 1, 2021 (as amended February 2022). Under the Rate and Method, property is considered “Developed Property” for special tax levy purposes if a building permit has been issued for the assessor’s parcel prior to May 1 preceding the applicable tax year. See “SECURITY FOR THE BONDS – Rate and Method of Apportionment of Special Taxes” and “APPENDIX B – Rate and Method of Apportionment of Special Taxes.” See “[refer to discussion of 2021-22 tax levy after input from city attorney]. (2) Based on the Appraisal dated January 4, 2022 with a November 15, 2021 date of value, and the Appraisal Supplement dated February 28, 2022 with a February 23, 2022 date of value. See “APPENDIX C-1 – Appraisal Report” and “APPENDIX C-2 — “APPRAISAL SUPPLEMENT” herein. (3) Allocated based on percentage of Fiscal Year 2022-23 Assigned Special Tax on Developed Property. (4) Value to Lien Ratio is calculated as “Appraised Value” divided by “Principal Amou nt of Bonds.” (5) Based on Assigned Special Tax on Developed Property, and includes the Administrative Expenses Priority Amount of $20,000 per Bond Year to be used to pay administrative expenses. See “THE DISTRICT – Estimated Special Taxes and Debt Service Coverage” for more details.

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28 Direct and Overlapping Governmental Obligations
Properties in Improvement Area No. 2 are within the jurisdiction of a number of overlapping local agencies providing public services and assessing property taxes, assessment s, special taxes and other charges on the property in Improvement Area No. 2. Many of these local agencies have outstanding debt.

The direct and overlapping obligations affecting the property in Improvement Area No. 2 as of January 1, 2022, are shown in the following table. The table was prepared by California Municipal Statistics, Inc., and is included for general information purposes only. Neither the City nor the District has reviewed this report for completeness or accuracy and makes no representation i n connection therewith.

Table 5
City of Upland
Community Facilities District No. 2015-1 (Sycamore Hills) (Improvement Area No. 2)
Statement of Direct and Overlapping Debt

2021-22 Local Secured Assessed Valuation: $14,060,642

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1/22 Metropolitan Water District General Obligation Bonds 0.0004% $ 112 Chaffey Community College District General Obligation Bonds 0.010 32,721 Upland Unified School District General Obligation Bonds 0.127 109,810 City of Upland Community Facilities District No. 2015-1, I.A. No. 2 100. 0(1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $142,643

OVERLAPPING GENERAL FUND DEBT:

San Bernardino County General Fund Obligations 0.005% $ 9,931 San Bernardino County Pension Obligation Bonds 0.005 6,329 San Bernardino County Flood Control District General Fund Obligations 0.005 2,365 Chaffey Community College District General Fund Obligations 0.010 2,939 City of Upland General Fund Obligations 0.130 8,666
TOTAL OVERLAPPING GENERAL FUND DEBT $30,230

COMBINED TOTAL DEBT $172,873 (2)

Ratios to 2021-22 Assessed Valuation:

Direct Debt ........................................................................... 0.00%(1) Total Direct and Overlapping Tax and Assessment Debt ...... 1.01% Combined Total Debt ............................................................ 1.23%

_________________
Source: California Municipal Statistics, Inc.
(1) Excludes Bonds anticipated to be sold in [March] 2022. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non -bonded capital lease obligations.

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29 Estimated Tax Burden on Townhomes
The following table sets forth the estimated total tax burden on the townhomes by size in Improvement Area No. 2.

Table 6
City of Upland
Community Facilities District No. 2015-1 (Sycamore Hills) (Improvement Area No. 2)
Estimated Total Effective Tax Rate
Townhome Units

VALUES
Class 1
Greater than
2,200 Sq. Ft.

Class 3
1,801 to
2,000 Sq. Ft.

Class 4
1,601 to
1,800 Sq. Ft.

Median Base Price (1) $741,975 $595,820 $583,100
Less Home Owners Exemption ($7,000) ($7,000) ($7,000)
Estimated Property Value $734,975 $588,820 $576,100

AD VALOREM PROPERTY TAXES (2)
Basic Levy $7,349.75 $5,888.20 $5,761.00
Chaffey Community College District $130.09 $104.22 $101.97 School Bonds $465.97 $373.31 $365.24
Metropolitan Water District DS $25.72 $20.61 $20.16
Total(5) $7,971.53 $6,386.33 $6,248.37

ASSESSMENTS, SPECIAL TAXES AND

PARCEL CHARGES

MWD Standby (3) $7.59 $7.59 $7.59
SBCO Fire West Valley (3) $161.98 $161.98 $161.98
Upland Vector Control (3) $5.62 $5.62 $5.62
County Vector Control (3) $14.29 $14.29 $14.29
Upland CFD No. 2015-1 IA2 Special Tax (4) $4,701.00 $3,882.00 $3,569.00 Upland CFD No. 2017-1 (Services) Special Tax (3) $30.39 $30.39 $30.39 Total(5) $4,920.87 $4,101.87 $3,788.87

PROJECTED TOTAL PROPERTY TAXES(5) $12,892.40 $10,488.20 $10,037.24

Estimated Effective Tax Rate 1.74% 1.76% 1.72%
Fiscal Year 2021-22 Assigned Special Tax Rate
_____________________
Source: Willdan Financial Services.
(1) Based on the median base price per the Appraisal dated January 4, 2022. (2) Based on fiscal year 2021-22 rates for Tax Rate Area 008-056. (3) Based on fiscal year 2021-22 property tax bills.
(4) Based on maximum Assigned Special Taxes pursuant to the Rate and Method of Apportionment. (5) Numbers may not add due to rounding.

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30 PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT
The following information regarding the ownership, developer and planned development of Improvement Area No. 2 in the District has been provided by, or on behalf of, KB Coastal for use in this Official Statement, and has not been independently confirmed or verified by the District or the Underwriter. Neither the District nor the Underwriter makes any representation as to the accuracy or adequacy of this information or the absence of any material change after the date of this Official Statement. No assurance can be given that the proposed development will occur as described herein or that it will be completed in a timely manner.

No assurance can be given that the proposed development within Improvement Area No. 2 will occur as described below. As the proposed land development progresses and parcels are sold, it is expected that the ownership of the land within Improvement Area No. 2 will become more diversified. No assurance can be given that development of the land within Improvement Area No. 2 will occur in a timely manner or in the configuration described herein, or that any landowner described herein will obtain or retain ownership of any of the land within Improvement Area No. 2. The Bonds and the Special Taxes are not personal obligations of any landowners, including KB Coastal, and in the event that a landowner defaults in the payment of the Special Taxes, the District may proceed with judicial foreclosure but has no direct recourse to the assets of any landowner. As a result, other than as provided herein, no financial statements or information is, or will be, provided about KB Coastal or any other landowners. The Bonds are secured solely by the Special Tax revenues and other amounts pledged under the Indenture. See “SECURITY FOR THE BONDS” and “RISK FACTORS.” Master Developer
Bravepark Property LLC (“Bravepark”), the original owner and master developer of all the land within Improvement Area No. 2, has taken all actions necessary to entitle the land within Improvement Area No. 2. Bravepark entered into the Park View Upland Development Agreement with the City, which was recorded on April 28, 2016 with the County Recorder for San Bernardino County (the “Development Agreement”). The Development Agreement grants certain rights, duties and obligations with respect to the development and improvement of the Park View Project in which the District is contained. On December 11, 2019, Bravepark sold the property within Improvement Area No. 2 to KB Coastal and simultaneously entered into an Assignment and Assumption Agreement (“Assignment Agreement”) pursuant to which Bravepark assigned to KB Coastal certain rights, duties and obligations under the Development Agreement pertaining to Improvement Area No. 2, while at the same time retaining some obligations and rights with respect thereto. Pursuant to the Assignment Agreement, Bravepark retained the obligation to construct the backbone infrastructure (i.e., water, reclaimed water, sewer lines, storm drain improvements, off site dry utilities, undergrounding of certain utilities and various street and traffic signal improvements) on the major arterial streets serving the District, which are eligible for acquisition by the City from bond proceeds pursuant to an Acquisition Agreement, dated as of November 1, 2015, between the City and Bravepark, as amended by the Fourth Operating Memorandum and First Amendment to Acquisition Agreement, dated as of December 1, 2020, between the City, Bravepark and KB Coastal. KB Coastal will construct and sell to individual homebuyers attached and detached townhome units on such property, and has substantially completed the subdivision streets (except for final lift of paving and sidewalks customarily deferred until after completion of home construction) and utilities within Improvement Area No. 2. All necessary land entitlements to construct, or contract for the construction of, all necessary improvements and infrastructure in Improvement Area No. 2 have been obtained.

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31 KB HOME Coastal Inc.

KB HOME Coastal Inc. is an California corporation (the “Landowner” or “KB”) which, as of January 15, 2022, owned approximately 63.6% of the total lots within Improvement Area No. 2. The remaining landowners are individual homeowners who purchased their homes from KB Coastal. KB Coastal expects to construct and sell the remaining homes within Improvement Area No. 2 that will be subject to the Special Tax.

KB Coastal is a wholly-owned subsidiary of KB Home, a Delaware corporation (“KB Home”), whose principal executive offices are located in Los Angeles, California. KB Home is a publicly traded company listed on the New York Stock Exchange (the “NYSE”) under the ticker symbol “KBH.” KB Home files annual, quarterly and current reports, proxy statements and other information with the SEC.

KB Home’s SEC filings are available to the public at the SEC’s website at www.sec.gov , and at KB Home’s website at www.kbhome.com . Such Internet addresses are included for reference only, and the information on such Internet sites is not a part of this Official Statement and is not incorporated by reference into this Official Statement.

Founded in 1957, KB Home constructs and sells homes through its operating divisions under the name KB Home. KB Home’s ongoing principal operations are in seven states, including California, Arizona, Nevada, Colorado, Texas, Florida, and North Carolina within 36 major markets. KB Home first developed homes in California in 1963. KB Home’s homebuilding operations offer a variety of homes designed primarily for first-time, and first move-up homebuyers, including attached and detached single- family homes, townhomes and condominiums.

Other Projects. KB Coastal has completed numerous other home developments throughout the Southern California including the following:

Lynbrook at The Preserve - Chino, California - 114 detached single family homes Jade Tree - Chino Hills, California - 65 three-story townhomes Hadleigh at Park Place - Ontario, California - 69 detached single family homes Margate at Park Place - Ontario, California - 53 detached single family homes La Ventana - Rancho Cucamonga, California - 76 detached single family homes Calabria - Rancho Cucamonga, California - 94 detached single family homes The Enclave - Eastvale, California - 490 detached single family homes Willow Ranch - Eastvale, California - 315 detached single family homes Mahogany Hills - Murrieta, California - 503 detached single family homes Seneca - Murrieta, California - 54 detached single family homes Terraces at Alberhill - Lake Elsinore, California - 43 detached single family homes Silvercreek at Audie Murphy - Menifee, California - 94 detached single family homes Pinnacle I and II at Roripaugh - Temecula, California - 197 detached single family homes Painted Hill - Corona, California - 204 detached single family homes Canyon Oaks - Corona, California - 30 detached single family homes Plan of Development
KB Coastal intends to develop a total of 176 attached and detached townhomes in Improvement Area No. 2 in two residential communities known as La Cresta at Sycamore Hills (“La Cresta”) and Montara at Sycamore Hills (“Montara”). La Cresta is expected to have 83 attached townhomes with five

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32 different floor plans consisting of two and three story, three and four bedroom units with 2.5 or 3 bathrooms and a 2 car alley-loaded garage, and ranging in size from 1,665 to 1,922 square feet, with base sales prices ranging from $592,990 to $639,990. Montara is expected to contain 93 detached townhomes on cluster lots with a 2 car garage off a shared driveway. Montara has 3 different floor plans consisting of two-story, three and four bedroom units with 2.5 or 3 bathrooms, and ranging in size from 1,719 square feet to 2,283 square feet, with base sale prices ranging from $676,990 to $770,990.

The following tables set forth the development status in La Cresta and Montara as of February 23, 2022.

La Cresta
(as of February 23, 2022)
Plan
Number of
Planned Homes
Square
Footage
Number of
Beds/Baths
Number of
Stories
# Closed to
Homeowners(1)
1 16 1,665 3/2.5 2 6
2 7 1,705 3/2.5 2 5
3 22 1,832 3/2.5 2 5
4 16 1,837 4/3.5 2 11
5 22 1,922 3/2.5 3 11
83 Total 38 Total
___________
Source: KB Coastal
(1) As of the February 23, 2022 date of value of the Appraisal Supplement, KB Coastal closed 38 of the 83 homes to individual homeowners, and of the remaining 45 homes expected to be built in La Cresta that have not closed to homeowners, 41 homes were in escrow. No assurance can be given that homes in escrow will result in closed sales to individual homeowners since sales contracts are subject to cancellation during escrow.

Montara
(as of February 23, 2022)
Plan
Number of
Planned Homes
Square
Footage
Number of
Beds/Baths
Number of
Stories
# Closed to
Homeowners(1)
1 45 1,719 3/2.5 2 21
2 27 1,741 3/2.5 2 14
3 21 2,283 4/3 2 11
93 Total 46 Total
_____________
Source: KB Coastal
(1) As of the February 23, 2022 date of value of the Appraisal Supplement, KB Coastal closed 46 of the 93 homes to individual homeowners, and all of the remaining 47 homes expected to be built in La Cresta that have not closed to homeowners were in escrow. No assurance can be given that homes in escrow will result in closed sales to in dividual homeowners since sales contracts are subject to cancellation during escrow.

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33 KB Coastal anticipates completing the La Cresta and Montara developments in accordance with the following proposed schedule:

La Cresta

Phase
Proposed
Number of Units
Actual/Projected
Start Date
Actual/Projected
Completion Date
Model Homes 4 October 2020 February 2021
1 12 December 2020 August 2021
2 14 April 2021 December 2021
3 16 April 2021 January 2022
4 16 July 2021 March 2022
5 17 November 2021 June 2022*
Build-Out 4 February 2022 August /2022*
83 Source: KB Coastal
* Estimated, subject to change.

Montara

Phase
Proposed
Number of Units
Actual/Projected
Start Date
Actual/Projected
Completion Date
Model Homes 3 November 2020 February 2021
1 16 January 2021 August 2021
2 16 March 2021 October 2021
3 15 April /2021 November 2021
4 14 June 2021 March 2022
5 7 October 2021 April 2022*
6 17 December 2021 June 2022*
Build-Out 5 February 2022 July 2022*
93 Source: KB Coastal
* Estimated, subject to change.

Status of Regulatory Permits, Agreements and Procedures KB Coastal represents that subject only to the payment of applicable fees, all material permits (other than building permits, which are customarily deferred until prior to construction of each unit) needed to commence construction of the development projects in Improvement Area No. 2 have been obtained and when such fees are paid will be in full force and effect and not subject to appeal or challenge. Various impact fees are due each time a building permit is obtained. KB Coastal represents that there are no other conditions to the issuance of the building permits.

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34 Tax Delinquencies of KB Coastal and Its Affiliates and Other Matters A representative of KB Coastal will sign a certificate in connection with the issuance of the Bonds in which such representative will certify to various things to the actual knowledge of such representative, as defined in the certificate, including (i) that neither KB Coastal nor any of its affiliates (as defined in the certificate) has been delinquent to any material extent in the payment of any ad valorem property tax, special assessment, or special tax on property in California owned by KB Coastal or by any such affiliate (during the period of their ownership) included within the boundaries of a community facilities district or an assessment district that (a) would have caused a draw on a reserve fund relating to such assessment district or community facilities district financing or (b) resulted in a foreclosure action being filed in a court of law against the delinquent property owner, (ii) that KB Coastal is not currently in material default on any loans, lines of credit or other obligation related to the development of the property in Improvement Area No. 2 or any other project which default is reasonably likely to materially and adversely affect KB Coastal’s ability to develop its property in Improvement Area No. 2 as described in this Official Statement or to pay the special tax due with respect to the property in Improvement Area No. 2 then owned by KB Coastal (to the extent the responsibility of KB Coastal) prior to delinquency, and (iii) that no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, regulatory agency, public board or body is pending against KB Coastal (with proper service of process to KB Coastal having been accomplished) or, to the actual knowledge of the representative signing the certificate on behalf of KB Coastal, is pending against any current affiliate (with proper service of process to such affiliate having been accomplished) or to the actual knowledge of the representative signing the certificate on behalf of KB Coastal is threatened in writing against KB Coastal or any such Affiliate which if successful, would materially adversely affect the ability of KB Coastal to complete the sale and development of the property it currently owns within Improvement Area No. 2 or to pay the Special Taxes and ad valorem tax obligations prior to delinquency on the property it currently owns within Improvement Area No. 2. Except as described in this Official Statement and except for those consents, permits, authorizations, certifications and approvals of governmental entities required in the ordinary course of development, KB Coastal represents that it has no actual knowledge of any impediment which could have a material adverse effect on its ability to complete the planned development of its property within Improvement Area No. 2 in the manner described herein.

Financing Plan
As of January 15, 2022, KB Coastal spent approximately $70,000,000 in acquiring its land in Improvement Area No. 2 and land improvements, home construction costs and other development, marketing and sales costs (exclusive of internal financing repayment). KB Coastal expects the remaining site improvement costs (including all required fees), home construction costs and other development, marketing and sales costs within Improvement Area No. 2 to be approximately $15,300,000.

KB Coastal has financed and plans to finance the buildout of the La Cresta and Montara developments within Improvement Area No. 2, including the remaining cost of construction, marketing and carrying costs, with internal sources. Neither KB Coastal nor any other related entity is under any legal obligation to expend funds for the development of its property in Improvement Area No. 2.

COVID-19 Impact
The development of KB Coastal’s project in the District is subject to disruption due to the COVID-19 pandemic and related public health and governmental authorities’ orders and actions. Public agencies serving the property and residents within the District have undergone varying degrees of closing and reopening of certain non-essential functions in response to COVID-19 concerns. Such public agencies may take additional precautionary measures or institute additional restrictions intended to limit the spread

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35 of COVID-19. Such actions may limit KB Coastal’s ability to complete their planned development in the time period, within the cost estimates and at the sales prices described in this Official Statement.

As of [March] 1, 2022, KB Coastal has experienced increases in certain construction costs, supply chain delays, labor shortages, and increased cycle time for home deliveries. However, KB Coastal 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 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 KB Coastal’s project within Improvement Area No. 2 of the District, 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 any current or amended County or State of California orders), on KB Coastal’s ability to continue to sell and close homes in Improvement Area No. 2 of the District, or homebuyers’ willingness and ability to pay Special Taxes when due. See “RISK FACTORS - COVID-19 Pandemic” below.

RISK FACTORS

INVESTMENT IN THE BONDS INVOLVES ELEMENTS OF RISK AND ARE NOT APPROPRIATE INVESTMENTS FOR CERTAIN INVESTORS. THE FOLLOWING SECTION

DESCRIBES CERTAIN SPECIFIC RISK FACTORS AFFECTING THE PAYMENT AND SECURITY OF THE BONDS. THE FOLLOWING DISCUSSION OF RISKS IS NOT MEANT TO BE AN

EXHAUSTIVE LIST OF THE RISKS ASSOCIATED WITH THE PURCHASE OF THE BONDS AND

THE ORDER OF DISCUSSION OF SUCH RISKS DOES NOT NECESSARILY REFLECT THE RELATIVE IMPORTANCE OF THE VARIOUS RISKS. POTENTIAL INVESTORS ARE ADVISED

TO CONSIDER THE FOLLOWING FACTORS ALONG WITH ALL OTHER INFORMATION IN THIS OFFICIAL STATEMENT IN EVALUATING THE BONDS. THERE CAN BE NO

ASSURANCE THAT OTHER RISK FACTORS NOT DISCUSSED UNDER THIS CAPTION WILL NOT BECOME MATERIAL IN THE FUTURE.

COVID-19 Pandemic
A coronavirus disease, known as COVID-19 (“COVID-19”) is an infectious disease caused by a novel strain of the coronavirus known as severe acute respiratory syndrome coronavirus 2 (SARS-CoV- 2). The disease was first identified in China in late 2019, and has spread globally. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a pandemic. On March 13, 2020, the President of the United States declared a national state of emergency. The State, the County and the City also declared local emergencies in March 2020. To date there have been a number of confirmed cases of COVID -19 and the deaths caused by COVID-19 in the City, County and State.

Throughout the State (including in the City and County), and in other parts of the country and the world, legislation and emergency orders were issued in order to mitigate the negative public health and economic impacts of the COVID-19 outbreak, including stay at home or similar orders, the prohibition on social gatherings and imposition of social distancing measures, and the temporary closure of public venues, schools and universities, and certain businesses. The outbreak of COVID-19 has had an adverse

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36 effect on, among other things, the world economy, global supply chain, international travel and a number of travel-related industries. The outbreak has also negatively affected travel, commerce, asset values and financial markets globally, and is widely expected to continue to negatively affect economic output worldwide and within the State and the City. Unemployment in the United States has dramatically increased as a result of the outbreak.

Most recently, with the increasing vaccination rates throughout the State, and COVID-related infections and deaths declining, most of the pandemic-related restrictions have been eased or repealed.

However, the COVID-19 outbreak is ongoing and evolving, and the ultimate duration and severity of the outbreak, and the economic impact and other actions that may be taken by governmental authorities to contain or mitigate the outbreak or to treat its impact are uncertain. The uncertainty surrounding the containment of the virus, in the form of testing, vaccination, treatments, and/or herd immunity, is a key unknown, and the ultimate strategy adopted to address the pandemic will substantially impact the form of any resulting economic recovery. The various restrictions and other actions to reduce the spread of COVID-19 may affect the development within Improvement Area No. 2 in one or more of the following ways: (i) potential supply chain slowdowns or shutdowns resulting from the unavailability of workers in locations producing construction materials; (ii) slowdowns or shutdowns by local governmental agencies in providing governmental permits, inspections, title and document recordation, and other services and activities associated with real estate development; (iii) delays in construction where one or more members of the workforce becomes infected with COVID-19; (iv) continued extreme fluctuations in financial markets and contraction in available liquidity; (v) extensive job losses and declines in business acti vity across important sectors of the economy; (vi) declines in business and consumer confidence that negatively impacts economic conditions or cause an economic recession; (vii) the failure of government measures to stabilize the financial sector and introduce fiscal stimulus to counteract the economic impact of the pandemic; (viii) delays in sales or fewer sales due to lower traffic at model home complexes and real estate offices; (ix) delays in sales, or cancellations, due to mortgage lending issues; (x) delays in home construction resulting from decisions to reduce project financing; or (xi) increases in materials and constructions costs. The ultimate impact of COVID-19 on the District, the City, and KB Coastal’s operations and finances, timing of construction, homebuyers’ willingness and ability to pay Special Taxes when due, and the real estate market (including the pace of home sales and market value of the taxable properties within Improvement Area No. 2) in general is unknown. See “PROPERTY OWNERSHIP AND DEVELOPMENT.”
Limited Obligations of the District
Funds for the payment of the principal of, and the interest on, the Bonds are derived from the Special Tax levied against the taxable property in Improvement Area No. 2. While a projected coverage factor has been considered in structuring the annual debt service on the Bonds, the amount of Special Taxes that will be collected by the District could become insufficient to pay principal of, or interest on, the Bonds in certain circumstances. If there is a non-payment by property owners or insufficient proceeds are received from the foreclosure sale of property within Improvement Area No. 2 due to delinquencies, a default on the Bonds may follow upon the depletion of the Reserve Account. The Bonds do not represent the general obligations of the District. The District’s obligation with respect to payment on the Bonds is limited to Net Taxes and moneys on deposit in the Special Tax Fund (and designated accounts therein, but excluding the Administrative Expenses Account) held by the Trustee under the Indenture. Neither the faith and credit nor the taxing power of the City, the County or the State or any of its political subdivisions is pledged to the payment of the Bonds.

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37 Levy and Collection of the Special Taxes
The principal source of payment of principal of and interest on the Bonds is the proceeds of the annual levy and collection of the Special Tax against property within Improvement Area No. 2. 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 Bonds when due.

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 Bonds, and certainly not a direct relationship.

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:
• Reduction in the number of parcels of Taxable Property for such reasons as acquisition of Taxable Property by a governmental entity and failure (or refusal) of the governmental entity 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.
• Failure of the owners of Taxable Property to pay the Special Tax and delays in the collection of or inability to collect the Special Tax by tax sale or foreclosure and sale of the delinquent parcels, thereby resulting in an increased tax burden on the remaining parcels. • Development of a parcel of Taxable Property more rapidly than development of other parcels of Taxable Property, thereby resulting in the application of development factors in the Special Tax formula to the parcel and resulting in an increased tax burden on the parcel of Taxable Property. • Development of other parcels of Taxable Property less rapidly than expected, thereby resulting in delay in application of development factors in the Special Tax formula to the other parcels of Taxable Property and resulting in an increased tax burden on the developed parcel of Taxable Property.

If any Special Tax installment becomes delinquent, the District can foreclose only upon the parcel or parcels with respect to which the Special Tax is delinquent. The Indenture 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 BONDS – Covenant to Commence Foreclosure Proceedings” 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 Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the District of the proceeds of sale if the Reserve Account is depleted. See “SECURITY FOR THE BONDS – Covenant to Commence Foreclosure Proceedings.”

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38 Payment of Special Tax is not a Personal Obligation of the Landowner An owner of Taxable Property is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation only against the parcels of Taxable Property. If, after a default in the payment of the Special Tax and a foreclosure sale by the District, the resulting proceeds are insufficient, taking into account other obligations also constituting a lien against the parcels of Taxable Property, the District has no recourse against the owner for the delinquency.

Appraised Values
The Appraisal and Appraisal Supplement estimates the market value of the taxable property within Improvement Area No. 2. This market value is merely the present opinion of the Appraiser, and is subject to the assumptions and limiting conditions stated in the Appraisal and Appraisal Supplement. The District has not sought the present opinion of any other appraiser of the value of the taxed parcels. A different present opinion of value might be rendered by a different appraiser.

The opinion of value relates to 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 is a present opinion, based upon present facts and circumstances. 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 present.

No assurance can be given that any of the Taxable Property within Improvement Area No. 2 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.

The Appraisal and Appraisal Supplement should be read for a more complete understanding of the assumptions, methodology and analysis used in estimating the market value of the taxable property within Improvement Area No. 2. See APPENDIX C-1 – “APPRAISAL REPORT” and APPENDIX C-2 – “APPRAISAL SUPPLEMENT” herein.

Property Values and Property Development
The value of Taxable Property within Improvement Area No. 2 is a critical factor in determining the investment quality of the Bonds. If a landowner defaults in the payment of the Special Tax, the District’s only remedy is to foreclose on the delinquent property in an attempt to obtain funds with which to pay the delinquent Special Tax and prospective purchasers of the Bonds should not assume that the property within Improvement Area No. 2 could be sold for the appraised or assessed values described herein or an amount adequate to pay delinquent Special Taxes. Land development and land values could be adversely affected by economic and other factors beyond the District and the City’s control, such as a general economic downturn, adverse judgments in future litigation that could affect the scope, timing or viability of development, relocation of employers out of the area, stricter land use regulations, sh ortages of water, electricity, natural gas or other utilities, destruction of property caused by earthquake, flood or other natural disasters, environmental pollution or contamination, or unfavorable economic conditions.

Neither the District nor the City has evaluated development risks. Since these are largely business risks of the type that the landowner customarily evaluates individually, and inasmuch as changes in land ownership may well mean changes in the evaluation with respect to any particular parcel, the District is issuing the Bonds without regard to any such evaluation. Thus, the creation of the District and

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39 the issuance of the Bonds in no way implies that either the City or the District has evaluated these risks or the reasonableness of these risks. On the contrary, the City and the District have made no such evaluation and are undertaking acquisition and construction of the facilities being financed by the Bonds even though these risks may be serious and may ultimately halt or slow the progress o f land development and forestall the realization of Taxable Property values in the event of delinquency and foreclosure.

The following is a discussion of specific risk factors that could affect the timing or scope of property development in the District or the value of property in the District.

Land Development and Land Values. Land values are influenced by the level of development in the area in many respects.

First, undeveloped or partially developed land is generally less valuable than developed land and provides less security to the owners of the Bonds should it be necessary for the District to foreclose on undeveloped or partially developed property due to the nonpayment of Special Taxes.

Second, failure to complete development on a timely basis could adversely affect the land values of those parcels that have been completed. Lower land values would result in less security for the payment of principal of and interest on the Bonds and lower proceeds from any foreclosure sale necessitated by delinquencies in the payment of the Special Tax. See “THE DISTRICT – Appraised Value to Lien Ratio.” No assurance can be given that the proposed development within Improvement Area No. 2 will be completed or with respect to the timing of development, and in assessing the investment quality of the Bonds, prospective purchasers should evaluate the risks of noncompletion.

Risks of Real Estate Investment Generally. Purchasers of the Bonds will be subject to the risks generally incident to an investment secured by real estat e. These risks affect the value of the property, as well as the property owners’ willingness and/or ability to pay Special Taxes when due. Continuing development of land within Improvement Area No. 2 may be adversely affected by changes in general or local economic conditions, fluctuations in or a deterioration of the real estate market, increased construction costs, development, financing and marketing capabilities of the individual landowner, water or electricity shortages, and other similar factors. Development in Improvement Area No. 2 may also be affected by development in surrounding areas, which may compete with the District. In addition, land development operations are subject to comprehensive federal, state and local regulations, including environmental, land use, zoning and building requirements. There can be no assurance that proposed land development operations within the District will not be adversely affected by future government policies, including, but not limited to, governmental policies to restrict or control development, or future growth control initiatives. There can be no assurance that land development operations within the District will not be adversely affected by these risks.

Risk Related to Availability of Construction Financing. The ability of the KB Coastal to develop property within Improvement Area No. 2 is partially dependent on the availability of construction financing. At this time, KB Coastal believes that sufficient construction financing is available from internal sources to allow it to develop properties in Improvement Area No. 2 as planned. However, no guarantees can be made that such construction financing will remain available. In the event KB Coastal is unable to complete development of the property within Improvement Area No. 2, this may adversely impact the value of the Taxable Property and as a result, adversely impact Special Tax revenues available to pay debt service on the Bonds.

Risks Related to Availability of Home Loans. The availability of loans for potential purchasers of units and lots in Improvement Area No. 2 may impact the ability of KB Coastal and other owners of property to sell units and the lots within Improvement Area No. 2. No guarantees can be made that such

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40 home loans will be available or what impact, if any, such availability will have on KB Coastal’s ability to develop Improvement Area No. 2 as envisioned.

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. According to the City’s General Plan adopted in September 2015, the City is located close to the San Antonio and Alquist-Priolo faults, as well as to other smaller faults in the region. In addition, the City’s General Plan states that areas of the City (not including the District) are located in a 100-year flood zone, and therefore, may be subject to flooding.

Other natural disasters could include, without limitation, fires, landslides, 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 Specia l Taxes, and the value of the Taxable Property may well depreciate or disappear.

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. Claims regarding hazardous substances can have an adverse impact on the value of Taxable Property. 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 Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is one of the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also generally regarded as 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. 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 financial and legal liability of a property owner (and thus affect such owners’ ability or willingness to pay Special Taxes when due), as well as the value of the property that is realized upon foreclosure.

The appraised values set forth in this Official Statement do not take into ac count 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 District 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 District 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 thr eatened, or may arise

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41 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.

Endangered and Threatened Species. It is illegal to harm or disturb any plants or animals in their habitat that have been listed as endangered species by the United States Fish & Wildlife Service under the Federal Endangered Species Act or by the California Fish & Game Commission under the California Endangered Species Act without a permit. Although KB Coastal believes that no federally listed endangered or threatened species would be affected by the proposed development within Improvement Area No. 2, the discovery of an endangered plant or animal could delay development of vaca nt property in Improvement Area No. 2 or reduce the value of undeveloped property.

Concentration of Landownership
As of November 15, 2021, KB Coastal owned approximately 73.9% of the taxable units in Improvement Area No. 2. The willingness and ability of KB Coastal, as well as other property owners, to pay property taxes and the Special Taxes could be adversely affected by changes in general or local economic conditions, fluctuations in the real estate market and other factors. A description of the Landowner is set forth under the caption “PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT.” If any Special Tax installment becomes delinquent, the District can foreclose only upon the parcel or parcels with respect to which the Special Tax is delinquent. Failure of any owner of property in Improvement Area No. 2 to pay installments of the Special Tax when due could result in the depletion of the Reserve Account prior to reimbursement from the resale of foreclosed property or payment of the delinquent Special Tax and, consequently, an insufficiency of Special Tax proceeds to meet obligations under the Indenture. In that event, there could be a delay or failure in payments of the principal of and interest on the Bonds.

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 table in the section entitled “THE DISTRICT – Direct and Overlapping Governmental Obligations” shows, as of January 1, 2022, the outstanding amount of governmental obligations (with stated exclusions), the tax or assessment for which is or may become an obligation of one or more of the parcels of Taxable Property. The table also states the additional amount of general obligation bonds the tax for which, if and when issued, may become an obligation of one or more of the parcels of Taxable Property. The table does 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 Bonds. The District does not have any control over the ability of other governmental entities to issue such obligations.

In general, as long as the Special Taxes are 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

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42 proceedings to foreclose for delinquency of Special Taxes securing the 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 t he Special Tax or not, this result may not apply in the case of bankruptcy. See “– Bankruptcy and Foreclosure Delays and Limitations” below. The existence of other property taxes, special taxes and special assessments may reduce the value-to-lien ratio of the affected parcels and increases the possibility that foreclosure proceeds will not be adequate to pay delinquent Special Taxes or the principal of, and interest on, the Bonds when due.

Exempt Properties
Certain properties in Improvement Area No. 2 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 exempt from the Special Tax, subject to minimum taxable acreage of 14.27 acres per the Rate and Method; provided, however, that property within the District 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 BONDS – Rate and Method of Apportionment of Special Taxes” and “APPENDIX B - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES.” It is possible that property in Improvement Area No. 2 acquired by a public entity following a tax sale or foreclosure based upon failure to pay taxes could become exempt from Special Taxes. 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 t he 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.

Depletion of Reserve Account
The Reserve Account generally is to be maintained at an amount equal to the Reserve Requirement. See “SECURITY FOR THE BONDS – Special Tax Fund – Reserve Account.” Funds in the Reserve Account may be used to pay principal of and interest on the Bonds if insufficient funds are available from the proceeds of the levy and collection of the Special Tax against property within Improvement Area No. 2 for such purpose. If funds in the Reserve Account for t he Bonds are depleted, the funds can be replenished from the proceeds of the levy and collection of the Special Tax that are in excess of the amount required to pay all amounts to be paid to the Bond holders pursuant to the Indenture.

However, no replenishment from the proceeds of a Special Tax levy can occur as long as the proceeds that are collected from the levy of the Special Tax against property within Improvement Area No. 2 at the maximum Special Tax rates, together with other available funds, remains insufficient to pay all such amounts. Thus it is possible that the Reserve Account will be depleted and not be replenished by the levy of the Special Tax.

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43 Bankruptcy and Foreclosure Delays and Limitations
Bankruptcy. The payment of the Special Tax and the ability of the District to foreclose the lien of a delinquent unpaid tax, as discussed in “SECURITY FOR THE BONDS” and “THE DISTRICT” may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State of California relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds (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 landowner 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 Bonds. To the extent that property in Improvement Area No. 2 continues to be owned by a limited number of landowners, the chances are increased that the Reserve Account established for the 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 Reserve Account for transfer to the Bond Fund to make up shortfalls resulting from delinquent payments of the Special Tax and thereby to pay principal of and interest on the Bonds on a timely basis.

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 Bonds and the possibility of delinquent Special Taxes not being paid in full.

Glasply Marine Industries. On July 30, 1992 the United States Court of Appeals for the Ninth Circuit issued an opinion in a bankruptcy case entitled In re Glasply Marine Industries, holding that ad valorem property taxes levied by a county in the State of Washington after the date that the landowner filed a petition for bankruptcy would not be entitled to priority over the claims of a secured creditor with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed subsequent to the filing of the bankruptcy petition were declared to be “administrative expenses” of the bankruptcy estate, paya ble after the claims of all secured creditors. As a result, the secured creditor was able to foreclose on the subject property and retain all the proceeds from the sale thereof except the amount of the pre-petition taxes. Pursuant to this holding, post- petition taxes would be paid only as administrative expenses and only if a bankruptcy estate has sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise) it would be subject only to current ad valorem taxes (i.e., not those accruing during the bankruptcy proceeding).

The Glasply decision is controlling precedent in bankruptcy court in the State of California. If Glasply were held to be applicable to Special Taxes, a bankruptcy petition filing would prevent the lien for Special Taxes levied in subsequent fiscal years from attaching so long as the property was part of the estate in bankruptcy, which could reduce the amount of Special Taxes available to pay debt service on the Bonds. However, Glasply speaks as to ad valorem property taxes, and not special taxes, and no case law

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44 exists with respect to how a bankruptcy court would treat the lien for speci al taxes levied after the filing of a petition in bankruptcy.

It should also be noted that on October 22, 1994, Congress enacted 11 U.S.C. §362(b)(18), which added a new exception to the automatic stay for ad valorem property taxes imposed by a political subdivision after the filing of a bankruptcy petition. Under this law, if a bankruptcy petition is filed on or after October 22, 1994, the lien for ad valorem property taxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bond owners should be aware that the potential effect of 11 U.S.C. § 362(b)(18) on the Special Taxes also depends upon whether a court were to determine that the Special Taxes should be treated like ad valorem property taxes for this purpose.

Property Owned by FDIC. The ability of the District to foreclose upon the lien on property for delinquent Special Taxes may be limited for properties in which the Federal Deposit Insurance Corporation (the “FDIC”) has an interest. On November 26, 1996, the FDIC adopted a Statement of Policy Regarding the Payment of State and Local Property Taxes (the “Policy Statement”) (which superseded a prior statement issued by the FDIC and the Resolution Trust Corporation in 1991). The Policy Statement applies to the FDIC when it is liquidating assets in its corporate and receivership capacities. The Policy Statement provides, in part, that real property of the FDIC is subject to state and local real property taxes if those taxes are assessed according to the property’s value, and that the FDIC is immune from ad valorem real property taxes assessed on other bases. The Policy Statement also provides that the FDIC will pay its proper tax obligations when they become due and will pay claims for delinquencies as promptly as is consistent with sound business practice and the orderly administration of the institution’s affairs, unless abandonment of the FDIC interest in the property is appropriate. It further provides that the FDIC will pay claims for interest on delinquent property taxes owned at the rate provided under state law, but only to the extent the interest payment obligation is secured by a valid lien.

The FDIC will not pay for any fines or penalties and will not pay nor recognize liens for such amounts.

The Policy Statement also provides that 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. No property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC’s consent. In addition, a lien for taxes and interest may attach, but the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC’s consent.

With respect to challenges to assessments, the Policy Statement provides: “The [FDIC] is only liable for state and local taxes which are based on the value of the property during the period for which the tax is imposed, notwithstanding the failure of any person, including prior record owners, to challenge an assessment under the procedures available under state law. In the exercise of its business judgment, the [FDIC] may challenge assessments which do not conform with the statutory provisions, and during the challenge may pay tax claims based on the assessment level deemed appropriate, provided such payment will not prejudice the challenge. The [FDIC] will generally limit challenges to the current and immediately preceding taxable year and to the pursuit of previously filed tax protests. However, the [FDIC] may, in the exercise of its business judgment, challenge any prior taxes and assessments provided that (1) the [FDIC’s] records (including appraisals, offers or bids received for the purchase of the property, etc.) indicate that the assessed value is clearly excessive, (2) a successful challenge will result in a substantial savings to the [FDIC], (3) the challenge will not unduly delay the sale of the property, and (4) there is a reasonable likelihood of a successful challenge.” The Policy Statement states that the FDIC generally will not pay non-ad valorem taxes, including special assessments, on property in which it has a fee simple interest unless the amount of tax is fixed at the time the FDIC acquires its fee simple interest in the property, nor will the FDIC recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Because the Special Taxes

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45 are neither ad valorem taxes nor special assessments, and because they are levied under a special tax formula under which the amount of the Special Tax is determined each year, the Special Taxes appear to fall within the category of taxes the FDIC generally will not pay under the Policy Statement.

Following the County of Orange bankruptcy proceedings filed in December 1994, the FDIC filed claims against the County of Orange in the U.S. Bankruptcy Court and the Federal District Court which challenged special taxes that Orange County had levied on FDIC-owned property (and which the FDIC had paid) under the Act. The FDIC took a position similar to that outlined in the Policy Statement, to the effect that the FDIC, as a governmental entity, is exempt from special taxes under the Act. The Bankruptcy Court agreed, finding that the FDIC was not liable for post-receivership Mello-Roos taxes, and the Bankruptcy Appellate Panel affirmed. On appeal, the U.S. Court of Appeals for the Ninth Circuit, while not specifically asked to decide on the issue, stated in its decision filed on August 28, 2001, that “the FDIC, as a federal agency, is exempt from the Mello-Roos tax,” and quoted Section 53340(c) of the Act in stating that “‘properties or entities’ of the federal government are exempt from the tax.” The District is unable to predict what effect the application of the Policy Statement, or the ultimate outcome of the County of Orange case, would have in case of a Special Tax delinquency on a parcel in which the FDIC has an interest. However, prohibiting the judicial foreclosure sale of a FDIC- owned parcel would likely reduce the number of or eliminate the persons willing to purchase a parcel at a foreclosure sale. Owners of the Bonds should assume that the District will be unable to foreclose on parcels of land in Improvement Area No. 2 owned by the FDIC. Such an outcome would cause a draw on the Reserve Account and perhaps, ultimately, a default in payment of the Bonds.

No investigation has been made as to whether the FDIC or any other governmental entity currently owns or has an interest in any property in the District.

Property Owned by Fannie Mae or Freddie Mac. If a parcel of Taxable Property is owned by a federal government entity or federal government-sponsored entity, such as Fannie Mae or Freddie Mac, or a private deed of trust secured by a parcel of Taxable Property is owned by a federal government entity or federal government-sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect delinquent Special Taxes may be limited.

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 impai r the federal government interest. This means that, unless Congress has otherwise provided, if a federal government entity owns a parcel of Taxable Property 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 District 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.

No investigation has been made as to whether Fannie Mae, Freddie Mac, or any other governmental entity currently owns or has an interest in any property in the District.

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46 Disclosure to Future Purchasers
The District has recorded a Notice of the Special Tax Lien in the Office of the San Bernardino County Recorder against the Taxable Property. 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. 2 or the lending of money secured by property in Improvement Area No.

2. The Act and the Goals and Policies require 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.

Limitation on Remedies; No Acceleration Provisions
Under the Indenture, a Bondowner is given the right for the equal benefit and protection of all Bondowners similarly situated to pursue certain remedies. See APPENDIX E – “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” So long as the Bonds are in book-entry form, DTC will be the sole Bondowner and will be entitled to exercise all rights and remedies of Bondowners.

Remedies available to Bondowners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of, and interest on, the Bonds, or to preserve the tax -exempt status of the Tax-Exempt Bonds. Bond Counsel has limited its opinion as to the enforceability of the Bonds and the Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, or similar laws generally affecting the enforcement of creditors’ rights. Additionally, the Indenture does not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Indenture. Lack of remedies may entail risks of delay, limitation, or modification of Bondowner rights. Judicial remedies, such as foreclosure and enforcement of covenants, are subject to exercise of judicial discretion. A California court may not strictly apply certain remedies or enforce certain covenants if it concludes that application or enforcement thereof would be unreasonable under the circumstances and it may delay the application of such remedies and enforcement.

Investment of Funds
The Reserve Account and all other funds and accounts held under the Indenture are required to be invested in certain Authorized Investments, as defined in the Indenture. See “APPENDIX E – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” All investments, including Authorized Investments, authorized by law from time to time for investments by the District contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected, decline in market value and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the Indenture could have a material adverse effect on the security for the Bonds.

Loss of Tax Exemption
As discussed under the caption “TAX MATTERS – Tax Exemption,” interest on the Tax-Exempt Bonds might become includable in gross income for purposes of federal income taxation retroactive to the date the Tax-Exempt Bonds were issued as a result of future acts or omissions of the District in violation

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47 of its covenants in the Indenture. The Indenture does not contain a special redemption feature triggered by the occurrence of an event of taxability. As a result, if interest on the Tax-Exempt Bonds were to be includable in gross income for purposes of federal income taxation, the Tax-Exempt Bonds would continue to remain outstanding until maturity unless earlier redeemed pursuant to optional or mandatory redemption or redemption upon prepayment of the Special Tax. See “THE BONDS – Redemption.” IRS Audit of Tax-Exempt Bond Issues
The Internal Revenue Service has initiated an expanded program for the auditing of tax -exempt bond issues, including both random and targeted audits. It is possible that the Tax-Exempt Bonds will be selected for audit by the Internal Revenue Service. It is also possible that the market value of such Bonds might be affected as a result of such an audit of such Tax-Exempt 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 Code (as defined under “TAX MATTERS”) or court decisions may cause interest on the Tax-Exempt Bonds to be subject, directly or indirectly, to federal income taxation or the interest on the Bonds to be subject to, or exempted from, state income taxation, or otherwise prevent Bondholders 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 Code or court decisions may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation.

Proposition 218 and the Initiative Power
On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative entitled the “Right to Vote on Taxes Act” (“Proposition 218”). Proposition 218 added Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of local governments to levy and collect both existing and future taxes, assessments, fees and charges.

Proposition 218 became effective for most purposes on November 6, 1996. Among other things, Section 3 of Article XIIIC states that “. . . the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.” The Act provides for a procedure which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On July 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code Section 5854, which states,
“Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of

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48 contractual rights protected by Section 10 of Article I of the United States Constitution.”
The initiative power also is limited by the United States Constitution’s prohibition against State or local laws “impairing the obligation of contracts.” The Bonds represent a contract between the District and the Bondholders secured by the Special Taxes. While not free from doubt, it is likely that, once the Bonds are issued, the Special Taxes would not be subject to repeal or reduction by initiative, at least to the extent the Special Taxes are necessary to enable the District to make timely payment on principal and interest on the Bonds, but not necessarily to the full extent of the authorized tax amount. It may be possible, however, for voters or the City Council, acting as the legislative body of the District, to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Therefore, no assurance can be given with respect to the levy of Special T axes for Administrative Expenses. The interpretation and application of these provisions of Proposition 218, the State Government Code, and the federal Constitution’s Contracts Clause will ultimately be determined by the courts, and it is not possible at this time to predict with certainty the outcome of such determination or the timeliness of any remedy afforded by the courts.

Proposition 218 is likely to continue to undergo both judicial and legislative scrutiny. 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 whi ch 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 specifical ly 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 was 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.

The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues relating thereto. The District does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome o f any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the Bonds as well as the market for the Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218.

Limited Secondary Market
There can be no assurance that there will be a secondary market for the Bonds, or if a secondary market exists, that such Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated.

Additionally, pricing of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could substantially differ from the original purchase price.

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

LEGAL MATTERS
The legality of the issuance of the Bonds is subject to the approval of Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, Bond Counsel. Bond Counsel’s opinions with respect to the Bonds will be substantially in the form set forth in APPENDIX D of this Official Statement. Certain legal matters also will be passed on for the District by Richards, Watson & Gershon, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel Nixon Peabody LLP, Los Angeles, California.

TAX MATTERS
Tax-Exempt Bonds
The Internal Revenue Code of 1986, as amended (the “Code”), establishes certain requirements which must be met subsequent to the issuance and delivery of the Tax-Exempt Bonds for interest thereon to be and remain excluded from gross income for federal income tax purposes. Noncompliance with such requirements could cause interest on the Tax-Exempt Bonds to be included in gross income for federal income tax purposes retroactive to their date of issue. These requirements include, but are not limited to, provisions which limit how the proceeds of the Tax-Exempt Bonds may be spent and invested, and generally require that certain investment earnings be rebated on a periodic basis to the United States of America. The City and the District have made certifications and representations and have covenanted to maintain the exclusion of the interest on the Tax-Exempt Bonds from gross income for federal income tax purposes pursuant to Section 103 of the Code.

In the opinion of Richards, Watson & Gershon, A Professional Corporation, Bond Counsel, under existing law and assuming the accuracy of such certifications and representations by, and compliance with such covenants of, the City and the District, (i) interest on the Tax-Exempt Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code, and (ii) the Tax -Exempt Bonds are not “specified private activity bonds” within the meaning of Section 57(a)(5) of the Code and, therefore, interest on the Tax-Exempt Bonds is not a preference item for purposes of computing the alternative minimum tax imposed by Section 55 of the Code. Bond Counsel is also of the opinion that, under existing law, interest on the Tax-Exempt Bonds is exempt from State of California personal income taxes. Bond counsel expresses no opinion as to any other tax consequences regarding the Tax -Exempt Bonds.

Under the Code, interest on the Tax-Exempt Bonds may be subject to a federal branch profits tax imposed on certain foreign corporations doing business in the United States and to a federal tax imposed on excess net passive income of certain S corporations. Under the Code, the exclusion of interest from gross income for federal income tax purposes may have certain adverse federal income tax consequences on items of income, deduction or credit for certain taxpayers, including financial institutions, certain insurance companies, recipients of Social Security and Railroad Retirement benefits, those deemed to incur or continue indebtedness to acquire or carry tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. The applicability and extent of these and other tax consequences

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50 will depend upon the particular tax status or other tax items of the owner of the Tax-Exempt Bonds.

Bond Counsel will express no opinion regarding these and other such consequences.

Bond Counsel has not undertaken to advise in the future whether any circumsta nces or events occurring after the date of issue of the Tax-Exempt Bonds may affect the tax status of interest on the Tax- Exempt Bonds. Legislation affecting tax-exempt obligations is regularly considered by the United States Congress and may also be considered by the State legislature. Court proceedings may also be filed, the outcome of which could modify the tax treatment of obligations such as the Tax -Exempt Bonds. No assurance can be given that legislation enacted or proposed, or actions by a court, after the date of issue of the Tax-Exempt Bonds, will not contain provisions which could eliminate, or directly or indirectly reduce the benefit of the exclusion of interest on the Tax-Exempt Bonds from gross income for federal income tax purposes, or have an adverse effect on the market value or marketability of the Tax-Exempt Bonds.

For example, federal tax legislation enacted on December 22, 2017, reduced corporate tax rates, modified individual tax rates, eliminated many deductions, repealed the corporate alternative minimum tax for taxable years beginning after December 31, 2017, and generally eliminated tax-exempt advance refunding bonds, among other things. This legislation may increase, reduce, or otherwise change the financial benefits currently provided to certain owners of state and local government bonds. In addition, investors in the Tax-Exempt Bonds should be aware that future legislative actions may retroactively change the treatment of all or a portion of the interest on the Tax-Exempt Bonds for federal income tax purposes for all or certain taxpayers. In all such events, the market value of the Tax-Exempt Bonds may be adversely affected and the ability of holders to sell their Tax-Exempt Bonds in the secondary market may be reduced. The Tax-Exempt Bonds are not subject to special mandatory redemption, and the interest rates on the Tax-Exempt Bonds are not subject to adjustment, in the event of any such change.

Investors should consult their own financial and tax advisors to analyze the importance of these risks.

Certain requirements and procedures contained or referred to in relevant documents may be changed and certain actions may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Bond Counsel expresses no opinion as to any Tax-Exempt Bond, or the interest thereon, if any such change occurs or action is taken upon the advice or approval of bond counsel othe r than Richards, Watson & Gershon, A Professional Corporation.

If the issue price of a Tax-Exempt Bond (the first price at which a substantial amount of the bonds of a maturity are sold to the public) is less than the stated redemption price at maturity of such Tax- Exempt Bond, the difference constitutes original issue discount, the accrual of which is excluded from gross income for federal income tax purposes to the same extent as interest on the Tax-Exempt Bonds.

Further, such original issue discount accrues actuarially on a constant yield method over the term of each such Tax-Exempt Bond and the basis of each Tax-Exempt Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original is sue discount. The accrual of original issue discount may be taken into account as an increase in the amount of tax -exempt income for purposes of determining various other tax consequences of owning such Tax -Exempt Bonds.

Purchasers who acquire Tax-Exempt Bonds with original issue discount are advised that they should consult with their own independent tax advisors with respect to the state and local tax consequences of owning such Tax-Exempt Bonds.

If the issue price of a Tax-Exempt Bond is greater than the stated redemption price at maturity of such Tax-Exempt Bond, the difference constitutes original issue premium, the amortization of which is not deductible from gross income for federal income tax purposes. Original issue premium is amortized

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51 over the period to maturity of such Tax-Exempt Bond based on the yield to maturity of that Bond (or, in the case of a Tax-Exempt Bond callable prior to its stated maturity, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on that Tax- Exempt Bond), compounded semiannually. For purposes of determining gain or loss on the sale or other disposition of such Tax-Exempt Bond, the purchaser is required to decrease such purchaser’s adj usted basis in such Tax-Exempt Bond by the amount of premium that has amortized to the date of such sale or other disposition. As a result, a purchaser may realize taxable gain for federal income tax purposes from the sale or other disposition of such Tax-Exempt Bond for an amount equal to or less than the amount paid by the purchaser for that Tax-Exempt Bond. A purchaser of that Tax-Exempt Bond in the initial public offering at the issue price for that Tax-Exempt Bond who holds it to maturity (or, in the case of a callable Tax-Exempt Bond, to its earlier call date that results in the lowest yield on that Tax-Exempt Bond) will realize no gain or loss upon its retirement.

Payments of interest on tax-exempt obligations, including the Tax-Exempt Bonds, are generally subject to IRS Form 1099-INT information reporting requirements. If an owner of a Tax-Exempt Bond is subject to backup withholding under those requirements, then payments of interest will also be subject to backup withholding. Those requirements do not affect the exclusion of such interest from gross income for federal income tax purposes.

Prospective purchasers of the Tax-Exempt Bonds should consult their own independent tax advisers regarding pending or proposed federal and state tax legislation and court proceedings, and prospective purchasers of the Tax-Exempt Bonds at other than their original issuance at the respective prices indicated on the inside cover of this Official Statement should also consult their own tax advisers regarding other tax considerations such as the consequences of market discount, as to all of which Bond Counsel expresses no opinion.

Bond Counsel’s engagement with respect to the Tax-Exempt Bonds ends with the issuance of the Tax-Exempt Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the owners of the Tax-Exempt Bonds regarding the tax status of interest thereon in the event of an audit examination by the IRS. The IRS has a program to audit tax-exempt obligations to determine whether the interest thereon is includible in gross income for federal income tax purposes. If the IRS does audit the Tax-Exempt Bonds, under current IRS procedures, the IRS will treat the District as the taxpayer and the beneficial owners of the Tax-Exempt Bonds will have only limited rights, if any, to obtain and participate in judicial review of such audit. Any action of the IRS, including but not limited to selection of the Tax-Exempt Bonds for audit, or the course or result of such audit, or an audit of other obligations presenting similar tax issues, may affect the market value of the Tax-Exempt Bonds.

Taxable Bonds
In the opinion of Richards, Watson & Gershon, A Professional Corporation, Bond Counsel, under existing law, interest on the Taxable Bonds is exempt from State of California personal income taxes.

Bond Counsel expresses no opinion as to any other tax consequences regarding the Taxable Bonds.

INTEREST ON THE TAXABLE BONDS IS NOT EXCLUDED FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES.

THE LEGAL DEFEASANCE OF THE TAXABLE BONDS MAY RESULT IN A DEEMED SALE OR EXCHANGE OF THE TAXABLE BONDS UNDER CERTAIN CIRCUMSTANCES;

OWNERS OF THE TAXABLE BONDS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF SUCH AN EVENT. PROSPECTIVE

PURCHASERS OF THE TAXABLE BONDS SHOULD ALSO CONSULT WITH THEIR OWN TAX

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52 ADVISORS AS TO THE FEDERAL, STATE AND LOCAL, AND FOREIGN TAX CONSEQUENCES OF THEIR ACQUISITION, OWNERSHIP AND DISPOSITION OF THE TAXABLE BONDS.

The following discussion is generally limited to “U.S. owners,” meaning beneficial owners of Taxable Bonds that for United States federal income tax purposes are individual citizens or residents of the United States, corporations or other entities taxable as corporations created or organized in or under the laws of the United States or any state thereof (including the District of Columbia), and certain estates or trusts with specific connections to the United States. Partnerships holding Taxable Bonds, and partners in such partnerships, should consult their own tax advisors regarding the tax consequences of an investment in the Taxable Bonds (including their status as U.S. owners).

In general, interest paid or accrued on the Taxable Bonds, including qualified stated interest on Discount Bonds (described below), if any, will be treated as ordinary income to U.S. owners. A U.S. owner using the accrual method of accounting for U.S. federal income tax purposes must include interest paid or accrued on the Taxable Bonds in ordinary income as the interest accrues, while a U.S. owner using the cash receipt and disbursement method of accounting for U.S. federal income tax purposes must include interest in ordinary income when payments are received or constructively received by the owner, except as described below.

Certain of the Taxable Bonds (Discount Bonds) may be offered and sold to the public at an original issue discount (OID). OID is the excess of the stated redemption price at maturity (the principal amount) over the “issue price” of such Bonds, provided that excess equals or exceeds a statutory de minimis amount (one-quarter of one percent of the Bond's stated redemption price at maturity multiplied by the number of complete years to its maturity, or if required by applicable Treasury Regul ations, to an earlier call date). The issue price of a Discount Bond is the initial offering price to the public (other than to bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount of the Discount Bonds of the same maturity are sold pursuant to that offering. For federal income tax purposes, OID accrues to the owner of a Discount Bond over the period to maturity based on the constant yield method, compounded semiannually (or over a shorter permitted compounding interval selected by the owner). The portion of OID that accrues during the time a U.S. owner owns a Discount Bond (i) constitutes interest includable in the U.S. owner's gross income for federal income tax purposes and (ii) is added to the U.S. owner's tax basis for purposes of determining gain or loss on the maturity, redemption, prior sale, or other disposition of the Discount Bond. The effect of OID is to accelerate the recognition of taxable income during the term of the Discount Bond.

Certain of the Taxable Bonds (Premium Bonds) may be offered and sold to the public at a price in excess of their stated redemption price (the principal amount) at maturity. If a U.S. owner purchases a Premium Bond, that owner will be considered to have purchased such a Premium Bond with “amortizable bond premium” equal in amount to such excess. The U.S. owner may elect (and that election will apply to all securities purchased at a premium by such U.S. owner), in accordance with the applicable provisions of Section 171 of the Code, to amortize that premium as an offset to the interest payments on the Premium Bond using a constant yield to maturity method over the remaining term of the Premium Bond (or, if required by applicable Treasury Regulati ons, to an earlier call date). Pursuant to Section 67(b)(11) of the Code, the amortization of that premium is not considered a miscellaneous itemized deduction. Any amortization of bond premium will reduce the basis of the Premium Bond pursuant to Section 1016(a)(5) of the Code.

Owners of Discount or Premium Bonds (or book entry interests in them) should consult their own tax advisers as to the determination for federal tax purposes of the amount of OID or amortizable bond premium properly accruable in any period with respect to the Discount or Premium Bonds and as to other

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53 federal tax consequences and the treatment of OID and amortizable bond premium for purposes of state or local taxes on (or based on) income.

Upon the sale, exchange, retirement or other taxable disposition of a Taxable Bond, a U.S. owner will recognize gain or loss equal to the difference between the amount realized from the sale, exchange, retirement or other disposition and the owner’s adjusted basis in the Taxable Bond or applicable p ortion of the adjusted basis. The owner’s adjusted basis generally will equal the cost of the Taxable Bond to the owner, increased by any OID includible in the owner’s ordinary income for the Taxable Bond and reduced by any principal payments on the Taxable Bond previously received by the owner (including any other payments on the Taxable Bond that are not qualified stated interest payments) and by any amortizable bond premium allowed as a deduction as described above. Any gain or loss recognized upon a sale, exchange, retirement or other disposition of a Taxable Bond (excluding amounts attributable to accrued interest or OID) will generally be capital gain or loss and will be long-term capital gain or loss if the U.S. owner’s holding period in the Taxable Bond exceeds one year. Long-term capital gains of individuals are currently eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

General information reporting requirements will apply to payments of principal and interest made on Taxable Bonds and the proceeds of the sale of Taxable Bonds to non-corporate owners, and “backup withholding” at a rate of 24 percent will apply to such payments if the owner fails to provide an accurate taxpayer identification number in the manner required or fails to report all interest required to be shown on its federal income tax returns. A beneficial owner of Taxable Bonds that is a U.S. owner generally can obtain complete exemption from backup withholding by providing a properl y completed IRS Form W-9 (Request for Taxpayer Identification Number and Certification).

For taxable years beginning after December 31, 2012, a U.S. owner that is an individual or estate, or a trust not included in a special class of trust that is exempt from such tax, is subject to a 3.8 percent Medicare tax on the lesser of (i) the U.S. owner's “net investment income” for the taxable year, and (ii) the excess of the U.S. owner's modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000, depending on the individual's circumstances). A U.S. owner's net investment income generally includes interest income on, and net gains from the disposition of, Taxable Bonds, unless such interest income or net gains are derived in the ordinary course of a trader business (other than a trade or business that consists of certain passive or trading activities). A U.S. owner that is an individual, estate, or trust, should consult its tax advis or regarding the applicability of the Medicare tax.

Non-U.S. Owners.

Under the Code, interest and OID on any Taxable Bond whose beneficial owner is not a U.S. owner are generally not subject to United States income tax or withholding tax (including backup withholding) if the non-U.S. owner provides the payor of interest on the Taxable Bonds with an appropriate statement as to its status as a non-U.S. owner. This statement can be made on IRS Form W - 8BEN or a successor form. If, however, the non-U.S. owner conducts a trade or business in the United States and the interest or OID on the Taxable Bonds held by the non-U.S. owner is effectively connected with such trade or business, that interest or OID will be subject to United States income tax but will generally not be subject to United States withholding tax (including backup withholding). The foregoing is a brief summary of certain federal income tax consequences to a non-U.S. owner. Non-U.S. owners should consult their own tax advisors regarding the tax consequences of an investment in the Taxable Bonds.

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54 Foreign Account Tax Compliance Act.

The Foreign Account Tax Compliance Act (“FATCA”) generally imposes a 30 percent withholding tax on interest payments and proceeds from the sale of interest-bearing obligations for payments made after the relevant effective date to (i) certain foreign financial institutions that fail to certify their FATCA status, and (ii) investment funds and non-financial foreign entities if certain disclosure requirements related to direct and indirect United States shareholders and/or United States account holders are not satisfied.

Under applicable Treasury Regulations, the FATCA withholding tax of 30 percent will generally be imposed, subject to certain exceptions, on payments of (i) interest on Taxable Bonds, and (ii) gross proceeds from the sale or other disposition of other Taxable Bonds, on or after January 1, 2017, where such payments are made to persons described in the preceding paragraph.

In the case of payments made to a “foreign financial institution” (generally including an investment fund), as a beneficial owner or as its intermediary, the FATCA withholding tax generally will be imposed, subject to certain exceptions, unless such institution (i) enters into (or is otherwise subject to) and complies with an agreement with the United States government (a “FATCA Agreement”), or (ii) is required by and complies with applicable foreign law enacted in connection with an intergovernmental agreement between the United States and a foreign jurisdiction (an “IGA”), in either case to, among other things, collect and provide to the United States or other relevant tax authorities certain information regarding United States account holders of such institution. In the case of payments made to a foreign entity that is not a financial institution (as a beneficial owner), the FATCA withholding tax generally will be imposed, subject to certain exceptions, unless such entity either provides the withholding agent with a certification that it does not have any “substantial” United States owner (generally, any specified United States person that directly or indirectly owns more than a specified percentage of such entity) or identifies its “substantial” United States owners.

If Taxable Bonds are held through a foreign financial institution that enters into (or is otherwise subject to) a FATCA Agreement, such foreign financial institution (or, in certain cases, a person paying amounts to such foreign financial institutions) generally will be required, subject to certain exceptions, to withhold the 30 percent FATCA tax on payments of dividends or the items described above made to (i) a person (including an individual) that fails to comply with certain information requests, or (ii) a foreign financial institution that has not entered into (and is not otherwise subject to) a FATCA Agreement and that is not required to comply with FATCA pursuant to applicable foreign law enacted in connection with an IGA. Coordinating rules may limit duplicative withholding in cases where the withholding described above in “Non-U.S. Owners” or back-up withholding described above also applies.

If any amount of, or in respect of, United States withholding tax were to be deducted or withheld from payments on Taxable Bonds as a result of a failure by an investor (or by an institution through which an investor holds the Taxable Bonds) to comply with FATCA, neither the District, the Trustee, any paying agent or bond registrar nor any other person would, pursuant to the terms of the Taxable Bonds, be required to pay additional amounts with respect to any Taxable Bond as a result of the deduction or withholding of such tax. Non-U.S. Owners should consult their tax advisors regarding the application of FATCA to the ownership and disposition of Taxable Bonds.

Forms of Opinions
A copy of the proposed forms of opinions of Bond Counsel are attached hereto as APPENDIX D.

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55 ABSENCE OF LITIGATION
To the best of the District’s knowledge, there is no lawsuit or claim pending and notice of process having been served upon and received by the District or threatened against the District seeking to restrain or enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds of the Bonds in accordance with the Indenture, the levy and collection of Special Taxes by the District, the application of Special Taxes and other moneys pledged under the Indenture to pay debt service on the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, or the Indenture, or contesting the powers of the District or its authority with respect to the Bonds or its ability to perform its obligations under the Indenture.

CONTINUING DISCLOSURE
The District
The District has covenanted in a continuing disclosure agreement, the form of which is set forth in APPENDIX G – “FORM OF CONTINUING DISCLOSURE AGREEMENT (ISSUER)” (the “Issuer Continuing Disclosure Agreement”), for the benefit of holders and beneficial owners of the Bonds, to provide certain financial information and operating data relating to the District and the Bonds by not later than March 31 of each year, beginning on March 31, 2023. The Issuer Continuing Disclosure Agreement also requires the District to provide notices of the occurrence of certain enumerated events. The initial Dissemination Agent under the Issuer Continuing Disclosure Agreement will be Willdan Financial Services. The covenants of the City in the Issuer Continuing Disclosure Agreement will be made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”).

Continuing Disclosure History. Prior to the printing of this Official Statement, an examination was conducted of the continuing disclosure filings by the City during the past five years. T he result of such examination found no instances of filing delays.

The City believes that its procedures with its Dissemination Agent are sufficient in the normal due course to assure substantial compliance with its continuing disclosure undertakings in th e future. A default under the Issuer Continuing Disclosure Agreement will not, in itself, constitute an Event of Default under the Indenture, and the sole remedy under the Issuer Continuing Disclosure Agreement in the event of any failure of the City or the Dissemination Agent to comply will be an action to compel specific performance. However, a failure to comply with a continuing disclosure undertaking must be reported in accordance with the SEC Rule 15c2-12(b)(5) and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds. Therefore, a failure by the City to comply with the provisions of a continuing disclosure agreement may adversely affect the marketability of the Bonds on the secondary market.

The Landowner
KB Coastal will covenant in a continuing disclosure certificate, the form of which is set forth in APPENDIX H – “FORM OF DISCLOSURE CERTIFICATE (MAJOR PROPERTY OWNER)” (the “Landowner Continuing Disclosure Certificate”), for the benefit of holders and beneficial owners of the Bonds, to provide certain information relating to KB Coastal, and the parcels it owns within Improvement Area No. 2 on a semi-annual basis, and to provide notices of the occurrence of certain enumerated events.

The obligations of the Landowner under its Landowner Continuing Disclosure Certificate will terminate on the earlier of (i) legal defeasance, prior redemption or payment in full of all the Bonds, (ii) the date on which KB Coastal and its Affiliates collectively own less than ___ taxable lots in Improvement Area No.

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56 2 or property that is responsible for less than 20% of the Special Taxes, (iii) the date on which KB Coastal, prepays in full all of the Special Taxes attributable to its property within Improvement Area No. 2; or (iv) upon the delivery to the Landowner to the District of an opinion of bond counsel to the effect that the information required by the Disclosure Agreement is no longer required; provided that such opinion is based on information publicly provided by the Securities and Exchange Commission or a private letter ruling obtained by the Landowner or a similar entity. [KB to update - A default under a Landowner Continuing Disclosure Certificate will not, in itself, constitute an Event of Default under the Indenture, and the sole remedy under the Landowner Continuing Disclosure Certificate in the event of any failure of KB Coastal to comply will be an action to compel specific performance. KB Coastal has reported that in connection with a continuing disclosure obligation dated ____. Other than the foregoing, KB Coastal has represented to the District that KB Coastal is not aware of any material failures by it to comply in any material respect with any previous continuing disclosure undertakings in a written certificate or agreement executed by it to provide annual reports, semi-annual reports or notices of listed events respecting securities offerings in southern California in the last five years.]

NO RATING
The District has not applied and does not contemplate applying to any rating agency for an assignment of rating on the Bonds.

UNDERWRITING
The Tax-Exempt Bonds have been sold at a net interest rate of ___%. The Tax-Exempt Bonds are being purchased by the Underwriter at a purchase price of $____ (which represents the aggregate principal amount of the Tax-Exempt Bonds, less original issue discount of $___, less an underwriter’s discount of $____). The Taxable Bonds have been sold at a net interest rate of ___%. The Taxable Bonds are being purchased by the Underwriter at a purchase price of $____ (which represents the aggregate principal amount of the Taxable Bonds, less original issue discount of $___, less an underwriter’s discount of $____). The purchase agreement relating to the Bonds provides that the Underwriter will purchase all of the 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 Underwriter may offer and sell Bonds to certain dealers and others at prices lower than the offering price stated on the cover page hereof. The offering prices may be changed from time to time by the Underwriter.

PROFESSIONAL FEES
The following professionals are participating in this financing:
• U.S. Bank Trust Company, National Association, Los Angles, California, will serve as the Trustee and will perform the functions required of it under the Indenture. • Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, is Bond and Disclosure Counsel to the City. • Urban Futures, Inc., Tustin, California, is the municipal advisor to the City. • Kitty Siino & Associates, Inc., Tustin, California, prepared the Appraisal. • Willdan Financial Services, Temecula, California, is the special tax consultant to the City and will serve as administrator to the City with respect to the District and dissemination agent for the District under the Issuer Continuing Disclosure Agreement.

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57 EXECUTION
The execution and delivery of the Official Statement has been duly authorized by the City of Upland on behalf of the District.

COMMUNITY FACILITIES DISTRICT NO. 2015-1
(SYCAMORE HILLS) OF THE CITY OF UPLAND, COUNTY

OF SAN BERNARDINO, STATE OF CALIFORNIA

By:

City Manager of the City of Upland

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A-1

APPENDIX A

GENERAL IN FORMATION ABOUT THE CITY OF

UPLAND AND SAN BERNARDINO COUNTY
The following information is included only for the purpose of supplying general information regarding the City of Upland (the “City”) and San Bernardino County (the “County”). This information is provided only for general informational purposes, and provides prospective investors limited information about the City, the County and their economic base. The Bonds are secured and will be paid solely from Net Taxes and certain funds and accounts held under the Indenture as described in the forepart of this Official Statement. The 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.

General
The City encompasses 15.2 square miles and is located 35 miles east of Los Angeles in the County of San Bernardino. The City was incorporated on May 15, 1906 and operates as a general law city. It has a council-manager form of government. The Mayor and City Council are elected at large. The average high temperature is 79.5 degrees, and the average low temperature is 50.2 degrees. Annual precipitation ranges between 17 inches and 39 inches, with higher altitude areas generally receiving between 30 and 39 inches, and the lower elevation areas receiving between 17 and 30 inches.

Population

The City’s estimated population on January 1, 2021 was 78,513. The following table shows the population data for the City for the last ten years.

CITY OF UPLAND
Year
(as of January 1)

Population
2012 74,462
2013 74,615
2014 74,973
2015 75,617
2016 76,016
2017 76,957
2018 77,017
2019 78,564
2020 78,769
2021 78,513
_________________
Source: Demographic Research Unit, California State Department of Finance.

Assessed Valuation
Taxes are levied for each Fiscal Year on taxable real and personal property which is situated in each City as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The Secured rolls is that part of the assessment roll containing State-assessed public utilities property and property the taxes on which are a lien on real property sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll.

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Property Taxes on the secured roll are due in two installments, on November 1 and February 1 of the Fiscal Year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is sold to the State on or about June 30 of the Fiscal Year. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquent penalty, plus a redemption penalty of 5% per month to the time of redemption. 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 Tax Collector.

Property taxes on the unsecured roll are due as of the March 1 lien date and become delinquent, if unpaid, on August 31, of the Fiscal Year. A 10% penalty attaches to the delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue beginning November 30 of the Fiscal Year. The taxing authority has four ways of collecting u nsecured personal property taxes: (a) a civil action against the taxpayer; (b) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (c) filing a certificate of delinquency for record in the County Recorder’s office, in order to obtain a lien on certain property of the taxpayer; and (d) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.

A ten year history of the City’s taxable assessed valuation is as follows:

Total Assessed
Value
% change from
Previous Year
2012-13 $7,057,197,912 1.63%
2013-14 7,277,753,115 3.13
2014-15 7,682,100,008 5.56
2015-16 8,067,152,634 5.01
2016-17 8,421,459,871 4.39
2017-18 8,884,615,500 5.50
2018-19 9,370,618,881 5.47
2019-20 9,820,386,020 4.80
2020-21 10,368,713,237 5.58
2021-22
_____________________
Source: Urban Futures, Inc.

Environment, Geography and Geology

Upland has a dry, subtropical climate with average yearly precipitation of 18 inches, temperatures averaging 65 degrees and humidity of about 45%. Air quality is similar to that in the rest of the Los Angeles/San Bernardino Basin with seasonally fluctuating levels of secondary air pollutants.

Geologically, the area is characterized by deep unconsolidated alluvium overlying bedrock. Seismic considerations affecting the City are comparable to those affecting most of the surrounding areas. The elevation is 1,060 feet above sea level.

Transportation

The San Bernardino Freeway (Interstate 10) runs east-west to the south of the City, separating Upland from Ontario, its neighboring city to the south. The City’s main north -south highway, Euclid Avenue, provides the main access to the City from the San Bernardino Freeway and continues southward through the cities of Ontario and Chino. The Foothill Freeway (Interstate 210) runs east-west in the northern part of the City.

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Air cargo and passenger flight services are provided at the Ontario International Airport, three miles southeast of Upland, which provides nation-wide and international service to major cities from 13 major carriers and two commuters. All major freight forwarding organizations are represented in the area. Los Angeles International Airport is located approximately 50 miles to the west of the City. General aviation is provided by Cable Airport located within the City limits.

Freight and passenger bus service is provided by Greyhound lines. Los Angeles Metropolitan Transportation Authority (MTA), OmniTrans and Dial-a-Lift operate regional and local bus service. Upland has “Metro-Link” commuter train service at the Upland Town Center Station connecting to the San Bernardino line providing service to Los Angeles and San Bernardino.

Community Services and Facilities
The City has its own Police department. The City’s fire protection and emergency medical services are provided by the San Bernardino County Fire Department. Health facilities for the City include San Antonio Community Hospital, an acute care facility with a 283-bed capacity and 24-hour basic emergency service. There are approximately 500 physicians on staff at the facility. Upland also has 3 convalescent hospital rest homes.

Educational services are provided by the Upland Unified School District (Kindergarten through twelfth grade). Fourteen schools make up the Upland Unified School District system, including ten elementary, two middle schools and two high schools. Chaffey Community College is located in Rancho Cucamonga, and California State Polytechnic University, Pomona, is located approximately 10 miles to the west. The Claremont Colleges, a group of six private colleges, are located adjacent to Upland.

The City’s park system encompasses over 234.5 acres designated for parks, plus 57 undeveloped acres designated for a regional park site inclusive of 13 developed parks ranging in area from less than one acre to more than 40 acres. Park amenities include picnic facilities, soccer, softball, and baseba ll fields. The Recreation Division offers a wide range of recreation and cultural programs and programs for age groups of three years old to seniors. The Upland Public Library has over 142,834 volumes in its book collection and provides reference, information and cultural services to its citizens. The City is also the home of the Chaffey Communities Cultural Center, a non-profit corporation whose mission is to preserve local heritage. Among other things, it owns a museum in downtown Upland that displays collections representative of the San Bernardino West Valley’s early heritage.

Utilities

Water is provided to residents by the City’s water division and sewer services are provided by the Inland Empire Utilities Agency of which the City is a member agency. The City contracts with Burrtec Waste Industries, Inc. for trash collection services. Electricity is provided by Southern California Edison, natural gas is provided by the Southern California Gas Company, and the telephone service is supplied by Verizon.

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B-1

APPENDIX B

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES

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APPENDIX C-1

APPRAISAL REPORT

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C-2
APPENDIX C-2

APPRAISAL SUPPLEMENT

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D-1

APPENDIX D

FORMS OF OPINIONS OF BOND COUNSEL
Upon issuance and delivery of the Tax-Exempt Bonds, Richards, Watson & Gershon, A Professional Corporation, Bond Counsel, proposes to render its final approving opinion with respect to the Tax-Exempt Bonds in substantially the following form:
[to come]

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APPENDIX E

SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

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APPENDIX F

BOOK-ENTRY ONLY SYSTEM

The information in this Appendix concerning The Depository Trust Company (“DTC”), New York, New York, and DTC’s book-entry system has been obtained from DTC and the District takes no responsibility for the completeness or accuracy thereof. The District cannot and does not give any assurances 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 Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they 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.

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

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over

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 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 an S&P Global Ratings 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 .

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on

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F-2
behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds 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 Bonds 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 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

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

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

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

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

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

Principal, premium (if any), and interest payments with respect to the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee, 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.

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

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The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, representing the Bonds will be printed and delivered to DTC in accordance with the provisions of the Indenture.

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

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APPENDIX G

FORM OF CONTINUING DISCLOSURE AGREEMENT
(ISSUER)

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APPENDIX H

FORM OF CONTINUING DISCLOSURE CERTIFICATE
(MAJOR PROPERTY OWNER)

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I-1

APPENDIX I

DISTRICT BOUNDARY MAP

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BOND INDENTURE

By and Between

COMMUNITY FACILITIES DISTRICT NO. 2015-1 (SYCAMORE HILLS) OF THE

CITY OF UPLAND, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA

and

U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION,
as Trustee

with reference to
$____________
COMMUNITY FACILITIES DISTRICT NO. 2015-1 (SYCAMORE HILLS) OF THE

CITY OF UPLAND, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA

SPECIAL TAX BONDS
SERIES 2022A (IMPROVEMENT AREA NO. 2)
and
$____________
COMMUNITY FACILITIES DISTRICT NO. 2015-1 (SYCAMORE HILLS) OF THE

CITY OF UPLAND, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA

SPECIAL TAX BONDS
TAXABLE SERIES 2022B (IMPROVEMENT AREA NO. 2)

Dated as of [March 1, 2022]

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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS .......................................................................................... 2 Section 1.1 Definitions......................................................................... 2 ARTICLE II GENERAL AUTHORIZATION AND BOND TERMS ........................ 16 Section 2.1 Amount, Issuance, Purpose and Nature of
Bonds .............................................................................. 16 Section 2.2 Type and Nature of Bonds and Parity Bonds.................. 16 Section 2.3 Equality of Bonds and Parity Bonds; Pledge
of Net Taxes .................................................................... 17 Section 2.4 Description of Bonds; Interest Rates .............................. 17 Section 2.5 Place and Form of Payment ............................................ 18 Section 2.6 Form of Bonds and Parity Bonds .................................... 19 Section 2.7 Execution and Authentication ......................................... 19 Section 2.8 Bond Register.................................................................. 20 Section 2.9 Registration of Exchange or Transfer ............................. 20 Section 2.10 Mutilated, Lost, Destroyed or Stolen Bonds ................... 20 Section 2.11 Validity of Bonds and Parity Bonds ............................... 21 Section 2.12 Book-Entry System ......................................................... 21 Section 2.13 Representation Letter ...................................................... 22 Section 2.14 Transfers Outside Book-Entry System ........................... 22 Section 2.15 Payments to the Nominee ............................................... 22 Section 2.16 Initial Depository and Nominee ...................................... 23

ARTICLE III CREATION OF FUNDS AND APPLICATION OF
PROCEEDS ............................................................................................ 23 Section 3.1 Creation of Funds; Application of Proceeds ................... 23 Section 3.2 Deposits to and Disbursements from Special
Tax Fund ......................................................................... 24 Section 3.3 Administrative Expenses Account of the
Special Tax Fund ............................................................ 25 Section 3.4 Interest Account and Principal Account of
the Special Tax Fund ...................................................... 26 Section 3.5 Redemption Account of the Special Tax
Fund ................................................................................ 27 Section 3.6 Reserve Account of the Special Tax Fund ...................... 28 Section 3.7 Rebate Fund .................................................................... 30 Section 3.8 Surplus Fund ................................................................... 31 Section 3.9 Costs of Issuance Fund ................................................... 32 Section 3.10 Improvement Fund .......................................................... 32 Section 3.11 Investments ..................................................................... 33 ARTICLE IV REDEMPTION OF BONDS .................................................................. 35 Section 4.1 Redemption of Bonds ..................................................... 35 Section 4.2 Selection of Bonds and Parity Bonds for
Redemption ..................................................................... 38 Section 4.3 Notice of Redemption ..................................................... 39

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TABLE OF CONTENTS (cont.)
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Section 4.4 Partial Redemption of Bonds or Parity Bonds ......................................................................................... 40 Section 4.5 Effect of Notice and Availability of
Redemption Money ......................................................... 40 ARTICLE V COVENANTS AND WARRANTY....................................................... 41 Section 5.1 Warranty ......................................................................... 41 Section 5.2 Covenants ........................................................................ 41 ARTICLE VI AMENDMENTS TO INDENTURE ...................................................... 44 Section 6.1 Supplemental Indentures or Orders Not
Requiring Bondowner Consent ....................................... 44 Section 6.2 Supplemental Indentures or Orders
Requiring Bondowner Consent ....................................... 45 Section 6.3 Notation of Bonds or Parity Bonds; Delivery of Amended Bonds or Parity Bonds ............................... 46 ARTICLE VII TRUSTEE ............................................................................................... 46 Section 7.1 Trustee............................................................................. 46 Section 7.2 Removal of Trustee ......................................................... 47 Section 7.3 Resignation of Trustee .................................................... 47 Section 7.4 Liability of Trustee ......................................................... 48 Section 7.5 Merger or Consolidation ................................................. 49 ARTICLE VIII EVENTS OF DEFAULT; REMEDIES .................................................. 49 Section 8.1 Events of Default ............................................................ 49 Section 8.2 Remedies of Owners ....................................................... 50 Section 8.3 Application of Revenues and Other Funds
After Default ................................................................... 51 Section 8.4 Power of Trustee to Control Proceedings ....................... 51 Section 8.5 Appointment of Receivers .............................................. 52 Section 8.6 Non-Waiver..................................................................... 52 Section 8.7 Limitation on Rights and Remedies of
Owners ............................................................................ 52 Section 8.8 Termination of Proceedings ............................................ 53 ARTICLE IX DEFEASANCE AND PARITY REFUNDING BONDS ....................... 53 Section 9.1 Defeasance ...................................................................... 53 Section 9.2 Conditions for the Issuance of Parity
Refunding Bonds ............................................................ 55 ARTICLE X MISCELLANEOUS ............................................................................... 57 Section 10.1 Cancellation of Bonds and Parity Bonds ........................ 57 Section 10.2 Execution of Documents and Proof of
Ownership ....................................................................... 57 Section 10.3 Unclaimed Moneys ......................................................... 58 Section 10.4 Provisions Constitute Contract ....................................... 58 Section 10.5 Future Contracts .............................................................. 58 Section 10.6 Further Assurances.......................................................... 58 Section 10.7 Severability ..................................................................... 59

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Section 10.8 Notices ............................................................................ 59

EXHIBITS:

EXHIBIT A FORM OF SPECIAL TAX BOND, SERIES 2022A (IMPROVEMENT AREA NO. 2) ................................................................................................................. A-1 EXHIBIT B FORM OF SPECIAL TAX BOND, TAXABLE SERIES 2022B (IMPROVEMENT AREA NO. 2) .......................................................................B-1 EXHIBIT C ADMINISTRATIVE EXPENSE PAYMENT REQUEST FORM .....................C-1 EXHIBIT D FORM OF REQUISITION FOR DISBURSEMENT OF PROJECT COSTS ... D-1

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BOND INDENTURE
THIS BOND INDENTURE dated as of [March 1, 2022] (this “Indenture”), by and between COMMUNITY FACILITIES DISTRICT NO. 2015-1 (SYCAMORE HILLS) OF THE CITY OF UPLAND, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA (the “District”) and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, as trustee (the “Trustee”), governs the terms of the Special Tax Bonds, Series 2022A (Improvement Area No. 2) and Special Tax Bonds, Taxable Series 2022B (Improvement Area No. 2), of the District and any Parity Bonds issued in accordance herewith from time to time.

R E C I T A L S :

WHEREAS, the City Council (hereinafter sometimes referred to as the “legislative body of the District”) of the City of Upland (the “City”), located in San Bernardino County, California, has heretofore undertaken proceedings and declared the necessity to issue bonds on behalf of the District pursuant to the terms and provisions of the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5, of the Government Code of the State of California (the “Act”); and
WHEREAS, based upon Resolution Nos. 6308 and 6310 adopted by the legislative body of the District on November 23, 2015 and an election held on November 23, 2015 authorizing the levy of a special tax and the issuance of bonds by Improvement Area No. 2 of the District, an election held on March 26, 2018 approving an amended and restated rate and method of apportionment of the special tax for Improvement Area No. 2, and Resolution No. 6437 adopted by the legislative body of the District on March 26, 2018, Improvement Area No. 2 of the District is authorized to issue bonds for one or more series, pursuant to the Act, in an aggregate principal amount not to exceed $14,000,000; and
WHEREAS, the legislative body of the District intends to finance certain public facilities through the issuance of bonds in an aggregate principal amount of $____________, designated as the “Community Facilities District No. 2015-1 (Sycamore Hills) of the City of Upland, County of San Bernardino, State of California, Special Tax Bonds, Series 2022A (Improvement Area No. 2)” (the “Series 2022A Bonds”), and in an aggregate principal amount of $____________, designated as the “Community Facilities District No. 2015-1 (Sycamore Hills) of the City of Upland, County of San Bernardino, State of California, Special Tax Bonds, Taxable Series 2022B (Improvement Area No. 2)” (the “Series 2022B Bonds;” and together with the Series 2022A Bonds, the “Series 2022 Bonds”); and
WHEREAS, the District has determined that all requirements of the Act for the issuance of the Series 2022 Bonds have been satisfied;
NOW, THEREFORE, in order to establish the terms and conditions upon and subject to which the Series 2022 Bonds are to be issued, and in consideration of the premises and of the mutual covenants contained herein and of the purchase and acceptance of the Series 2022 Bonds by the Owners thereof, and for other valuable consideration, the receipt of which is hereby acknowledged, the District does hereby covenant and agree, for the benefit of the Owners of the

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Series 2022 Bonds and any Parity Bonds (as defined herein) which may be issued hereunder from time to time, as follows:

ARTICLE I

DEFINITIONS
Section 1.1 Definitions. Unless the context otherwise requires, the following terms shall have the following meanings:
“Account” means any account created pursuant to this Indenture. “Acquisition Agreement” means that certain Acquisition Agreement, dated as of November 1, 2015, by and between the City and Bravepark Property LLC, a Delaware limited liability company, as developer, as amended by that certain Fourth Operating Memorandum and First Amendment to Acquisition Agreement, dated as of December 1, 2020, by and among the City, Bravepark Property LLC, a Delaware limited liability company, and KB HOME Coastal Inc., a California corporation.
“Act” means the Mello-Roos Community Facilities Act of 1982, as amended, being Section 53311 et seq. of the California Government Code. “Administrative Expenses” means the administrative costs with respect to the calculation and collection of the Special Taxes, including all attorneys’ fees and other costs related thereto, the fees and expenses of the Trustee, any fees and related costs for credit enhancement for the Bonds or any Parity Bonds which are not otherwise paid as Costs of Issuance, any costs related to the District’s compliance with state and federal laws requiring continuing disclosure of information concerning the Bonds and the District, and any other costs otherwise incurred by the City staff on behalf of the District in order to carry out the purposes of the District as set forth in the Resolution of Formation and any obligation of the District hereunder. “Administrative Expenses Account” means the account by that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof. “Administrative Expenses Priority Amount” means an amount equal to $20,000 per Bond Year.
“Amended and Restated Rate and Method” means the amended and restated rate and method of apportionment of Special Taxes for Improvement Area No. 2, which amended and restated the Original Rate and Method, was approved by the Resolution of Change, and is appended as Appendix A to the Amended Notice of Special Tax Lien for Improvement Area No. 2 of the District, recorded in the Official Records of the County of San Bernardino Recorder as Document No. 2018-0117989 on April 4, 2018.
“Annual Debt Service” means the principal amount of any Outstanding Bonds or Parity Bonds, as applicable, payable in a Bond Year either at maturity or pursuant to a Sinking Fun d Payment and any interest payable on any Outstanding Bonds or Parity Bonds, as applicable, in such Bond Year, if the Bonds and any Parity Bonds, as applicable, are retired as scheduled.

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“Authorized Investments” means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein (the Trustee authorized to rely upon investment direction of the District as a determination an investment is a legal investment under the laws of the State):
(1) (A) Direct obligations (other than an obligation subject to variation in principal repayment) of the United States of America (“United States Treasury Obligations”); (B) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America; (C) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America; or (D) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated. (2) Federal Housing Administration debentures.
(3) The listed obligations of government-sponsored agencies which are not backed by the full faith and credit of the United States of America:
- Federal Home Loan Mortgage Corporation (FHLMC)
Participation certificates (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts)

Senior Debt obligations
- Farm Credit Banks (formerly: Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives)

Consolidated system-wide bonds and notes
- Federal Home Loan Banks (FHL Banks)

Consolidated debt obligations
- Federal National Mortgage Association (FNMA)

Senior debt obligations

Mortgage-backed securities (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts)

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- Financing Corporation (FICO)

Debt obligations
- Resolution Funding Corporation (REFCORP)

Debt obligations
(4) Unsecured certificates of deposit, time deposits, money-market deposits, and bankers’ acceptances of any bank (including the Trustee and any affiliate) the short- term obligations of which are rated “A-1” or better by S&P. (5) Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation (FDIC) or fully collateralized by Permitted Investments described in clauses (1), (2), or (3), in banks (including the Trustee and any affiliate) which have capital and surplus of at least $5 million.
(6) Commercial paper (having original maturities of not more than 270 days rated, at the time of investment, “A-1+” or better by S&P and “Prime-1” or better by Moody’s and issued by an entity meeting the criteria in either clause (A) or (B):
(A) the entity (i) is organized and operating in the United States as a general corporation, (ii) has total assets in excess of $500,000,000, and (iii) has debt other than commercial paper, if any, that is rated “A” or higher by S&P or Moody’s; or
(B) the entity (i) is organized within the United States as a special purpose corporation, trust, or limited liability company, (ii) has program-wide credit enhancements including, but not limited to, overcollateralization, letters of credit, or surety bond, and (ii) has commercial paper rated “A-1” or higher by S&P or “A1” by Moody’s.
(7) Money market funds rated “AAm” or “AAm-G” by S&P, or better (including funds for which the Trustee or its affiliates provide investment advisory or other management services) but, excluding such funds with a floating net asset value. (8) “State Obligations,” which means:
(A) Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated “A3” by Moody’s and “A” by S&P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated.
(B) Direct general short-term obligations of any state agency or subdivision or agency thereof described in (A) above and rated “A-1+” by S&P and “Prime-l” (“MIG-1”) by Moody’s, or better.

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(C) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state, state agency or subdivision described in (A) above and rated “AA” or better by S&P and “Aa” or better by Moody’s.
(9) Pre-refunded municipal obligations rated “AAA” by S&P and “Aaa” by Moody’s meeting the following requirements:
(A) the municipal obligations are (1) not subject to redemption prior to maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions;
(B) the municipal obligations are secured by cash or United States Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations;
(C) the principal of and interest on the United States Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations (“Verification”);
(D) the cash or United States Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations;
(E) no substitution of a United States Treasury Obligation shall be permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and
(F) the cash or United States Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. (10) Repurchase agreements:
(A) With (1) any domestic bank, or domestic branch of a foreign bank, the long term debt of which is rated at least “A” by S&P and Moody’s; or (2) any broker-dealer with “retail customers” or a related affiliate thereof which broker- dealer has, or the parent company (which guarantees the provider) of which has, long-term debt rated at least “A” by S&P and Moody’s, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (3) any other entity rated “A” or better by S&P and Moody’s, provided that:
(a) The market value of the collateral is maintained at levels and upon such conditions as would be acceptable to S&P and Moody’s to maintain an “A” rating in an “A” rated structured financing (with a market value approach);

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(b) The Trustee or a third party acting solely as agent therefor or for the District (the “Holder of the Collateral”) has possession of the collateral or the collateral has been transferred to the Holder of the Collateral in accordance with applicable state and federal laws (other than by means of entries on the transferor’s books);
(c) The repurchase agreement shall state, and an opinion of counsel shall be rendered, addressed to the District and the Trustee, at the time such collateral is delivered that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession);
(d) All other requirements of S&P in respect of repurchase agreements shall be met; and
(e) The repurchase agreement shall provide that if during its term the provider’s rating by either Moody’s or S&P is withdrawn or suspended or falls below “A-“ by S&P or “A3” by Moody’s, as appropriate, the provider must, at the direction of the District or the Trustee, within 10 days of receipt of such direction, repurchase all collateral and terminate the agreement, with no penalty or premium to the District or Trustee. (B) Notwithstanding the above, if a repurchase agreement has a term of 270 days or less (with no evergreen provision), collateral levels need not be as specified in (a) above, so long as such collateral levels are 103% or better and the provider is rated at least “A” by S&P and Moody’s, respectively. (11) Investment agreements with a domestic or foreign bank or corporation (other than a life or property casualty insurance company) the long-term debt of which or, in the case of a guaranteed corporation the long-term debt, or, in the case of a monoline financial guaranty insurance company, claims paying ability, of the guarantor is rated at least “AA-” by S&P or “Aa3” by Moody’s; provided that, by the terms of the investment agreement:
(A) interest payments are to be made to the Trustee at times and in amounts as necessary to pay debt service on the Bonds;
(B) the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven days’ prior notice; the District and the Trustee hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid;
(C) the investment agreement shall state that is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof, or, if the provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder

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ranks pari passu with the obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors;
(D) the District and the Trustee receives the opinion of domestic counsel (which opinion shall be addressed to the District and the Trustee) that such investment agreement is legal, valid, binding and enforceable upon the provider in accordance with its terms and of foreign counsel (if applicable) in form and substance acceptable to the District, and addressed to, the District and the Trustee; (E) the investment agreement shall provide that if during its term. (1) the provider’s rating by either S&P or Moody’s falls below “AA-” or “Aa3”, respectively, the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (i) collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider’s books) to the District, the Trustee or a third party acting solely as agent therefor (the “Holder of the Collateral”) collateral free and clear of any third- party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to S&P and Moody’s to maintain an “A” rating in an “A” rated structured financing (with a market value approach); or (ii) repay the principal of and accrued but unpaid interest on the investment; and
(2) the provider’s rating by either S&P or Moody’s is
withdrawn or suspended or falls below “A-” or “A3”, respectively, the provider must, at the direction of the District or the Trustee, within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the District or Trustee; and
(F) The investment agreement shall state and an opinion of counsel shall be rendered, addressed to the District and the Trustee, in the event collateral is required to be pledged by the provider under the terms of the investment agreement at the time such collateral is delivered, that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); and
(G) the investment agreement must provide that if during its term:
(1) the provider shall default in its payment obligations, the provider’s obligations under the investment agreement shall, at the direction of the District or the Trustee, be accelerated and

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amounts invested and accrued but unpaid interest thereon shall be repaid to the District or Trustee, as appropriate, and
(2) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. (“event of insolvency”), the provider’s obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or Trustee, as appropriate.
(12) The State of California Local Agency Investment Fund; provided that the Trustee may restrict investments in such Fund to the extent necessary to keep moneys available for the purposes of this Indenture.
(13) Certificates of deposit, savings accounts, deposit accounts or money market deposits (including those of the Trustee and its affiliates) which are fully insured by the Federal Deposit Insurance Corporation, including certificates of deposit placed through the CDARS program.
“Authorized Representative of the City” means the City Manager of the City, the Assistant City Manager of the City, the Finance Director (or if there is no Finance Director, then the Finance Officer or Finance Manager) of the City, or any other person or persons designated by the City Manager, the Assistant City Manager, or the Finance Director (or if there is no Finance Director, then the Finance Officer or Finance Manager) by a written certificate signed by the City Manager, the Assistant City Manager, or the Finance Director (or if there is no Finance Director, then the Finance Officer or Finance Manager) and containing the specimen signature of each such person. “Authorized Representative of the District” means the City Manager of the City, the Assistant City Manager of the City, the Finance Director (or if there is no Finance Director, then the Finance Officer or Finance Manager) of the City, or any other person or persons designated by the City Manager, the Assistant City Manager, or the Finance Director (or if there is no Finance Director, then the Finance Officer or Finance Manager) by a written certificate signed by the City Manager, the Assistant City Manager, or the Finance Director (or if there is no Finance Director, then the Finance Officer or Finance Manager) and containing the specimen signature of each such person.
“Bond Counsel” means an attorney at law or a firm of attorneys selected by the District of nationally recognized standing in matters pertaining to the Tax-exempt nature of interest on bonds issued by states and their political subdivisions duly admitted to the practice of law in any state of the United States of America or the District of Columbia. “Bond Register” means the books which the Trustee shall keep or cause to be kept on which the registration and transfer of the Bonds and any Parity Bonds shall be recorded. “Bondowner” or “Owner” means the person or persons in whose name or names any Bond or Parity Bond is registered.
“Bonds” means the Series 2022 Bonds.

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“Bond Year” means the twelve-month period commencing on September 2 of each year and ending on September 1 of the following year, except that the first Bond Year for the Bonds or an issue of Parity Bonds shall begin on the Delivery Date and end on the first September 1 which is not more than 12 months after the Delivery Date.
“Business Day” means a day which is not a Saturday or Sunday or a day of the year on which banks in New York, New York, Los Angeles, California, or the city where the corporate trust office of the Trustee is located, are not required or authorized to remain closed. “Certificate of an Authorized Representative” means a written certificate executed by an Authorized Representative of the City or District, as applicable. “Certificate of the Special Tax Administrator” means a written certificate of an Authorized Representative of the District, Willdan Financial Services, or any successor entity appointed by the City, to administer the calculation and collection of the Special Taxes. “City” means the City of Upland, California.
“Code” means the Internal Revenue Code of 1986, as amended, and any Regulations, rulings, judicial decisions, and notices, announcements, and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it. “Continuing Disclosure Agreement” means that certain Continuing Disclosure Agreement dated as of [March 1, 2022], by and between the District and Willdan Financial Services, as dissemination agent, together with any amendments thereto. “Costs of Issuance” means the costs and expenses incurred in connection with the formation of the District and the issuance and sale of the Bonds or any Parity Bonds, including the acceptance and initial annual fees and expenses of the Trustee, legal fees and expenses, costs of printing the Bonds and any Parity Bonds and the preliminary and final official statements for the Bonds and any Parity Bonds, fees of financial consultants, and all other related fees and expenses, as set forth in a Certificate of an Authorized Representative of the City. “Costs of Issuance Fund” means the fund by that name created and established pursuant to Section 3.1 hereof.
“Delivery Date” means, with respect to the Bonds and each issue of Parity Bonds, the date on which the bonds of such Series were issued and delivered to the initial purchasers thereof. “Depository” means The Depository Trust Company, New York, New York, and its successors and assigns as securities depository for the Bonds, or any other securities depository acting as Depository under Article II hereof.
“Developed Property” shall have the meaning ascribed to such term in the Rate and Method.

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“District” means Community Facilities District No. 2015-1 (Sycamore Hills) of the City of Upland, County of San Bernardino, State of California, established pursuant to the Act and the Resolution of Formation.
“Event of Default” means an “event of default” described in Section 8.1 hereof. “Federal Securities” means any of the following: (a) non-callable direct obligations of the United States of America (“Treasuries”), (b) evidence of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated, and (c) pre- refunded municipal obligations rated “AAA” and “Aaa” by S&P and Moody’s, respectively, (d) securities eligible for “AAA” defeasance under then existing criteria of S&P, or (e) any combination of the foregoing.
“Fiscal Year” means the period beginning on July 1 of each year and ending on the next following June 30.
“Gross Taxes” means the amount of all Special Taxes received by Improvement Area No. 2 of the District, together with the proceeds collected from the sale of property pursuant to the foreclosure provisions of this Indenture for the delinquency of such Special Taxes remaining after the payment of all costs related to such foreclosure actions. “Improvement Area No. 2” means Improvement Area No. 2 of the District, as depicted on the boundary map for the District recorded in Book 87 of the County of San Bernardino Assessment Maps, at page 2, in the County Recorder’s Office as Document No. 2015-0465103, on October 27, 2015.
“Improvement Fund” means the fund by that name created and established pursuant to Section 3.1 hereof.
“Indenture” means this Bond Indenture, together with any Supplemental Indenture approved and entered into pursuant to Article VI hereof. “Independent Financial Consultant” means a financial consultant or firm of such consultants generally recognized to be well qualified in the financial consulting field, appointed and paid by the District, who, or each of whom:
(1) is in fact independent and not under the domination of the District or the City;
(2) does not have any substantial interest, direct or indirect, in the District or the City; and
(3) is not connected with the District or the City as a member, officer or employee of the District or the City, but who may be regularly retained to make annual or other reports to the District or the City.

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“Information Services” means the Electronic Municipal Market Access System (referred to as “EMMA”), a facility of the Municipal Securities Rulemaking Board, at www.emma.msrb.org; provided, however, in accordance with then current guidelines of the Securities and Exchange Commission, Information Services shall mean such other organizations providing information with respect to called bonds as the District may designate to the Trustee in writing.
“Interest Account” means the account by that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof.
“Interest Payment Date” means each March 1 and September 1, commencing September 1, 2022; provided, however, that, if any such day is not a Business Day, interest up to the Interest Payment Date will be paid on the Business Day next succeeding such date. “Investment Agreement” means one or more agreements for the investment of funds of the District complying with the criteria therefor as set forth in subsection (11) of the definition of Authorized Investments herein.
“Maximum Annual Debt Service” means the maximum sum obtained for any Bond Year prior to the final maturity of the Bonds and any Parity Bonds, as applicable, by adding the following for each Bond Year:
(1) the principal amount of all Outstanding Bonds and Parity Bonds, as applicable, payable in such Bond Year either at maturity or pursuant to a Sinking Fund Payment; and
(2) the interest payable on the aggregate principal amount of all Bonds and Parity Bonds, as applicable, Outstanding in such Bond Year if the Bonds and Parity Bonds, as applicable, are retired as scheduled.
“Moody’s” means Moody’s Investors Service, its successors and assigns. “Net Taxes” means Gross Taxes minus amounts set aside to pay Administrative Expenses not to exceed the Administrative Expenses Priority Amount. “Nominee” shall mean the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.16 hereof. “Ordinance” means Ordinance No. 1899 adopted by the legislative body of the District on December 14, 2015, providing for the levying of the Special Tax , as amended by Ordinance No. 1930 adopted by the legislative body of the District on April 9, 2018. “Original Rate and Method” means the rate and method of apportionment of Special Taxes for Improvement Area No. 2 approved by the Resolution of Formation and appended as Appendix A to the Notice of Special Tax Lien for Improvement Area No. 2 of the District, recorded in the Official Records of the County of San Bernardino Recorder as Document No. 2015-0547478 on December 15, 2015.

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“Outstanding Bonds” or “Outstanding Bonds and Parity Bonds” means all Bonds and/or Parity Bonds, as applicable, theretofore issued by the District, except:
(1) Bonds and Parity Bonds theretofore cancelled or surrendered for cancellation in accordance with Section 10.1 hereof;
(2) Bonds and Parity Bonds for payment or redemption of which moneys shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds or Parity Bonds), provided that, if such Bonds or Parity Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in this Indenture or any applicable Supplemental Indenture for Parity Bonds; and
(3) Bonds and Parity Bonds which have been surrendered to the Trustee for transfer or exchange pursuant to Section 2.9 hereof or for which a replacement has been issued pursuant to Section 2.10 hereof.
“Parity Bonds” means all bonds, notes, or other similar evidences of indebtedness hereafter issued, payable out of the Net Taxes and which, as provided in this Indenture or any Supplemental Indenture, rank on a parity with the Bonds.
“Participants” shall mean those broker-dealers, banks and other financial institutions from time to time for which the Depository holds Bonds or Parity Bonds as securities depository. “Person” means natural persons, firms, corporations, partnerships, associations, trusts, public bodies and other entities.
“Prepayments” means any amounts paid by the District to the Trustee and designated by the District as a prepayment of Special Taxes for one or more parcels in the District made in accordance with the Rate and Method.
“Principal Account” means the account b y that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof.
“Principal Office of the Trustee” means the corporate trust office of the Trustee located in Los Angeles, California, or such other office or offices as the Trustee may designate from time to time, or the office of any successor Trustee where it principally conducts its business of serving as trustee under indentures pursuant to which municipal or governmental obligations are issued, provided, for registration, transfer, exchange, surrender and payment of the Bonds, shall be the corporate trust operations office of the Trustee located in Saint Paul, Minnesota, or such other office designated by the Trustee.
“Project” means those public facilities described in the Resolution of Formation which are to be acquired or constructed within and outside of the District, including all engineering, planning and design services and other incidental expenses related to such facilities and other facilities, if any, authorized by the qualified electors within the District from time to time.

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“Project Costs” means the amounts necessary to finance the Project, to create and replenish any necessary reserve funds, to pay the initial and annual costs associated with the Bonds or any Parity Bonds, including, but not limited to, remarketing, credit enhancement, Trustee and other fees and expenses relating to the issuance of the Bonds or any Parity Bonds and the formation of the District, and to pay any other “incidental expenses” of the District, as such term is defined in the Act.
“Rate and Method” means the Amended and Restated Rate and Method, as it may be amended or modified from time to time.
“Rating Agency” means Moody’s and S&P, or both, as the context requires. “Rebate Fund” means the fund by that name established pursuant to Section 3.1 hereof in which there are established the Accounts described in Section 3.7 hereof. “Record Date” means the fifteenth day of the month preceding an Interest Payment Date, regardless of whether such day is a Business Day.
“Redemption Account” means the account by that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof.
“Regulations” means the regulations adopted or proposed by the Department of Treasury from time to time with respect to obligations issued pursuant to Section 103 of the Code. “Representation Letter” shall mean the Blanket Letter of Representations from the District to the Depository as described in Section 2.13 hereof.
“Reserve Account” means the account by that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof.
“Reserve Policy” 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 Trustee pursuant to Section 3.6, provided that all of the following requirements are met at the time of acceptance thereof by the Trustee: (a) the long-term credit rating of such bank or insurance company is A+ or better from S&P or A1 or better from Moody’s; (b) such letter of credit, insurance policy, or surety bond has a term of at least twelve (12) months; (c) such letter of credit, insurance policy, or surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released; and (d) the Trustee 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 exist from time to time in the amount Interest Account and the Principal Account for the purpose of making payments required pursuant to this Indenture.
“Reserve Requirement” shall be calculated separately with respect to each Series of Bonds and shall mean that fixed amount equal to the least of the following, determined as of the Delivery Date for the applicable Series of Bonds: (i) Maximum Annual Debt Service on the then Outstanding Bonds of such Series; (ii) 10% of the original amount of the Bonds of such Series (“amount” meaning the principal amount of such Series of the Bonds, unless the Series was issued

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with original issue discount greater than two percent of the principal amount, or original issue premium greater than the sum of two percent of the principal amount plus original issue premium attributable exclusively to reasonable underwriters’ compensation, in which case “amount” means issue price); or (iii) 125% of average Annual Debt Service on the then Outstanding Bonds of such Series.
“Resolution of Change” means Resolution No. 6437 adopted by the City Council of the City on March 26, 2018, pursuant to which the City Council, acting as legislative body of the District, inter alia (i) declared the results of a special election within Improvement Area No. 2 of the District approving the Amended and Restated Rate and Method to replace the Original Rate and Method, and (ii) determined that the Original Rate and Method has been changed and replaced by the Amended and Restated Rate and Method.
“Resolution of Formation” means Resolution No. 6308 adopted by the City Council of the City on November 23, 2015, pursuant to which the City formed the District. “S&P” means S&P Global Ratings, a business unit of Standard & Poor’s Financial Services LLC, its successors and assigns.
“Series” means, when used with reference to the Bonds, all of the Bonds authenticated and delivered on original issuance and identified pursuant to this Indenture or a Supplemental Indenture authorizing such Bonds as a separate series or issue of Bonds, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds pursuant to this Indenture. “Series 2022 Bonds” means, collectively, the Series 2022A Bonds and the Series 2022B Bonds.
“Series 2022 Term Bonds” means, collectively, the Series 2022A Term Bonds and the Series 2022B Term Bonds.
“Series 2022A Bonds” means the District’s Special Tax Bonds, Series 2022A (Improvement Area No. 2), issued on their Delivery Date in the aggregate principal amount of $____________.
“Series 2022A Term Bonds” means, collectively, the Series 2022A Bonds maturing on September 1, 20__ and September 1, 20__.
“Series 2022B Bonds” means the District’s Special Tax Bonds, Taxable Series 2022B (Improvement Area No. 2), issued on their Delivery Date in the aggregate principal amount of $____________.
“Series 2022B Term Bonds” means, collectively, the Series 2022B Bonds maturing on September 1, 20__ and September 1, 20__.
“Sinking Fund Payment” means the annual payment to be deposited in the Redemption Account to redeem a portion of the Term Bonds in accordance with the schedules set forth in Section 4.1(b) hereof and any annual sinking fund payment schedule to retire any Parity Bonds which are designated as Term Bonds.

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“Special Tax Fund” means the fund by that name created and established pursuant to Section 3.1 hereof.
“Special Taxes” means the taxes authorized to be levied by the District on property within Improvement Area No. 2 of the District in accordance with the Ordinance, the Rate and Method, the Act and the voter approvals obtained at the November 23, 2015 and March 26, 2018 elections in Improvement Area No. 2 of the District, including any scheduled payments and any Prepayments thereof, the net 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 penalties and interest thereon.
“Subaccount” means any subaccount created pursuant to this Indenture. “Supplemental Indenture” means any supplemental indenture amending or supplementing this Indenture.
“Surplus Fund” means the fund by that name created and established pursuant to Section

3.1 hereof.
“Tax Certificate” means the Certificate Regarding Compliance with Certain Tax Matters (or similar document) pertaining to the use and investment of proceeds of a Series of Bonds, executed and delivered by a duly authorized officer of the District and of the City on the related Delivery Date, including any and all exhibits and attachments thereto. “Tax-exempt” means, with respect to interest on any obligations of a state or local government, including the interest on the Series 2022A Bonds, that such interest is excluded from gross income for federal income tax purposes whether or not such interest is an item of tax preference for purposes of the alternative minimum tax under the Code or otherwise taken into account in calculating tax liabilities under the Code.
“Term Bonds” means the Series 2022 Term Bonds.
“Trustee” means U.S. Bank Trust Company, National Association, a national banking association duly organized and existing under the laws of the United States of America, at its corporate trust office in Los Angeles, California, and its successors or assigns, or any other bank or trust company which may at any time be substituted in its place as provided in Sections 7.2 or

7.3 and any successor thereto.
“Underwriter” means Hilltop Securities Inc., with respect to the Series 2022 Bonds.

ARTICLE II

GENERAL AUTHORIZATION AND BOND TERMS
Section 2.1 Amount, Issuance, Purpose and Nature of Bonds. Under and pursuant to the Act, the Series 2022A Bonds in the aggregate principal amount of $____________ (__________________ Dollars) and the Series 2022B Bonds in the aggregate principal amount of $____________ (__________________ Dollars) shall be issued for the purpose of financing the

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Project, funding the Subaccounts of the Reserve Account at the initial Reserve Requirements, as applicable, and paying Costs of Issuance; provided that the aggregate principal amount of the Bonds and any Parity Bonds authorized by the legislative body in accordance with Section 9.2 hereof shall not exceed the total indebtedness presently authorized or subsequently authorized by the qualified electors of Improvement Area No. 2 of the District in accordance with the Act. The Bonds and any Parity Bonds shall be and are limited obligations of the District and shall be payable as to the principal thereof and interest thereon and any premiums upon the redemption thereof solely from the Net Taxes and the other amounts in the Special Tax Fund (other than amounts in the Administrative Expenses Account of the Special Tax Fund and any Subaccounts of the Reserve Account not designated herein for the benefit of such Bonds or Parity Bonds).

Section 2.2 Type and Nature of Bonds and Parity Bonds. Neither the faith and credit nor the taxing power of the City, the State of California or any political subdivision thereof other than the District is pledged to the payment of the Bonds or any Parity Bonds. Except for the Special Taxes, no other taxes are pledged to the payment of the Bonds or any Parity Bonds. The Bonds and any Parity Bonds are not general or special obligations of the City nor general obligations of the District, but are limited obligations of the District payable solely from certain amounts deposited by the District in the Special Tax Fund (exclusive of the Administrative Expenses Account and any Subaccounts of the Reserve Account not designated herein for the benefit of such Bonds or Parity Bonds), as more fully described herein. The District’s limited obligation to pay the principal of, premium, if any, and interest on the Bonds and any Parity Bonds from amounts in the Special Tax Fund (exclusive of the Administrative Expenses Account and any Subaccounts of the Reserve Account not designated herein for the benefit of such Bonds or Parity Bonds) is absolute and unconditional, free of deductions and without any abatement, offset, recoupment, diminution or set-off whatsoever. No Owner of the Bonds or any Parity Bonds may compel the exercise of the taxing power by the District (except as pertains to the Special Taxes) or the City or the forfeiture of any of their property. The principal of and interest on the Bonds and any Parity Bonds and premiums upon the redemption thereof, if any, are not a debt of the City, the State of California or any of its political subdivisions in contravention of any constitutional or statutory limitation or restriction. The Bonds and any Parity Bonds are not a legal or equitable pledge, charge, lien, or encumbrance upon any of the District’s property, or upon any of its income, receipts or revenues, except the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative Expenses Account and any Subaccounts of the Reserve Account not designated herein for the benefit of such Bonds or Parity Bonds) which are, under the terms of this Indenture and the Act, set aside for the payment of the Bonds and any Parity Bonds, and interest thereon, and neither the members of the legislative body of the District or the City Council of the City nor any persons executing the Bonds or any Parity Bonds, are liable personally on the Bonds or any Parity Bonds by reason of their issuance.

Notwithstanding anything to the contrary contained in this Indenture, the District shall not be required to advance any money derived from any source of income other than the Net Taxes for the payment of the interest on or the principal of the Bonds or any Parity Bonds, or for the performance of any covenants contained herein. The District may, however, advance funds for any such purpose, provided that such funds are derived from a source legally available for such purpose.

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Upland City CouncilMarch 14, 2022

Upland City Council
March 14, 2022