a municipal corporation of the State of Texas located in Denton County

NEW ISSUE NOT RATED OFFICIAL STATEMENT DATED FEBRUARY 13, 2014

In the opinion of Bond Counsel, interest on the Bonds will be excludable from gross income for purposes of federal income taxation under existing law, subject to the matters described under “TAX MATTERS” herein. See “TAX MATTERS” herein for a discussion of Bond Counsel’s opinion, including a description of certain alternative minimum tax consequences for corporations.

$12,240,000 TOWN OF LITTLE ELM, TEXAS,

(a municipal corporation of the State of Texas located in Denton County) SPECIAL ASSESSMENT REVENUE BONDS, SERIES 2014

(VALENCIA PUBLIC IMPROVEMENT DISTRICT PHASES #2 - 5 MAJOR IMPROVEMENT PROJECT)

Dated Date: February 1, 2014 Due: September 1, as shown on the inside cover Interest to Accrue from Date of Delivery

The Town of Little Elm, Texas, Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phases #2 - 5 Major Improvement Project) (the “Bonds”), are being issued by the Town of Little Elm, Texas (the “Town”). The Bonds will be issued in fully registered form, without coupons, in authorized denominations of $100,000 of principal and any integral multiple of $5,000 in excess thereof. The Bonds will bear interest at the rates set forth on the inside cover, calculated on the basis of a 360-day year of twelve 30-day months, payable on each March 1 and September 1, commencing September 1, 2014, until maturity or earlier redemption. The Bonds will be registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), New York, New York. No physical delivery of the Bonds will be made to the beneficial owners thereof. For so long as the book-entry only system is maintained, the principal of and interest on the Bonds will be paid from the sources described herein by The Bank of New York Mellon Trust Company, National Association, as trustee (the “Trustee”), to DTC as the registered owner thereof. See “BOOK-ENTRY ONLY SYSTEM.”

The Bonds are being issued by the Town pursuant to the Public Improvement District Assessment Act, Subchapter A of Chapter 372, Texas Local Government Code, as amended (the “PID Act”), an ordinance adopted by the Town Council of the Town (the “Town Council”) on February 13, 2014, and an Indenture of Trust, dated February 1, 2014 (the “Indenture”), entered into by and between the Town and the Trustee.

Proceeds of the Bonds will be used to provide funds for (i) paying Phases #2 - 5’s (as described herein) proportionate share of the costs of certain roadway, water, wastewater and drainage improvements (the “Major Improvement Projects”) that will benefit the entire Valencia Public Improvement District (the “District”), (ii) paying a portion of the interest on the Bonds during construction of the Major Improvement Projects, (iii) funding a reserve fund for the payment of principal of and interest on the Bonds, (iv) paying a portion of the costs incidental to the organization of the District, and (v) paying the costs of issuing the Bonds. See “THE MAJOR IMPROVEMENT PROJECTS” and “APPENDIX A — Form of Indenture.” Capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Indenture.

The Bonds, when issued and delivered, will constitute valid and binding special obligations of the Town payable solely from and secured by Pledged Revenues, consisting primarily of monies collected from Phases #2 - 5 Assessments levied against assessable properties in Phases #2 - 5 of the District in accordance with a Service and Assessment Plan, all to the extent and upon the conditions described herein. The Bonds are not payable from funds raised or to be raised from taxation. See “SECURITY FOR THE BONDS.”

The Bonds are subject to redemption at the times, in the amounts, and at the redemption prices more fully described herein under the caption “DESCRIPTION OF THE BONDS — Redemption Provisions.”

The Bonds involve a degree of risk and are not suitable for all investors. See “BONDHOLDERS RISKS” and “SUITABILITY FOR INVESTMENT.” Prospective purchasers should carefully evaluate the risks and merits of an investment in the Bonds, should consult with their legal and financial advisors before considering a purchase of the Bonds, and should be willing to bear the risks of loss of their investment in the Bonds. The Bonds are not credit enhanced or rated and no application has been made for a rating on the Bonds.

THE BONDS ARE SPECIAL OBLIGATIONS OF THE TOWN SECURED SOLELY FROM PLEDGED REVENUES AND ANY OTHER FUNDS HELD UNDER THE INDENTURE, AS AND TO THE EXTENT PROVIDED IN THE INDENTURE. THE BONDS DO NOT GIVE RISE TO A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE TOWN AND ARE NOT SECURED EXCEPT AS PROVIDED IN THE INDENTURE. THE OWNERS OF THE BONDS SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT THEREOF OUT OF ANY FUNDS OF THE TOWN OTHER THAN THE PLEDGED REVENUES AND ANY OTHER FUNDS HELD UNDER THE INDENTURE, AS AND TO THE EXTENT PROVIDED IN THE INDENTURE. THE TOWN SHALL HAVE NO LEGAL OR MORAL OBLIGATION TO THE OWNERS OF THE BONDS TO PAY THE BONDS OUT OF ANY FUNDS OF THE TOWN OTHER THAN THE PLEDGED REVENUES. SEE “SECURITY FOR THE BONDS.”

This cover page contains certain information for quick reference only. It is not a summary of the Bonds. Investors must read this entire Official Statement to obtain information essential to the making of an informed investment decision.

The Bonds are offered for delivery when, as, and if issued by the Town and accepted by the Underwriter, subject to, among other things, the approval of the Bonds by the Attorney General of Texas and the receipt of the opinion of Fulbright & Jaworski LLP, a member of Norton Rose Fulbright, Bond Counsel, as to the validity of the Bonds and the excludability of interest thereon from gross income for federal income tax purposes. See “APPENDIX C — Form of Opinion of Bond Counsel.” Certain legal matters will be passed upon for the Underwriter by its counsel, Andrews Kurth LLP, for the Developer by its counsel, Milby, PLLC, and for the Trustee by its counsel, McGuire, Craddock & Strother, P.C.. It is expected that the Bonds will be delivered in book-entry form through the facilities of DTC on or about February 27, 2014.

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MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, PRICES, YIELDS, AND CUSIP NUMBERS

CUSIP Prefix: 537098(a)




Term Bonds

$4,055,000 6.650% Term Bonds, Due September 1, 2021, Priced to Yield 6.650%; CUSIP AE5(a) (b) (f)

$2,945,000 6.900% Term Bonds, Due September 1, 2024, Priced to Yield 6.900%; CUSIP AF2(a) (c) (f)

$3,765,000 7.150% Term Bonds, Due September 1, 2027, Priced to Yield 7.150%; CUSIP AG0(a) (d) (f)

Serial Bonds

$1,475,000 7.400% Bonds, Due September 1, 2028, Priced to Yield 7.400%; CUSIP AH8(a)(e) (f)

(Interest to Accrue from Date of Delivery)

(a) CUSIP numbers are included solely for the convenience of owners of the Bonds. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor’s Financial Services LLC 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 the CUSIP Services. CUSIP numbers are provided for convenience of reference only. None of the Town, the Town’s Financial Advisor or the Underwriter takes any responsibility for the accuracy of such numbers.

(b) The Term Bonds maturing September 1, 2021, are subject to redemption, in whole or in part, prior to stated maturity, at the option of the Town, on any Interest Payment Date on or after March 1, 2016, at the prices described herein under “DESCRIPTION OF THE BONDS — Redemption Provisions.”

(c) The Term Bonds maturing September 1, 2024, are subject to redemption, in whole or in part, prior to stated maturity, at the option of the Town, on any Interest Payment Date on or after March 1, 2017, at the prices described herein under “DESCRIPTION OF THE BONDS — Redemption Provisions.”

(d) The Term Bonds maturing September 1, 2027, are subject to redemption, in whole or in part, prior to stated maturity, at the option of the Town, on any Interest Payment Date on or after March 1, 2018, at the prices described herein under “DESCRIPTION OF THE BONDS — Redemption Provisions.”

(e) The Bonds maturing September 1, 2028, are subject to redemption, in whole or in part, prior to stated maturity, at the option of the Town, on any Interest Payment Date on or after March 1, 2019, at the prices described herein under “DESCRIPTION OF THE BONDS — Redemption Provisions.”

(f) The Bonds are also subject to mandatory sinking fund redemption and extraordinary optional redemption as described herein under “DESCRIPTION OF THE BONDS — Redemption Provisions.”

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TOWN OF LITTLE ELM, TEXAS TOWN COUNCIL

Name

Place

Term Expires (May)

David Hillock Mayor 2015 Curtis J. Cornelious Mayor Pro-Tem 2015 James Dominy Council member 2016 Chip Norman Council member 2015 Katie Gipson Council member 2016 Richard Stevens Council member 2014 Bill Roebken Council member 2014

TOWN MANAGER TOWN SECRETARY DIRECTOR OF FINANCE Matt Mueller Kathy Phillips Alan Dickerson

SERVICE AND ASSESSMENT PLAN CONSULTANT Municap, Inc.

FINANCIAL ADVISOR TO THE TOWN Southwest Securities, Inc.

BOND COUNSEL Fulbright & Jaworski LLP, a member of Norton Rose Fulbright

UNDERWRITER’S COUNSEL Andrews Kurth LLP

For additional information regarding the Town, please contact:

Matt Mueller Mark McLiney Town Manager Southwest Securities, Inc. Town of Little Elm, Texas San Antonio, Texas 78209 100 West Eldorado Parkway (210) 228−8677 Little Elm, Texas 75068 [email protected] (214) 975−0405 [email protected]

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REGIONAL LOCATION MAP OF DISTRICT

iv

AREA LOCATION MAP OF DISTRICT

v

MAP SHOWING BOUNDARIES OF DISTRICT AND PHASES #2 - 5

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NO DEALER, BROKER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED BY THE TOWN OR THE UNDERWRITER TO GIVE ANY INFORMATION OR 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 EITHER OF THE FOREGOING. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY AND THERE SHALL BE NO OFFER, SOLICITATION OR SALE OF THE BONDS BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE.

THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, ITS RESPONSIBILITIES TO INVESTORS UNDER THE UNITED STATES FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION. THE INFORMATION SET FORTH HEREIN HAS BEEN FURNISHED BY THE TOWN AND OBTAINED FROM SOURCES, INCLUDING THE DEVELOPER, WHICH ARE BELIEVED BY THE TOWN AND THE UNDERWRITER TO BE RELIABLE, BUT IT IS NOT GUARANTEED AS TO ACCURACY OR COMPLETENESS, AND IS NOT TO BE CONSTRUED AS A REPRESENTATION OF THE UNDERWRITER. THE INFORMATION AND EXPRESSIONS OF OPINION HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE, AND NEITHER THE DELIVERY OF THIS OFFICIAL STATEMENT, NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TOWN OR THE DEVELOPER SINCE THE DATE HEREOF.

NEITHER THE TOWN NOR THE UNDERWRITER MAKE ANY REPRESENTATION AS TO THE ACCURACY, COMPLETENESS, OR ADEQUACY OF THE INFORMATION SUPPLIED BY THE DEPOSITORY TRUST COMPANY FOR USE IN THIS OFFICIAL STATEMENT.

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, NOR HAS THE INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH LAWS. THE REGISTRATION OR QUALIFICATION OF THE BONDS UNDER THE SECURITIES LAWS OF ANY JURISDICTION IN WHICH THEY MAY HAVE BEEN REGISTERED OR QUALIFIED, IF ANY, SHALL NOT BE REGARDED AS A RECOMMENDATION THEREOF. NONE OF SUCH JURISDICTIONS, OR ANY OF THEIR AGENCIES, HAVE PASSED UPON THE MERITS OF THE BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT.

CERTAIN STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS OFFICIAL STATEMENT CONSTITUTE “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, SECTION 21E OF THE UNITED STATES EXCHANGE ACT OF 1934, AS AMENDED, AND SECTION 27A OF THE SECURITIES ACT. SUCH STATEMENTS ARE GENERALLY IDENTIFIABLE BY THE TERMINOLOGY USED SUCH AS “PLAN,” “EXPECT,” “ESTIMATE,” “PROJECT,” “ANTICIPATE,” “BUDGET” OR OTHER SIMILAR WORDS. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE TOWN DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ANY OF ITS EXPECTATIONS OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR, OTHER THAN AS DESCRIBED UNDER “CONTINUING DISCLOSURE” HEREIN.

THE TRUSTEE HAS NOT PARTICIPATED IN THE PREPARATION OF THIS OFFICIAL STATEMENT AND ASSUMES NO RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF ANY INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT OR THE RELATED TRANSACTIONS AND DOCUMENTS OR FOR ANY FAILURE BY ANY PARTY TO DISCLOSE EVENTS THAT MAY HAVE OCCURRED AND MAY AFFECT THE SIGNIFICANCE OR ACCURACY OF SUCH INFORMATION.

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TABLE OF CONTENTS

INTRODUCTION .................................................... 1

PLAN OF FINANCE ............................................... 1 Development Plan ............................................. 1 The Bonds ......................................................... 2

DESCRIPTION OF THE BONDS ........................... 2 General Description ........................................... 2 Redemption Provisions ...................................... 3

BOOK-ENTRY ONLY SYSTEM ........................... 5

SECURITY FOR THE BONDS ............................... 7 General .............................................................. 7 Pledged Revenues .............................................. 8 Collection and Deposit of Assessments ............. 9 Unconditional Levy of Assessments ................. 9 Perfected Security Interest ............................... 10 Pledged Revenue Fund .................................... 10 Reserve Fund ................................................... 11 Prepayment Reserve Account of the

Reserve Fund ............................................ 11 Delinquency Reserve Account of the

Reserve Fund ............................................ 12 Administrative Fund ........................................ 12 Defeasance....................................................... 12 Events of Default ............................................. 13 Remedies in Event of Default .......................... 14 Restriction on Owner’s Actions ...................... 14 Application of Revenues and Other

Moneys After Event of Default ................ 15 Investment or Deposit of Funds ....................... 15 Additional Obligations .................................... 16

SOURCES AND USES OF FUNDS ...................... 17

DEBT SERVICE REQUIREMENTS .................... 17

OVERLAPPING TAXES AND DEBT .................. 18

ASSESSMENT PROCEDURES ............................ 19 General ............................................................ 19 Assessment Methodology ................................ 19 Collection and Enforcement of

Assessment Amounts ............................... 20 Assessment Amounts....................................... 21 Prepayment of Assessments ............................ 22 Priority of Lien ................................................ 22 Foreclosure Proceedings .................................. 22

THE TOWN ........................................................... 23 Background ..................................................... 23 Town Government ........................................... 23 Major Employers ............................................. 23

THE DISTRICT ..................................................... 23 General ............................................................ 23 Powers and Authority ...................................... 24

THE MAJOR IMPROVEMENT PROJECTS ........ 24 General ............................................................ 24 Ownership and Maintenance of

Improvements ........................................... 25

THE DEVELOPMENT .......................................... 25 Overview ......................................................... 25 Development Plans .......................................... 26 Zoning/Permitting ........................................... 28 Environmental ................................................. 28 Utilities ............................................................ 28

THE DEVELOPER ................................................ 28 General ............................................................ 29 Description of the Developer ........................... 29 Executive Biography ....................................... 31 History and Financing of the

Development ............................................ 31

THE DEVELOPMENT CONSULTANT .............. 31

APPRAISAL OF PROPERTY WITHIN THE DISTRICT .............................................................. 31

The Appraisal .................................................. 31 Value to Assessment Burden Ratio ................. 33

BONDHOLDERS’ RISKS ..................................... 33 Assessment Limitations ................................... 34 Risks Related to the Current Real Estate

Market ...................................................... 35 Competition ..................................................... 35 Loss of Tax Exemption ................................... 35 Bankruptcy ...................................................... 36 Direct and Overlapping Indebtedness,

Assessments and Taxes ............................ 36 Depletion of Reserve Fund .............................. 36 Hazardous Substance ....................................... 36 Regulation ....................................................... 37 100-Year Flood Plain ...................................... 37 Bondholders’ Remedies and

Bankruptcy ............................................... 37 No Acceleration ............................................... 38 Bankruptcy Limitation to Bondholders’

Rights ....................................................... 38 Management and Ownership ........................... 38 General Risks of Real Estate Investment

and Development ...................................... 39 Dependence Upon Developer .......................... 39 Agricultural Use Valuation and

Redemption Rights ................................... 39

TAX MATTERS .................................................... 40 Tax Exemption ................................................ 40 Tax Accounting Treatment of Discount

and Premium on Certain Bonds ................ 41

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LEGAL MATTERS ............................................... 42 Legal Proceedings ........................................... 42 Legal Opinions ................................................ 42 Litigation — The Town ................................... 43 Litigation — The Developer............................ 43

SUITABILITY FOR INVESTMENT .................... 43

ENFORCEABILITY OF REMEDIES ................... 44

NO RATING .......................................................... 44

CONTINUING DISCLOSURE .............................. 44

UNDERWRITING ................................................. 44

REGISTRATION AND QUALIFICATION OF BONDS FOR SALE ............................................... 45

LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS ................. 45

INVESTMENTS .................................................... 45

INFORMATION RELATING TO THE TRUSTEE ............................................................... 47

SOURCES OF INFORMATION ........................... 48 General ............................................................ 48 Source of Certain Information ......................... 48

Experts ............................................................. 48 Updating of Official Statement ........................ 48

FORWARD-LOOKING STATEMENTS .............. 48

AUTHORIZATION AND APPROVAL ................ 49 APPENDIX A Form of Indenture APPENDIX B Form of Service and Assessment Plan APPENDIX C Form of Opinion of Bond Counsel APPENDIX D Form of Disclosure Agreement APPENDIX E Appraisal of Valencia on the Lakes APPENDIX F Construction, Funding, and Acquisition Agreement

(THIS PAGE IS INTENTIONALLY LEFT BLANK.)

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OFFICIAL STATEMENT




INTRODUCTION

The purpose of this Official Statement, including the cover page, inside cover and appendices hereto, is to provide certain information in connection with the issuance and sale by the Town of Little Elm, Texas (the “Town”), of its $12,240,000 aggregate principal amount of Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phases #2 - 5 Major Improvement Project) (the “Bonds”).

PROSPECTIVE INVESTORS SHOULD BE AWARE OF CERTAIN RISK FACTORS, ANY OF WHICH, IF MATERIALIZED TO A SUFFICIENT DEGREE, COULD DELAY OR PREVENT PAYMENT OF PRINCIPAL OF AND/OR INTEREST ON THE BONDS. THE BONDS ARE NOT A SUITABLE INVESTMENT FOR ALL INVESTORS. See “SUITABILITY FOR INVESTMENT” and “BONDHOLDERS’ RISKS.”

The Bonds are being issued by the Town pursuant to the Public Improvement District Act, Subchapter A of Chapter 372, Texas Local Government Code, as amended (the “PID Act”), the ordinance authorizing the issuance of the Bonds enacted by the Town Council on February 13, 2014 (the “Bond Ordinance”), and an Indenture of Trust, dated as of February 1, 2014 (the “Indenture”), entered into by and between the Town and The Bank of New York Mellon Trust Company, National Association, as trustee (the “Trustee”). The Bonds will be secured by assessments (the “Phases #2 - 5 Assessments”) levied against assessable property located within Phases #2 - 5 (as described below) of the Valencia Public Improvement District (the “District”) pursuant to a separate ordinance enacted by the Town Council on February 13, 2014 (the “Assessment Ordinance”).

Reference is made to the Indenture for a full statement of the authority for, and the terms and provisions of, the Bonds. All capitalized terms used in this Official Statement that are not otherwise defined herein shall have the meanings set forth in the Indenture. See “APPENDIX A — Form of Indenture.”

Set forth herein are brief descriptions of the Town, the District, the Assessment Ordinance, the Bond Ordinance, the Service and Assessment Plan, the Developer, and the Developer Consultant, together with summaries of terms of the Bonds and the Indenture and certain provisions of the PID Act. All references herein to such documents and the PID Act are qualified in their entirety by reference to such documents or such PID Act and all references to the Bonds are qualified by reference to the definitive forms thereof and the information with respect thereto contained in the Indenture. Copies of these documents may be obtained during the period of the offering of the Bonds from the Underwriter, Jefferies LLC, 300 Crescent Court, Suite 500, Dallas, Texas 75201, telephone number (972) 701-3037. The form of the Indenture appears in APPENDIX A and the form of the Service and Assessment Plan appears as APPENDIX B; the final Indenture and the final Service and Assessment Plan will be provided in the final Official Statement. The information provided under this caption “INTRODUCTION” is intended to provide a brief overview of the information provided in the other captions herein and is not intended, and should not be considered, fully representative or complete as to the subjects discussed hereunder.

PLAN OF FINANCE

Development Plan

Valencia on the Lakes, LP (the “Developer”) plans to concurrently develop major infrastructure to serve the entire District as well as local infrastructure to serve Phase #1 (“Phase #1”) of the District. The area of the District other than Phase #1 is referred to herein as “Phases #2 - 5.” The boundaries of the District, Phase #1 and Phases #2 - 5 are shown in the “MAP SHOWING BOUNDARIES OF DISTRICT AND PHASES #2 - 5” on page v.

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Proceeds of the Bonds will be used primarily to finance certain roadway, water, wastewater and drainage improvements that will benefit the entire District (the “Major Improvement Projects”). The Bonds will be secured by Phases #2 - 5 Assessments on assessable property in Phases #2 - 5 only. See “THE MAJOR IMPROVEMENT PROJECTS” and “SECURITY FOR THE BONDS.”

Concurrently with the issuance of the Bonds, the Town will issue its $4,000,000 Town of Little Elm, Texas, Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phase #1 Project) (the “Phase #1 Bonds”) to finance a portion of the costs of the Phase #1 Projects, which consist of (i) Phase #1’s proportionate share of the costs of the Major Improvement Projects and (ii) the costs of the local infrastructure benefitting Phase #1 only. The Town will enter into a reimbursement agreement with the Developer (the “Phase #1 Reimbursement Agreement”) to finance costs of the Phase #1 Projects not paid with proceeds of the Phase #1 Bonds. The Phase #1 Bonds and the Town’s payment obligations under the Phase #1 Reimbursement Agreement will be secured by assessments on property in Phase #1 only. See “MAP SHOWING BOUNDARIES OF DISTRICT AND PHASES #2 - 5” on page v.

The Developer expects to construct and install local improvements benefitting each of Phases #2 - 5 over the next 8 to 9 years based on market demand. Portions of the cost of such improvements will be financed by private developers and additional bonds (the “Phased Bonds”) expected to be issued by the Town and secured by additional assessments levied and collected in each of such phases. The Developer anticipates that multiple series of Phased Bonds will need to be issued over a five-year period, as described in the Service and Assessment Plan. The total cost of such improvements is forecasted to be approximately $25,325,000. See “SECURITY FOR THE BONDS – Additional Obligations” for a description of certain conditions precedent to issuance of Phased Bonds.

The Bonds and the Phase #1 Bonds are separate and distinct issues of securities secured by separate assessments. The Phase #1 Bonds are not offered pursuant to this Official Statement.

The Bonds

Proceeds of the Bonds will be used to provide funds for (i) paying Phases #2 - 5’s proportionate share of the cost of the Major Improvement Projects, (ii) paying a portion of the interest on the Bonds during construction of the Major Improvement Projects, (iii) funding a reserve fund for the payment of principal of and interest on the Bonds, (iv) paying a portion of the costs incidental to the organization of the District, and (v) paying the costs of issuing the Bonds. To the extent that a portion of the proceeds of the Bonds is allocated for the payment of the cost of issuance of the Bonds and less than all of such amount is used to pay such costs, the excess amount may, at the option of the Town, be transferred to the Phases #2 - 5 Account of the Project Fund (both defined herein) or to the Principal and Interest Account of the Bond Fund to pay interest on the Bonds. See “THE MAJOR IMPROVEMENT PROJECTS,” “APPENDIX A – Form of Indenture” and “SOURCES AND USES OF FUNDS.”

Payment of the Bonds is secured by a pledge of and a lien upon the Pledged Revenues, consisting primarily of Phases #2 - 5 Assessments to be levied against the assessable parcels or lots within Phases #2 - 5 of the District, all to the extent and upon the conditions described herein and in the Indenture. See “SECURITY FOR THE BONDS” and “ASSESSMENT PROCEDURES.”

When compared to the estimated aggregate retail value of the taxable property in Phases #2 - 5 of the District ($40,970,000), the principal amount of the Bonds has an estimated value to assessment burden ratio of 3 to 1. See “APPRAISAL OF PROPERTY WITHIN THE DISTRICT – Value to Assessment Burden Ratio.”

DESCRIPTION OF THE BONDS

General Description

The Bonds will mature on the dates and in the amounts set forth in the inside cover page of this Official Statement. Interest on the Bonds will accrue from their date of delivery to the Underwriter and will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Bonds will be payable on each March 1 and September 1, commencing September 1, 2014 (each an “Interest Payment Date”), until maturity or prior redemption.

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The Bank of New York Mellon Trust Company, National Association is the initial Trustee, Paying Agent and Registrar for the Bonds.

The Bonds will be issued in fully registered form, without coupons, in authorized denominations of $100,000 of principal and any integral multiple of $5,000 in excess thereof (“Authorized Denominations”). Upon initial issuance, the ownership of the Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”), and purchases of beneficial interests in the Bonds will be made in book-entry only form. See “BOOK-ENTRY ONLY SYSTEM” and “SUITABILITY FOR INVESTMENT.”

Redemption Provisions

Optional Redemption. The Town reserves the right and option to redeem Bonds before their scheduled maturity dates, in whole or in part, on any Interest Payment Date beginning on the dates shown below, such redemption date or dates to be fixed by the Town, at the prices shown below (expressed as a percentage of par), plus accrued interest to the redemption date.

$4,055,000 Term Bonds due September 1, 2021

Redemption Date Redemption Price March 1, 2016 or September 1, 2016 103% March 1, 2017 or September 1, 2017 102 March 1, 2018 or September 1, 2018 101 March 1, 2019 and thereafter 100





$1,475,000 Serial Bonds due September 1, 2028


As described in “THE DEVELOPMENT — Development Plans,” the Developer expects to construct and install local improvements benefitting each of Phases #2 - 5 of the District over the next 8 to 9 years based on market demand. Portions of the cost of such improvements will be financed by the Phased Bonds expected to be issued by the Town and secured by additional assessments levied and collected in each of such phases. At the time of issuance of each series of Phased Bonds, the Town expects to refund a pro-rata portion of the Bonds based upon the proportion that the relevant phase bears to the total area of Phases #2 - 5. The redemption schedule above is intended to facilitate such redemptions as development in the District progresses. See “SECURITY FOR THE

4

BONDS – Additional Obligations” for a description of certain conditions precedent to issuance of Phased Bonds. See also “SECURITY FOR THE BONDS — Pledged Revenues.”

Extraordinary Optional Redemption. The Bonds are subject to extraordinary optional redemption by the Town prior to their scheduled maturity on the first day of any month after the required notice of redemption at a redemption price equal to 100% of the principal amount of the Bonds, or portions thereof, to be redeemed plus accrued interest to the redemption date from voluntary prepayments of Phases #2 - 5 Assessments by property owners (“Prepayments”), including related transfers to the Redemption Fund. See “ASSESSMENT PROCEDURES — Prepayment of Assessments” for a description of Prepayments. No redemption shall be made which results in a Bond remaining outstanding in a principal amount less than an Authorized Denomination. See “APPENDIX A — Form of Indenture.”

Mandatory Sinking Fund Redemption. The Bonds are subject to mandatory sinking fund redemption prior to their respective maturities and will be redeemed by the Town in part at a price of 100% of the principal amount thereof, plus accrued interest to the redemption date, from moneys available for such purpose in the Principal and Interest Account of the Bond Fund pursuant to the Indenture, on the dates and in the respective principal amounts as set forth in the following schedules:


Redemption Date Principal Amount September 1, 2016 $535,000 September 1, 2017 590,000 September 1, 2018 640,000 September 1, 2019 700,000 September 1, 2020 760,000 September 1, 2021† 830,000 $2,945,000 Term Bonds due September 1, 2024

Redemption Date Principal Amount September 1, 2022 $900,000 September 1, 2023 980,000 September 1, 2024† 1,065,000 $3,765,000 Term Bonds due September 1, 2027

Redemption Date Principal Amount September 1, 2025 $1,155,000 September 1, 2026 1,250,000 September 1, 2027† 1,360,000

† Stated maturity.

At least forty-five (45) days prior to each sinking fund redemption date, the Trustee will select a principal amount of Bonds equal to the sinking fund installment amount of such Bonds to be redeemed, will call such Bonds for redemption on such scheduled mandatory redemption date, and shall give notice of such redemption, as provided in the Indenture.

The principal amount of Bonds required to be redeemed on any mandatory sinking fund redemption date shall be reduced, at the option of the Town, by the principal amount of any Bonds of such maturity which, at least 45 days prior to the sinking fund redemption date shall have been acquired by the Town at a price not exceeding the principal amount of such Bonds plus accrued unpaid interest to the date of purchase thereof, and delivered to the Trustee for cancellation.

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The principal amount of Bonds required to be redeemed on any mandatory sinking fund redemption date shall be reduced on a pro rata basis among sinking fund installments by the principal amount of any Bonds which, at least 45 days prior to the mandatory sinking fund redemption date, shall have been redeemed pursuant to the optional redemption or extraordinary optional redemption provisions hereof and not previously credited to a mandatory sinking fund redemption.

Notice of Redemption. Notice of any redemption shall be given by the Trustee at least thirty (30) days prior to the redemption date by giving written notice to the Owner of each Bond to be redeemed in whole or in part at the address shown on the Register by first-class mail, postage prepaid. Any such notice shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. When such Bonds have been called for redemption, in whole or in part, and due provision has been made to redeem same, such Bonds, or portions thereof, shall no longer be regarded as Outstanding except for the purposes of receiving payment from the funds provided for redemption, and the right of the Owners to collect interest on such Bonds or portions thereof which would otherwise accrue after the redemption date shall be terminated.

With respect to any optional redemption of the Bonds, unless the Trustee has received funds sufficient to pay the Redemption Price of the Bonds to be redeemed before giving of a notice of redemption, the notice may state that the Town may condition redemption on the receipt of such funds by the Trustee on or before the date fixed for the redemption, or on the satisfaction of any other prerequisites set forth in the notice of redemption. If a conditional notice of redemption is given and such prerequisites to the redemption and sufficient funds are not received, the notice shall be of no force and effect, the Town shall not redeem the Bonds and the Trustee shall give notice, in the manner in which the notice of redemption was given, that the Bonds have not been redeemed.

The Town has the right to rescind any optional redemption or extraordinary optional redemption by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default under the Indenture. The Trustee shall mail notice of rescission of redemption in the same manner notice of redemption was originally provided.

Additional Provisions with Respect to Redemption. Bonds may be redeemed in part only in Authorized Denominations. If less than all of the Bonds are to be redeemed, the Bonds to be redeemed shall be selected by any method selected by the Trustee that results in a random selection, and treating each minimum Authorized Denomination of the Bonds as a single Bond for such purposes.

Upon surrender of any Bond in part, the Trustee, in accordance with the provisions of the Indenture, shall authenticate and deliver in exchange thereof a Bond or Bonds of like tenor, maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond or Bonds so surrendered.

BOOK-ENTRY ONLY SYSTEM

This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company ("DTC"), New York, New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The Town and the Underwriter believe the source of such information to be reliable, but neither the Town nor the Underwriter takes responsibility for the accuracy or completeness thereof.

The Town cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis or (3) DTC will serve and act in the manner described in this Official Statement. 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.

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DTC 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 security 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 registered 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 companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of “AA+”. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

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 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 Bonds of the same series and maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant of such series and maturity to be redeemed.

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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 Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Town 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, interest and 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 Town or Paying Agent/Registrar, on the payment 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 nor its nominee, the Trustee, the Paying Agent/Registrar, or the Town, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest and payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee, the Paying Agent/Registrar or the Town, 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 securities depository with respect to the Bonds at any time by giving reasonable notice to the Town or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered.

The Town may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. Thereafter, Bond certificates may be transferred and exchanged as described in the Indenture.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Town believes to be reliable, but none of the Town, the Town’s Financial Advisor or the Underwriter takes no responsibility for the accuracy thereof.

NONE OF THE TOWN, THE TRUSTEE, THE PAYING AGENT, THE TOWN’S FINANCIAL ADVISOR OR THE UNDERWRITER WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO THE DTC PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEE WITH RESPECT TO THE PAYMENTS TO OR THE PROVIDING OF NOTICE FOR THE DTC PARTICIPANTS, THE INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS OF THE BONDS. THE TOWN CANNOT AND DOES NOT GIVE ANY ASSURANCES THAT DTC, THE DTC PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS OF PRINCIPAL OF OR INTEREST ON THE BONDS PAID TO DTC OR ITS NOMINEE, AS THE REGISTERED OWNER, OR PROVIDE ANY NOTICES TO THE BENEFICIAL OWNERS OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC WILL ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. 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.

SECURITY FOR THE BONDS

General

THE BONDS ARE SPECIAL OBLIGATIONS OF THE TOWN PAYABLE SOLELY FROM PLEDGED REVENUES AND ANY OTHER FUNDS HELD UNDER THE INDENTURE, AS AND TO THE EXTENT PROVIDED IN THE INDENTURE. THE BONDS ARE NOT SECURED BY FUNDS RAISED OR TO BE RAISED FROM TAXATION AND DO NOT GIVE RISE TO A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE TOWN AND ARE NOT SECURED EXCEPT AS PROVIDED IN THE INDENTURE. THE OWNERS OF THE BONDS SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT THEREOF OUT OF ANY FUNDS OF THE TOWN OTHER THAN THE PLEDGED REVENUES AND ANY OTHER FUNDS HELD UNDER THE INDENTURE, AS AND TO THE EXTENT PROVIDED IN THE INDENTURE. THE TOWN SHALL

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HAVE NO LEGAL OR MORAL OBLIGATION TO THE OWNERS OF THE BONDS TO PAY THE BONDS OUT OF ANY FUNDS OF THE TOWN OTHER THAN THE PLEDGED REVENUES.

NOTWITHSTANDING THE FOREGOING, PURSUANT TO THE DEVELOPMENT AGREEMENT (DEFINED HEREIN), THE TOWN HAS CREATED A TAX INCREMENT REINVESTMENT ZONE (THE “ZONE”) ACROSS THE DISTRICT AND HAS AGREED WITH THE DEVELOPER TO DEDICATE FORTY SIX PERCENT (46%) OF ITS ANNUAL AD VALOREM TAX INCREMENT REVENUE COLLECTED IN THE ZONE TO PAYMENT OF COSTS OF CERTAIN IMPROVEMENTS, INCLUDING THE MAJOR IMPROVEMENT PROJECTS. SUCH TAX INCREMENT REVENUE MAY BE USED BY THE TOWN TO PAY PRINCIPAL OF AND INTEREST ON THE BONDS. ANY AMOUNT OF SUCH TAX INCREMENT USED TO PAY PRINCIPAL OF AND INTEREST ON THE BONDS WILL RESULT IN A REDUCTION IN ANNUAL INSTALLMENTS OF PHASES #2 - 5 ASSESSMENTS BY A CORRESPONDING AMOUNT. SUCH TAX INCREMENT REVENUE IS NOT PLEDGED TO THE BONDS UNDER THE INDENTURE.

The principal of, premium, if any, and interest on the Bonds are secured by a pledge of and a lien upon the pledged revenues (the “Pledged Revenues”), consisting primarily of Phases #2 - 5 Assessments levied against the assessable parcels or lots within Phases #2 - 5 of the District, all to the extent and upon the conditions described herein and in the Indenture. Phases #2 - 5 contain approximately 448 acres, of which approximately 193 acres is expected to constitute the Phases #2 - 5 Assessed Parcels. In accordance with the PID Act, the Town has caused the preparation of a Service and Assessment Plan (as amended and supplemented from time to time, the “Service and Assessment Plan”), which describes the special benefit received by the property within the District, including Phases #2 - 5, provides the basis and justification for the determination of special benefit on such property, establishes the methodology for the levy of Assessments (including Phases #2 - 5 Assessments) and provides for the allocation of Pledged Revenues for payment of principal of, premium, if any, and interest on the Bonds. The Service and Assessment Plan is reviewed and updated annually for the purpose of determining the annual budget for improvements and the Annual Installments (as defined below) of Phases #2 - 5 Assessments due in a given year. The determination by the Town of the assessment methodology set forth in the Service and Assessment Plan is the result of the discretionary exercise by the Town Council of its legislative authority and governmental powers and is conclusive and binding on all current and future owners and developers within the District. See “APPENDIX B — Service and Assessment Plan.”

Pledged Revenues

The Town is authorized by the PID Act, the Assessment Ordinance and other provisions of law to finance the Major Improvement Projects by levying Phases #2 - 5 Assessments upon properties in Phases #2 - 5 benefitted thereby. For a description of the assessment methodology and the amounts of Phases #2 - 5 Assessments anticipated to be levied in Phases #2 - 5, see “ASSESSMENT PROCEDURES” and “APPENDIX B — Service and Assessment Plan.”

Pursuant to the Indenture, Pledged Revenues are the sum of (i) the Assessment Revenue, less the Annual Collection Costs, and (ii) moneys held in the Pledged Funds. “Assessment Revenue” means monies actually collected by or on behalf of the Town from any one or more of the following: (i) a Phases #2 - 5 Assessment, or an Annual Installment thereof, including any interest on such Phases #2 - 5 Assessment or Annual Installment thereof during a period of delinquency, (ii) a Prepayment, (iii) Delinquent Collection Costs and (iv) Foreclosure Proceeds. “Annual Installment” means, with respect to each Assessed Parcel in Phases #2 - 5, (i) each annual payment of principal of and interest on the Bonds, and (ii) Annual Collection Costs, as shown on the Assessment Roll attached as Appendix F to the Service and Assessment Plan. Phases #2 - 5 Assessments also include any supplemental assessments levied in accordance with Sections 372.019 and 372.020 of the PID Act. The Town will covenant in the Indenture that it will take and pursue all actions permissible under Applicable Laws to cause the Phases #2 - 5 Assessments to be collected and the liens thereof to be enforced continuously. See “– Pledged Revenue Fund,” “APPENDIX A — Form of Indenture” and “APPENDIX B — Service and Assessment Plan.”

As described in “THE DEVELOPMENT — Development Plans,” the Town expects to periodically levy additional assessments in each of Phases #2 - 5 of the District and to issue Phased Bonds secured by such additional assessments to finance the local improvements benefitting each such phase. When the Town issues a series of Phased Bonds, it may elect to concurrently refund a pro-rata portion of the Bonds based upon the proportion that the relevant phase bears to the total area of Phases #2 - 5. If the Town makes such an election, the Assessments levied

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in such phase to secure repayment of the Bonds will be released from the Trust Estate for the Bonds and will no longer constitute Pledged Revenues securing repayment of the Bonds. The lien of such additional assessments will have no effect on the lien position of the Owners of the Bonds with respect to the remaining Trust Estate.

Although the Phased Bonds will not be parity obligations with the Bonds because they will be secured by separate assessments, their lien priority relative to other liens on a parcel will be equal to that of the lien for the Assessments and ad valorem tax liens, as described below. See “— Additional Obligations.”

The PID Act provides that the Phases #2 - 5 Assessments (including any reassessment, with interest, the expense of collection and reasonable attorney’s fees, if incurred) are a first and prior lien (the “Assessment Lien”) against the property assessed, superior to all other liens or claims, except liens and claims by the State of Texas (the “State”), counties, cities, school districts, or other municipalities for ad valorem taxes and are a personal liability of and charge against the owners of property, regardless of whether the owners are named. Pursuant to the PID Act, the Assessment Lien is effective from the date of the Assessment Ordinance until the Phases #2 - 5 Assessments are paid (or otherwise discharged), and is enforceable by the Town Council in the same manner that an ad valorem property tax levied against real property may be enforced by the Town Council. See “ASSESSMENT PROCEDURES” and “BONDHOLDERS’ RISKS — Assessment Limitations" herein.

The Assessments levied in the Assessment Ordinance and described in the Service and Assessment Plan are set at a level sufficient to fund costs of the Major Improvement Projects in the approximate amount of $9,406,909. As described above, the Town has created the Zone and has agreed in the Development Agreement to contribute forty six percent (46%) of its ad valorem tax increment revenue collected in the Zone to payment of costs of certain public improvements, including the Major Improvement Projects. To the extent that such revenue is used to pay principal of and interest on the Bonds, the amount of Annual Installments levied for such purpose will be reduced.

Collection and Deposit of Assessments

The Phases #2 - 5 Assessments shown on the Phases #2-5 Major Improvement Assessment Roll, together with the interest thereon, shall be applied to the payment of the principal of and interest on the Bonds as and to the extent provided in the Service and Assessment Plan and the Indenture.

The Phases #2 - 5 Assessments assessed to pay debt service on the Bonds, together with interest thereon, are payable in Annual Installments established by the Assessment Ordinance and the Service and Assessment Plan to correspond, as nearly as practicable, to the debt service requirements for the Bonds. A Phases #2 - 5 Assessment has been made payable in the Assessment Ordinance in each Fiscal Year preceding the date of final maturity of the Bonds which, if collected, will be sufficient to pay the portion of the debt service requirements attributable to Phases #2 - 5 Assessments in the Service and Assessment Plan. Each Annual Installment is payable as provided in the Service and Assessment Plan and the Assessment Ordinance.

A record of the Phases #2 - 5 Assessments on each parcel, tract or lot which are to be collected in each year during the term of the Bonds is shown on the Assessment Roll. Sums received from the collection of the Phases #2 - 5 Assessments to pay the debt service requirements (including delinquent installments, Foreclosure Proceeds and penalties) and of the interest thereon shall be deposited into the Bond Pledged Revenue Account of the Pledged Revenue Fund, except that amounts received as Prepayments shall be deposited into the Redemption Fund.

Portions of the Assessments collected as Annual Collection Costs shall be deposited in the Administrative Fund and shall not constitute Pledged Revenues.

Unconditional Levy of Assessments

The Town has imposed Phases #2 - 5 Assessments on the property within Phases #2 - 5 of the District to pay the principal of and interest on the Bonds scheduled for payment from Pledged Revenues as described in the Indenture and in the Service and Assessment Plan and coming due during each Fiscal Year. The Phases #2 - 5 Assessments shall be effective on the date of, and strictly in accordance with the terms of, the Assessment Ordinance. Each Phases #2 - 5 Assessment may be paid immediately in full or in periodic Annual Installments over

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a period of time equal to the term of the Bonds, which installments shall include interest on the Phases #2 - 5 Assessments. Pursuant to the Assessment Ordinance, interest on the Phases #2 - 5 Assessments has been calculated at the rate of interest on the Bonds plus 0.50%, calculated on the basis of a 360-day year of twelve 30-day months. Such rate may be adjusted as described in the Service and Assessment Plan. Each Annual Installment, including the interest on the unpaid amount of a Phases #2 - 5 Assessment, shall be assessed on September 1 and shall be due on October 1 of each year. Each Annual Installment together with interest thereon shall be delinquent if not paid prior to February 1 of the following year. The initial Annual Installments will be due on October 1, 2014, and will be delinquent if not paid prior to February 1, 2015.

As authorized by Section 372.003(b)(14) of the PID Act, the Town will levy, assess, and collect each year while the Bonds are Outstanding and unpaid, commencing September 2014, an Assessment to pay the annual costs incurred by the Town in the administration and operation of Phases #2 - 5 of the District. The Phases #2 - 5 Administrative Expense Special Assessment to pay such annual costs shall remain in effect from year to year until all Bonds are finally paid or until the Town adjusts the levy after an annual review in any year pursuant to Section 372.015(d) of the PID Act. The Assessments to pay annual expenses shall be due in the manner set forth in the Assessment Ordinance on October 1 of each year and shall be delinquent if not paid by February 1 of the following year. Such Assessments to pay expenses do not secure repayment of the Bonds.

There will be no split payment of Phases #2 - 5 Assessments or discount for the early payment of Phases #2 - 5 Assessments.

Phases #2 - 5 Assessments, together with interest, penalties, and expense of collection and reasonable attorneys’ fees, as permitted by the Texas Tax Code, shall be a first and prior lien against the property assessed, superior to all other liens and claims, except liens or claims for State, county, city, school district or municipal ad valorem taxes and shall be a personal liability of and charge against the owner of the property regardless of whether the owners are named. The lien for Phases #2 - 5 Assessments and penalties and interest begins on the effective date of the Assessment Ordinance and continues until the Phases #2 - 5 Assessments are paid or until all Bonds are finally paid.

Failure to pay an Annual Installment when due shall not accelerate the payment of the remaining Annual Installments of the Phases #2 - 5 Assessments and such remaining Annual Installments (including interest) shall continue to be due and payable at the same time and in the same amount and manner as if such default had not occurred.

Perfected Security Interest

Chapter 1208, Texas Government Code, applies to the issuance of the Bonds and the pledge of the Pledged Revenues and such pledge is valid, effective, and perfected. The Town will covenant in the Indenture that should Texas law be amended at any time while the Bonds are outstanding and unpaid, the result of such amendment being that the pledge of such revenues is subject to the filing requirements of Chapter 9, Texas Business & Commerce Code, in order to preserve to the registered owners of the Bonds a security interest in such pledge, the Town will take such measures as it determines are reasonable and necessary to enable a filing of a security interest in said pledge to occur. See “APPENDIX A — Form of Indenture.”

Pledged Revenue Fund

The Town has created under the Indenture a Pledged Revenue Fund to be held by the Trustee. On or about February 20th of each year while the Bonds are outstanding, and beginning with the year the Phases #2 - 5 Assessments are collected, the Town shall deposit or cause to be deposited the Pledged Revenues into the Pledged Revenue Fund. Such Pledged Revenues shall be (a) first, deposited to the Bond Pledged Revenue Account of the Pledged Revenue Fund in an amount sufficient to pay debt service on the Bonds next coming due, (b) second, deposited to the Reserve Account of the Reserve Fund in an amount necessary to cause the amount on deposit therein to equal the Reserve Fund Requirement, (c) third, to pay other costs of the Major Improvement Projects, and (d) to pay any other costs permitted by the PID Act.

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From time to time as needed to pay the obligations relating to the Bonds, but no later than five business days before each Interest Payment Date, the Trustee shall withdraw from the Bond Pledged Revenue Account of the Pledged Revenue Fund, and transfer to the Principal and Interest Account of the Bond Fund, an amount, taking into account any amounts then on deposit in such Principal and Interest Account and any expected transfers from the Capitalized Interest Account to the Principal and Interest Account, such that the amount on deposit in the Principal and Interest Account equals the principal (including any Sinking Fund Installments) and interest due on the Bonds on the next Interest Payment Date.

If, after the foregoing transfers and any transfer from the Reserve Fund (as described under “Reserve Fund” below), there are insufficient funds to make the payments provided in the preceding paragraph, the Trustee shall apply the available funds in the Principal and Interest Account first to the payment of interest, then to the payment of principal (including any Sinking Fund Installments) on the Bonds.

The Trustee shall transfer Prepayments to the Redemption Fund promptly after deposit of such amounts into the Pledged Revenue Fund.

The Trustee shall transfer Foreclosure Proceeds first to the Reserve Fund to restore any transfers from the Reserve Fund to the Bond Fund made with respect to the Assessed Parcel or Assessed Parcels to which the Foreclosure Proceeds relate, and second, to the Redemption Fund promptly after deposit of such amounts into the Pledged Revenue Fund. Any Assessments remaining after satisfying the foregoing payments may be used for any lawful purpose for which Assessments may be used under the PID Act.

Reserve Fund

Pursuant to the Indenture, a Reserve Account will be created within the Reserve Fund for the benefit of the Bonds and held by the Trustee. The Reserve Fund Requirement will be funded at closing with proceeds of the Bonds. Pursuant to the Indenture, the “Reserve Fund Requirement” for the Bonds shall be an amount equal to the least of (i) Maximum Annual Debt Service on the Bonds as of their date of issuance, (ii) 125% of average Annual Debt Service on the Bonds as of their date of issuance, and (iii) 10% of the proceeds of the Bonds; provided, however, that such amount shall be reduced by the amount of any transfers made in connection with an extraordinary optional redemption as described in the next following paragraph. Also, as a result of an optional redemption of the Bonds, the Reserve Fund Requirement shall be reduced by a percentage equal to the pro rata amount of Bonds redeemed by such optional redemption divided by the total amount of the Outstanding Bonds prior to such redemption. As of the date of delivery of the Bonds, the Reserve Fund Requirement equals $1,224,000.

If, on any Maturity Date or Interest Payment Date, the amount on deposit in the Bond Fund is insufficient to pay the debt service on the Bonds due on such date, the Trustee shall, after first transferring any available funds on deposit in the Delinquency Reserve Account (described below), transfer from the Reserve Account of the Reserve Fund to the Bond Fund the amounts necessary to cure such deficiency. The Trustee shall determine the value of cash and investments on deposit in the Reserve Account as of September 30 of each year. So long as no Event of Default under the Indenture shall have occurred and be continuing, if as of the date of such determination the value of cash and investments on deposit in the Reserve Account exceeds the Reserve Fund Requirement, the Trustee shall transfer such excess to the Bond Fund. In the event of an extraordinary optional redemption of the Bonds from the proceeds of a Prepayment, the Trustee, pursuant to written directions from the Town, shall transfer from the Reserve Account to the Redemption Fund the amount specified in such directions, which shall be an amount equal to the difference between the Reserve Fund Requirement immediately prior to such extraordinary optional redemption, and the Reserve Fund Requirement immediately after such extraordinary optional redemption.

Prepayment Reserve Account of the Reserve Fund

Pursuant to the Indenture, a Prepayment Reserve Account will be created within the Reserve Fund and held by the Trustee for the benefit of the Bonds. The Trustee will transfer funds from the Pledged Revenue Fund to the Prepayment Reserve Account on a semi-annual basis until the amount on deposit therein is equal to the Prepayment Reserve Requirement. The Prepayment Reserve Requirement is $153,000. The Town has allocated 0.20% of the interest rate component of the Annual Installments for such purpose until such time as the Prepayment Reserve Account contains the full amount of the Prepayment Reserve Requirement; and, when the Prepayment Reserve

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Account contains the full amount of the Prepayment Reserve Requirement such 0.20% of the interest rate component of the Annual Installments shall be allocated to the Delinquency Reserve Account as provided below. See “APPENDIX A – Form of Indenture” and “APPENDIX B – Service and Assessment Plan.”

Money deposited in the Prepayment Reserve Account will be used and withdrawn by the Trustee for the purpose of making transfers to the Bond Fund, pursuant to, and at the times specified in, the Indenture to pay a portion of the accrued interest on Bonds being redeemed pursuant to an extraordinary optional redemption for Prepayments. The amount to be transferred shall be an amount, for each Prepayment, equal to the amount of interest that would have accrued on the Assessment but for the Prepayment for the period from and including the date of the Prepayment to but excluding the date of redemption of Bonds pursuant to an extraordinary optional redemption with the proceeds of such Prepayment.

If, on any Maturity Date or Interest Payment Date, the amount on deposit in the Bond Fund is insufficient to pay the debt service due on such date, and if there are not sufficient monies in the Delinquency Reserve Account and the Reserve Account of the Reserve Fund to cure such deficiency, the Trustee shall transfer from the Prepayment Reserve Account to the Bond Fund the amounts necessary to cure such deficiency.

Delinquency Reserve Account of the Reserve Fund

Pursuant to the Indenture, a Delinquency Reserve Account will be created within the Reserve Fund and held by the Trustee for the benefit of the Bonds. The Trustee will transfer funds from the Pledged Revenue Fund to the Delinquency Reserve Account on a semi-annual basis. The Delinquency Reserve Requirement is $489,600. The Town has allocated 0.30% of the interest rate component of the Annual Installments for such purpose. In addition, when the Prepayment Reserve Account contains the full amount of the Prepayment Reserve Requirement as described above, the Town will allocate an additional 0.20% of the interest rate component to the Delinquency Reserve Account for the purpose of meeting the Delinquency Reserve Requirement or redeeming Bonds as provided in the Indenture. See “APPENDIX A – Form of Indenture” and “APPENDIX B – Service and Assessment Plan.”

If, on any Maturity Date or Interest Payment Date, the amount on deposit in the Bond Fund is insufficient to pay the debt service on the Bonds due on such date, the Trustee shall transfer from the Delinquency Reserve Account of the Reserve Fund to the Bond Fund the amounts necessary to cure such deficiency. The Trustee shall determine the value of cash and investments on deposit in the Delinquency Reserve Account as of September 30 of each year. So long as no Event of Default under the Indenture shall have occurred and be continuing, if as of the date of such determination the value of cash and investments on deposit in the Delinquency Reserve Account exceeds the Delinquency Reserve Fund Requirement for the Bonds, the Trustee shall transfer such excess at the direction of the Town.

Once amounts on deposit in the Delinquency Reserve Account equal the Delinquency Reserve Requirement, the Town may continue to charge and collect the 0.30% or 0.50%, as the case may be, interest rate component and use the proceeds thereof to redeem Bonds.

Administrative Fund

The Town has created under the Indenture an Administrative Fund held by the Trustee. Upon receipt, the Town shall transfer to the Trustee, for deposit to the Administrative Fund, all amounts representing Annual Collection Costs. Monies in the Administrative Fund are not Pledged Revenues and may be used as directed by Town Order for the purposes set forth in the Service and Assessment Plan. See “APPENDIX B — Service and Assessment Plan.”

Defeasance

All Outstanding Bonds shall prior to the Stated Maturity or redemption date thereof be deemed to have been paid and to no longer be deemed Outstanding if (i) in case any such Bonds are to be redeemed on any date prior to their Stated Maturity, the Trustee shall have given notice of redemption on said date as provided in the Indenture, (ii) there shall have been deposited with the Trustee either moneys in an amount which shall be sufficient,

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or Defeasance Securities the principal of and the interest on which when due will provide moneys which, together with any moneys deposited with the Trustee at the same time, shall be sufficient to pay when due the principal of and interest on of the Bonds to become due on such Bonds on and prior to the redemption date or maturity date thereof, as the case may be, (iii) the Trustee shall have received a report by an independent certified public accountant selected by the Town verifying the sufficiency of the moneys or Defeasance Securities deposited with the Trustee to pay when due the principal of and interest on of the Bonds to become due on such Bonds on and prior to the redemption date or maturity date thereof, as the case may be, and (iv) if the Bonds are then rated, the Trustee shall have received written confirmation from each rating agency then rating the Bonds that such deposit will not result in the reduction or withdrawal of the rating on the Bonds. Neither Defeasance Securities nor moneys so deposited with the Trustee nor principal or interest payments on any such Defeasance Securities shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of and interest on the Bonds. Any cash received from such principal of and interest on such Defeasance Securities deposited with the Trustee, if not then needed for such purpose, shall be reinvested in Defeasance Securities as directed by the Town maturing at times and in amounts sufficient to pay when due the principal of and interest on the Bonds on and prior to such redemption date or maturity date thereof, as the case may be. Any payment for Defeasance Securities purchased for the purpose of reinvesting cash as aforesaid shall be made only against delivery of such Defeasance Securities.

“Defeasance Securities” means Investment Securities then authorized by applicable law for the investment of funds to defease public securities. “Investment Securities” means those authorized investments described in the Public Funds Investment Act, Chapter 2256, Texas Government Code, as amended (the “PFIA”); and provided further investments are, at the time made, included in and authorized by the Town’s official investment policy as approved by the Town Council from time to time. Under current law, the following constitute Defeasance Securities, all of which may be in book-entry form:

(i) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America;

(ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality, and that are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent; and

(iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent.

There is no assurance that the current law will not be changed in a manner which would permit investments other than those described above to be made with amounts deposited to defease the Bonds. Because the Indenture does not contractually limit such investments, Owners may be deemed to have consented to defeasance with such other investments, notwithstanding the fact that such investments may not be of the same investment quality as those currently permitted under State law. There is no assurance that the ratings for U.S. Treasury securities used as Defeasance Securities or that for any other Defeasance Security will be maintained at any particular rating category.

Events of Default

Each of the following occurrences or events constitutes an “Event of Default” under the Indenture:

(i) the failure of the Town to deposit the Pledged Revenues to the Bond Pledged Revenue Account of the Pledged Revenue Fund;

(ii) the failure of the Town to enforce the collection of the Phases #2 - 5 Assessments including the prosecution of foreclosure proceedings;

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(iii) default in the performance or observance of any covenant, agreement or obligation of the Town under the Indenture and the continuation thereof for a period of 60 days after written notice to the Town by the Trustee, or by the Owners of at least 25% of the aggregate outstanding principal of the Bonds with a copy to the Trustee, specifying such default by the Owners of at least 25% of the Bonds at the time Outstanding requesting that the failure be remedied.

Remedies in Event of Default

Upon the happening and continuance of any Event of Default, the Owners of not less than 25% in aggregate outstanding principal amount of the Bonds then Outstanding may proceed against the Town for the purpose of protecting and enforcing the rights of the Owners under the Indenture by action seeking mandamus or by other suit, action, or special proceeding in equity or at law in any court of competent jurisdiction for any relief to the extent permitted by Applicable Laws including, but not limited to, the specific performance of any covenant or agreement contained in the Indenture, or injunction; provided, however, that no action for money damages against the Town may be sought or will be permitted.

THE PRINCIPAL OF THE BONDS SHALL NOT BE SUBJECT TO ACCELERATION UNDER ANY CIRCUMSTANCES.

If the assets of the Trust Estate are sufficient to pay all amounts due with respect to Outstanding Bonds, in the selection of Trust Estate assets to be used in the payment of Bonds due in an Event of Default, the Town shall determine, in its absolute discretion, and shall instruct the Trustee by Town Order, which Trust Estate assets shall be applied to such payment and shall not be liable to any Owner or other Person by reason of such selection and application. In the event that the Town shall fail to deliver to the Trustee such Town Order, the Trustee shall select and liquidate or sell Trust Estate assets as provided in the following paragraph, and shall not be liable to any Owner, or other Person, or the Town by reason of such selection, liquidation or sale.

Whenever moneys are to be applied pursuant to an Event of Default, irrespective of and whether other remedies authorized under the Indenture shall have been pursued in whole or in part, the Trustee may cause any or all of the assets of the Trust Estate, including Investment Securities, to be sold. The Trustee may so sell the assets of the Trust Estate and all right, title, interest, claim and demand thereto and the right of redemption thereof, in one or more parts, at any such place or places, and at such time or times and upon such notice and terms as the Trustee may deem appropriate and as may be required by law and apply the proceeds thereof in accordance with the provisions of the Indenture. Upon such sale, the Trustee may make and deliver to the purchaser or purchasers a good and sufficient assignment or conveyance for the same, which sale shall be a perpetual bar both at law and in equity against the Town and all other Persons claiming such properties. No purchaser at any sale shall be bound to see to the application of the purchase money proceeds thereof or to inquire as to the authorization, necessity, expediency, or regularity of any such sale. Nevertheless, if so requested by the Trustee, the Town shall ratify and confirm any sale or sales by executing and delivering to the Trustee or to such purchaser or purchasers all such instruments as may be necessary or, in the judgment of the Trustee, proper for the purpose which may be designated in such request.

Restriction on Owner’s Actions

No Owner shall have any right to institute any action, suit or proceeding at law or in equity for the enforcement of the Indenture or for the execution of any trust thereof or any other remedy thereunder, unless (i) a default has occurred and is continuing of which the Trustee has been notified in writing or of which it is deemed to have notice, (ii) such default has become an Event of Default and the Owners of 25% of the aggregate principal amount of the Bonds then Outstanding have made written request to the Trustee and offered it reasonable opportunity either to proceed to exercise the powers granted or to institute such action, suit or proceeding in its own name, (iii) the Owners have furnished to the Trustee indemnity as provided in the Indenture, (iv) the Trustee has for 60 days after such notice failed or refused to exercise the powers granted, or to institute such action, suit, or proceeding in its own name, (v) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Owners of a majority of the aggregate principal amount of the Bonds then Outstanding, and (vi) notice of such action, suit, or proceeding is given to the Trustee; however, no one or more owners of the Bonds shall have any right in any manner whatsoever to affect, disturb, or prejudice the Indenture by

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its, his or their action or to enforce any right hereunder except in the manner provided in the Indenture, and that all proceedings at law or in equity shall be instituted and maintained in the manner provided in the Indenture and for the equal benefit of the Owners of all Bonds then Outstanding. The notification, request and furnishing of shall, at the option of the Trustee, be conditions precedent to the execution of the powers and trusts of the Indenture and to any action or cause of action for the enforcement of the Indenture or for any other remedy thereunder.

Subject to provisions of the Indenture with respect to certain liabilities of the Town, nothing in the Indenture shall affect or impair the right of any Owner to enforce, by action at law, payment of any Bond Similarly Secured at and after the maturity thereof, or on the date fixed for redemption or the obligation of the Town to pay each Bond Similarly Secured issued thereunder to the respective Owners thereof at the time and place, from the source and in the manner expressed therein and in the Bonds.

In case the Trustee or any Owners shall have proceeded to enforce any right under the Indenture and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or any Owners, then and in every such case the Town, the Trustee and the Owners shall be restored to their former positions and rights thereunder, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken.

Application of Revenues and Other Moneys After Event of Default

All moneys, securities, funds and Pledged Revenues and the income therefrom received by the Trustee pursuant to any right given or action taken under the provisions of the Indenture with respect to Events of Default shall, after payment of the cost and expenses of the proceedings resulting in the collection of such amounts, the expenses (including its counsel), liabilities, and advances incurred or made by the Trustee and the fees of the Trustee in carrying out the Indenture, be applied by the Trustee, on behalf of the Town, to the payment of interest and principal or redemption price then due on Bonds, as follows:

(i) FIRST: To the payment to the Owners entitled thereto all installments of interest then due in the direct order of maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment, then to the payment thereof ratably, according to the amounts due on such installment, to the Owners entitled thereto, without any discrimination or preference; and

(ii) SECOND: To the payment to the Owners entitled thereto of the unpaid principal of Outstanding Bonds, or redemption price of any Bonds which shall have become due, whether at maturity or by call for redemption, in the direct order of their due dates and, if the amounts available shall not be sufficient to pay in full all the Bonds due on any date, then to the payment thereof ratably, according to the amounts of principal due and to the Owners entitled thereto, without any discrimination or preference.

Within ten (10) days of receipt of such good and available funds, the Trustee may fix a record and payment date for any payment to be made to Owners pursuant to this section.

The restoration of the Town to its prior position after any and all defaults have been cured, as provided above, shall not extend to or affect any subsequent default under the Indenture or impair any right consequent thereon.

Investment or Deposit of Funds

Money in any fund or account established pursuant to the Indenture (other than the Reserve Account) will be invested by the Trustee as directed by the Town pursuant to a Town Order filed with the Trustee at least two (2) days in advance of the making of such investment in time deposits or certificates of deposit secured in the manner required by law for public funds, or be invested in direct obligations of, including obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, in obligations of any agencies or instrumentalities thereof, or in such other investments as are permitted under the PFIA or any successor law, as in effect from time to time; provided that all such deposits and investments shall be made in such manner (which may include repurchase agreements for such investment with any primary dealer of such agreements) that the money required to be expended from any fund will be available at the proper time or times.

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Obligations purchased as an investment of moneys in any fund or account established pursuant to the Indenture shall be deemed to be part of such fund or account, subject, however, to the requirements of the Indenture for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts. Whenever in the Indenture any moneys are required to be transferred by the Town to the Trustee, such transfer may be accomplished by transferring a like amount of permitted investments.

Additional Obligations

The Town is not authorized to issue additional bonds secured by the Pledged Revenues on parity with the Bonds other than refunding bonds, the proceeds of which would be utilized to refund all or any portion of the Outstanding Bonds, and to pay all costs incident to the issuance of such refunding bonds.

The Town may issue bonds secured by and payable from Pledged Revenues so long as such pledge is subordinate to the pledge of Pledged Revenues securing payment of the Bonds.

As described above under “— Pledged Revenues,” the Town expects to periodically levy additional separate assessments in Phases # 2 - 5 of the District and to issue Phased Bonds secured by such assessments to finance the local improvements benefitting each such phase. Although the Phased Bonds will not be parity obligations with the Bonds because they will be secured by separate assessments, assuming no homestead claims have been made on assessable property prior to the levy of the separate assessments, their lien priority relative to other liens on a parcel will be equal to that of the lien for the Assessments and ad valorem tax liens, as described below. See “BONDHOLDERS’ RISKS – Assessment Limitations.”

Despite the fact that the Phased Bonds will not be parity obligations with the Bonds, their issuance is conditioned on certain requirements being satisfied, as follows:

1. At least eighty percent (80%) of the residential lots within a particular phase must be under contract with unrelated merchant homebuilders;

2. The ratio of the appraised value of all of the land in a phase, based on an independent appraisal, to the principal amount of the Phased Bonds to finance the improvements within such phase must be at least 3:1;

3. Construction contracts for at least 75% of the costs of the improvements in such phase to be paid with proceeds of the applicable series of Phased Bonds must be executed and ready to proceed; and

4. Construction of residences in all previously financed phases taken as a whole must be at least fifty percent (50%) complete.

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SOURCES AND USES OF FUNDS

The table that follows summarizes the expected sources and uses of proceeds of the Bonds:

Sources of Funds: Principal Amount $12,240,000.00 Total Sources $12,240,000.00

Use of Funds:

Deposit to Improvement Account of Project Fund $9,145,000.00 Deposit to Capitalized Interest Account of Bond Fund 435,062.89 Deposit to Reserve Account of the Reserve Fund 1,224,000.00 Costs of Issuance(1) 1,435,937.11 Total Uses $12,240,000.00

(1) Includes Underwriter’s discount, additional proceeds, structuring fee and a portion of the costs to create the District.

DEBT SERVICE REQUIREMENTS

The following table sets forth the debt service requirements for the Bonds:

Year Ending (September 1)

Principal

Interest

Total

2014 - $ 435,062.89 $ 435,062.89 2015 - 851,210.00 851,210.00 2016 $ 535,000 851,210.00 1,386,210.00 2017 590,000 815,632.50 1,405,632.50 2018 640,000 776,397.50 1,416,397.50 2019 700,000 733,837.50 1,433,837.50 2020 760,000 687,287.50 1,447,287.50 2021 830,000 636,747.50 1,466,747.50 2022 900,000 581,552.50 1,481,552.50 2023 980,000 519,452.50 1,499,452.50 2024 1,065,000 451,832.50 1,516,832.50 2025 1,155,000 378,347.50 1,533,347.50 2026 1,250,000 295,765.00 1,545,765.00 2027 1,360,000 206,390.00 1,566,390.00 2028 1,475,000 109,150.00 1,584,150.00 Total $ 12,240,000 $ 8,329,875.39 $ 20,569,875.39

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OVERLAPPING TAXES AND DEBT

Pursuant to the Valencia on the Lake Pre-Annexation Agreement, Development Agreement, Public Improvement District Agreement and Tax Increment Reinvestment Zone Agreement, effective November 5, 2013 (the “Development Agreement”), by and between the Town and the Developer, the Town intends to annex the District for full purposes and levy ad valorem taxes within the District beginning in the Spring of 2014. In addition, the land within the District has been, and is expected to continue to be, subject to taxes and assessments imposed by taxing entities other than the Town. Such taxes are payable in addition to the Phases #2 - 5 Assessments.

In addition to the Phases #2 - 5 Assessments described above, the Developer has anticipated that each lot owner in Phases #2 - 5 will pay a maintenance and operation fee and/or a property owner’s association fee. In addition, Denton County, the Frisco Independent School District and the Little Elm Independent School District may each levy ad valorem taxes upon land in the District for payment of debt incurred by such governmental entities and/or for payment of maintenance and operations expenses. The Town has no control over the level of ad valorem taxes or special assessments levied by such other taxing authorities. The following table reflects the overlapping ad valorem tax rates currently levied on property located in the District.

Taxing Entity Ad Valorem Tax Rate* Denton County $0.282867 Frisco Independent School District 1.460000 Little Elm Independent School District 1.540000 The Town $0.664971 Total $3.947838 ______________________ *Per $100 taxable appraised value.

Source: Denton Central Appraisal District

As noted above, the District includes territory located in other governmental entities that may issue or incur debt secured by the levy and collection of ad valorem taxes. Set forth below is an overlapping debt table showing the outstanding indebtedness payable from ad valorem taxes with respect to property within Phases #2 - 5 of the District, as of September 30, 2013, and Town debt secured by the Phases #2 - 5 Assessments:

Taxing or Assessing Entity

Total Outstanding Debt

Estimated % Applicable(1)

Direct and Estimated

Overlapping Debt(1)

The Town (Phases #2 - 5 Assessments) $ 12,240,000 100 $12,240,000 The Town (ad valorem taxes) 74,900,000 3.77 2,823,730 Denton County 596,245,000 0.08 476,996 Frisco Independent School District 1,353,110,843 0.93 12,583,931 Little Elm Independent School District 141,436,817 1.80 2,545,863 $2,177,932,660 $30,670,520

(1) Based upon ratio of acreage of Phases #2 - 5 to total acreage of the taxing entity. Source: Municipal Advisory Council of Texas (taxes) and the Town (Phases #2 - 5 Assessments)

If land is devoted principally to agricultural use, the developer can apply for an agricultural valuation on the property and pay ad valorem taxes based on the land’s agricultural value. The property in the District is currently subject to an agricultural valuation with respect to its ad valorem taxes. Agricultural use includes production of crops or livestock. It also can include leaving the land idle for a government program or for normal crop or livestock rotation. The property in the District is subject to hay and/or grazing leases. These leases and lessees’ operations on the property allow the property to maintain its agricultural valuation. The Developer expects to terminate portions of these leases as construction of local improvements commences in each phase.

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If land qualified for an agricultural valuation and the land use changes to a non-agricultural use, “rollback

taxes” are assessed for each of the previous 5 years in which the land received the lower agricultural valuation. The rollback tax is the difference between taxes paid on land’s agricultural value and the taxes that the land owner would have paid if the land had been taxed on a higher market value plus interest charged for each year from the date on which taxes would have been due.

If the land use changes to a non-agricultural use on only a portion of a larger tract, the land owner can

fence off the remaining land and maintain the agricultural valuation on the remaining land. In this scenario, the land owner would only be responsible for rollback taxes on that portion of the land where use changed and not the entire tract.

It is expected that rollback taxes will be paid by the Developer or purchasers from the Developer during development of Phases #2 - 5 and prior to purchase of parcels or lots by homeowners.

ASSESSMENT PROCEDURES

General

As required by the PID Act, when the Town determines to defray a portion of the costs of the Major Improvement Projects through the Phases #2 - 5 Assessments, it must adopt a resolution generally describing the Major Improvement Projects and the land within Phases #2 - 5 of the District to be subject to Phases #2 - 5 Assessments to pay the cost therefor. The Town has caused an assessment roll to be prepared (the “Assessment Roll”), which Assessment Roll will show the land within Phases #2 - 5 to be assessed, the amount of the benefit to and the Phases #2 - 5 Assessment against each lot or parcel of land and the number of Annual Installments in which the Phases #2 - 5 Assessment is divided. The Assessment Roll will be filed with the Town Secretary and made available for public inspection. Statutory notice was given to the owners of the property to be assessed and a public hearing was conducted to hear testimony from affected property owners as to the propriety and advisability of undertaking the Major Improvement Projects and funding a portion of the same with Phases #2 - 5 Assessments. The Town expects to proceed to levy the Phases #2 - 5 Assessments and adopt the Assessment Ordinance immediately prior to adopting the Bond Ordinance. After such adoption, the Phases #2 - 5 Assessments will become legal, valid and binding liens upon the property against which the Phases #2 - 5 Assessments are made.

Under the PID Act, the costs of Major Improvement Projects may be assessed by the Town against the assessable property in Phases #2 - 5 of the District so long as the special benefit conferred upon the assessed property by the Major Improvement Projects equals or exceeds the Phases #2 - 5 Assessments. The costs of the Major Improvement Projects may be assessed using any methodology that results in the imposition of equal shares of cost on assessed property similarly benefited. The allocation of benefits and assessments to the benefitted land within Phases #2 - 5 of the District is presented in the Service and Assessment Plan, which should be read in its entirety. See “APPENDIX B — Service and Assessment Plan.”

Assessment Methodology

The Service and Assessment Plan describes the special benefit to be received by each parcel of assessable property as a result of the Major Improvement Projects, provides the basis and justification for the determination that such special benefit exceeds the Phases #2 - 5 Assessments being levied, and establishes the methodology by which the Town allocates the special benefit of the Major Improvement Projects to parcels in a manner that results in equal shares of costs being apportioned to parcels similarly benefited. As described in the Service and Assessment Plan, the costs of the Major Improvement Projects are being funded with proceeds of the Bonds, which are payable from and secured by Pledged Revenues, including the Phases #2 - 5 Assessment revenues. As set forth in the Service and Assessment Plan, the benefits received by the Major Improvement Projects are currently spread among the existing parcels in Phases #2 - 5 (the “Phases #2 - 5 Assessed Property”) based on the ratio of the Equivalent Units within Phases #2 - 5 to the total Equivalent Units within the District. As the existing parcels are subsequently divided, the Phases #2 - 5 Assessments will be further apportioned based on the ratio of the Equivalent Units of the newly created parcels. “Equivalent Units” means, as to any parcel, the number of dwelling units by lot type expected to be built on the parcel multiplied by the factors shown below:

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The Town has determined that such method of allocation will result in the imposition of equal shares of the Phases #2 - 5 Assessments on parcels similarly situated. The Phases #2 - 5 Assessments are expected to be paid in Annual Installments as described above. The determination by the Town of the assessment methodology set forth in the Service and Assessment Plan is the result of the discretionary exercise by the Town Council of its legislative authority and governmental powers and is conclusive and binding on the Developer, all other current owners of property within the District and all future owners and developers within the District. See “APPENDIX B — Service and Assessment Plan.”

Collection and Enforcement of Assessment Amounts

Under the PID Act, the Annual Installments may be collected in the same manner and at the same time as regular ad valorem taxes of the Town. The Phases #2 - 5 Assessments may be enforced by the Town in the same manner that an ad valorem tax lien against real property is enforced. Delinquent installments of the Phases #2 - 5 Assessments incur interest, penalties and attorney’s fees in the same manner as delinquent ad valorem taxes. Under the PID Act, the Assessment Lien is a first and prior lien against the property assessed, superior to all other liens and claims except liens or claims for State, county, school district or municipal ad valorem taxes. See “BONDHOLDERS’ RISKS — Assessment Limitations” herein.

The Town will covenant in the Indenture to collect, or cause to be collected, Phases #2 - 5 Assessments as provided in the Assessment Ordinance. No less frequently than annually, the Town staff shall prepare, and the Town Council shall approve, an Annual Service Plan Update to allow for the billing and collection of Annual Installments. Each Annual Service Plan Update shall include an updated Assessment Roll and a calculation of the Annual Installment for each Parcel. Administrative Expenses shall be allocated among Parcels in proportion to the amount of the Annual Installments for the Parcels.

The Town will covenant, agree and warrant in the Indenture that, for so long as any Bonds are Outstanding, it will take and pursue all actions permissible under Applicable Laws to cause the Phases #2 - 5 Assessments to be collected and the liens thereof enforced continuously, in the manner and to the maximum extent permitted by Applicable Laws, and to cause no reduction, abatement or exemption in the Phases #2 - 5 Assessments.

To the extent permitted by law, notice of the Annual Installments will be sent by, or on behalf of the Town, to the affected property owners on the same statement or such other mechanism that is used by the Town, so that such Annual Installments are collected simultaneously with ad valorem taxes and shall be subject to the same penalties, procedures, and foreclosure sale in case of delinquencies as are provided for ad valorem taxes of the Town.

The Town will determine or cause to be determined, no later than March 1 of each year, whether or not any Annual Installment is delinquent and, if such delinquencies exist, the Town will order and cause to be commenced as soon as practicable any and all appropriate and legally permissible actions to obtain such Annual Installment, and any delinquent charges and interest thereon, including diligently prosecuting an action in district court to foreclose the currently delinquent Annual Installment. Notwithstanding the foregoing, the Town shall not be required under any circumstances to purchase or make payment for the purchase of the delinquent Phases #2 - 5 Assessment or the corresponding Phases #2 - 5 Assessed Parcel.

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The Town will implement the basic timeline and procedures for Phases #2 - 5 Assessment collections and pursuit of delinquencies set forth in Exhibit C of the Continuing Disclosure Agreement set forth in APPENDIX D and to comply therewith to the extent that the Town reasonably determines that such compliance is the most appropriate timeline and procedures for enforcing the payment of delinquent Phases #2 - 5 Assessments.

A committee of not less than 25% of the Owners or Beneficial Owners may request a meeting with the Town Manager or Assistant Town Manager of the Town to discuss the Town’s actions in pursuing the payment of any Phases #2 - 5 Assessment delinquencies in the event that (i) on or after March 1 in any year, based on Phases #2 - 5 Assessment revenues collected to such date and the available money on deposit in the various funds and accounts under the Indenture, money in the Reserve Account will be required to be used to pay all or a portion of the principal or interest payments to be made on the Bonds during such year, or (ii) in any year, the aggregate amount of delinquent payments of Phases #2 - 5 Assessments is more than five percent (5%) of aggregate amount of Phases #2 - 5 Assessments due in such year.

The Town shall not be required under any circumstances to expend any funds for delinquent collection costs in connection with its covenants and agreements other than funds on deposit in the Administrative Fund.

Annual Installments will be paid to the Town or its agent. Annual Installments are due on October 1 of each year, and become delinquent on February 1 of the following year. In the event Phases #2 - 5 Assessments are not timely paid, there are penalties and interest as set forth below:

Date Payment Received

Cumulative Penalty

Cumulative Interest Total

February 6% 1% 7% March 7% 2% 9% April 8% 3% 11% May 9% 4% 13% June 10% 5% 15% July 12% 6% 18%

After July, the penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if

an account is delinquent in July, a 20% attorney’s collection fee may be added to the total penalty and interest charge. In general, property subject to lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. An automatic stay by creditors or other entities, including governmental units, could prevent governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In most cases, post-petition Phases #2 - 5 Assessments are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court.

Assessment Amounts

Phases #2 - 5 Assessment Amounts. The maximum amounts of the Phases #2 - 5 Assessments have been established by the methodology described in the Service and Assessment Plan. The Phases #2 - 5 Assessments will be levied against the parcels comprising the Phases #2 - 5 Assessed Property as indicated on the Assessment Roll. See “APPENDIX B — Service and Assessment Plan” and “APPENDIX F — Construction, Funding, and Acquisition Agreement.”

Method of Apportionment of Phases #2 - 5 Assessments. For purposes of the Service and Assessment Plan, the Town Council has determined that the Phases #2 - 5 Assessments shall be initially allocated to the Phases #2 - 5 Assessed Property based on the ratio of the Equivalent Units of each parcel to the total Equivalent Units within the District. As the existing parcels are subsequently divided, the Phases #2 - 5 Assessments will be further apportioned based on the ratio of the Equivalent Units of the newly created parcels. See “APPENDIX B — Service and Assessment Plan.” See “ASSESSMENT PROCEDURES — Assessment Methodology.”

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The total Phases #2 - 5 Assessments per Equivalent Unit is $18,005.30. The Bonds are secured by a first lien on and pledge of Pledged Revenues, including the Phases #2 - 5 Assessments. See “SECURITY FOR THE BONDS” and “APPENDIX B— Service and Assessment Plan.”

Prepayment of Assessments

Pursuant to the PID Act and the Indenture, the owner of any property assessed may voluntarily prepay all or part of any Phases #2 - 5 Assessment levied against any lot or parcel, together with accrued interest to the date of payment, at any time. Upon receipt of such Prepayment, such amounts will be applied towards the redemption or payment of the Bonds. Amounts received at the time of a Prepayment which represent a payment of principal, interest, or penalties on a delinquent installment of a Phases #2 - 5 Assessment are not to be considered a Prepayment, but rather are to be treated as payment of regularly scheduled Phases #2 - 5 Assessments.

Priority of Lien

The Phases #2 - 5 Assessments or any reassessment, the expense of collection, and reasonable attorney’s fees, if incurred, constitute a first and prior lien against the property assessed, superior to all other liens and claims except liens or claims for the State, county, school districts or municipality ad valorem taxes, and are a personal liability of and charge against the owners of the property regardless of whether the owners are named. The lien is effective from the date of the Assessment Ordinance until the Phases #2 - 5 Assessment is paid, and may be enforced by the Town in the same manner as an ad valorem tax levied against real property may be enforced by the Town. The owner of any property assessed may pay the entire Phases #2 - 5 Assessment levied against any lot or parcel, together with accrued interest to the date of payment, at any time.

Foreclosure Proceedings

In the event of delinquency in the payment of any Annual Installment, the Town is empowered to order institution of an action in state district court to foreclose the lien of such delinquent Annual Installment. In such action the real property subject to the delinquent Annual Installments may be sold at judicial foreclosure sale for the amount of such delinquent Annual Installments, plus penalties and interest.

Any sale of property for nonpayment of an installment or installments of a Phases #2 - 5 Assessment will be subject to the lien established for remaining unpaid installments of the Phases #2 - 5 Assessment against such property and such property may again be sold at a judicial foreclosure sale if the purchaser thereof fails to make timely payment of the nondelinquent installments of the Phases #2 - 5 Assessments against such property as they become due and payable. Judicial foreclosure proceedings are not mandatory. In the event a foreclosure is necessary, there could be a delay in payments to owners of the Bonds pending prosecution of the foreclosure proceedings and receipt by the Town of the proceeds of the foreclosure sale. It is possible that no bid would be received at the foreclosure sale, and in such event there could be an additional delay in payment of the principal of and interest on Bonds or such payment may not be made in full. The Town is not required under any circumstance to purchase or make payment for the purchase of the delinquent Phases #2 - 5 Assessment on the corresponding Phases #2 - 5 Assessed Property.

The Town will covenant in the Indenture to take and pursue all actions permissible under Applicable Laws to cause the Phases #2 - 5 Assessments to be collected and the liens thereof enforced continuously, in the manner and to the maximum extent permitted by Applicable Laws, and to cause no reduction, abatement or exemption in the Phases #2 - 5 Assessments, provided that the Town is not required to expend any funds for collection and enforcement of Phases #2 - 5 Assessments other than funds on deposit in the Administrative Fund. See “APPENDIX A – Form of Indenture. ” See also “APPENDIX D – Form of Disclosure Agreement” for a description of the expected timing of certain events with respect to collection of delinquent Phases #2 - 5 Assessments.

The Town will create the Delinquency Reserve Account under the Indenture and will fund such account as provided in the Indenture. The Town will not be obligated to fund foreclosure proceedings out of any funds other than in the Administrative Fund. If Pledged Revenues are insufficient to pay foreclosure costs, the owners of the Bonds may be required to pay amounts necessary to continue foreclosure proceedings. See “SECURITY FOR THE

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BONDS – Delinquency Reserve Account of the Reserve Fund,” “APPENDIX A – Form of Indenture” and “APPENDIX B – Service and Assessment Plan.”

THE TOWN

Background

The Town of Little Elm is located in Denton County, Texas, and operates as a “home rule City” under the laws of the State. The Town is a community on Lake Lewisville located northeast of the City of Fort Worth and is accessible primarily by FM 720 and FM 423. The Town’s 2010 population was 25,898, increasing 710% since 2000.

Town Government

The current members of the Town Council and their respective expiration of terms of office are as follows:

Council Member Term Expires

(May) David Hillock (Mayor) 2015 James Dominy 2016 Curtis J. Cornelious 2015 Chip Norman 2015 Katie Gipson 2016 Richard Stevens 2014 Bill Roebken 2014

The principal administrators of the Town include the following:

Name Position Matt Mueller Town Manager Kathy Phillips Town Secretary Alan Dickerson Director of Finance

Major Employers

The major employers in the Town are set forth in the table below.

Employer Product or Service Employees Little Elm Independent School District Education 737 Kroger Retail Grocery 225 Town of Little Elm Municipal Government 198 Retractable Technologies Medical Production 150 Lowes Home Center Retail Sales 136 Applebee’s Restaurant Restaurant 100 24 Hour Fitness Gym and Fitness Center 50

Source: The Town

THE DISTRICT

General

The PID Act authorizes municipalities, such as the Town, to create public improvement districts within their boundaries or extraterritorial jurisdiction, and to impose assessments within the public improvement district to pay for certain improvements. The District was created by resolution of the Town in accordance with the PID Act (the “Creation Resolution”) for the purpose of, among others, funding the Major Improvement Projects. The District

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is not a separate political subdivision of the State and is governed by the Town Council. A map of the property within the District is included on page iv hereof.

Powers and Authority

Pursuant to the PID Act, the Town may establish and create the District and undertake improvement projects that confer a special benefit on property located within the District, whether located within the Town limits or the Town’s extraterritorial jurisdiction. The PID Act provides that the Town may levy and collect Assessments on property in the District, or portions thereof, payable in periodic installments based on the benefit conferred by an improvement project to pay all or part of its cost.

Pursuant to the PID Act and the Creation Resolution, the Town has the power to undertake the acquisition, construction or improvement of the Major Improvement Projects. See “THE MAJOR IMPROVEMENT PROJECTS.” Pursuant to the authority granted by the PID Act and the Creation Resolution, the Town has determined to undertake the construction, acquisition or purchase of certain water, wastewater, roadway, sidewalks, off-street parking, drainage, entryway/hardscape/landscape, trails/parks/open space and special supplemental services public improvements within Phases #2 - 5 and outside of the District comprising the Major Improvement Projects and to finance a portion of the costs thereof through the issuance of the Bonds. The Town has further determined to provide for the payment of debt service on the Bonds through Pledged Revenues. See “ASSESSMENT PROCEDURES” herein and “APPENDIX B — Service and Assessment Plan.”

THE MAJOR IMPROVEMENT PROJECTS

General

The Major Improvement Projects consist of the construction, acquisition or purchase of certain water, wastewater, roadway and drainage improvements located both outside and inside the District that benefit the entire District, including Phases #2 - 5. See “THE DEVELOPMENT – Development Plan – Major Improvement Projects.” Phases #2 - 5's allocable share of the costs of construction of the Major Improvement Projects will be funded with proceeds of the Bonds, with the remainder of the costs of the Major Improvement Projects to be funded with proceeds of the Phase #1 Bonds. The Major Improvement Projects are expected to be constructed solely with proceeds of the Bonds and a portion of the proceeds of the Phase #1 Bonds and will be dedicated to the Town. The Developer is responsible for ensuring that construction, acquisition or purchase of the Major Improvement Projects are completed and it or its designee will act as construction manager.

The Appraisal (as defined below) estimates that the value of the property within Phases #2 - 5 of the District after construction, acquisition or purchase of the Major Improvement Projects is $40,970,000. See “APPRAISAL OF PROPERTY WITHIN THE DISTRICT.” The cost of the Major Improvement Projects is expected to be approximately $11,097,873, consisting of $9,097,763 allocable to Phases #2-5 and $2,000,110 allocable to Phase #1. All of the $9,097,763 allocable to Phases #2-5 will be paid with proceeds of the Bonds. All of the $2,000,110 allocable to Phase #1 will be paid with proceeds of the Phase #1 Bonds.

The following table reflects the total expected costs of the Major Improvement Projects expected to be paid with proceeds of the Bonds.

Type of Improvement Cost Road $ 3,731,709 Water 1,601,955 Sanitary Sewer 1,540,306 Storm Drainage 434,702 Soft Costs 3,789,201 Major Improvement Costs Allocated to Phase #1 (2,000,110) Total $ 9,097,763*

* Because bids for certain components of the Major Improvement Projects were received after the Service and Assessment Plan was

adopted by the City, the total costs shown above are less than the total budgeted costs shown in the Service and Assessment Plan.

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Ownership and Maintenance of Improvements

The Major Improvement Projects will be dedicated to and accepted by the Town and will constitute a portion of the Town’s infrastructure improvements. The Town will provide for the ongoing operation, maintenance and repair of the Major Improvement Projects constructed and conveyed, except for the public parks and hardscape/landscape which the home owners’ association will operate and maintain for the Town, as outlined in the Service and Assessment Plan.

THE DEVELOPMENT

The following information has been provided by the Developer. Certain of the following information is beyond the direct knowledge of the Town, the Town’s Financial Advisor and the Underwriter, and none of the Town, the Town’s Financial Advisor or the Underwriter have any way of guaranteeing the accuracy of such information. The Developer has reviewed this Official Statement and warrants and represents that neither (i) the information under the caption “THE DEVELOPMENT” nor (ii) the information relating to the Developer’s plan for developing the land within the District (the “Development”) under the subcaption “BONDHOLDERS’ RISKS — Dependence on the Developer” contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made herein, in the light of the circumstances under which they are made, not misleading. At the time of delivery of the Bonds to the Underwriter, the Developer will deliver a certificate to this effect to the Town and the Underwriter.

Overview

The Development is an approximately 448-acre project located within the extraterritorial jurisdiction of the Town, south of Doe Creek Road, west of Gee Road, on the shore of Lake Lewisville. The Town, located in the north-central region of the Dallas-Fort Worth-Arlington TX Metropolitan Statistical Area (the “DFW MSA”), is poised for significant growth as the overall DFW MSA continues its growth trajectory.

The Development is an in-fill development situated directly on Lake Lewisville and surrounded by four existing subdivisions, consisting of Frisco Hills, Frisco Ranch, Sunset Point and Paloma Creek. These four subdivisions are nearing completion, with Frisco Hills the only subdivision not over 90% built out. See “AREA LOCATION MAP OF DISTRICT” on page iv. The site was acquired in August 2006 by the Developer as a long-term development to consist of residential land use. In addition, the Development will include a variety of parks, trails, amenity centers and open space areas for its residents, and others, to enjoy. This combination will provide its residents a community environment in which to live. Furthermore, the District is primarily located within the Little Elm Independent School District, with a small portion located within the Frisco Independent School District. A portion of the District is expected to be dedicated by the Developer to the Little Elm Independent School District for use as a school for kindergarten through 8th grade students.

The Developer develops infrastructure and community improvements (amenities, parks, trails, etc.) and sells residential lots to high-quality production homebuilders under lot takedown contracts. In addition, the Developer develops infrastructure needed to support various parcels of land within the District that can be sold to third party developers for commercial uses.

The Development is owned by the Developer, which is an affiliate of Centurion American Custom Homes Inc. d/b/a Centurion American Development Group Inc. (“Centurion”), as described below in “THE DEVELOPER — Description of the Developer.” The Developer and its consultant, Scarborough Management, LLC (the “Development Consultant”), expect to complete the Development in several phases over a 8-9 year period.

ESTIMATED HOME PRICES

Lot Size Base Lot Price Average Base Home Price 60 Foot Lot $68,000 $300,000 80 Foot Lot $75,000 $340,000

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The Developer’s current expectations regarding the build-out of the Development are shown in the following table:

EXPECTED BUILD-OUT SCHEDULE

Phase Single-Family Lots Expected Infrastructure Completion Date Expected Final Sale Date 1 209 Q4 2014 Q2 2017 2 305 Q2 2016 Q2 2020 3 189 Q1 2017 Q3 2019 4 266 Q3 2018 Q1 2021 5 267 Q2 2020 Q1 2023

Total 1,236

Development Plans

The current development plan is divided into two major stages: (1) concurrent development of the Major Improvement Projects to serve the entire District and the Phase #1 Projects to serve Phase #1, followed by (2) phased development of local area improvements for Phases #2 - 5 of the District. See “APPENDIX B — Service and Assessment Plan.”

Major Improvement Projects. Major Improvement Projects include the following roadway, water, wastewater and drainage improvements that benefit the entire District and are located inside and outside the District.

Road Improvements. The roadway portion of the improvements consists of constructing approximately 13,365 linear feet of a 2-lane divided thoroughfare (Rockhill Parkway) from the Doe Creek and Rockhill Parkway intersection to the opposite end of the District. This will provide access off of FM 423 into the development by Rockhill Parkway; and from US 380 to Rockhill Parkway by Doe Creek Road. This improvement, which benefits the entire District, will be constructed according to Town standards. Rockhill Parkway is expected to subsequently be widened to a 4-lane divided thoroughfare as part of the phased development of local area improvements for Phases #2 - 5 of the District.

Water Distribution System Improvements. A twenty inch (20”) water line was constructed to serve the Frisco Hills and Valencia Developments in 2010. The 20” water line starts at the Town’s elevated storage tank located along FM 423 north of El Dorado Parkway and continues on a northerly direction along FM 423 to the Frisco Ranch Development and then turns in a northwesterly direction to the Frisco Hills master metering station located within the Frisco Hills Development. The total length of the 20” water line is 9,560 linear feet. Frisco Hills Development is an adjacent development located within Denton County Fresh Water Supply District No. 8-C (DCFWSD 8-C). The District and DCFWSD 8-C (Frisco Hills) developments will be sharing this line which will be operated and maintained by the Town. For cost sharing purposes, Frisco Hills consists of 1,128 connections with a 48% share and the District consists of 1,236 connections with a 52% share of the cost.

In addition, the off-site water line will be extended from the Frisco Hills master meter to the District along the Brazos Electric Easement and Rockhill Parkway for approximately 8,100 linear feet to the Phase #1 boundary.

A second point of connection consisting of an additional 8,200 linear feet of 12-inch water line and appurtenances is expected to be constructed beginning in the Fall of 2017. This line will cross the Corps of Engineers land and connect to a Town water line within the Sunset Pointe development.

The waterline improvements will include connection to the existing water-main, installation of associated 12” valves, fire hydrants, ductile iron fittings, erosion control, trench safety and testing. These water improvements, which benefit the entire District, will be constructed according to Town standards and specifications.

Sanitary Sewer Improvements. The sanitary sewer improvements consist of constructing a series of lift stations and approximately 5,380 linear feet of 10-inch force main and 2,125 linear feet of 16-inch of sanitary sewer

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gravity line generally flowing along the south side of the District and Frisco Hills Developments and connecting to the Frisco Hills lift station.

The Frisco Hills lift station will be shared by the PID and DCFWSD 8-C (Frisco Hills and Frisco Ranch) sending the wastewater flows to the Town treatment plant through a future 14-inch force main for approximately 5,000 linear feet. This force main will connect to an existing Town 14-inch force main located along the west side of FM 423. For cost sharing purposes, DCFWSD 8- C (Frisco Ranch and Frisco Hills) consist of 1,927 connections with a 60% share and the District consists of 1,236 connections and 40% share of the cost.

Cutoff valves and air release valves will be constructed in accordance with Town and Texas Commission on Environmental Quality (“TCEQ”) regulations. The 10-inch force main and pumps were designed to maintain the 3.0 fps minimum velocity. The line will be designed and constructed in accordance with Town standards.

Storm Drainage Improvements. The storm drainage improvements consist of drainage improvements to support the installation of Rockhill Parkway. This includes underground reinforced concrete storm sewer pipes, inlets and rock riprap protection at outfalls. These improvements will be constructed according to Town standards and specifications.

Phase #1 Projects. Phase #1 Projects include roadway, water, wastewater and drainage improvements inside Phase #1, which are not being financed with proceeds of the Bonds.

Road Improvements. Roadway improvements within Phase #1 include construction of approximately 10,110 linear feet of 6” thick, 31-foot wide, concrete pavement with curb and gutter. The concrete will be 3,600 pounds per square inch (psi) strength. Unclassified excavation for the project will consist of 120,400 cubic yards of cut and fill. 37,070 square yards (sy) of pavement sub-grade will be lime stabilized and compacted. Intersections, signage, lighting and re-vegetation of all disturbed areas within the right of way are included. These roadway improvements include streets that will provide access to each lot within Phase #1 and to community roadways and state highways. All roadway improvements will be designed and constructed in accordance with Town standards and specifications.

Water Distribution System Improvements. The Phase #1 water distribution system improvements consist of constructing approximately 10,430 linear feet of 8” water line and associated 8” gate valves. One-inch diameter water services will be provided to each of the 209 lots within Phase #1. All associated waterline testing, trench safety and erosion protection during construction are included. The waterline will be connected to the 12” water line constructed in Rockhill Parkway. These lines will be designed and constructed in accordance with Town standards and specifications. These lines will include the necessary appurtenances to be fully operational transmission lines extending water service to the limits of and all lots within Phase #1.

Sanitary Sewer Improvements.

Wastewater Line (12” Gravity Line). Phase #1 sanitary sewer improvements consist of constructing approximately 250 linear feet of 12” gravity sewer trunk line flowing to the proposed lift station located at the southwest corner of Phase #1. These improvements will consist of constructing manholes, associated erosion control, trench safety and sewer line testing. Wastewater Line (10” Gravity Line). Phase #1 wastewater improvements consist of constructing approximately 1,375 linear feet of 10” gravity sewer main line that connects to the 12” gravity sewer trunk line. These improvements will consist of constructing manholes, associated erosion control, trench safety and sewer line testing. Wastewater Line (8” Gravity Line). Phase #1 wastewater improvements also include construction of 10,110 linear feet of 8” gravity sanitary sewer line that connects to the 10” gravity sewer main line. Construction includes connection at multiple points through 36 concrete manholes. Services to individual lots are by 4” gravity sewer services.

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All lines will be designed and constructed in accordance with Town standards and specifications. These lines will include the necessary appurtenances to be fully operational extending wastewater service to the limits of and each of the lots within Phase #1.

Storm Drainage Improvements. The drainage portion of the Phase #1 Projects consists of underground

reinforced concrete storm sewer pipes, inlets and rock riprap protection at outfalls. The main means of conveyance of storm drainage within Phase #1 is within roadways and underground storm drain pipes. The roadway pavement section incorporates the use of curbs with integrated drainage inlets to control runoff and conveyance of storm-water throughout the drainage basins associated with Phase #1. The system includes underground reinforced concrete pipe (RCP) with associated headwalls, safety end treatments, manholes and storm sewer energy dissipaters at the points of discharge. All of the drainage areas within Phase #1 flow to Lake Lewisville. These improvements will be constructed in accordance with Town standards and specifications.

Phased Improvements. The Developer expects to construct and install local infrastructure benefitting each of Phases #2 - 5 over the next 8 to 9 years based on market demand. Portions of such improvements will be financed by private developers and Phased Bonds expected to be issued by the Town and secured by additional assessments levied and collected in each such phase. The Developer anticipates that four series of Phased Bonds will need to be issued over a five-year period. The total cost of such improvements is forecasted to be approximately $28,777,423. See “SECURITY FOR THE BONDS – Additional Obligations” for a description of certain conditions precedent to issuance of Phased Bonds.

Zoning/Permitting

Pursuant to the Development Agreement between the Developer and the Town, the Developer secured planned development district (“PDD”) zoning, which allows flexibility for each phase of the Development to be developed in a manner that can be adjusted to changes in demand at the time of development of each phase, including a mixture of residential, mixed-use, commercial and open space uses within the Development in conformity with the limitations and conditions set forth in the Development Agreement and the PDD zoning ordinance. In addition, the PDD zoning provides for tailored design regulations within the Development. Copies of the Development Agreement and the PDD zoning ordinance are available from the Town.

Environmental

Phase One Environmental Site Assessments of the property within the District were completed in November 2005 and on January 25, 2014 (together, the “Phase One ESAs”). Based on the information presented in the Phase One ESAs, there was no evidence that the Development was under environmental regulatory review or enforcement action and there were no material adverse environmental conditions affecting the property within the District as of the date of each such Phase One ESA.

According to the website for the United States Fish and Wildlife Service, the Whooping Crane and the Least Tern are endangered species in Denton County. The Developer is not aware of any endangered species located on District property.

Utilities

The Town will provide both water and wastewater service to the Development. See “THE MAJOR IMPROVEMENT PROJECTS.” The Developer expects that propane gas will be available in the Development. Additional utilities are provided by: (1) Phone/Data - AT&T; (2) Electric - CoServ Electric; and (3) Cable - AT&T.

THE DEVELOPER

The following information has been provided by the Developer. Certain of the following information is beyond the direct knowledge of the Town, the Town’s Financial Advisor and the Underwriter, and none of the Town, the Town’s Financial Advisor or the Underwriter have any way of guaranteeing the accuracy of such information. The Developer has reviewed this Official Statement and warrants and represents that neither (i) the

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information herein under the caption “THE DEVELOPER” nor (ii) the information relating to the Developer under the subcaption “BONDHOLDERS’ RISKS — Dependence on the Developer” contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made herein, in the light of the circumstances under which they are made, not misleading.

General

In general, the activities of a developer in a development such as the District include purchasing the land, designing the subdivision, including the utilities and streets to be installed and any community facilities to be built, defining a marketing program and building schedule, securing necessary governmental approvals and permits for development, arranging for the construction of roads and the installation of utilities (including, in some cases, water, sewer, and drainage facilities, as well as telephone and electric service) and selling improved lots and commercial reserves to builders, developers, or other third parties. The relative success or failure of a developer to perform such activities within a development may have a material effect on the security of the revenue bonds, such as the Bonds, issued by a public improvement district. A developer is generally under no obligation to a public improvement district, such as the District, to develop the property which it owns in a development. Furthermore, there is no restriction on the developer's right to sell any or all of the land which the developer owns within a development. In addition, a developer is ordinarily the major tax and assessment payer within a district during its development.

Description of the Developer

The Developer is an affiliate of Centurion and was created by Centurion for the purpose of managing and ultimately conveying property in the District to third parties, as described under the caption “THE DEVELOPMENT.” Since 1990, Centurion has developed over 10,000 single-family lots in dozens of communities surrounding North Texas. It has worked closely with investors, land-owners, financial institutions, and vendors to acquire over 15,000 acres of land inventory for a diverse mix of developments in size and scope. Centurion’s communities include amenities such as parks, golf courses, water parks themes, and hiking and biking trails. Over the past twenty years, Centurion has demonstrated the ability to successfully deliver master-planned communities that have been recognized in the real estate industry.

Mr. Mehrdad Moayedi has ultimate control and full ownership of both Centurion and the Developer. Mr. Moayedi also controls Siena Homes, LLC (“Siena”), one of the homebuilders who has contracted to purchase lots in the Development from the Developer, and Siena is owned by Mrs. Behjat McElroy, the birth mother of Mr. Moayedi.

Centurion maintains a small staff of approximately 25 employees. Centurion creates single-asset limited liability companies to own development sites and contracts with developers and other professionals in the delivery of its communities. See “THE DEVELOPMENT CONSULTANT.”

In addition, Centurion works closely with local municipalities, commercial developers, and public school systems as part of its overall master plan. Centurion works with North Texas’ top builders to deliver the latest concepts ranging from upscale, luxury homes in secluded neighborhoods to affordable housing communities for first-time home buyers. Centurion purchases and develops land in prime locations with the right mix of natural land settings, strong job growth, good school systems and access to local community shopping. A detailed snapshot of the communities Centurion has developed is presented below.

Name County Property Type Starting Home Price Entrada at Westake Tarrant Mixed Use $450,000 River Walk at Central Park Denton Mixed Use $375,000 The Villas at Twin Creeks Collin Single Family $230,000 Kensington Gardens Dallas Single Family $500,000 Water’s Edge at Hogan’s Glen Denton Single Family $480,000 Montalcino Estates Denton Single Family $700,000 Estancia Estates Denton Single Family $400,000 Highlands Glen Denton Single Family $300,000 The Highlands at Trophy Club Denton Single Family $250,000

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Name County Property Type Starting Home Price Water’s Edge Denton Single/Multifamily $300,000 Williamsburg Rockwall Single Family $150,000 Crestview at Prosper Creek Collin Single Family $250,000 Palomar Estates Tarrant Single Family $750,000 Estancia Tarrant Single Family $450,000 Verandah Rockwall Single Family $100,000 Terracina Denton Single Family $350,000 The Resort on Eagle Mountain Lake Tarrant Single/Multifamily $250,000 Travis Ranch Kaufman Single Family $150,000 Carter Ranch Collin Single Family $150,000 Frisco Hills Denton Single Family $200,000 Rolling Meadows Tarrant Single Family $100,000 Waterfront at Enchanted Bay Tarrant Single Family $150,000 Thornbury Travis Single Family $100,000 Rough Hollow Travis Single Family $550,000 Lexington Parke Travis Single Family $100,000 Villages of Woodland Springs Tarrant Single Family $150,000 Spring Creek Tarrant Single Family $100,000 Silver Ridge Tarrant Single Family $150,000 Sendera Ranch Tarrant Single Family $100,000 Rosemary Ridge Tarrant Single Family $100,000 Llano Springs Tarrant Single Family $150,000 Hills of Lake Country Tarrant Single Family $150,000 Garden Springs Tarrant Single Family $100,000 Dominion Estates Tarrant Single Family $100,000 Deer Creek North Tarrant Single Family $100,000 Creekside of Crowley Tarrant Single Family $100,000 Bonds Ranch Tarrant Single Family $150,000 Crown Valley Parker Single Family $150,000 Windmill Farms Kaufman Single Family $100,000 Knox Ranch Hood Mixed Use $450,000 Windsor Hills Ellis Single Family $250,000 Saddlebrook Ellis Mixed Use $100,000 The Villas of Indian Creek Denton Single Family $150,000 Valencia on the Lake Denton Single/Multifamily $100,000 Shale Creek Wise Single Family $100,000 Shahan Prairie Denton Single Family $150,000 Frisco Ranch Denton Single Family $150,000 Brookfield Denton Single Family $100,000 Sweetwater Crossing Collin Single Family $100,000 Prestwyck Collin Mixed Use $190,000 Oak Hollow Collin Single Family $100,000 Northpointe Crossing Collin Single Family $100,000 McKinney Greens Collin Single Family $150,000 The Dominion Dallas Multifamily $250,000 Three Thousand Flora Dallas Multifamily $250,000 Residences at the Stoneleigh Dallas Multifamily $750,000 Mountain Creek Dallas Single Family $350,000 Chateaus of Coppell Dallas Single Family $350,000 The Bridges at Preston Crossings Parker Single Family $250,000

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Executive Biography

Mehrdad Moayedi is the President and Chief Executive Officer of Centurion. Mr. Moayedi has more than twenty-five years of direct experience in the development industry. With a background in construction and real estate, Mr. Moayedi employs a comprehensive approach to each Centurion development. Mr. Moayedi has extensive knowledge of the interconnection of all parts of residential real estate development, which provides Centurion with a unique advantage over other residential developers.

By forming JBM Development in 1986, Mr. Moayedi completed several construction and fee development projects in Northeast Tarrant County, Texas subdivisions as well as various construction and remodeling projects. JBM Development, along with Centurion American Custom Homes, formed Centurion in 1990. The company has become broadly diversified, with residential developments ranging from upscale high-rise residential towers to affordable housing communities for first-time home buyers.

History and Financing of the Development

The land comprising the District was acquired by the Developer in August 2006 for a purchase price of $15,000,000. The land was purchased as a long-term development, to consist of residential land use. The Developer financed a portion of the property’s purchase price with a loan (the “Wells Fargo Loan”) from Wells Fargo Bank, N.A. On February 20, 2014, the Developer closed on a $12,100,000 loan (the “Trez Capital Loan”) from Trez Capital Limited Partnership (“Trez Capital”) and used the proceeds of the Trez Capital Loan to retire the Wells Fargo Loan in full and pay closing costs associated with the Trez Capital Loan. The Trez Capital Loan is partially secured by a lien on all of the real property within the District and improvements thereon, accrues interest at a rate of 10% per annum, and is guaranteed by Mr. Mehrdad Moayedi.

Concurrently with the closing of the Trez Capital Loan, Trez Capital consented to the creation of the District, the levy of the Phases #2-5 Assessments and the subordination of the lien securing Trez Capital Loan to the assessment liens on property within the District securing payment of the Phases #2 - 5 Assessments. As a result, the lien on the property within the District securing the Phases #2 - 5 Assessments will have priority over the lien on the property within the District securing the Trez Capital Loan. See “ASSESSMENT PROCEDURES – Priority of Lien.”

THE DEVELOPMENT CONSULTANT

The Development Consultant is an affiliate of Scarborough Lane Development, Inc. (“Scarborough”), a Dallas, Texas based real estate development and investment firm that brings together the experience, expertise and financial knowledge that is necessary to succeed in the real estate industry. The Development Consultant has been retained by the Developer to assist in the administration and implementation of the Development.

Scarborough’s core team has worked on major successful projects over the last twenty-five years and has a demonstrable track record of residential and commercial developments that use the very latest methods of land planning and development using smart growth practices and green technologies. Currently, Scarborough is managing over twenty real estate assets in the State, encompassing over 22,000 acres and 35,000 lots, with approximately 1,830 lots currently under design and or development.

Ryan Burkhardt, Controller for Scarborough, has over nine years of experience in real estate development, including special district creation and financing. Mr. Burkhardt was previously employed by Ernst and Young, LLP, where he specialized in the real estate sector. He is a graduate of Texas Tech University.

APPRAISAL OF PROPERTY WITHIN THE DISTRICT

The Appraisal

General. Jackson Claborn, Inc. (the “Appraiser”), prepared an appraisal report for the Town dated December 27, 2013, based upon a physical inspection of the District conducted on November 8, 2013 (the

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“Appraisal”). The Appraisal was prepared at the request of the Town. The description herein of the Appraisal is intended to be a brief summary only of the Appraisal as it relates to Phases #2 - 5. The Appraisal is attached hereto as APPENDIX E and should be read in its entirety. The conclusions reached in the Appraisal are subject to certain assumptions, hypothetical conditions and qualifications, which are set forth therein. See “APPENDIX E — Appraisal of Valencia on the Lakes.”

Value Estimates. The Appraiser estimated the aggregate retail value of the fee simple interest in various tracts of land comprising Phases #2 - 5 under the hypothetical condition that the Major Improvement Projects had been completed. See “THE MAJOR IMPROVEMENT PROJECTS.” The Appraisal does not reflect the as-is condition of Phases #2 - 5 as the Major Improvement Projects have not yet been constructed. Moreover, the Appraisal does not reflect the value of Phases #2 - 5 as if sold to a single purchaser in a single transaction. See “APPENDIX E — Appraisal of Valencia on the Lakes.”

The value estimate for the assessable property within Phases #2 - 5 using the methodologies described in the Appraisal and subject to the limiting conditions and assumptions set forth in the Appraisal, as of November 8, 2013, is $40,970,000.

Extraordinary Assumptions and Hypothetical Conditions. The Appraisal is based upon a number of hypothetical conditions (factors that are known to be false but are presumed to be true for purposes of the appraisal), extraordinary assumptions (defined as assumptions, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions), ordinary assumptions, and certain limiting conditions. The hypothetical conditions and extraordinary assumptions which may affect the estimates as to value include, among others, the following:

• All information, including land and lot areas and other pertinent data that was provided by Petitt Barraza, LLC (engineers and surveyors), the Developer and the Denton Central Appraisal District is assumed to be correct. If it is found that the information supplied to the Appraiser is significantly different than the Appraiser’s assumptions, the Appraiser’s assignment results might be affected.

• The Development totals 447.942 gross acres and has been paper-platted and engineered to eventually

be developed as a master-planned community to be known as “Valencia on the Lake” with frontage on Lewisville Lake. The Development is planned to eventually consist of 1,236 single family lots, an amenity center, a school site, and possibly a marina. Furthermore, although approximately 76.0 gross acres (17%) of the Development has been estimated by the engineers to be located within a 100-year floodplain, the Developer is mandated under the Development Agreement to have 65.0 acres of open space; therefore, there is minimal land loss. In addition, the Developer has signed a “Joint Development Agreement” with the adjoining property owner/developer (Frisco Hills, LP). Finally, the Town has approved and adopted the following infrastructure programs relative to the Development: The major points are as follows: o The District has been adopted by the Town for the Development. o The Valencia on the Lake Water Control and Improvement District No. 1 was approved in

February of 2008 which outlined the district’s construction of the water distribution system for the Development. The district will be dissolved due to the creation of the District.

o The Tax Increment Reinvestment Zone (“TIRZ”) was adopted in December of 2013 for the Development. The TIRZ will be in place to administer the reimbursement through the District.

o Frisco Hills, LP, and the Developer will mutually develop and extend Rockhill Parkway on their respective properties upon development. The Development’s portion of Rockhill Parkway will be constructed with funds from the issuance of the Bonds and the Phase #1 Bonds.

o Frisco Hills, LP, and the Developer will have mutual cooperation for development easements including water, sewer, and drainage as well as the extension of utilities including sanitary sewer and water.

o The Development will be annexed into the Town and zoned to allow development per the master plan.

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Value to Assessment Burden Ratio

The primary security for the Bonds will consist of Pledged Revenues (which, in turn, primarily consist of the Annual Installments of the Phases #2 - 5 Assessments). Subject to the extraordinary assumptions and hypothetical conditions stated therein, the Appraisal sets forth the estimated aggregate retail value of the property subject to assessment within Phases #2 - 5 of the District to be $40,970,000. As noted above, the estimated aggregate retail value of the property within Phases #2 - 5 of the District assumes (among other matters) completion of the Major Improvement Projects, a portion of which Major Improvement Projects will be financed with the proceeds of the Bonds. See “THE DEVELOPMENT.”

The principal amount of the Bonds is $12,240,000. When compared to the estimated aggregate retail value of the taxable property ($40,970,000), the principal amount of the Bonds has an estimated value to assessment burden ratio of approximately 3 to 1.

In comparing the appraised value of the real property within Phases #2 - 5 of the District and the aggregate principal amount of the Bonds, it should be noted that only the real property upon which there is a delinquent Phases #2 - 5 Assessment can be foreclosed upon, and the real property within Phases #2 - 5 of the District cannot be foreclosed upon as a whole to pay delinquent Phases #2 - 5 Assessments of the owners of such parcels within the District unless all of the property is subject to a delinquent Phases #2 - 5 Assessment. In any event, individual parcels may be foreclosed upon separately to pay delinquent Phases #2 - 5 Assessments levied against such parcels.

Other public entities whose boundaries overlap those of the District currently impose ad valorem taxes on the property within the District and will likely do so in the future. Such entities could also impose assessment liens on the property within the District. Liens created on the property within the District through the levy of ad valorem taxes as well as liens created through the levy of the Phases #2 - 5 Assessments are a first and prior lien superior to all others. For example, construction loans may be obtained by the Developer or home loans may be obtained by ultimate homeowners. The deeds of trust securing such debt on property within the District, however, will be in a junior position to ad valorem tax and Assessment liens. See “OVERLAPPING TAXES AND DEBT” and “ASSESSMENT PROCEDURES.”

BONDHOLDERS’ RISKS

Before purchasing any of the Bonds, prospective investors and their professional advisors should carefully consider all of the risk factors described below which may create possibilities wherein interest may not be paid when due or that the Bonds may not be paid at maturity or otherwise as scheduled, or, if paid, without premium, if applicable. The following risk factors (which are not intended to be an exhaustive listing of all possible risks associated with an investment in the Bonds) should be carefully considered prior to purchasing any of the Bonds. Moreover, the order of presentation of the risks summarized below does not necessarily reflect the significance of such investment risks.

The Bonds, which are limited, special revenue obligations of the Town and are not the obligation of the State, Denton County, or any other political subdivision thereof, are secured solely by the Pledged Revenues. The Bonds are not secured by funds of the Town raised or to be raised by taxation.

The ability of the Town to pay debt service on the Bonds as due is subject to various factors that are beyond the Town’s control. These factors include, among others, (a) the ability or willingness of property owners within the District to pay Phases #2 - 5 Assessments levied by the Town, (b) cash flow delays associated with the institution of foreclosure and enforcement proceedings against property within Phases #2 - 5 of the District, (c) general and local economic conditions which may impact real property values, the ability to liquidate real property holdings and the overall value of real property development projects, and (d) general economic conditions which may impact the general ability to market and sell the lots within the District, it being understood that poor economic conditions within the Town, State and region may slow the assumed pace of sales of such lots.

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The rate of development of the property in the District is directly related to the vitality of the residential housing industry and demand for office space. In the event that the sale of the lands within the District should proceed more slowly than expected and the Developer is unable to pay the Phases #2 - 5 Assessments, only the value of the lands, with improvements, will be available for payment of the debt service on the Bonds, and such value can only be realized through the foreclosure or expeditious liquidation of the lands within Phases #2 - 5 of the District. There can be and there is no assurance that the value of such lands will be sufficient for that purpose and the expeditious liquidation of real property through foreclosure or similar means is generally considered to yield sales proceeds in a lesser sum than might otherwise be received through the orderly marketing of such real property.

The Underwriter is not obligated to make a market in or repurchase any of the Bonds, and no representation is made by the Underwriter, the Town or the Town’s Financial Advisor that a market for the Bonds will develop and be maintained in the future. If a market does develop, no assurance can be given regarding future price maintenance of the Bonds.

The Town has not applied for or received a rating on the Bonds. The absence of a rating could affect the future marketability of the Bonds. There is no assurance that a secondary market for the Bonds will develop or that holders who desire to sell their Bonds prior to the stated maturity will be able to do so.

Assessment Limitations

Annual Installments of Phases #2 - 5 Assessments are billed to property owners in Phases #2 - 5 in the District. Annual Installments are due and payable, and bear the same penalties and interest for non-payment, as for ad valorem taxes as set forth under “ASSESSMENT PROCEDURES” herein. Additionally, Annual Installments established by the Service and Assessment Plan correspond in number and proportionate amount to the number of installments and principal amounts of Bonds maturing in each year and the annual collection costs for such year. See “ASSESSMENT PROCEDURES” herein. The unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and Phases #2 - 5 Assessment installment payments in the future.

In order to pay debt service on the Bonds, it is necessary that Annual Installments are paid in a timely manner. Due to the lack of predictability in the collection of Annual Installments in the newly created District, the Town has established a Reserve Account in the Reserve Fund, to be funded from the proceeds of the Bonds, to cover delinquencies. The Annual Installments are secured by the Assessment Lien. However, there can be no assurance that foreclosure proceedings will occur in a timely manner so as to avoid depletion of the Reserve Account and delay in payments of debt service on the Bonds. See “BONDHOLDERS’ RISKS — Remedies and Bankruptcy” herein.

Upon an ad valorem tax lien foreclosure event of a property within the District, any Phases #2 - 5 Assessment that is also delinquent will be foreclosed upon in the same manner as the ad valorem tax lien (assuming all necessary conditions and procedures for foreclosure are duly satisfied). To the extent that a foreclosure sale results in insufficient funds to pay in full both the delinquent ad valorem taxes and the delinquent Phases #2 - 5 Assessments, the liens securing such delinquent ad valorem taxes and delinquent Phases #2 - 5 Assessments would likely be extinguished. Any remaining unpaid balance of the delinquent Phases #2 - 5 Assessments would then be an unsecured personal liability of the original property owner.

Based upon the language of Texas Local Government Code, § 372.017(b), case law relating to other types of assessment liens and opinions of the Texas Attorney General, the Assessment Lien as it relates to installment payments that are not yet due should remain in effect following an ad valorem tax lien foreclosure, with future installment payments not being accelerated. Texas Local Government Code § 372.018(d) supports this position, stating that an Assessment Lien runs with the land and the portion of an Assessment payment that has not yet come due is not eliminated by foreclosure of an ad valorem tax lien.

The Assessment Lien is superior to any homestead rights of a property owner that were properly claimed after the adoption of the Assessment Ordinance. However, an Assessment Lien may not be foreclosed upon if any homestead rights of a property owner were properly claimed prior to the adoption of the Assessment Ordinance (“Pre-existing Homestead Rights”) for as long as such rights are maintained on the property. It is unclear under

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Texas law whether or not Pre-existing Homestead Rights would prevent the Assessment Lien from attaching to such homestead property or instead cause the Assessment Lien to attach, but remain subject to, the Pre-existing Homestead Rights.

Under Texas law, in order to establish homestead rights, the claimant must show a combination of both overt acts of homestead usage and intention on the part of the owner to claim the land as a homestead. Mere ownership of the property alone is insufficient and the intent to use the property as a homestead must be a present one, not an intention to make the property a homestead at some indefinite time in the future. As of the date of adoption of the Assessment Ordinance, no such homestead rights had been claimed. Furthermore, the Developer is not eligible to claim homestead rights and the Developer has represented that it owns all property within the District as of the date of the Assessment Ordinance. Consequently, there are and can be no homestead rights on the Assessed Parcels superior to the Assessment Lien and, therefore, the Assessment Liens may be foreclosed upon by the Town.

Failure by owners of the parcels to pay Annual Installments when due, depletion of the Reserve Fund, delay in foreclosure proceedings, or the inability of the Town to sell parcels which have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent installments of Phases #2 - 5 Assessments levied against such parcels may result in the inability of the Town to make full or punctual payments of debt service on the Bonds.

THE ASSESSMENTS CONSTITUTE A FIRST AND PRIOR LIEN AGAINST THE PROPERTY ASSESSED, SUPERIOR TO ALL OTHER LIENS AND CLAIMS EXCEPT LIENS AND CLAIMS FOR STATE, COUNTY OR SCHOOL DISTRICT OR MUNICIPAL AD VALOREM TAXES AND IS A PERSONAL OBLIGATION OF AND CHARGE AGAINST THE OWNERS OF PROPERTY LOCATED WITHIN THE DISTRICT.

Risks Related to the Current Real Estate Market

During recent years, the real estate market has experienced significant slowing of new home sales and new home closings due in part to the subprime mortgage crisis involving adjustable rate mortgages and other creative mortgage financing tools that allowed persons with higher credit risk to buy homes. The economic crisis that resulted from higher interest rates, at a time when many subprime mortgages were due to reset their interest rates, has served to reduce the availability of mortgages to many potential home buyers, making entry into the real estate market difficult. These downturns in the real estate market and other factors beyond the control of the Developer, including general economic conditions, may impact the timing of lot and home sales within the District. There have been reports of various public-private efforts to relieve the subprime mortgage crisis but as of yet no one can predict with certainty when the real estate market will rebound.

Competition

The housing industry in the Dallas-Fort Worth area is very competitive, and none of the Developer, the Town, the Town’s Financial Advisor or the Underwriter can give any assurance that the building programs which are planned will ever commence. The competitive position of the Developer in the sale of developed lots or of any other homebuilder in the construction and sale of single-family residential units is affected by most of the factors discussed in this section, and such competitive position is directly related to maintenance of market values in the District.

Loss of Tax Exemption

The Indenture contains covenants by the Town intended to preserve the exclusion from gross income of interest on the Bonds for federal income tax purposes. As discussed under the caption “TAX MATTERS” herein, interest on the Bonds could become includable in gross income for purposes of federal income taxation, retroactive to the date the Bonds were issued, as a result of future acts or omissions of the Town in violation of its covenants in the Indenture.

Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the Federal or state level, may adversely affect the tax-exempt status of interest on the Bonds under Federal or state law and could

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affect the market price or marketability of the Bonds. Any such proposal could limit the value of certain deductions and exclusions, including the exclusion for tax-exempt interest. The likelihood of any such proposal being enacted cannot be predicted. Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters.

Bankruptcy

The payment of Phases #2 - 5 Assessments and the ability of the Town to foreclose on the lien of a delinquent unpaid Phases #2 - 5 Assessment may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State relating to judicial foreclosure. Although bankruptcy proceedings would not cause the Phases #2 - 5 Assessments to become extinguished, bankruptcy of a property owner in all likelihood would result in a delay in prosecuting foreclosure proceedings. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds, and the possibility that delinquent Phases #2 - 5 Assessments might not be paid in full.

Direct and Overlapping Indebtedness, Assessments and Taxes

The ability of an owner of property within the District to pay the Phases #2 - 5 Assessments could be affected by the existence of other taxes and assessments imposed upon the property. Public entities whose boundaries overlap those of the District currently impose ad valorem taxes on the property within the District and will likely do so in the future. Such entities could also impose assessment liens on the property within the District. The imposition of additional liens, or for private financing, may reduce the ability or willingness of the landowners to pay the Phases #2 - 5 Assessments.

Depletion of Reserve Fund

Failure of the owners of property within the District to pay the Phases #2 - 5 Assessments when due could result in the rapid, total depletion of the Reserve Fund prior to replenishment from the resale of property upon a foreclosure or otherwise or delinquency redemptions after a foreclosure sale, if any. There could be a default in payments of the principal of and interest on the Bonds if sufficient amounts are not available in the Reserve Fund. The Indenture provides that if, after a withdrawal from the Reserve Fund, the amount in the Reserve Fund is less than the Reserve Fund Requirement, the Trustee shall transfer an amount from the Pledged Revenue Fund to the Reserve Fund sufficient to cure such deficiency, as described under “SECURITY FOR THE BONDS — Reserve Fund” herein.

Hazardous Substance

While governmental taxes, assessments and charges are a common claim against the value of a parcel, other less common claims may be relevant. One of the most serious in terms of the potential reduction in the value that may be realized to the assessment is a claim with regard to a hazardous substance. In general, the owners and operators of a parcel may be required by law to remedy conditions 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 “Superfund Act,” is the most well-known and widely applicable of these laws. It is likely that, should any of the parcels of land located in the District be affected by a hazardous substance, the marketability and value of parcels would be reduced by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.

The value of the land within the District does not take into account the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the parcel. The Town has not independently verified, and is not aware, that the owner (or operator) of any of the parcels within the District has such a current liability with respect to such parcel; however, it is possible that such liabilities do currently exist and that the Town is not aware of them.

Further, it is possible that liabilities may arise in the future with respect to any of the land within the District resulting from the existence, currently, of a substance presently classified as hazardous but which has not

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been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. 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 a parcel that is realizable upon a delinquency.

See “THE DEVELOPMENT – Environmental” for discussion of a previous Phase I Environmental Site Assessment.

Regulation

Development within the District may be subject to future federal, state and local regulations. Approval may be required from various agencies from time to time in connection with the layout and design of development in the District, the nature and extent of public improvements, land use, zoning and other matters. Failure to meet any such regulations or obtain any such approvals in a timely manner could delay or adversely affect development in the District and property values.

100-Year Flood Plain

Approximately 76 acres of the District, approximately 72 acres of which are within Phases #2 - 5, are located within an official FEMA 100 year flood plain as shown on the current Federal Emergency Management Agency’s Flood Insurance Rate Map No. 48121C0410G, dated April 18, 2011, Panel 410 of 750. All of the lands identified to be within the developed floodplain will be located within dedicated open space, park or drainage easements. As the Development is advanced, the final location of the floodplain will be determined and will be contained within drainage easements or dedicated lots.

Bondholders’ Remedies and Bankruptcy

In the event of default in the payment of principal of or interest on the Bonds or the occurrence of any other Event of Default under the Indenture, and upon the written request of the owners of the Bonds of not less than a majority in principal amount of the Outstanding Bonds, the Trustee shall proceed to protect and enforce its rights and the rights of the owners of the Bonds under the Indenture by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, either for mandamus or the specific performance of any covenant or agreement contained therein or in aid or execution of any power granted or for the enforcement of any proper legal or equitable remedy, as the Trustee shall deem most effectual to protect and enforce such rights. The issuance of a writ of mandamus may be sought if there is no other available remedy at law to compel performance of the Bonds or the Indenture and the Town’s obligations are not uncertain or disputed. The remedy of mandamus is controlled by equitable principles, so rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The owners of the Bonds cannot themselves foreclose on property within the District or sell property within the District in order to pay the principal of and interest on the Bonds. The enforceability of the rights and remedies of the owners of the Bonds further may be limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions such as the Town. In this regard, should the Town file a petition for protection from creditors under federal bankruptcy laws, the remedy of mandamus or the right of the Town to seek judicial foreclosure of its Assessment Lien would be automatically stayed and could not be pursued unless authorized by a federal bankruptcy judge. See “BONDHOLDERS’ RISKS — Bankruptcy Limitation to Bondholders’ Rights” herein.

Any bankruptcy court with jurisdiction over bankruptcy proceedings initiated by or against a property owner within the District pursuant to the Federal Bankruptcy Code could, subject to its discretion, delay or limit any attempt by the Town to collect delinquent Assessments, or delinquent ad valorem taxes, against such property owner.

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In addition, in 2006, the Texas Supreme Court ruled in Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006) (“Tooke”) that a waiver of sovereign immunity must be provided for by statute in “clear and unambiguous” language. In so ruling, the Court declared that statutory language such as “sue and be sued”, in and of itself, did not constitute a clear and unambiguous waiver of sovereign immunity. In Tooke, the Court noted the enactment in 2005 of sections 271.151-.160, Texas Local Government Code (the “Local Government Immunity Waiver Act”), which, according to the Court, waives “immunity from suit for contract claims against most local governmental entities in certain circumstances.” The Local Government Immunity Waiver Act covers cities and relates to contracts entered into by cities for providing goods or services to cities. The Town is not aware of any Texas court construing the Local Government Immunity Waiver Act in the context of whether contractual undertakings of local governments that relate to their borrowing powers are contracts covered by the Act. Because it is unclear whether the Texas legislature has effectively waived the Town’s sovereign immunity from a suit for money damages in the absence of Town action, the Trustee or the owners of the Bonds may not be able to bring such a suit against the Town for breach of the Bonds or the Indenture covenants. As noted above, the Indenture provides that owners of the Bonds may exercise the remedy of mandamus to enforce the obligations of the Town under the Indenture. Neither the remedy of mandamus nor any other type of injunctive relief was at issue in Tooke, and it is unclear whether Tooke will be construed to have any effect with respect to the exercise of mandamus, as such remedy has been interpreted by Texas courts. In general, Texas courts have held that a writ of mandamus may be issued to require public officials to perform ministerial acts that clearly pertain to their duties. Texas courts have held that a ministerial act is defined as a legal duty that is prescribed and defined with a precision and certainty that leaves nothing to the exercise of discretion or judgment, though mandamus is not available to enforce purely contractual duties. However, mandamus may be used to require a public officer to perform legally-imposed ministerial duties necessary for the performance of a valid contract to which the State or a political subdivision of the State is a party (including the payment of monies due under a contract).

No Acceleration

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.

Bankruptcy Limitation to Bondholders’ Rights

The enforceability of the rights and remedies of the owners of the Bonds may be limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions such as the Town. The Town is authorized under Texas law to voluntarily proceed under Chapter 9 of the Federal Bankruptcy Code, 11 U.S.C. 901-946. The Town may proceed under Chapter 9 if it (1) is generally not paying its debts, or unable to meet its debts, as they become due, (2) desires to effect a plan to adjust such debts, and (3) has either obtained the agreement of or negotiated in good faith with its creditors, is unable to negotiate with its creditors because negotiation is impracticable, or reasonably believes that a creditor may attempt to obtain a preferential transfer.

If the Town decides in the future to proceed voluntarily under the Federal Bankruptcy Code, the Town would develop and file a plan for the adjustment of its debts, and the Bankruptcy Court would confirm the plan if (1) the plan complies with the applicable provisions of the Federal Bankruptcy Code, (2) all payments to be made in connection with the plan are fully disclosed and reasonable, (3) the Town is not prohibited by law from taking any action necessary to carry out the plan, (4) administrative expenses are paid in full, (5) all regulatory or electoral approvals required under Texas law are obtained and (6) the plan is in the best interests of creditors and is feasible. The rights and remedies of the owners of the Bonds would be adjusted in accordance with the confirmed plan of adjustment of the Town’s debt.

Management and Ownership

The management and ownership of the Developer and related property owners could change in the future. Purchasers of the Bonds should not rely on the management experience of such entities. There are no assurances that such entities will not sell the subject property or that officers will not resign or be replaced. In such circumstances, a new developer or new officers in management positions may not have comparable experience in projects comparable to the Development.

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General Risks of Real Estate Investment and Development

Investments in undeveloped or developing real estate are generally considered to be speculative in nature and to involve a high degree of risk. The Development will be subject to the risks generally incident to real estate investments and development. Many factors that may affect the Development, as well as the operating revenues of the Developer, including those derived from the Development, are not within the control of the Developer. Such factors include changes in national, regional and local economic conditions; changes in long and short term interest rates; changes in the climate for real estate purchases; changes in demand for or supply of competing properties; changes in local, regional and national market and economic conditions; unanticipated development costs, market preferences and architectural trends; unforeseen environmental risks and controls; the adverse use of adjacent and neighboring real estate; changes in interest rates and the availability of mortgage funds to buyers of the homes to be built in the Development, which may render the sale of such homes difficult or unattractive; acts of war, terrorism or other political instability; delays or inability to obtain governmental approvals; changes in laws; moratorium; acts of God (which may result in uninsured losses); strikes; labor shortages; energy shortages; material shortages; inflation; adverse weather conditions; contractor or subcontractor defaults; and other unknown contingencies and factors beyond the control of the applicable owner or developer. Furthermore, the operating revenues of such entities may be materially adversely affected if specific conditions in the lot purchase contracts are not met by such entities. Failure to meet the lot purchase contract’s conditions allows the applicable lot purchaser to terminate its obligation to purchase lots from the Developer and obtain its earnest money deposit back. See “THE DEVELOPMENT – Expected Home Prices and Anticipated Build-Out” herein.

The Development cannot be initiated or completed without the Developer obtaining a variety of governmental approvals and permits, some of which have already been obtained. Certain permits are necessary to initiate construction of the major infrastructure of each phase of the Development and to allow the occupancy of residences and to satisfy conditions included in the approvals and permits. There can be no assurance that all of these permits and approvals can be obtained or that the conditions to the approvals and permits can be fulfilled. The failure to obtain any of the required approvals or fulfill any one of the conditions could cause materially adverse financial results for the Developer.

Dependence Upon Developer

The Developer, as the owner of all of the parcels in the District, currently has the only obligation for payment of the Phases #2 - 5 Assessments. The ability of the Developer to make full and timely payment of the Phases #2 - 5 Assessments will directly affect the ability of the Town to meet its debt service obligations with respect to the Bonds. The sole assets of the Developer are land within the District, related permits and development rights and minor operating accounts. The source of funding for future land development activities and infrastructure construction to develop the remaining lots proposed for the Development also consists of proceeds from Phased Bonds and proceeds of lot sales, as well as possible bank financing and equity contributions by the Developer. There can be no assurances given as to the financial ability of the Developer to advance any funds to the Town to supplement revenues from the Phases #2 - 5 Assessments if necessary, or as to whether the Developer will advance such funds.

Agricultural Use Valuation and Redemption Rights

All of the acreage in the District is currently entitled to valuation for ad valorem tax purposes based upon its agricultural use. Under Texas law, an owner of land that is entitled to an agricultural valuation has the right to redeem such property after a tax sale for a period of two years after the tax sale by paying to the tax sale purchaser a 25% premium, if redeemed during the first year, or a 50% premium, if redeemed during the second year, over the purchase price paid at the tax sale and certain qualifying costs incurred by the purchaser. Although Phases #2 - 5 Assessments are not considered a tax under Texas law, the PID Act provides that the lien for Phases #2 - 5 Assessments may be enforced in the same manner as a lien for ad valorem taxes. This shared enforcement mechanism raises a possibility that the right to redeem agricultural valuation property may be available following a foreclosure of a lien for Phases #2 - 5 Assessments, though there is no indication in Texas law that such redemption rights would be available in such a case.

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The Developer expects that the agricultural use valuations within Phases #2 - 5 will be terminated in 2014, affecting tax rolls beginning in 2015. The remaining agricultural use valuations are expected to terminate within the next 8 to 9 years.

At closing of the Bonds, the Developer will execute an Agreement Regarding Conveyance of Right of Redemption and Waiver of Agricultural Valuation (the “Redemption Agreement”) with the Town pursuant to which the Developer will convey to the Trustee for the benefit of the owners of the Bonds its right to redeem any agricultural valuation property and require any subsequent purchaser from the Developer to execute a similar conveyance. In addition, the Developer will deliver, and require any subsequent purchaser to deliver, into escrow with the Trustee a waiver of agricultural valuation, which the Trustee will be authorized to release and file with the Denton County Tax Assessor/Collector in the event that the subsequent owner has not paid ad valorem taxes or the special assessments due in respect of agricultural valuation property within 60 days of their due date. The Redemption Agreement will be enforceable by the Trustee on behalf of the owners of the Bonds. Although the Redemption Agreement is intended to protect the Town and the bondholders against potential redemption rights of the Developer in the context of a foreclosure proceeding, because there is currently no case law with respect to waiver of redemption rights or an agricultural valuation, it is unclear whether the Redemption Agreement is enforceable under Texas law.

Because the enforceability of the Redemption Agreement is not certain, as additional protection against the occurrence of a tax sale for non-payment of ad valorem taxes and the associated risk of redemption rights arising, the Developer will pay to the Trustee prior to delivery of the Bonds, and maintain at all times while there exists property in Phases #2 - 5 that is entitled to valuation based on its agricultural use, an amount equal to the estimated ad valorem taxes assessed against agricultural valuation property to become due in the next two years. Such funds will be held by the Trustee and used to pay delinquent ad valorem taxes on agricultural valuation property and thereby potentially avoid the possibility of a sale for non-payment of ad valorem taxes and the associated risk of redemption rights arising. In the event such funds are used to pay delinquent ad valorem taxes, the Developer will be required to replenish such funds previously held by the Trustee. A proportionate amount of such deposit will be returned to the Developer upon termination of agricultural valuation.

TAX MATTERS

Tax Exemption

The delivery of the Bonds is subject to the opinion of Bond Counsel to the effect that interest on the Bonds for federal income tax purposes (1) will be excludable from gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date of such opinion (the “Code”), pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. A form of Bond Counsel’s opinion is reproduced as APPENDIX C. The statutes, regulations, rulings, and court decisions on which such opinion is based are subject to change.

Interest on the Bonds owned by a corporation will be included in such corporation’s adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust (“FASIT”). A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by Section 55 of the Code will be computed.

In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the Town made in a certificate dated the date of delivery of the Bonds pertaining to the use, expenditure, and investment of the proceeds of the Bonds and will assume continuing compliance by the Town with the provisions of the Indenture subsequent to the issuance of the Bonds. The Indenture contains covenants by the Town with respect to, among other matters, the use of the proceeds of the Bonds and the facilities financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the Bonds are to be invested, the periodic calculation and payment to the United States Treasury of arbitrage “profits” from the investment of proceeds, and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants

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may cause interest on the Bonds to be includable in the gross income of the owners thereof from the date of the issuance of the Bonds.

Bond Counsel’s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the Town described above. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel’s opinion is not binding on the IRS. The IRS has an ongoing program of auditing the tax-exempt status of the interest on tax-exempt obligations. If an audit of the Bonds is commenced, under current procedures the IRS is likely to treat the Town as the “taxpayer,” and the owners of the Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the Town may have different or conflicting interests from the owners of the Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome.

Except as described above, Bond Counsel expresses no other opinion with respect to any other federal, state or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances.

Existing law may change to reduce or eliminate the benefit to bondholders of the exclusion of interest on the Bonds from gross income for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors with respect to any proposed or future changes in tax law.

Tax Accounting Treatment of Discount and Premium on Certain Bonds

The initial public offering price of certain Bonds (the "Discount Bonds") may be less than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue discount allocable to the holding period of such Discount Bond by the initial purchaser will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Bonds described above under "Tax Exemption." Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during the tax year.

However, such interest may be required to be taken into account in determining the alternative minimum taxable income of a corporation, for purposes of calculating a corporation's alternative minimum tax imposed by Section 55 of the Code, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a

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Discount Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Bond was held) is includable in gross income.

Owners of Discount Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment.

The initial public offering price of certain Bonds (the "Premium Bonds") may be greater than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser's yield to maturity.

Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Bonds.

LEGAL MATTERS

Legal Proceedings

Delivery of the Bonds will be accompanied by the unqualified approving legal opinion of the Attorney General to the effect that the Bonds are valid and legally binding obligations of the Town under the Constitution and laws of the State, payable from Pledged Revenues and, based upon their examination of a transcript of certified proceedings relating to the issuance and sale of the Bonds, the legal opinion of Bond Counsel, to a like effect.

Fulbright & Jaworski LLP, a member of Norton Rose Fulbright, serves as Bond Counsel to the Town. Andrews Kurth LLP serves as Underwriter’s Counsel. The legal fees paid to Bond Counsel and Underwriter’s Counsel are contingent upon the sale and delivery of the Bonds.

Legal Opinions

The Town will furnish the Underwriter a transcript of certain certified proceedings incident to the authorization and issuance of the Bonds. Such transcript will include a certified copy of the approving opinion of the Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State, to the effect that the Bonds are valid and binding special obligations of the Town. The Town will also furnish the legal opinion of Fulbright & Jaworski LLP, a member of Norton Rose Fulbright, Bond Counsel, to the effect that, based upon an examination of such transcript, the Bonds are valid and binding special obligations of the Town under the Constitution and laws of the State. The legal opinion of Bond Counsel will further state that the Bonds, including principal of and interest thereon, are payable from and secured by a pledge of and lien on the Pledged Revenues. Bond Counsel will also provide a legal opinion to the effect that interest on the Bonds will be excludable from gross income for federal income tax purposes under Section 103(a) of the Code, subject to the matters described above under the caption “TAX MATTERS,” including the alternative minimum tax consequences for corporations. A copy of the opinion of Bond Counsel is attached hereto as “APPENDIX C —Form of Opinion of Bond Counsel.”

Except as noted below, Bond Counsel did not take part in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the

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information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Bonds in the Official Statement under the captions or subcaptions “PLAN OF FINANCE — General,” “DESCRIPTION OF THE BONDS,” “SECURITY FOR THE BONDS,” “TAX MATTERS,” “LEGAL MATTERS — Legal Proceedings,” “CONTINUING DISCLOSURE OF INFORMATION” (except for the last two sentences of the first paragraph thereunder), “LEGAL MATTERS — Legal Opinions,” “REGISTRATION AND QUALIFICATION OF BONDS FOR SALE,” “LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS” and APPENDIX A and such firm is of the opinion that the information relating to the Bonds, the Ordinance and the Indenture contained therein fairly and accurately describes the laws and legal issues addressed herein and, with respect to the Bonds, such information conforms to the Ordinance and the Indenture.

The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction.

Litigation — The Town

At the time of delivery and payment for the Bonds, the Town will certify that, except as disclosed herein, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or overtly threatened against the Town affecting the existence of the District, or seeking to restrain or to enjoin the sale or delivery of the Bonds, the application of the proceeds thereof, in accordance with the Indenture, or the collection or application of Phases #2 - 5 Assessments securing the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Assessment Ordinance, the Indenture, any action of the Town contemplated by any of the said documents, or the collection or application of the revenues provided for the payment of the Bonds, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the Town or its authority with respect to the Bonds or any action of the Town contemplated by any of said documents.

Litigation — The Developer

At the time of delivery and payment for the Bonds, the Developer will certify that, except as disclosed herein, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory body, public board or body pending, or, to the best knowledge of the Developer, threatened against or affecting the Developer wherein an unfavorable decision, ruling or finding would have a material adverse effect on the financial condition of the Developer or its general partner or would adversely affect (1) the transactions contemplated by, or the validity or enforceability of, the Bonds, the Indenture, the Bond Ordinance, the Service and Assessment Plan, the Construction, Funding, and Acquisition Agreement, the Redemption Agreement or the Bond Purchase Agreement, or otherwise described in this Official Statement, or (2) the tax-exempt status of interest on the Bonds (individually or in the aggregate, a “Material Adverse Effect”). Additionally, Mr. Mehrdad Moayedi and his affiliated entities have been and are parties to pending and threatened litigation related to their commercial and real estate development activities. Such litigation occurs in the ordinary course of business and is not expected to have a Material Adverse Effect.

SUITABILITY FOR INVESTMENT

Investment in the Bonds poses certain economic risks. The Bonds are not rated by any nationally recognized municipal securities rating organization. No dealer, broker, salesman or other person has been authorized by the Town or the Underwriter to give any information or 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 either of the foregoing. Additional information will be made available to each prospective investor, including the benefit of a site visit to the Town and the opportunity to ask questions of the Developer, as such prospective investor deems necessary in order to make an informed decision with respect to the purchase of the Bonds.

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ENFORCEABILITY OF REMEDIES

The remedies available to the owners of the Bonds upon an event of default under the Indenture are in many respects dependent upon judicial actions, which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including the federal bankruptcy code, the remedies specified by the Indenture and the Bonds may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified, as to the enforceability of the remedies provided in the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors and enacted before or after such delivery.

NO RATING

No application for a rating of the Bonds has been made to any rating agency, nor is there any reason to believe that the Town would have been successful in obtaining an investment grade rating for the Bonds had application been made.

CONTINUING DISCLOSURE

Pursuant to Rule 15c2-12 of the Securities and Exchange Commission (the “Rule”), the Town, the Trustee and the Developer will enter into a Continuing Disclosure Agreement (the “Disclosure Agreement”), for the benefit of the owners of the Bonds (including owners of beneficial interests in the Bonds), to provide, by certain dates prescribed in the Disclosure Agreement, certain financial information and operating data relating to the Town, the Development and the Developer and certain information regarding the Major Improvement Projects and other projects within the District that will be financed by the Bonds and/or the Developer (the “Reports”). The specific nature of the information to be contained in the Reports is set forth in “APPENDIX D — Form of Disclosure Agreement.” Under certain circumstances, the failure of the Town or the Developer to comply with its obligations under the Disclosure Agreement constitutes an event of default thereunder. Such a default will not constitute an event of default under the Indenture, but such event of default under the Disclosure Agreement would allow the owners of the Bonds (including owners of beneficial interests in the Bonds) to bring an action for specific performance. During the last five years, the Town has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule, with the exception that the unaudited financial statements filed for fiscal year end 2009, filed March 30, 2010, were incomplete as filed, and thus not timely filed. Financial information and operating data for fiscal year end 2009 were timely filed, and audited financial statements for fiscal year end 2009 were filed May 20, 2010. The Town has reconfirmed its obligations under its prior undertakings and intends to fully comply with its undertakings made under the Rule in the future. The Town’s subsequent annual filings were complete and timely filed. The Developer has not previously entered into any continuing disclosure agreements in accordance with the Rule.

The Town has agreed to update information and to provide notices of specified events only as provided in the Disclosure Agreement. The Town has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided in this Official Statement, except as provided in the Disclosure Agreement. The Town makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell the Bonds at any future date. The Town disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of the Disclosure Agreement or from any statement made pursuant to the Disclosure Agreement.

UNDERWRITING

Jefferies LLC (the “Underwriter”) has agreed to purchase the Bonds from the Town at a purchase price of $11,995,200 (the par amount of the Bonds, less an underwriting discount of $244,800). The Underwriter’s obligations are subject to certain conditions precedent and if obligated to purchase any of the Bonds the Underwriter will be obligated to purchase all of the Bonds. The Bonds may be offered and sold by the Underwriter at prices lower than the initial offering prices stated on the inside cover page hereof, and such initial offering prices may be changed from time to time by the Underwriter.

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REGISTRATION AND QUALIFICATION OF BONDS FOR SALE

The sale of the Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The Town assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions.

LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS

The PID Act and Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Government Code, as amended) provide that the Bonds are negotiable instruments and investment securities governed by Chapter 8, Business and Commerce Code, as amended, and are legal and authorized investments for insurance companies, fiduciaries, trustees, or for the sinking funds of municipalities or other political subdivisions or public agencies of the State. With respect to investment in the Bonds by municipalities or other political subdivisions or public agencies of the State, the PFIA requires that the Bonds be assigned a rating of at least “A” or its equivalent as to investment quality by a national rating agency. See “NO RATING” above. In addition, the PID Act and various provisions of the Texas Finance Code provide that, subject to a prudent investment standard, the Bonds are legal investments for state banks, savings banks, trust companies with a capital of one million dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits to the extent of their market value. No review by the Town has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. No representation is made that the Bonds will be acceptable to public entities to secure their deposits or acceptable to such institutions for investment purposes.

The Town made no investigation of other laws, rules, regulations or investment criteria which might apply to such institutions or entities or which might limit the suitability of the Bonds for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Bonds for such purposes.

INVESTMENTS

The Town invests its funds in investments authorized by Texas law in accordance with investment policies approved by the Town Council. Both Texas law and the Town’s investment policies are subject to change.

Under Texas law, the Town is authorized to make investments meeting the requirements of the PFIA, which currently include (1) obligations, including letter of credit, of the United States or its agencies and instrumentalities, (2) direct obligations of the State or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit and share certificates meeting the requirements of the PFIA that are issued by or through an institution that either has its main office or a branch office in Texas, and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for Town deposits, or are invested by the Town through a broker or depository institution that has its main office or a branch office in the State and otherwise meet the requirements of the PFIA, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by a combination of cash and obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State, (9) certain bankers’ acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-l or P-1 or the

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equivalent by at least one nationally recognized credit rating agency, (10) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no- load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (12) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than “AAA” or its equivalent. If specifically authorized in the authorizing document, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph.

The Town may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than “AAA” or “AAA-m” or an equivalent by at least one nationally recognized rating service. The Town may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the Town retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the Town must do so by order, ordinance, or resolution. The Town is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index.

Political subdivisions such as the Town are authorized to implement securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) of the first paragraph under this subcaption, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm not less than “A” or its equivalent, or (c) cash invested in obligations that are described in clauses (1) through (6) and (10) through (12) of the first paragraph under this subcaption, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the governmental body, held in the name of the governmental body and deposited at the time the investment is made with the Town or a third party designated by the Town; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State; and (iv) the agreement to lend securities has a term of one year or less.

Under Texas law, the Town is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for Town funds, the maximum allowable stated maturity of any individual investment, the maximum average dollar-weighted maturity allowed for pooled fund groups, methods to monitor the market price of investments acquired with public funds, a requirement for settlement of all transactions, except investment pool funds and mutual funds, on a delivery versus payment basis, and procedures to monitor rating changes in investments acquired with public funds and the liquidation of such investments consistent with the PFIA. All Town funds must be invested consistent with a formally adopted “Investment Strategy Statement” that specifically addresses each funds’ investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield.

Under Texas law, Town investments must be made “with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person’s own affairs, not for speculation, but for investment, considering the probable safety of capital and the

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probable income to be derived.” At least quarterly the investment officers of the Town shall submit an investment report detailing: (1) the investment position of the Town, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, the ending market value and the fully accrued interest for the reporting period of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest Town funds without express written authority from the Town Council.

Under Texas law the Town is additionally required to: (1) annually review its adopted policies and strategies; (2) adopt a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order, ordinance or resolution; (3) require any investment officers’ with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the Town Council; (4) require the registered principal of firms seeking to sell securities to the Town to: (a) receive and review the Town’s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the Town and the business organization that are not authorized by the Town’s investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the Town’s entire portfolio or requires an interpretation of subjective investment standards), and (c) deliver a written statement attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the Town’s investment policy; (6) provide specific investment training for the officers of the Town; (7) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (8) restrict the investment in no-load mutual funds in the aggregate to no more than 15% of the entity’s monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; and (10) at least annually review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the Town.

INFORMATION RELATING TO THE TRUSTEE

The Town has appointed The Bank of New York Mellon Trust Company, National Association, a national banking association organized under the laws of the United States, to serve as Trustee. The Trustee is to carry out those duties assignable to it under the Indenture. Except for the contents of this section, the Trustee has not reviewed or participated in the preparation of this Official Statement and assumes no responsibility for the contents, accuracy, fairness or completeness of the information set forth in this Official Statement or for the recitals contained in the Indenture or the Bonds, or for the validity, sufficiency, or legal effect of any of such documents.

Furthermore, the Trustee has no oversight responsibility, and is not accountable, for the use or application by the Town of any of the Bonds authenticated or delivered pursuant to the Indenture or for the use or application of the proceeds of such Bonds by the Town. The Trustee has not evaluated the risks, benefits, or propriety of any investment in the Bonds and makes no representation, and has reached no conclusions, regarding the value or condition of any assets or revenues pledged or assigned as security for the Bonds, the technical or financial feasibility of the project, or the investment quality of the Bonds, about all of which the Trustee expresses no opinion and expressly disclaims the expertise to evaluate.

Additional information about the Trustee may be found at its website at http://www.bnymellon.com. Neither the information on the Trustee’s website, nor any links from that website, is a part of this Official Statement, nor should any such information be relied upon to make investment decisions regarding the Bonds.

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SOURCES OF INFORMATION

General

The information contained in this Official Statement has been obtained primarily from the Town’s records, the Developer and its representatives and other sources believed to be reliable. In accordance with its responsibilities under the federal securities law, the Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of the transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement or any sale hereunder will create any implication that there has been no change in the financial condition or operations of the Town or the Developer described herein since the date hereof. This Official Statement contains, in part, estimates and matters of opinion that are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions or that they will be realized. The summaries of the statutes, resolutions, ordinances, indentures and engineering and other related reports set forth herein are included subject to all of the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information.

Source of Certain Information

The information contained in this Official Statement relating to the description of the Major Improvement Projects generally and, in particular, the information included in the sections captioned “THE MAJOR IMPROVEMENT PROJECTS,” “THE DEVELOPMENT,” “THE DEVELOPER,” “BONDHOLDERS’ RISKS” (only as it pertains to the Developer and the Development) and “LEGAL MATTERS — Litigation — The Developer” has been provided by the Developer.

Experts

The information regarding the Service and Assessment Plan in this Official Statement has been provided by Municap, Inc., and has been included in reliance upon the authority of such firm as experts in the field of development planning and finance.

The information regarding the Appraisal in this Official Statement has been provided by Jackson Claborn, Inc., and has been included in reliance upon the authority of such firm as experts in the field of the appraisal of real property.

Updating of Official Statement

If, subsequent to the date of the Official Statement, the Town learns, through the ordinary course of business and without undertaking any investigation or examination for such purposes, or is notified by the Underwriter, of any adverse event which causes the Official Statement to be materially misleading, and unless the Underwriter elects to terminate its obligation to purchase the Bonds, the Town will promptly prepare and supply to the Underwriter an appropriate amendment or supplement to the Official Statement satisfactory to the Underwriter; provided, however, that the obligation of the Town to so amend or supplement the Official Statement will terminate when the Town delivers the Bonds to the Underwriter, unless the Underwriter notifies the Town on or before such date that less than all of the Bonds have been sold to ultimate customers; in which case the Town’s obligations hereunder will extend for an additional period of time (but not more than 90 days after the date the Town delivers the Bonds) until all of the Bonds have been sold to ultimate customers.

FORWARD-LOOKING STATEMENTS

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21e of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the Securities

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Act. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “anticipate,” “budget” or other similar words.

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE TOWN DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ANY OF ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR, OTHER THAN AS DESCRIBED UNDER “CONTINUING DISCLOSURE” HEREIN.

AUTHORIZATION AND APPROVAL

The execution and delivery of this Official Statement has been duly authorized by the Town Council of the Town of Little Elm, Texas.

TOWN OF LITTLE ELM, TEXAS /s/ David Hillock Mayor

ATTEST: /s/ Kathy Phillips Town Secretary

HOU:3384108.15

APPENDIX A

FORM OF INDENTURE

HOU:3384108.15


57454967.9/11313004

INDENTURE OF TRUST

By and Between

TOWN OF LITTLE ELM, TEXAS

and

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. as Trustee

DATED AS OF FEBRUARY 1, 2014

SECURING


SPECIAL ASSESSMENT REVENUE BONDS, SERIES 2014 (VALENCIA PUBLIC IMPROVEMENT DISTRICT

PHASES # 2 – 5 MAJOR IMPROVEMENT PROJECT)

Appendix A-1

TABLE OF CONTENTS

-i-

ARTICLE I DEFINITIONS, FINDINGS AND INTERPRETATION 4 Section 1.1. Definitions. ...................................................................................................... 4 Section 1.2. Findings. ....................................................................................................... 11 Section 1.3. Table of Contents, Titles and Headings. ...................................................... 11 Section 1.4. Interpretation. ............................................................................................... 11 ARTICLE II THE BONDS 11 Section 2.1. Security for the Bonds. ................................................................................. 11 Section 2.2. Limited Obligations. ...................................................................................... 12 Section 2.3. Authorization for Indenture. .......................................................................... 12 Section 2.4. Contract with Owners and Trustee. .............................................................. 12 ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE BONDS 12 Section 3.1. Authorization. ................................................................................................ 12 Section 3.2. Date, Denomination, Maturities, Numbers and Interest. ............................... 12 Section 3.3. Conditions Precedent to Delivery of Bonds. ................................................. 13 Section 3.4. Medium, Method and Place of Payment. ...................................................... 14 Section 3.5. Execution and Registration of Bonds. .......................................................... 15 Section 3.6. Ownership. ................................................................................................... 15 Section 3.7. Registration, Transfer and Exchange. .......................................................... 16 Section 3.8. Cancellation. ................................................................................................. 17 Section 3.9. Temporary Bonds. ........................................................................................ 17 Section 3.10. Replacement Bonds. .................................................................................... 17 Section 3.11. Book-Entry Only System. ............................................................................. 18 Section 3.12. Successor Securities Depository: Transfer Outside Book-Entry-Only

System. ......................................................................................................... 19 Section 3.13. Payments to Cede & Co. .............................................................................. 19 ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY 19 Section 4.1. Limitation on Redemption. ............................................................................ 19 Section 4.2. Mandatory Sinking Fund Redemption. ......................................................... 19 Section 4.3. Optional Redemption. ................................................................................... 20 Section 4.4. Extraordinary Optional Redemption. ............................................................ 21 Section 4.5. Partial Redemption. ...................................................................................... 21 Section 4.6. Notice of Redemption to Owners. ................................................................. 22 Section 4.7. Payment Upon Redemption. ........................................................................ 22 Section 4.8. Effect of Redemption. ................................................................................... 23 ARTICLE V FORM OF THE BONDS 23 Section 5.1. Form Generally. ............................................................................................ 23 Section 5.2. CUSIP Registration. ..................................................................................... 23 Section 5.3. Legal Opinion. .............................................................................................. 24 ARTICLE VI FUNDS AND ACCOUNTS 24 Section 6.1. Establishment of Funds and Accounts. ........................................................ 24 Section 6.2. Initial Deposits to Funds and Accounts. ....................................................... 25 Section 6.3. Pledged Revenue Fund. ............................................................................... 25 Section 6.4. Bond Fund. ................................................................................................... 26

Appendix A-2

TABLE OF CONTENTS (continued)

Page

-ii-

Section 6.5. Project Fund. ................................................................................................ 27 Section 6.6. Redemption Fund. ........................................................................................ 28 Section 6.7. Reserve Fund. .............................................................................................. 28 Section 6.8. Rebate Fund: Rebate Amount. ..................................................................... 30 Section 6.9. Administrative Fund. ..................................................................................... 30 Section 6.10. Investment of Funds. .................................................................................... 31 Section 6.11. Security of Funds. ......................................................................................... 32 ARTICLE VII COVENANTS 32 Section 7.1. Confirmation of Assessments. ...................................................................... 32 Section 7.2. Collection and Enforcement of Assessments. .............................................. 32 Section 7.3. Against Encumbrances. ................................................................................ 32 Section 7.4. Records, Accounts, Accounting Reports. ..................................................... 33 Section 7.5. Covenants to Maintain Tax-Exempt Status. ................................................. 33 ARTICLE VIII LIABILITY OF TOWN 36 ARTICLE IX THE TRUSTEE 37 Section 9.1. Trustee as Registrar and Paying Agent ........................................................ 37 Section 9.2. Trustee Entitled to Indemnity ........................................................................ 38 Section 9.3. Responsibilities of the Trustee. .................................................................... 38 Section 9.4. Property Held in Trust. .................................................................................. 38 Section 9.5. Trustee Protected in Relying on Certain Documents. .................................. 38 Section 9.6. Compensation. ............................................................................................. 39 Section 9.7. Permitted Acts. ............................................................................................. 39 Section 9.8. Resignation of Trustee. ................................................................................ 40 Section 9.9. Removal of Trustee. ..................................................................................... 40 Section 9.10. Successor Trustee. ....................................................................................... 40 Section 9.11. Transfer of Rights and Property to Successor Trustee. ............................... 41 Section 9.12. Merger, Conversion or Consolidation of Trustee. ......................................... 41 Section 9.13. Trustee To File Continuation Statements. .................................................... 41 Section 9.14. Construction of Indenture. ............................................................................ 42 ARTICLE X MODIFICATION OR AMENDMENT OF THIS INDENTURE 42 Section 10.1. Amendments Permitted. ............................................................................... 42 Section 10.2. Owners’ Meetings. ........................................................................................ 43 Section 10.3. Procedure for Amendment with Written Consent of Owners. ....................... 43 Section 10.4. Effect of Supplemental Indenture. ................................................................ 43 Section 10.5. Endorsement or Replacement of Bonds Issued After Amendments. ........... 44 Section 10.6. Amendatory Endorsement of Bonds. ............................................................ 44 Section 10.7. Waiver of Default .......................................................................................... 44 ARTICLE XI DEFAULT AND REMEDIES 44 Section 11.1. Events of Default. ......................................................................................... 44 Section 11.2. Immediate Remedies for Default. ................................................................. 45 Section 11.3. Restriction on Owner’s Action. ..................................................................... 45 Section 11.4. Application of Revenues and Other Moneys After Default. .......................... 46 Section 11.5. Effect of Waiver. ........................................................................................... 47 Section 11.6. Evidence of Ownership of Bonds. ................................................................ 47

Appendix A-3

TABLE OF CONTENTS (continued)

Page

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Section 11.7. No Acceleration. ........................................................................................... 48 Section 11.8. Mailing of Notice. .......................................................................................... 48 Section 11.9. Exclusion of Bonds. ...................................................................................... 48 ARTICLE XII GENERAL COVENANTS AND REPRESENTATIONS 48 Section 12.1. Representations as to Pledged Revenues. .................................................. 48 Section 12.2. Accounts, Periodic Reports and Certificates. ............................................... 49 Section 12.3. General. ........................................................................................................ 49 ARTICLE XIII SPECIAL COVENANTS 49 Section 13.1. Further Assurances; Due Performance. ....................................................... 49 Section 13.2. Other Obligations or Other Liens; Additional Bonds. .................................... 49 Section 13.3. Books of Record. .......................................................................................... 50 ARTICLE XIV PAYMENT AND CANCELLATION OF THE BONDS AND SATISFACTION OF THE INDENTURE 50 Section 14.1. Trust Irrevocable. .......................................................................................... 50 Section 14.2. Satisfaction of Indenture. .............................................................................. 50 Section 14.3. Bonds Deemed Paid. .................................................................................... 51 ARTICLE XV MISCELLANEOUS 51 Section 15.1. Benefits of Indenture Limited to Parties. ....................................................... 51 Section 15.2. Successor is Deemed Included in All References to Predecessor. .............. 51 Section 15.3. Execution of Documents and Proof of Ownership by Owners. ..................... 52 Section 15.4. Waiver of Personal Liability. ......................................................................... 52 Section 15.5. Notices to and Demands on Town and Trustee. .......................................... 52 Section 15.6. Partial Invalidity. ........................................................................................... 53 Section 15.7. Applicable Laws. ........................................................................................... 53 Section 15.8. Payment on Business Day. .......................................................................... 53 Section 15.9. Counterparts. ................................................................................................ 54

EXHIBIT A – Form of Bonds .................................................................................................. A-1

1

Appendix A-4

57454967.9/11313004

INDENTURE OF TRUST

THIS INDENTURE, dated as of February 1, 2014, is by and between the TOWN OF LITTLE ELM, TEXAS (the “Town”), and The Bank of New York Mellon Trust Company, National Association, Dallas, Texas, as trustee (together with its successors, the “Trustee”). Capitalized terms used in the preambles, recitals and granting clauses and not otherwise defined shall have the meanings assigned thereto in Article I.

WHEREAS, a petition was submitted by the Petitioner (defined herein) and filed with the Town Secretary of the Town (the “Town Secretary”) pursuant to the Public Improvement District Assessment Act, Texas Local Government Code, Chapter 372, as amended (the “PID Act”), requesting the creation of a public improvement district located in the extraterritorial jurisdiction of the Town to be known as Valencia Public Improvement District (the “District”); and

WHEREAS, the petition contained the signatures of the owners of taxable property representing more than fifty percent of the appraised value of taxable real property liable for assessment within the District, as determined by the then current ad valorem tax rolls of the Denton Central Appraisal District, and the signatures of property owners who own taxable real property that constitutes more than fifty percent of the area of all taxable property that is liable for assessment by the District; and

WHEREAS, on September 17, 2013, after due notice, the Town Council of the Town (the “Town Council”) held the public hearing in the manner required by law on the advisability of the improvement projects and services described in the petition as required by Sec. 372.009 of the PID Act and on September 17, 2013, the Town Council made the findings required by Sec. 372.009(b) of the PID Act and, by Resolution No. 09171301, adopted by a majority of the members of the Town Council, authorized the District in accordance with its finding as to the advisability of the improvement projects and services; and

WHEREAS, on September 20, 2013, the Town published notice of its authorization of the District in the Little Elm Journal, a newspaper of general circulation in the Town and the extraterritorial jurisdiction of the Town; and

WHEREAS, no written protests of the District from any owners of record of property within the District were filed with the Town Secretary within 20 days after September 20, 2013; and

WHEREAS, on January 21, 2014, the Town Council by Resolution 01211401 made findings and determinations relating to the Costs of certain Authorized Improvements and directed Town staff to (i) prepare a proposed assessment roll as required by Section 372.016(a) of the PID Act, (ii) file said proposed assessment roll with the Town Secretary and to make it available for public inspection as required by Section 372.016(b), (iii) publish such notice as required by Section 372.016(b) of the PID Act, and (iv) prepare a service and assessment plan in accordance with Sections 372.13 and 372.14 of the PID Act; and

WHEREAS, the Town Council, pursuant to Section 372.016(b) of the PID Act, published notice of a public hearing in a newspaper of general circulation in the Town and in the extraterritorial jurisdiction of the Town to consider the proposed “Assessment Roll” and the “Service and Assessment Plan” and the levy of the “Assessments” on property in the District; and

Appendix A-5

Indenture of Trust 57454967.9/11313004 2

WHEREAS, the Town Council, pursuant to Section 372.016(c) of the PID Act, mailed notice of the public hearing to consider the proposed Assessment Roll and the Service and Assessment Plan and the levy of Assessments on property in the District to the last known address of the owners of the property liable for the Assessments; and

WHEREAS, the Town Council convened the hearing on February 13, 2014, and at such public hearing all persons who appeared, or requested to appear, in person or by their attorney, were given the opportunity to contend for or contest the proposed Assessment Roll and the Assessments, and to offer testimony pertinent to any issue presented on the amount of the Assessment, the allocation of Costs, the purposes of the Assessment, the special benefits of the Assessment, and the penalties and interest on annual installments and on delinquent annual installments of the Assessment; and

WHEREAS, at the February 13, 2014 public hearing referenced above, there were no written objections or evidence submitted to the Town Secretary in opposition to the Service and Assessment Plan, the allocation of Costs, the Assessment Roll, and the levy of the Assessments; and

WHEREAS, the Town Council closed the hearing, and, after considering all written and documentary evidence presented at the hearing, including all written comments and statements filed with the Town, and

WHEREAS, on February 13, 2014, the Town approved and accepted the Service and Assessment Plan in conformity with the requirements of the PID Act and adopted the Assessment Ordinance and therein levied the Assessments; and

WHEREAS, the Town Council hereby finds and determines that the Assessment Roll and the Service and Assessment Plan should be approved and that the Assessments should be levied as provided in the Service and Assessment Plan and the Assessment Roll; and

WHEREAS, the Town Council is authorized by the PID Act to issue its revenue bonds payable from the Assessments for the purpose of (i) paying a portion of the Costs of the Major Improvement Projects, (ii) paying a portion of the interest on the Bonds during and after the period of acquisition and construction of the Major Improvement Projects, (iii) funding a reserve fund for payment of principal and interest on the Bonds, (iv) paying a portion of the costs incidental to the organization of the District, and (v) paying costs of issuance; and

WHEREAS, the Town Council now desires to issue revenue bonds, in accordance with the PID Act, such bonds to be entitled “Town of Little Elm, Texas, Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phases #2 – 5 Major Improvement Project)” (the “Bonds”), such Bonds being payable solely from the Assessment Revenue and other funds pledged under this Indenture to the payment of the Bonds and for the purposes set forth in this preamble; and

WHEREAS, the Trustee has agreed to accept the trusts herein created upon the terms set forth in this Indenture;

NOW, THEREFORE, the Town, in consideration of the foregoing premises and acceptance by the Trustee of the trusts herein created, of the purchase and acceptance of the Bonds by the Owners thereof, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, does hereby GRANT, CONVEY, PLEDGE,

Appendix A-6


TRANSFER, ASSIGN, and DELIVER to the Trustee for the benefit of the Owners, a security interest in all of the moneys, rights and properties described in the Granting Clauses hereof, as follows (collectively, the “Trust Estate”):

FIRST GRANTING CLAUSE

The Pledged Revenues, as herein defined, and all moneys and investments held in the Pledged Funds, including any contract or any evidence of indebtedness related thereto or other rights of the Town to receive any of such moneys or investments, whether now existing or hereafter coming into existence, and whether now or hereafter acquired; and

SECOND GRANTING CLAUSE

Any and all other property or money of every name and nature which is, from time to time hereafter by delivery or by writing of any kind, conveyed, pledged, assigned or transferred, to the Trustee as additional security hereunder by the Town or by anyone on its behalf or with its written consent, and the Trustee is hereby authorized to receive any and all such property or money at any and all times and to hold and apply the same subject to the terms thereof;

TO HAVE AND TO HOLD the Trust Estate, whether now owned or hereafter acquired, unto the Trustee and its successors or assigns;

IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the benefit of all present and future Owners of the Bonds from time to time issued under and secured by this Indenture, and for enforcement of the payment of the Bonds in accordance with their terms, and for the performance of and compliance with the obligations, covenants, and conditions of this Indenture;

PROVIDED, HOWEVER, that if and to the extent Assessments have been prepaid, the real property associated with such Assessment prepayment shall be released from the Trust Estate and shall no longer constitute a part of the Trust Estate;

PROVIDED, FURTHER, HOWEVER, if the Town or its assigns shall well and truly pay, or cause to be paid, the principal or Redemption Price of and the interest on all the Bonds at the times and in the manner stated in the Bonds, according to the true intent and meaning thereof, then this Indenture and the rights hereby granted shall cease, terminate and be void; otherwise this Indenture is to be and remain in full force and effect;

THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all Bonds issued and secured hereunder are to be issued, authenticated, and delivered and the Trust Estate hereby created, assigned, and pledged is to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses, and purposes as hereinafter expressed, and the Town has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective Owners from time to time of the Bonds as follows:

Appendix A-7


ARTICLE I

DEFINITIONS, FINDINGS AND INTERPRETATION

Section 1.1. Definitions.

Unless otherwise expressly provided or unless the context clearly requires otherwise in this Indenture, the following terms shall have the meanings specified below:

“Account” means any of the accounts established pursuant to Section 6.1 of this Indenture.

"Additional Obligations" means any bonds or other obligations, including specifically any installment contracts, reimbursement agreements, temporary note or time warrant secured in whole or in part by an assessment, other than the Assessments securing the Bonds, levied against property within the District in accordance with the PID Act.

“Administrative Fund” means that Fund established by Section 6.1 and administered pursuant to Section 6.9 hereof.

“Administrator” means an employee or designee of the Town who shall have the responsibilities provided in the Service and Assessment Plan, this Indenture, or any other agreement or document approved by the Town related to the duties and responsibilities of the administration of the District.

“Annual Collection Costs” mean the following actual or budgeted costs, as applicable, related to the annual collection costs of outstanding Assessments paid in installments, including the costs or anticipated costs of: (i) issuing, refunding or refinancing bonds, (ii) computing, levying, collecting and transmitting the Assessments (whether by the Town, the Administrator or otherwise), (iii) remitting the Assessments to the Trustee, (iv) the Town, the Administrator and Trustee (including legal counsel) in the discharge of their duties, (v) complying with arbitrage rebate requirements, (vi) complying with securities disclosure requirements, and (vii) the Town in any way related to the collection of the Assessments in installments, including, without limitation, the administration of the District, maintaining the record of installments, payments and reallocations and/or cancellations of Assessments, and the repayment of the Bonds, including, without limitation, any associated legal expenses, the reasonable costs of other consultants and advisors and contingencies and reserves for such costs as deemed appropriate by the Town Council. Annual Collection Costs collected and not expended for actual Annual Collection Costs shall be carried forward and applied to reduce Annual Collection Costs in subsequent years to avoid the over-collection of Annual Collection Costs.

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

“Annual Installment” means, with respect to each Assessed Parcel, each annual payment of (i) the Assessment as shown on the Assessment Roll attached to the Service and Assessment Plan as Exhibit F and related to the Bonds and the Major Improvement Projects; (ii) administrative expenses; (iii) the prepayment reserve; and (iv) the delinquency reserve all as defined and calculated in the Service and Assessment Plan or in any Annual Service Plan Update.

Appendix A-8


"Annual Service Plan Update" means the annual review and update of the Service and Assessment Plan required by the PID Act and the Service and Assessment Plan.

“Applicable Laws” means the PID Act, and all other laws or statutes, rules, or regulations, and any amendments thereto, of the State of Texas or of the United States, by which the Town and its powers, securities, operations, and procedures are, or may be, governed or from which its powers may be derived.

“Assessed Parcel” means each respective parcel of land located within Phases #2 – 5 of the District against which an Assessment is levied by the Assessment Ordinance in accordance with the Service and Assessment Plan.

“Assessment Ordinance” means Ordinance No. 1201 adopted by the Town Council on February 13, 2014, that levied the Assessments on the Assessed Parcels.

"Assessment Revenue" means monies collected by or on behalf of the Town from any one or more of the following: (i) an Assessment levied against an Assessed Parcel, or Annual Installment payment thereof, including any interest on such Assessment or Annual Installment thereof during any period of delinquency, (ii) a Prepayment, (iii) Delinquent Collection Costs, and (iv) Foreclosure Proceeds.

“Assessment Roll” means the Assessment Roll attached as Appendix F to the Service and Assessment Plan or any other Assessment Roll in an amendment or supplement to the Service and Assessment Plan or in an Annual Service Plan Update, showing the total amount of the Assessment against each Assessed Parcel related to the Bonds and the Major Improvement Projects, as updated, modified, or amended from time to time in accordance with the terms of the Service and Assessment Plan and the PID Act.

“Assessments” means the aggregate assessments shown on the Assessment Roll. The singular of such term means the assessment levied against an Assessed Parcel as shown on the Assessment Roll, subject to reallocation upon the subdivision of an Assessed Parcel or reduction according to the provisions of the Service and Assessment Plan and the PID Act.

“Authorized Denomination” means $100,000 and any integral multiple of $5,000 in excess thereof.

"Authorized Improvements" means those public improvements described in Appendix B of the Service and Assessment Plan and Section 372.003 of the PID Act, constructed and installed in accordance with the Service and Assessment Plan or an Annual Service Plan Update.

“Bond” means any of the Bonds.

“Bond Counsel” means Fulbright & Jaworski LLP or any other attorney or firm of attorneys designated by the Town that are nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities.

“Bond Date” means the date designated as the initial date of the Bonds by Section 3.2(a) of this Indenture.

Appendix A-9


“Bond Fund” means the Fund established pursuant to Section 6.1 and administered as provided in Section 6.4.

“Bond Ordinance” means Ordinance No. 1203 adopted by the Town Council on February 13, 2014 authorizing the issuance of the Bonds pursuant to this Indenture.

“Bond Year” means the one-year period beginning on October 1 in each year and ending on September 30 in the following year.

"Bonds” means the Town's bonds authorized to be issued by Section 3.1(a) of this Indenture entitled “Town of Little Elm, Texas, Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phases #2 – 5 Major Improvement Project)”.

“Business Day” means any day other than a Saturday, Sunday or legal holiday in the State of Texas observed as such by the Town or the Trustee.

“Certification for Payment” means a certificate executed by an engineer, construction manager or other person or entity acceptable to the Town, as evidenced by the signature of a Town Representative, specifying the amount of work performed and the cost thereof, presented to the Trustee to request funding for Costs from money on deposit in the Project Fund.

“Closing Date” means the date of the initial delivery of and payment for the Bonds.

“Code” means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings and court decisions.

“Construction Funding Agreement” means the "Phases #2 – 5 Major Improvements Construction, Funding and Acquisition Agreement" between the Town and the Landowner relating to the Bonds, dated as of February 13, 2014, which provides for the appointment, levying and collection of Assessments, the construction of the Major Improvement Projects, the maintenance of the Major Improvement Projects, the issuance of bonds and other matters related thereto.

“Costs” means the costs of the Authorized Improvements, including the Phase #1 Improvement Projects and the Major Improvement Projects.

“Defeasance Securities” means Investment Securities then authorized by applicable law for the investment of funds to defease public securities.

“Delinquency Reserve Requirement” means an amount equal to $489,600.00 which will be funded from revenues received from the payment of Assessments deposited to the Pledged Revenue Fund.

“Delinquent Collection Costs” means the costs related to the foreclosure on an Assessed Parcel and the costs of collection of a delinquent Assessment, including penalties and reasonable attorney’s fees actually paid, but excluding amounts representing interest and penalty interest.

"Development Agreement" means the "Valencia on the Lake Pre-Annexation Agreement, Development Agreement, Public Improvement District Agreement and Tax Increment Reinvestment Zone Agreement" between the Town and the Landowner dated as of

Appendix A-10


November 5, 2013 which provides for the development of property within the District, the creation of the District and a tax increment reinvestment zone, the annexation of property within the District by the Town, the construction and financing of the Authorized Improvements and other matters related thereto.

“Designated Payment/Transfer Office” means (i) with respect to the initial Paying Agent/Registrar named in this Indenture, the transfer/payment office located in East Syracuse, New York, or such other location designated by the Paying Agent/Registrar and (ii) with respect to any successor Paying Agent/Registrar, the office of such successor designated and located as may be agreed upon by the Town and such successor.

“DTC” shall mean The Depository Trust Company of New York, New York, or any successor securities depository.

“DTC Participant” shall mean brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants.

“Foreclosure Proceeds” means the proceeds, including interest and penalty interest, received by the Town from the enforcement of the Assessments against any Assessed Parcel or Assessed Parcels, whether by foreclosure of lien or otherwise, but excluding and net of all Delinquent Collection Costs.

“Fund” means any of the funds established pursuant to Section 6.1 of this Indenture.

“Indenture” means this Indenture of Trust as originally executed or as it may be from time to time supplemented or amended by one or more indentures supplemental hereto and entered into pursuant to the applicable provisions hereof.

“Independent Financial Consultant” means any consultant or firm of such consultants appointed by the Town who, or each of whom: (i) is judged by the Town, as the case may be, to have experience in matters relating to the issuance and/or administration of the Bonds; (ii) is in fact independent and not under the domination of the Town; (iii) does not have any substantial interest, direct or indirect, with or in the Town, or any owner of real property in the District, or any real property in the District; and (iv) is not connected with the Town as an officer or employee of the Town, but who may be regularly retained to make reports to the Town.

“Initial Bonds” means the Initial Bonds as set forth in Exhibit A to this Indenture.

“Interest Payment Date” means the date or dates upon which interest on the Bonds is scheduled to be paid until their respective dates of maturity or prior redemption, such dates being on March 1 and September 1 of each year, commencing September 1, 2014.

“Investment Securities” means those authorized investments described in the Public Funds Investment Act, Texas Government Code, Chapter 2256, as amended; and provided further investments are, at the time made, included in and authorized by the Town’s official investment policy as approved by the Town Council from time to time.

“Landowner” means Valencia on the Lake, L.P., a Texas limited partnership (including its successors and assigns).

Appendix A-11


"Major Improvement Projects" means the Authorized Improvements which will benefit all of the property within the District and are more particularly described in Section III.B of the Service and Assessment Plan.

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

“Outstanding” means, as of any particular date when used with reference to Bonds, all Bonds authenticated and delivered under this Indenture except (i) any Bond that has been canceled by the Trustee (or has been delivered to the Trustee for cancellation) at or before such date, (ii) any Bond for which the payment of the principal or Redemption Price of and interest on such Bond shall have been made as provided in Article IV, and (iii) any Bond in lieu of or in substitution for which a new Bond shall have been authenticated and delivered pursuant to Section 3.10 herein.

“Owner” means the Person who is the registered owner of a Bond or Bonds, as shown in the Register, which shall be Cede & Co., as nominee for DTC, so long as the Bonds are in book-entry only form and held by DTC as securities depository in accordance with Section 3.11 herein.

“Paying Agent/Registrar” means initially the Trustee, or any successor thereto as provided in this Indenture.

“Person” or “Persons” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Petitioner” means Valencia on the Lake, L.P., a Texas limited partnership.

"Phase #1" means the initial phase to be developed within the District and further identified and described in the Service and Assessment Plan.

"Phase #1 Assessed Parcel" means each respective parcel of land located within Phase #1 against which a Phase #1 Assessment is levied in accordance with the assessment roll relating to the Phase #1 Improvement Projects attached as Appendix G to the Service and Assessment Plan.

"Phase #1 Assessment" means the assessment levied against a Phase #1 Assessed Parcel as shown on the assessment roll relating to Phase #1, attached as Appendix G to the Service and Assessment Plan or any other assessment roll in an amendment or supplement to the Service and Assessment Plan or in an Annual Service Plan Update, and related to the Phase #1 Bonds and the Phase #1 Improvement Projects, as updated, modified, or amended from time to time in accordance with the terms of the Service and Assessment Plan and the PID Act.

“Phase #1 Bond Indenture” means the Indenture of Trust between the Town and The Bank of New York Mellon Trust Company , National Association, dated as of February 1, 2014 securing the Phase #1 Bonds as originally executed or as it may be from time to time supplemented or amended by one or more indentures supplemental hereto and entered into pursuant to the applicable provisions thereof.

"Phase #1 Bonds" means the Town's bonds entitled "Town of Little Elm, Texas, Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phase #1 Project)" to be issued concurrently with the Bonds to finance the Phase #1 Improvement

Appendix A-12


Projects and secured by assessments levied against property located within Phase #1 only in accordance with the assessment roll of Phase #1 attached as Appendix G to the Service and Assessment Plan.

"Phase #1 Improvement Projects" means the Authorized Improvements which will benefit Phase #1 Assessed Parcels, and which include a pro-rata share of the Major Improvement Projects allocable to Phase #1, all as more particularly described in Section III.C of the Service and Assessment Plan.

"Phases #2 – 5" means the phases to be developed within the District subsequent to Phase #1 and further identified and depicted in Appendix A of the Service and Assessment Plan or in any Annual Service Plan Update.

“PID Act” means Texas Local Government Code, Chapter 372, Improvement Districts in Municipalities and Counties, Subchapter A, Public Improvement Districts, as amended.

“Pledged Funds” means the Pledged Revenue Fund, the Bond Fund, the Project Fund, the Reserve Fund, and the Redemption Fund.

“Pledged Revenue Fund” means that fund established pursuant to Section 6.1 and administered pursuant to Section 6.3 herein.

“Pledged Revenues” means the sum of (i) Assessment Revenue less the Annual Collection Costs, and (ii) the moneys held in any of the Pledged Funds.

“Prepayment” means the payment of all or a portion of an Assessment before the due date thereof.

“Prepayment Reserve Requirement” means an amount equal to $153,000.00 which will be funded from revenues received from the payment of Assessments deposited to the Pledged Revenue Fund.

“Project Fund” means that fund established pursuant to Section 6.1 and administered pursuant to Section 6.5 herein.

“Purchaser” means the initial purchaser of the Bonds.

“Rebate Amount” has the meaning set forth in section 1.148-1(b) of the Regulations.

“Rebate Fund” means that fund established pursuant to Section 6.1 and administered pursuant to Section 6.8 herein.

“Record Date” means the close of business on the fifteenth calendar (whether or not a Business Day) day of the month next preceding an Interest Payment Date.

“Redemption Fund” means that fund established pursuant to Section 6.1 and administered pursuant to Section 6.6 herein.

“Redemption Prices” means, when used with respect to any Bond or portion thereof, the redemption prices shown in Section 4.3 of this Indenture.

“Register” means the register specified in Article III of this Indenture.

Appendix A-13


“Reserve Fund” means that fund established pursuant to Section 6.1 and administered in Section 6.7 herein.

“Reserve Fund Obligations” means cash or Investment Securities.

“Reserve Fund Requirement” means the least of: (i) Maximum Annual Debt Service on the Bonds as of the date of issuance, (ii) 125% of average Annual Debt Service on the Bonds as of the date of issuance, or (iii) 10% of the proceeds of the Bonds; provided, however, that such amount shall be reduced by the amount of any transfers made pursuant to subsections (c) and (d) of Section 6.7; and provided further that as a result of an optional redemption pursuant to Section 4.3, the Reserve Fund Requirement shall be reduced by a percentage equal to the pro rata principal amount of Bonds redeemed by such optional redemption divided by the total principal amount of the Outstanding Bonds prior to such redemption. As of the date of delivery of the Bonds, the Reserve Fund Requirement is $1,224,000.00 which is an amount equal to 10% of the proceeds of the Bonds.

“Service and Assessment Plan” means the document, including the Assessment Roll, as amended, which is attached as Exhibit A to the Assessment Ordinance.

“Sinking Fund Installment” means the amount of money to redeem or pay at maturity the principal of Bonds payable from such installments at the times and in the amounts provided in Section 4.2 herein.

“Stated Maturity” means the date the Bonds, or any portion of the Bonds, as applicable are scheduled to mature without regard to any redemption or prepayment.

“Supplemental Indenture” means an indenture which has been duly executed by the Town Representative pursuant to an ordinance adopted by the Town Council and which indenture amends or supplements this Indenture, but only if and to the extent that such indenture is specifically authorized hereunder.

“Tax Certificate” means the Certificate as to Tax Exemption delivered by the Town on the Closing Date for the Bonds setting forth the facts, estimates and circumstances in existence on the Closing Date which establish that it is not expected that the proceeds of the Bonds will be used in a manner that would cause the interest on such Bonds to be included in the gross income of the Owners thereof for Federal income tax purposes.

“Town Certificate” means a certificate signed by the Town Representative and delivered to the Trustee.

“Town Order” means written instructions by the Town, executed by a Town Representative.

“Town Representative” means that official or agent of the Town authorized by the Town Council to undertake the action referenced herein.

“Trust Estate” means the Trust Estate described in the granting clauses of this Indenture.

“Trustee” means The Bank of New York Mellon Trust Company, National Association, Dallas, Texas and its successors, and any other corporation or association that may at any time be substituted in its place, as provided in Article IX, such entity to serve as Trustee and Paying Agent/Registrar for the Bonds.

Appendix A-14


Section 1.2. Findings.

The declarations, determinations and findings declared, made and found in the preamble to this Indenture are hereby adopted, restated and made a part of the operative provisions hereof.

Section 1.3. Table of Contents, Titles and Headings.

The table of contents, titles, and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof and shall never be considered or given any effect in construing this Indenture or any provision hereof or in ascertaining intent, if any question of intent should arise.

Section 1.4. Interpretation.

(a) Unless the context requires otherwise, words of the masculine gender shall be construed to include correlative words of the feminine and neuter genders and vice versa, and words of the singular number shall be construed to include correlative words of the plural number and vice versa.

(b) Words importing persons include any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or agency or political subdivision thereof.

(c) Any reference to a particular Article or Section shall be to such Article or Section of this Indenture unless the context shall require otherwise.

(d) This Indenture and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein to sustain the validity of this Indenture.

ARTICLE II

THE BONDS

Section 2.1. Security for the Bonds.

The Bonds, as to both principal and interest, are and shall be equally and ratably secured by and payable from a first lien on and pledge of the Trust Estate.

The lien on and pledge of the Pledged Revenues shall be valid and binding and fully perfected from and after the Closing Date, which is the date of the delivery of this Indenture, without physical delivery or transfer of control of the Pledged Revenues, the filing of this Indenture or any other act; all as provided in Texas Government Code, Chapter 1208, as amended, which applies to the issuance of the Bonds and the pledge of the Pledged Revenues granted by the Town under this Indenture, and such pledge is therefore valid, effective and perfected. If Texas law is amended at any time while the Bonds are Outstanding such that the pledge of the Pledged Revenues granted by the Town under this Indenture is to be subject to the filing requirements of Texas Business and Commerce Code, Chapter 9, as amended, then in order to preserve to the registered owners of the Bonds the perfection of the security interest in said pledge, the Town agrees to take such measures as it determines are reasonable and

Appendix A-15


necessary under Texas law to comply with the applicable provisions of Texas Business and Commerce Code, Chapter 9, as amended, and enable a filing to perfect the security interest in said pledge to occur.

Section 2.2. Limited Obligations.

The Bonds are special and limited obligations of the Town, payable solely from and secured solely by the Trust Estate, including the Pledged Revenues and the Pledged Funds; and the Bonds shall never be payable out of funds raised or to be raised by taxation or from any other revenues, properties or income of the Town.

Section 2.3. Authorization for Indenture.

The terms and provisions of this Indenture and the execution and delivery hereof by the Town to the Trustee have been duly authorized by official action of the Town Council of the Town. The Town has ascertained and it is hereby determined and declared that the execution and delivery of this Indenture is necessary to carry out and effectuate the purposes set forth in the preambles of this Indenture and that each and every covenant or agreement herein contained and made is necessary, useful or convenient in order to better secure the Bonds and is a contract or agreement necessary, useful and convenient to carry out and effectuate the purposes herein described.

Section 2.4. Contract with Owners and Trustee.

(a) The purposes of this Indenture are to establish a lien and the security for, and to prescribe the minimum standards for the authorization, issuance, execution and delivery of, the Bonds and to prescribe the rights of the Owners, and the rights and duties of the Town and the Trustee.

(b) In consideration of the purchase and acceptance of any or all of the Bonds by those who shall purchase and hold the same from time to time, the provisions of this Indenture shall be a part of the contract of the Town with the Owner, and shall be deemed to be and shall constitute a contract among the Town, the Owners, and the Trustee.

ARTICLE III

AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE BONDS

Section 3.1. Authorization.

The Bonds are hereby authorized to be issued and delivered in accordance with the Constitution and laws of the State of Texas, including particularly the PID Act, as amended. The Bonds shall be issued in the aggregate principal amount of $12,240,000 for the purpose of (i) paying a portion of the Costs of the Major Improvement Projects, (ii) paying a portion of the interest on the Bonds during and after the period of acquisition and construction of the Major Improvement Projects, (iii) funding a reserve fund for payment of principal and interest on Bonds, (iv) paying a portion of the costs incidental to the organization of the District, and (v) paying costs of issuance.

Section 3.2. Date, Denomination, Maturities, Numbers and Interest.

(a) The Bonds shall be dated February 1, 2014 (the “Bond Date”) and shall be issued in Authorized Denominations. The Bonds shall be in fully registered form, without coupons, and shall be numbered separately from R-1 upward, except the Initial Bond, which shall be numbered T-1.

Appendix A-16


(b) Interest shall accrue and be paid on each Bond from the later of the date of initial delivery of the Bonds or the most recent Interest Payment Date to which interest has been paid or provided for, at the rate per annum set forth below until the principal thereof has been paid on the maturity date specified below or otherwise provided for. Such interest shall be payable semiannually on March 1 and September 1 of each year, commencing September 1, 2014 computed on the basis of a 360-day year of twelve 30-day months.

(c) The Bonds shall mature on September 1 in the years and in the principal amounts and shall bear interest as set forth below:

Year Principal Amount Interest Rate

**** ********** ****** 2021 $ 4,055,000 6.650% **** ********** ******

2024 2,945,000 6.900% **** ********** ******

2027 3,765,000 7.150% 2028 1,475,000 7.400%

(d) The Bonds shall be subject to mandatory sinking fund redemption, optional

redemption, and extraordinary optional redemption prior to maturity as provided in Article IV herein, and shall otherwise have the terms, tenor, denominations, details, and specifications as set forth in the form of Bond set forth in Exhibit A to this Indenture.

Section 3.3. Conditions Precedent to Delivery of Bonds.

The Bonds shall be executed by the Town and delivered to the Trustee, whereupon the Trustee shall authenticate the Bonds and, upon payment of the purchase price of the Bonds, shall deliver the Bonds upon the order of the Town, but only upon delivery to the Trustee of:

(a) a certified copy of the Assessment Ordinance;

(b) a certified copy of the Bond Ordinance;

(c) a certified copy of the Phase #1 Bond Indenture;

(d) a copy of the executed Development Agreement;

(e) a copy of the executed Construction Funding Agreement;

(f) a copy of this Indenture executed by the Trustee and the Town; and

(g) a Town Certificate directing the authentication and delivery of the Bonds, describing the Bonds to be authenticated and delivered, designating the purchasers to whom the Bonds are to be delivered, stating the purchase price of the Bonds and stating that all items required by this Section are therewith delivered to the Trustee in form and substance satisfactory to the Town.

Appendix A-17


Section 3.4. Medium, Method and Place of Payment.

(a) Principal of and interest on the Bonds shall be paid in lawful money of the United States of America, as provided in this Section.

(b) Interest on the Bonds shall be payable to the Owners thereof as shown in the Register at the close of business on the relevant Record Date; provided, however, that in the event of nonpayment of interest on a scheduled Interest Payment Date, and for 30 days thereafter, a new record date for such interest payment (a “Special Record Date”) will be established by the Trustee, if and when funds for the payment of such interest have been received from the Town. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the “Special Payment Date,” which shall be 15 days after the Special Record Date) shall be sent at least five Business Days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Owner of a Bond appearing on the books of the Trustee at the close of business on the last Business Day preceding the date of mailing such notice.

(c) Interest on the Bonds shall be paid by check, dated as of the Interest Payment Date, and sent, first class United States mail, postage prepaid, by the Paying Agent/Registrar to each Owner at the address of each as such appears in the Register or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the Owner; provided, however, the Owner shall bear all risk and expense of such other banking arrangement.

(d) The principal of each Bond shall be paid to the Owner of such Bond on the due date thereof, whether at the maturity date or the date of prior redemption thereof, upon presentation and surrender of such Bond at the Designated Payment/Transfer Office of the Paying Agent/Registrar.

(e) If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Payment/Transfer Office of the Paying Agent/Registrar is located are required or authorized by law or executive order to close, the date for such payment shall be the next succeeding day that is not a Saturday, Sunday, legal holiday, or day on which banking institutions are required or authorized to close, and payment on such date shall for all purposes be deemed to have been made on the due date thereof as specified in Section 3.2 of this Indenture.

(f) Unclaimed payments of amounts due hereunder shall be segregated in a special account and held in trust, uninvested by the Paying Agent/Registrar, for the account of the Owner of the Bonds to which such unclaimed payments pertain. Subject to any escheat, abandoned property, or similar law of the State of Texas, any such payments remaining unclaimed by the Owners entitled thereto for two (2) years after the applicable payment or redemption date shall be applied to the next payment or payments on such Bonds thereafter coming due and, to the extent any such money remains after the retirement of all Outstanding Bonds, shall be paid to the Town to be used for any lawful purpose. Thereafter, none of the Town, the Paying Agent/Registrar, or any other Person shall be liable or responsible to any holders of such Bonds for any further payment of such unclaimed moneys or on account of any such Bonds, subject to any applicable escheat law or similar law of the State of Texas.

Appendix A-18


Section 3.5. Execution and Registration of Bonds.

(a) The Bonds shall be executed on behalf of the Town by the Mayor and Town Secretary, by their manual or facsimile signatures, and the official seal of the Town shall be impressed or placed in facsimile thereon Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the Town had been manually impressed upon each of the Bonds.

(b) In the event that any officer of the Town whose manual or facsimile signature appears on the Bonds ceases to be such officer before the authentication of such Bonds or before the delivery thereof, such manual or facsimile signature nevertheless shall be valid and sufficient for all purposes as if such officer had remained in such office.

(c) Except as provided below, no Bond shall be valid or obligatory for any purpose or be entitled to any security or benefit of this Indenture unless and until there appears thereon the Certificate of Trustee substantially in the form provided herein, duly authenticated by manual execution by an officer or duly authorized signatory of the Trustee. It shall not be required that the same officer or authorized signatory of the Trustee sign the Certificate of Trustee on all of the Bonds. In lieu of the executed Certificate of Trustee described above, the Initial Bond delivered at the Closing Date shall have attached thereto the Comptroller’s Registration Certificate substantially in the form provided herein, manually executed by the Comptroller of Public Accounts of the State of Texas, or by her duly authorized agent, which certificate shall be evidence that the Initial Bond has been duly approved by the Attorney General of the State of Texas, is a valid and binding obligation of the Town, and has been registered by the Comptroller of Public Accounts of the State of Texas.

(d) On the Closing Date, one Initial Bond representing the entire principal amount of all Bonds, payable in stated installments to the Purchaser, or its designee, executed with the manual or facsimile signatures of the Mayor and the Town Secretary, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts, will be delivered to the Purchaser or its designee. Upon payment for the Initial Bond, the Trustee shall cancel the Initial Bond and deliver to DTC on behalf of the Purchaser one registered definitive Bond for each year of maturity of the Bonds, in the aggregate principal amount of all Bonds for such maturity, registered in the name of Cede & Co., as nominee of DTC.

Section 3.6. Ownership.

(a) The Town, the Trustee the Paying Agent/Registrar and any other Person may treat the Person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment as provided herein (except interest shall be paid to the Person in whose name such Bond is registered on the relevant Record Date) and for all other purposes, whether or not such Bond is overdue, and neither the Town nor the Trustee, nor the Paying Agent/Registrar, shall be bound by any notice or knowledge to the contrary.

(b) All payments made to the Owner of any Bond shall be valid and effectual and shall discharge the liability of the Town, the Trustee and the Paying Agent/Registrar upon such Bond to the extent of the sums paid.

Appendix A-19


Section 3.7. Registration, Transfer and Exchange.

(a) So long as any Bond remains Outstanding, the Town shall cause the Paying Agent/Registrar to keep at the Designated Payment/Transfer Office a Register in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of Bonds in accordance with this Indenture. The Paying Agent/Registrar represents and warrants that it will file and maintain a copy of the Register with the Town, and shall cause the Register to be current with all registration and transfer information as from time to time may be applicable.

(b) A Bond shall be transferable only upon the presentation and surrender thereof at the Designated Payment/Transfer Office of the Paying Agent/Registrar with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar. No transfer of any Bond shall be effective until entered in the Register.

(c) The Bonds shall be exchangeable upon the presentation and surrender thereof at the Designated Payment/Transfer Office of the Paying Agent/Registrar for a Bond or Bonds of the same maturity and interest rate and in any Authorized Denomination and in an aggregate principal amount equal to the unpaid principal amount of the Bond presented for exchange. The Trustee is hereby authorized to authenticate and deliver Bonds exchanged for other Bonds in accordance with this Section.

(d) The Trustee is hereby authorized to authenticate and deliver Bonds transferred or exchanged in accordance with this Section. A new Bond or Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bond being transferred or exchanged, at the Designated Payment/Transfer Office, or sent by United States mail, first class, postage prepaid, to the Owner or his designee. Each transferred Bond delivered by the Paying Agent/Registrar in accordance with this Section shall constitute an original contractual obligation of the Town and shall be entitled to the benefits and security of this Indenture to the same extent as the Bond or Bonds in lieu of which such transferred Bond is delivered.

(e) Each exchange Bond delivered in accordance with this Section shall constitute an original contractual obligation of the Town and shall be entitled to the benefits and security of this Indenture to the same extent as the Bond or Bonds in lieu of which such exchange Bond is delivered.

(f) No service charge shall be made to the Owner for the initial registration, subsequent transfer, or exchange for a different Authorized Denomination of any of the Bonds. The Paying Agent/Registrar, however, may require the Owner to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection with the registration, transfer, or exchange of a Bond.

(g) Neither the Town nor the Paying Agent/Registrar shall be required to issue, transfer, or exchange any Bond or portion thereof called for redemption prior to maturity within forty-five (45) days prior to the date fixed for redemption; provided, however, such limitation shall not be applicable to an exchange by the Owner of the uncalled principal balance of a Bond.

Appendix A-20


Section 3.8. Cancellation.

All Bonds paid or redeemed before scheduled maturity in accordance with this Indenture, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance with this Indenture, shall be cancelled, and proper records shall be made regarding such payment, redemption, exchange, or replacement. The Paying Agent/Registrar shall dispose of cancelled Bonds in accordance with the records retention requirements of the Trustee.

Section 3.9. Temporary Bonds.

(a) Following the delivery and registration of the Initial Bond and pending the preparation of definitive Bonds, the proper officers of the Town may execute and, upon the Town’s request, the Trustee shall authenticate and deliver, one or more temporary Bonds that are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Bonds in lieu of which they are delivered, without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers of the Town executing such temporary Bonds may determine, as evidenced by their signing of such temporary Bonds.

(b) Until exchanged for Bonds in definitive form, such Bonds in temporary form shall be entitled to the benefit and security of this Indenture.

(c) The Town, without unreasonable delay, shall prepare, execute and deliver to the Trustee the Bonds in definitive form; thereupon, upon the presentation and surrender of the Bond or Bonds in temporary form to the Paying Agent/Registrar, the Paying Agent/Registrar shall cancel the Bonds in temporary form and the Trustee shall authenticate and deliver in exchange therefor a Bond or Bonds of the same maturity and series, in definitive form, in the Authorized Denomination, and in the same aggregate principal amount, as the Bond or Bonds in temporary form surrendered. Such exchange shall be made without the making of any charge therefor to any Owner.

Section 3.10. Replacement Bonds.

(a) Upon the presentation and surrender to the Paying Agent/Registrar of a mutilated Bond, the Trustee shall authenticate and deliver in exchange therefor a replacement Bond of like tenor and principal amount, bearing a number not contemporaneously outstanding. The Town or the Paying Agent/Registrar may require the Owner of such Bond to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection therewith and any other expenses connected therewith.

(b) In the event that any Bond is lost, apparently destroyed or wrongfully taken, the Trustee, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall authenticate and deliver a replacement Bond of like tenor and principal amount bearing a number not contemporaneously outstanding, provided that the Owner first complies with the following requirements:

(i) furnishes to the Paying Agent/Registrar satisfactory evidence of his or her ownership of and the circumstances of the loss, destruction or theft of such Bond;

Appendix A-21


(ii) furnishes such security or indemnity as may be required by the Paying Agent/Registrar and the Trustee to save them and the Town harmless;

(iii) pays all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Trustee and the Paying Agent/Registrar and any tax or other governmental charge that is authorized to be imposed; and

(iv) satisfies any other reasonable requirements imposed by the Town and the Trustee.

(c) After the delivery of such replacement Bond, if a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the Town and the Paying Agent/Registrar shall be entitled to recover such replacement Bond from the Person to whom it was delivered or any Person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost, or expense incurred by the Town, the Paying Agent/Registrar or the Trustee in connection therewith.

(d) In the event that any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the Paying Agent/Registrar, in its discretion, instead of issuing a replacement Bond, may pay such Bond if it has become due and payable or may pay such Bond when it becomes due and payable.

(e) Each replacement Bond delivered in accordance with this Section shall constitute an original additional contractual obligation of the Town and shall be entitled to the benefits and security of this Indenture to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered.

Section 3.11. Book-Entry Only System.

The Bonds shall initially be issued in book-entry-only form and shall be deposited with DTC, which is hereby appointed to act as the securities depository therefor, in accordance with the letter of representations from the Town to DTC. On the Closing Date the definitive Bonds shall be issued in the form of a single typewritten certificate for each maturity thereof registered in the name of Cede & Co., as nominee for DTC.

With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the Town and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any Person on behalf of whom such a DTC Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the Town and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant or any other Person, other than an Owner, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any DTC Participant or any other Person, other than an Owner, as shown in the Register of any amount with respect to principal of, premium, if any, or interest on the Bonds. Notwithstanding any other provision of this Indenture to the contrary, the Town and the Paying Agent/Registrar shall be entitled to treat and consider the Person in whose name each Bond is registered in the Register as the absolute owner of such Bond for the purpose of payment of principal of, premium, if any, and interest on Bonds, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfer with respect to such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of, premium, if any, and interest on the Bonds only

Appendix A-22


to or upon the order of the respective Owners as shown in the Register, as provided in this Indenture, and all such payments shall be valid and effective to fully satisfy and discharge the Town’s obligations with respect to payment of principal of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No Person other than an Owner, as shown in the Register, shall receive a Bond certificate evidencing the obligation of the Town to make payments of amounts due pursuant to this Indenture. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Indenture with respect to interest checks or drafts being mailed to the registered owner at the close of business on the relevant Record Date, the word “Cede & Co.” in this Indenture shall refer to such new nominee of DTC.

Section 3.12. Successor Securities Depository: Transfer Outside Book-Entry-Only System.

In the event that the Town determines that DTC is incapable of discharging its responsibilities described herein and in the letter of representations from the Town to DTC, the Town shall (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository; or (ii) notify DTC and DTC Participants of the availability through DTC of certificated Bonds and cause the Paying Agent/Registrar to transfer one or more separate registered Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds shall no longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Owners transferring or exchanging Bonds shall designate, in accordance with the provisions of this Indenture.

Section 3.13. Payments to Cede & Co.

Notwithstanding any other provision of this Indenture to the contrary, so long as any Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Bonds, and all notices with respect to such Bonds shall be made and given, respectively, in the manner provided in the blanket letter of representations from the Town to DTC.

ARTICLE IV

REDEMPTION OF BONDS BEFORE MATURITY

Section 4.1. Limitation on Redemption.

The Bonds shall be subject to redemption before their scheduled maturity only as provided in this Article IV.

Section 4.2. Mandatory Sinking Fund Redemption.

(a) The Bonds are subject to mandatory sinking fund redemption prior to their maturity and will be redeemed by the Town in part at the Redemption Price from moneys available for such purpose in the Principal and Interest Account of the Bond Fund pursuant to

Appendix A-23


Article VI, on the dates and in the respective sinking fund installments as set forth in the following schedule:

Term Bonds Maturing September 1, 2021

Redemption Date Principal Amount September 1, 2016 $ 535,000 September 1, 2017 590,000 September 1, 2018 640,000 September 1, 2019 700,000 September 1, 2020 760,000 September 1, 2021 (maturity) 830,000

Term Bonds Maturing September 1, 2024 Term Bonds Maturing September 1, 2027

Redemption Date Principal Amount Redemption Date Principal Amount September 1, 2022 $ 900,000 September 1, 2025 $ 1,155,000 September 1, 2023 980,000 September 1, 2026 1,250,000 September 1, 2024 (maturity) 1,065,000 September 1, 2027 (maturity) 1,360,000

(b) At least forty-five (45) days prior to each sinking fund redemption date, the Trustee shall select a principal amount of Bonds of such maturity equal to the sinking fund installment amount of such Bonds to be redeemed, shall call such Bonds for redemption on such scheduled mandatory redemption date, and shall give notice of such redemption, as provided in Section 4.6.

(c) The principal amount of Bonds of a stated maturity required to be redeemed on any redemption date pursuant to subparagraph (a) of this Section 4.2 shall be reduced, at the option of the Town, by the principal amount of any Bonds of such maturity which, at least 45 days prior to the sinking fund redemption date shall have been acquired by the Town at a price not exceeding the principal amount of such Bonds plus accrued unpaid interest to the date of purchase thereof, and delivered to the Trustee for cancellation.

(d) The principal amount of Bonds required to be redeemed on any redemption date pursuant to subparagraph (a) of this Section 4.2 shall be reduced on a pro rata basis among sinking fund installments by the principal amount of any Bonds which, at least 45 days prior to the sinking fund redemption date, shall have been redeemed pursuant to the optional redemption or extraordinary optional redemption provisions hereof and not previously credited to a sinking mandatory fund redemption.

Section 4.3. Optional Redemption.

(a) The Town reserves the right and option to redeem Term Bonds maturing September 1, 2021 before their scheduled maturity date, in whole or in part, on any Interest Payment Date on or after March 1, 2016, such redemption date or dates to be fixed by the Town, at the Redemption Prices shown below, plus accrued interest to the date of redemption.

Redemption Date Redemption Price

On or after March 1, 2016 103% On or after March 1, 2017 102% On or after March 1, 2018 101% On or after March 1, 2019 100%

Appendix A-24


(b) The Town reserves the right and option to redeem Term Bonds maturing September 1, 2024 before their scheduled maturity date, in whole or in part, on any Interest Payment Date on or after March 1, 2017, such redemption date or dates to be fixed by the Town, at the Redemption Prices shown below, plus accrued interest to the date of redemption.



(c) The Town reserves the right and option to redeem Term Bonds maturing

September 1, 2027 before their scheduled maturity date, in whole or in part, on any Interest Payment Date on or after March 1, 2018, such redemption date or dates to be fixed by the Town, at the Redemption Prices shown below, plus accrued interest to the date of redemption.



(d) The Town reserves the right and option to redeem the Bonds maturing

September 1, 2028 before their scheduled maturity date, in whole or in part, on any Interest Payment Date on or after March 1, 2020, such redemption date or dates to be fixed by the Town, at the Redemption Prices shown below, plus accrued interest to the date of redemption.



Section 4.4. Extraordinary Optional Redemption.

The Town reserves the right and option to redeem Bonds before their respective scheduled maturity dates, in whole or in part, on the first day of any month, at 100% of the principal amount of such Bonds, or portions thereof, to be redeemed plus accrued interest to the date of redemption from amounts on deposit in the Redemption Fund as a result of Prepayments (including related transfers to the Redemption Fund as provided in Section 6.7(c)).

Section 4.5. Partial Redemption.

(a) If less than all of the Bonds are to be redeemed pursuant to either Sections 4.2, 4.3 or 4.4, Bonds shall be redeemed in minimum principal amounts of $100,000 or any integral of $5,000 in excess thereof by any method selected by the Trustee that results in a random selection. Each Bond shall be treated as representing the number of Bonds that is obtained by dividing the principal amount of such Bond by the smallest Authorized Denomination for such Bond.

Appendix A-25


(b) A portion of a single Bond of a denomination greater than an Authorized Denomination may be redeemed, but only in a principal amount equal to $100,000 or any integral of $5,000 in excess thereof. The Trustee shall treat each $5,000 portion of such Bond as though it were a single bond for purposes of selection for redemption. No redemption shall result in a Bond in a denomination of less than the Authorized Denomination in effect at that time.

(c) Upon surrender of any Bond for redemption in part, the Trustee in accordance with Section 3.7 of this Indenture, shall authenticate and deliver and exchange the Bond or Bonds in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered, such exchange being without charge.

Section 4.6. Notice of Redemption to Owners.

(a) The Trustee shall give notice of any redemption of Bonds by sending notice by first class United States mail, postage prepaid, not less than 30 days before the date fixed for redemption, to the Owner of each Bond or portion thereof to be redeemed, at the address shown in the Register.

(b) The notice shall state the redemption date, the Redemption Price, the place at which the Bonds are to be surrendered for payment, and, if less than all the Bonds Outstanding are to be redeemed, and subject to Section 4.5 hereof, an identification of the Bonds or portions thereof to be redeemed, any conditions to such redemption and that on the redemption date, if all conditions, if any, to such redemption have been satisfied, such Bond shall become due and payable.

(c) Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice.

(d) The Town has the right to rescind any optional redemption or extraordinary optional redemption described in Section 4.3 or 4.4 by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default under the Indenture. The Trustee shall mail notice of rescission of redemption in the same manner notice of redemption was originally provided.

(e) With respect to any optional redemption of the Bonds, unless the Trustee has received funds sufficient to pay the Redemption Price of the Bonds to be redeemed before giving of a notice of redemption, the notice may state the Town may condition redemption on the receipt of such funds by the Trustee on or before the date fixed for the redemption, or on the satisfaction of any other prerequisites set forth in the notice of redemption. If a conditional notice of redemption is given and such prerequisites to the redemption and sufficient funds are not received, the notice shall be of no force and effect, the Town shall not redeem the Bonds and the Trustee shall give notice, in the manner in which the notice of redemption was given, that the Bonds have not been redeemed.

Section 4.7. Payment Upon Redemption.

(a) The Trustee shall make provision for the payment of the Bonds to be redeemed on such date by setting aside and holding in trust an amount from the Redemption Fund or

Appendix A-26


otherwise received by the Trustee from the Town and shall use such funds solely for the purpose of paying the Redemption Price on the Bonds being redeemed.

(b) Upon presentation and surrender of any Bond called for redemption at the designated corporate trust office of the Trustee on or after the date fixed for redemption, the Trustee shall pay the Redemption Price on such Bond to the date of redemption from the moneys set aside for such purpose.

Section 4.8. Effect of Redemption.

Notice of redemption having been given as provided in Section 4.6 of this Indenture, the Bonds or portions thereof called for redemption shall become due and payable on the date fixed for redemption provided that funds for the payment of the principal amount plus accrued unpaid interest on such Bonds to the date fixed for redemption are on deposit with the Trustee; thereafter, such Bonds or portions thereof shall cease to bear interest from and after the date fixed for redemption, whether or not such Bonds are presented and surrendered for payment on such date.

ARTICLE V

FORM OF THE BONDS

Section 5.1. Form Generally.

(a) The Bonds, including the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Certificate of the Trustee, and the Assignment to appear on each of the Bonds, (i) shall be substantially in the form set forth in Exhibit A to this Indenture with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Indenture, and (ii) may have such letters, numbers, or other marks of identification (including identifying numbers and letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including any reproduction of an opinion of counsel) thereon as, consistently herewith, may be determined by the Town or by the officers executing such Bonds, as evidenced by their execution thereof.

(b) Any portion of the text of any Bonds may be set forth on the reverse side thereof, with an appropriate reference thereto on the face of the Bonds.

(c) The definitive Bonds shall be typewritten, printed, lithographed, or engraved, and may be produced by any combination of these methods or produced in any other similar manner, all as determined by the officers executing such Bonds, as evidenced by their execution thereof.

(d) The Initial Bond submitted to the Attorney General of the State of Texas may be typewritten and photocopied or otherwise reproduced.

Section 5.2. CUSIP Registration.

The Town may secure identification numbers through the CUSIP Service Bureau Division of Standard & Poor’s Corporation, New York, New York, and may authorize the printing of such numbers on the face of the Bonds. It is expressly provided, however, that the presence or absence of CUSIP numbers on the Bonds shall be of no significance or effect as regards the

Appendix A-27


legality thereof and neither the Town nor the attorneys approving said Bonds as to legality are to be held responsible for CUSIP numbers incorrectly printed on the Bonds.

Section 5.3. Legal Opinion.

The approving legal opinion of Bond Counsel may be printed on or attached to each Bond over the certification of the Town Secretary of the Town, which may be executed in facsimile.

ARTICLE VI

FUNDS AND ACCOUNTS

Section 6.1. Establishment of Funds and Accounts.

(a) Creation of Funds. The following Funds are hereby created and established under this Indenture:

(i) Pledged Revenue Fund;

(ii) Bond Fund;

(iii) Phases #2–5 Major Improvement Bond Project Fund (the "Project Fund");

(iv) Reserve Fund;

(v) Redemption Fund;

(vi) Rebate Fund; and

(vii) Administrative Fund.

(b) Creation of Accounts.

(i) The following Accounts are hereby created and established under the Bond Fund:

(A) Capitalized Interest Account; and

(B) Principal and Interest Account

(ii) The following Accounts are hereby created and established under the Reserve Fund:

(A) Reserve Account;

(B) Prepayment Reserve Account; and

(C) Delinquency Reserve Account

(iii) The following Accounts are hereby created and established under the Project Fund:

(A) Major Improvement Account; and

Appendix A-28


(B) Costs of Issuance Account

(iv) The following Account is hereby created and established under the Pledged Revenue Fund:

(A) Bond Pledged Revenue Account.

(v) The following Accounts are hereby created and established under the Administrative Fund:

(A) Landowner Property Tax Account; and

(B) District Administration Account.

(c) Each Fund and Account created within such Fund shall be maintained by the Trustee separate and apart from all other funds and accounts of the Town. The Pledged Funds shall constitute trust funds which shall be held in trust by the Trustee as part of the Trust Estate solely for the benefit of the Owners of the Bonds.

(d) Interest earnings and profit on each respective Fund and Account established by this Indenture shall be applied or withdrawn for the purposes of such Fund or Account as specified below.

Section 6.2. Initial Deposits to Funds and Accounts.

(a) The proceeds from the sale of the Bonds shall be paid to the Trustee and deposited or transferred by the Trustee as follows:

(i) to the Capitalized Interest Account of the Bond Fund: $435,062.89;

(ii) to the Reserve Account of the Reserve Fund: $1,224,000.00;

(iii) to the Costs of Issuance Account of the Project Fund: $1,435,937.11; and

(iv) to the Major Improvement Account of the Project Fund: $9,145,000.00.

(b) Funds received from the Landowner on the Closing Date in the amount of $2,477.92 shall be deposited to the Landowner Property Tax Account of the Administrative Fund.

Section 6.3. Pledged Revenue Fund.

(a) On or about February 20 of each year while the Bonds are Outstanding and beginning with the year when Assessments are being collected, the Town shall deposit or cause to be deposited the Pledged Revenues into the Pledged Revenue Fund. From amounts deposited to the Pledged Revenue Fund, the Town shall deposit or cause to be deposited Assessment Revenue as follows: (i) first, to the Bond Pledged Revenue Account of the Pledged Revenue Fund in an amount sufficient to pay debt service on the Bonds next coming due, (ii) second to the Reserve Account of the Reserve Fund in an amount to cause the amount in the Reserve Account to equal the Reserve Fund Requirement, (iii) third to pay other costs of the Authorized Improvements, and (iv) fourth to pay other costs permitted by the PID Act.

Appendix A-29


(b) From time to time as needed to pay the obligations relating to the Bonds, but no later than five (5) Business Days before each Interest Payment Date, the Trustee shall withdraw from the Bond Pledged Revenue Account and transfer to the Principal and Interest Account of the Bond Fund, an amount, taking into account any amounts then on deposit in such Principal and Interest Account and any expected transfers from the Capitalized Interest Account to the Principal and Interest Account, such that the amount on deposit in the Principal and Interest Account equals the principal (including any Sinking Fund Installments) and interest due on the Bonds on the next Interest Payment Date.

(c) If, after the foregoing transfers and any transfer from the Reserve Fund as provided in Section 6.7 herein, there are insufficient funds to make the payments provided in paragraph (b) above, the Trustee shall apply the available funds in the Principal and Interest Account first to the payment of interest, then to the payment of principal (including any Sinking Fund Installments) on the Bonds.

(d) The Trustee shall deposit Prepayments to the Pledged Revenue Fund and as soon as practicable after such deposit shall transfer such prepayments to the Redemption Fund.

(e) The Trustee shall deposit Foreclosure Proceeds to the Pledged Revenue Fund and as soon as practicable after such deposit shall transfer Foreclosure Proceeds first to the Reserve Fund to restore any transfers from the Reserve Fund made with respect to the Assessed Parcel or Assessed Parcels to which the Foreclosure Proceeds relate, and second, to the Redemption Fund.

(f) After satisfaction of the requirement to provide for the payment of the principal and interest on the Bonds and to fund any deficiency that may exist in the Reserve Fund, the Trustee may apply Assessments for any lawful purposes permitted by the Act for which Assessments may be paid.

(g) Any Assessments remaining after satisfying the foregoing payments may be used for any lawful purpose for which Assessments may be used under the PID Act.

Section 6.4. Bond Fund.

(a) On each Interest Payment Date, the Trustee shall withdraw from the Principal and Interest Account and transfer to the Paying Agent/Registrar the principal (including any Sinking Fund Installments) and interest then due and payable on the Bonds, less any amount to be used to pay interest on the Bonds on such Interest Payment Date from the Capitalized Interest Account as provided below.

(b) If amounts in the Principal and Interest Account are insufficient for the purposes set forth in paragraph (a) above, the Trustee shall withdraw from the Reserve Fund amounts to cover the amount of such insufficiency. Amounts so withdrawn from the Reserve Fund shall be deposited in the Principal and Interest Account and transferred to the Paying Agent/Registrar.

(c) Moneys in the Capitalized Interest Account shall be used for the payment of interest on the Bonds on the following dates and in the following amounts:

Appendix A-30


Date Amount

September 1, 2014 $ 435,062.89

Any amounts on deposit to the Capitalized Interest Account after the payment of interest on the dates and in the amounts listed above shall be transferred to the Major Improvement Account of the Project Fund, or if the Project Fund has been closed as provided in Section 6.5(g) herein, such amounts shall be transferred to the Redemption Fund to be used to redeem Bonds and the Capitalized Interest Account shall be closed.

Section 6.5. Project Fund.

(a) Money on deposit in the Project Fund shall be used for the purposes specified in Section 3.1 hereof.

(b) Any funds received at Closing pursuant to the Construction Funding Agreement shall be applied as provided therein. Such provisions and procedures are herein incorporated by reference and deemed set forth herein in full.

(c) Disbursements from the Costs of Issuance Account of the Project Fund shall be made by the Trustee to pay costs of issuance of the Bonds pursuant to one or more Town Certificates. Disbursements from all other Accounts of the Project Fund to pay Costs shall be made by the Trustee upon receipt by the Trustee of a properly executed and completed Certification for Payment. The disbursement of funds from the Project Fund pursuant to a Certification for Payment shall be pursuant to and accordance with the disbursement procedures described in the Construction Funding Agreement. Such provisions and procedures related to such disbursement contained in the Construction Funding Agreement, and no other provisions of the Construction Funding Agreement, are herein incorporated by reference and deemed set forth herein in full.

(d) The Phase #1 Bond Indenture has established thereunder the Phase #1 Bond Project Fund for purposes of paying the Costs of the Phase #1 Improvement Projects which include paying a portion of the costs of the Major Improvement Projects allocable to Phase #1 pursuant to and as described in the Service and Assessment Plan. The Trustee shall disburse amounts from the Major Improvement Account of the Project Fund to pay costs of Major Improvement Projects in an amount equal to the portion allocable to the Assessed Parcels as provided in the Service and Assessment Plan with the remainder of the Costs of the Major Improvement Projects to be paid from the Phase #1 Bond Project Fund. Each Certification for Payment shall set forth the amount of the costs of a Major Improvement Project to be paid from the Phase #1 Bond Project Fund and the amount to be paid from the Major Improvement Account of the Project Fund.

(e) If the Town Representative determines in his or her sole discretion that amounts then on deposit in the Major Improvement Account of the Project Fund are not expected to be expended for purposes of the Project Fund due to the abandonment, or constructive abandonment, of the Major Improvement Projects such that, in the opinion of the Town Representative, it is unlikely that the amounts in the Major Improvement Account of the Project Fund will ever be expended for the purposes of the Project Fund, the Town Representative shall file a Town Certificate with the Trustee which identifies the amounts then on deposit in the Major Improvement Account of the Project Fund that are not expected to be used for purposes of the Project Fund. If such Town Certificate is so filed, the amounts on deposit in Major Improvement Account of the Project Fund shall be transferred to the

Appendix A-31


Redemption Fund to redeem Bonds on the earliest practicable date after notice of redemption has been provided in accordance with the Indenture.

(f) In making any determination pursuant to this Section, the Town Representative may conclusively rely upon a certificate of an Independent Financial Consultant.

(g) Upon the filing of a Town Certificate stating that all Major Improvement Projects have been completed and that all Costs of the Major Improvement Projects allocable to the Assessed Parcels have been paid, or that any such Costs are not required to be paid from the Major Improvement Account of the Project Fund pursuant to a Certification for Payment, the Trustee shall transfer the amount, if any, remaining within the Project Fund to the Bond Fund, and the Project Fund shall be closed.

(h) Upon a determination by the Town Representative that all costs of issuance of the Bonds have been paid, any amounts remaining in the Costs of Issuance Account shall be transferred to another Account in the Project Fund and used to pay Costs or to the Principal and Interest Account of the Bond Fund and used to pay interest on the Bonds, as directed by the Town in a Town Certificate filed with the Trustee, and the Costs of Issuance Account shall be closed.

Section 6.6. Redemption Fund.

(a) The Trustee shall cause to be deposited to the Redemption Fund from the Bond Pledged Revenue Account of the Pledged Revenue Fund an amount sufficient to redeem Bonds as provided in Sections 4.3 and 4.4 on the dates specified for redemption as provided in Sections 4.3 and 4.4. Amounts on deposit in the Redemption Fund shall be used and withdrawn by the Trustee to redeem Bonds as provided in Article IV.

Section 6.7. Reserve Fund.

(a) The Town agrees with the Owners of the Bonds to accumulate, and when accumulated maintain in the Reserve Fund an amount equal to not less than the Reserve Fund Requirement. All amounts deposited in the Reserve Fund shall be used and withdrawn by the Trustee for the purpose of making transfers to the Principal and Interest Account of the Bond Fund as provided in this Indenture. The Trustee will transfer from the Bond Pledged Revenue Account of the Pledged Revenue Fund to the Prepayment Reserve Account on March 1 and September 1 of each year, commencing March 1, 2015, an amount equal to .20% of the interest rate component of the Annual Installments in the Prepayment Reserve Account. Once the Prepayment Reserve Requirement has accumulated in the Prepayment Reserve Account, all amount in excess of the Prepayment Reserve Requirement shall be transferred by the Trustee first to the Delinquency Reserve Account in the event such account contains less than the Delinquency Reserve Requirement, or, if the Delinquency Reserve Account contains the Delinquency Reserve Requirement then to the Redemption Fund to redeem Bonds as provided in Article IV. The Trustee shall also deposit from the Bond Pledged Revenue Account of the Pledged Revenue Fund to the Delinquency Reserve Account on March 1 and September 1, commencing March 1, 2015, an amount equal to .30% of the interest rate component of the Annual Installments. Once the Delinquency Reserve Requirement has been accumulated in the Delinquency Reserve Account, any amounts in excess of the Delinquency Reserve Requirement in the Delinquency Reserve Account shall be transferred by the Trustee to the Redemption Fund to redeem Bonds as provided in Article IV.

Appendix A-32


(b) Whenever a transfer is made from the Reserve Fund to the Bond Fund due to a deficiency in the Bond Fund, the Trustee shall provide written notice thereof to the Town, specifying the amount withdrawn and the source of said funds.

(c) Whenever Bonds are to be redeemed with the proceeds of Prepayments pursuant to Section 4.4, a proportionate amount in the Reserve Account of the Reserve Fund shall be transferred on the Business Day prior to the redemption date by the Trustee to the Redemption Fund to be applied to the redemption of the Bonds. The amount so transferred from the Reserve Account of the Reserve Fund shall be equal to a percentage of the amount of the Bonds redeemed with such percentage equal to the lesser of: (i) the amount required to be in the Reserve Account of the Reserve Fund, as a percentage of the Outstanding Bonds prior to the redemption, and (ii) the amount actually in the Reserve Account of the Reserve Fund, as a percentage of the Outstanding Bonds prior to the redemption. If after such transfer, and after applying investment earnings on the Prepayment toward payment of accrued interest, there are insufficient funds to pay the principal amount plus accrued and unpaid interest on such Bonds to the date fixed for redemption of the Bonds to be redeemed as a result of such Prepayment, the Trustee shall transfer an amount equal to the shortfall from the Prepayment Reserve Account to the Redemption Fund to be applied to the redemption of the Bonds.

(d) Whenever, on any Interest Payment Date, or on any other date at the written request of a Town Representative, the amount in the Reserve Account exceeds the Reserve Fund Requirement, the Trustee shall provide written notice to the Town Representative of the amount of the excess. Such excess shall be transferred to the Principal and Interest Account to be used for the payment of interest on the Bonds on the next Interest Payment Date in accordance with Section 6.4 hereof, unless within thirty days of such notice to the Town Representative, the Trustee receives a Town Order instructing the Trustee to apply such excess: (i) to pay amounts due under Section 6.8 hereof, (ii) to the Administrative Fund in an amount not more than the Annual Collection Costs for the Bonds, or (iii) to the Project Fund if such application and the expenditure of funds is expected to occur within three years of the date hereof.

(e) Whenever, on any Interest Payment Date, or on any other date at the written request of the Town Representative, the amount in the Prepayment Reserve Account exceeds the Prepayment Reserve Requirement, the Trustee shall provide written notice to the Town of the amount of the excess. The amount of such excess on deposit in the Prepayment Reserve Account shall be transferred to the Pledged Revenue Fund.

(f) Whenever, on any Interest Payment Date, or on any other date at the written request of the Town Representative, the amount in the Delinquency Reserve Account exceeds the Delinquency Reserve Requirement, the Trustee shall provide written notice to the Town of the amount of the excess. The amount of such excess on deposit in the Delinquency Reserve Account shall be transferred to the Pledged Revenue Fund.

(g) Whenever, on any Interest Payment Date, the amount on deposit in the Bond Fund is insufficient to pay the debt service on the Bonds due on such date, the Trustee shall transfer first from the Delinquency Reserve Account of the Reserve Fund, second from the Reserve Account of the Reserve Fund and third from the Prepayment Reserve Account to the Bond Fund the amounts necessary to cure such deficiency. The Trustee shall determine the value of cash and investments on deposit in the Delinquency Reserve Account as of September 30 of each year. So long as no Event of Default under this Indenture shall have

Appendix A-33


occurred and be continuing, if as of the date of such determination the value of cash and investments on deposit in the Delinquency Reserve Account exceeds the Delinquency Reserve Fund Requirement for the Bonds, the Trustee shall transfer such excess at the written direction of the Town.

(h) At the final maturity of the Bonds, the amount on deposit in the Reserve Account, the Prepayment Reserve Account and the Delinquency Reserve Account shall be transferred to the Redemption Fund and applied to the payment of the principal of the Bonds.

(i) If, after a Reserve Fund withdrawal, the amount on deposit in the Reserve Account of the Reserve Fund is less than the Reserve Fund Requirement, the Trustee shall transfer from the Pledged Revenue Fund to the Reserve Account of the Reserve Fund the amount of such deficiency, in accordance with Section 6.3.

(j) If the amount held in the Reserve Fund together with the amount held in the Bond Fund and Redemption Fund is sufficient to pay the principal amount and of all Outstanding Bonds on the next Interest Payment Date, together with the unpaid interest accrued on such Bonds as of such Interest Payment Date, the moneys shall be transferred to the Redemption Fund and thereafter used to redeem all Bonds as of such Interest Payment Date.

Section 6.8. Rebate Fund: Rebate Amount.

(a) There is hereby established a special fund of the Town to be designated “Town of Little Elm, Texas, Rebate Fund” (the “Rebate Fund”) to be held by the Trustee in accordance with the terms and provisions of this Indenture. Amounts on deposit in the Rebate Fund shall be used solely for the purpose of paying amounts due the United States Government in accordance with the Code.

(b) In order to assure that Rebate Amount is paid to the United States rather than to a third party, investments of funds on deposit in the Rebate Fund shall be made in accordance with the Code and the Tax Certificate.

(c) The Trustee conclusively shall be deemed to have complied with the provisions of this Section and Section 7.5(h) and shall not be liable or responsible if it follows the instructions of the Town and shall not be required to take any action under this Section and Section 7.5(h) in the absence of written instructions from the Town.

(d) If, on the date of each annual calculation, the amount on deposit in the Rebate Fund exceeds the Rebate Amount, the Town may direct the Trustee, pursuant to a Town Order, to transfer the amount in excess of the Rebate Amount to the Bond Fund.

Section 6.9. Administrative Fund.

(a) The Town shall deposit or cause to be deposited to the District Administration Account of the Administrative Fund the Annual Collection Costs.

(b) Moneys in the District Administration Account of the Administrative Fund shall be held by the Trustee separate and apart from the other Funds created and administered hereunder and used as directed by a Town Order solely for the purposes set forth in the Service and Assessment Plan.

Appendix A-34


(c) Moneys in the Landowner Property Tax Account of the Administrative Fund shall be held by the Trustee separate and apart from the other Funds created and administered hereunder and shall be released to the Landowner as directed by Town Order; provided, however, that the Trustee shall transfer to the Landowner any amounts remaining in the Landowner Property Tax Account of the Administrative Fun after the last outstanding Bond is discharged regardless of whether a Town Order directing such action is received.

Section 6.10. Investment of Funds.

(a) Money in any Fund established pursuant to this Indenture shall be invested by the Trustee as directed by the Town pursuant to a Town Order filed with the Trustee at least two (2) days in advance of the making of such investment in time deposits or certificates of deposit secured in the manner required by law for public funds, or be invested in direct obligations of, including obligations the principal and interest on which are unconditionally guaranteed by, the United States of America, in obligations of any agencies or instrumentalities thereof, or in such other investments as are permitted under the Public Funds Investment Act, Texas Government Code, Chapter 2256, as amended, or any successor law, as in effect from time to time; provided that all such deposits and investments shall be made in such manner (which may include repurchase agreements for such investment with any primary dealer of such agreements) that the money required to be expended from any Fund will be available at the proper time or times. Such investments shall be valued each year in terms of current market value as of September 30. For purposes of maximizing investment returns, to the extent permitted by law, money in such Funds may be invested in common investments of the kind described above, or in a common pool of such investment which shall be kept and held at an official depository bank, which shall not be deemed to be or constitute a commingling of such money or funds provided that safekeeping receipts or certificates of participation clearly evidencing the investment or investment pool in which such money is invested and the share thereof purchased with such money or owned by such Fund are held by or on behalf of each such Fund. If necessary, such investments shall be promptly sold to prevent any default.

(b) Obligations purchased as an investment of moneys in any Fund shall be deemed to be part of such Fund or Account, subject, however, to the requirements of this Indenture for transfer of interest earnings and profits resulting from investment of amounts in Funds and Accounts. Whenever in this Indenture any moneys are required to be transferred by the Town to the Trustee, such transfer may be accomplished by transferring a like amount of Investment Securities.

(c) The Trustee and its affiliates may act as sponsor, advisor, depository, principal or agent in the acquisition or disposition of any investment. The Trustee shall not incur any liability for losses arising from any investments made pursuant to this Section. The Trustee shall not be required to determine the suitability or legality of any investments.

(d) Investments in any and all Funds and Accounts may be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions herein for transfer to or holding in or to the credit of particular Funds or Accounts of amounts received or held by the Trustee hereunder, provided that the Trustee shall at all times account for such investments strictly in accordance with the Funds and Accounts to which they are credited and otherwise as provided in this Indenture.

Appendix A-35


(e) The Trustee will furnish the Town monthly cash transaction statements which include detail for all investment transactions made by the Trustee hereunder; and, unless the Trustee receives a written request, the Trustee is not required to provide brokerage confirmations so long as the Trustee is providing such monthly cash transaction statements.

Section 6.11. Security of Funds.

All Funds heretofore created or reaffirmed, to the extent not invested as herein permitted, shall be secured in the manner and to the fullest extent required by law for the security of public funds, and such Funds shall be used only for the purposes and in the manner permitted or required by this Indenture.

ARTICLE VII

COVENANTS

Section 7.1. Confirmation of Assessments.

The Town hereby confirms, covenants, and agrees that, in the Assessment Ordinance, it has levied the Assessments against the respective Assessed Parcels from which the Pledged Revenues will be collected and received.

Section 7.2. Collection and Enforcement of Assessments.

(a) For so long as any Bonds are Outstanding, the Town covenants, agrees and warrants that it will take and pursue all actions permissible under Applicable Laws to cause the Assessments to be collected and the liens thereof enforced continuously, in the manner and to the maximum extent permitted by Applicable Laws, and to cause no reduction, abatement or exemption in the Assessments.

(b) The Town will determine or cause to be determined, no later than February 15 of each year, whether or not any Annual Installment is delinquent and, if such delinquencies exist, the Town will order and cause to be commenced as soon as practicable any and all appropriate and legally permissible actions to obtain such Annual Installment, and any delinquent charges and interest thereon, including diligently prosecuting an action in district court to foreclose the currently delinquent Annual Installment. Notwithstanding the foregoing, the Town shall not be required under any circumstances to purchase or make payment for the purchase of the delinquent Assessment or the corresponding Assessed Parcel.

Section 7.3. Against Encumbrances.

(a) The Town shall not create and, to the extent Pledged Revenues are received, shall not suffer to remain, any lien, encumbrance or charge upon the Pledged Revenues, other than that specified in Section 9.6 of this Indenture, or upon any other property pledged under this Indenture, except the pledge created for the security of the Bonds and Additional Obligations, and other than a lien or pledge subordinate to the lien and pledge of such property related to the Bonds and Additional Obligations.

(b) So long as Bonds are Outstanding hereunder, the Town shall not issue any bonds, notes or other evidences of indebtedness other than the Bonds and Additional Obligations secured by any pledge of or other lien or charge on the Pledged Revenues or

Appendix A-36


other property pledged under this Indenture, other than a lien or pledge subordinate to the lien and pledge of such property related to the Bonds and Additional Bonds.

Section 7.4. Records, Accounts, Accounting Reports.

The Town hereby covenants and agrees that so long as any of the Bonds or Outstanding Bonds or any interest thereon remain outstanding and unpaid, it will keep and maintain a proper and complete system of records and accounts pertaining to the Assessments. The Trustee and holder or holders of any Bonds or any duly authorized agent or agents of such holders shall have the right at all reasonable times to inspect all such records, accounts, and data relating thereto, upon written request to the Town by the Trustee or duly authorized representative, as applicable. The Town shall provide the Trustee or duly authorized representative, as applicable, an opportunity to inspect such books and records relating to the Bonds during the Town’s regular business hours and on a mutually agreeable date not later than thirty days after the Town receives such request.

Section 7.5. Covenants to Maintain Tax-Exempt Status.

(a) Definitions. When used in this Section, the following terms shall have the following meanings:

“Closing Date” means the date on which the Bonds are first authenticated and delivered to the initial purchasers against payment therefor.

“Code” means the Internal Revenue Code of 1986, as amended by all legislation, if any, effective on or before the Closing Date.

“Computation Date” has the meaning set forth in section 1.148-1(b) of the Regulations.

“Gross Proceeds” means any proceeds as defined in section 1.148-1(b) of the Regulations, and any replacement proceeds as defined in section 1.148-1(c) of the Regulations, of the Bonds.

“Investment” has the meaning set forth in section 1.148-1(b) of the Regulations.

“Nonpurpose Investment” means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of the Bonds are invested and which is not acquired to carry out the governmental purposes of the Bonds.

“Regulations” means any proposed, temporary or final Income Tax Regulations issued pursuant to sections 103 and 141 through 150 of the Code, and 103 of the Internal Revenue Code of 1954, which are applicable to the Bonds. Any reference to any specific Regulation shall also mean, as appropriate, any proposed, temporary or final Income Tax Regulation designed to supplement, amend or replace the specific Regulation referenced.

Appendix A-37


“Yield” of (1) any Investment has the meaning set forth in section 1.148-5 of the Regulations; and (2) the Bonds has the meaning set forth in section 1.148-4 of the Regulations.

(b) Not to Cause Interest to Become Taxable. The Town shall not use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner which if made or omitted, respectively, would cause the interest on any Bond to become includable in the gross income, as defined in section 61 of the Code, of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the Town receives a written opinion of counsel nationally recognized in the field of municipal bond law to the effect that failure to comply with such covenant will not adversely affect the exemption from federal income tax of the interest on any Bond, the Town shall comply with each of the specific covenants in this Section.

(c) No Private Use or Private Payments. Except as permitted by section 141 of the Code and the Regulations and rulings thereunder, the Town shall at all times prior to the last Stated Maturity of Bonds:

(i) exclusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Bonds, and not use or permit the use of such Gross Proceeds (including all contractual arrangements with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and

(ii) not directly or indirectly impose or accept any charge or other payment by any person or entity who is treated as using Gross Proceeds of the Bonds or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds, other than taxes of general application within the Town or interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes.

(d) No Private Loan.

(i) Except to the extent permitted by section 141 of the Code and the Regulations and rulings thereunder, the Town shall not use Gross Proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be “loaned” to a person or entity if: (1) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction which creates a debt for federal income tax purposes; (2) capacity in or service from such property is committed to such person or entity under a take-or-pay, output or similar contract or arrangement; or (3) indirect benefits, or burdens and benefits of ownership, of such Gross Proceeds or any property acquired, constructed or improved with such Gross Proceeds are otherwise transferred in a transaction which is the economic equivalent of a loan.

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(ii) The Town covenants and agrees that the levied Assessments will meet the requirements of the “tax assessment loan exception” within the meaning of section 1.141-5(d) of the Regulations on the date the Bonds are delivered and will ensure that the Assessments continue to meet such requirements for so long as the Bonds are outstanding hereunder.

(e) Not to Invest at Higher Yield. Except to the extent permitted by section 148 of the Code and the Regulations and rulings thereunder, the Town shall not at any time prior to the final Stated Maturity of the Bonds directly or indirectly invest Gross Proceeds in any Investment (or use Gross Proceeds to replace money so invested) if, as a result of such investment, the Yield from the Closing Date of all Investments acquired with Gross Proceeds (or with money replaced thereby), whether then held or previously disposed of, exceeds the Yield of the Bonds.

(f) Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the Regulations and rulings thereunder, the Town shall not take or omit to take any action which would cause the Bonds to be federally guaranteed within the meaning of section 149(b) of the Code and the Regulations and rulings thereunder.

(g) Information Report. The Town shall timely file the information required by section 149(e) of the Code with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary may prescribe.

(h) Rebate of Arbitrage Profits. Except to the extent otherwise provided in section 148(f) of the Code and the Regulations and rulings thereunder:

(i) The Town shall account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six years after the day on which the last outstanding Bond is discharged. However, to the extent permitted by law, the Town may commingle Gross Proceeds of the Bonds with other money of the Town, provided that the Town separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith.

(ii) Not less frequently than each Computation Date, the Town shall calculate the Rebate Amount in accordance with rules set forth in section 148(f) of the Code and the Regulations and rulings thereunder. The Town shall maintain such calculations with its official transcript of proceedings relating to the issuance of the Bonds until six years after the final Computation Date.

(iii) As additional consideration for the purchase of the Bonds by the Purchasers and the loan of the money represented thereby and in order to induce such purchase by measures designed to insure the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes, the Town shall, pursuant to a Town Order, direct the Trustee to transfer to the Rebate Fund from the funds or subaccounts designated in such Town Order and direct the Trustee to pay to the United States from the Rebate Fund the amount that when added to the future value of previous rebate payments made for the Bonds equals (i) in the case of a Final Computation Date as defined in Section 1.148-3(e)(2) of the Regulations, one hundred percent (100%) of the Rebate Amount on such date; and (ii) in the case of any other

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Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, the rebate payments shall be made at the times, in the installments, to the place and in the manner as is or may be required by section 148(f) of the Code and the Regulations and rulings thereunder, and shall be accompanied by Form 8038-T or such other forms and information as is or may be required by Section 148(f) of the Code and the Regulations and rulings thereunder.

(iv) The Town shall exercise reasonable diligence to assure that no errors are made in the calculations and payments required by paragraphs (ii) and (iii), and if an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter (and in all events within one hundred eighty (180) days after discovery of the error), including payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under Section 1.148-3(h) of the Regulations.

(i) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Regulations and rulings thereunder, the Town shall not, at any time prior to the earlier of the Stated Maturity or final payment of the Bonds, enter into any transaction that reduces the amount required to be paid to the United States pursuant to Subsection (h) of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm’s length and had the Yield of the Bonds not been relevant to either party.

(j) Elections. The Town hereby directs and authorizes the Mayor, Mayor Pro Tem, Town Manager, Assistant Town Manager, Finance Director, or Town Secretary, individually or jointly, to make elections permitted or required pursuant to the provisions of the Code or the Regulations, as they deem necessary or appropriate in connection with the Bonds, in the Tax Certificate or similar or other appropriate certificate, form or document.

ARTICLE VIII

LIABILITY OF TOWN

The Town shall not incur any responsibility in respect of the Bonds or this Indenture other than in connection with the duties or obligations explicitly herein or in the Bonds assigned to or imposed upon it. The Town shall not be liable in connection with the performance of its duties hereunder, except for its own willful default or act of bad faith. The Town shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions covenants or agreements of the Trustee herein or of any of the documents executed by the Trustee in connection with the Bonds, or as to the existence of a default or event of default thereunder.

In the absence of bad faith, the Town may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Town and conforming to the requirements of this Indenture. The Town shall not be liable for any error of judgment made in good faith unless it shall be proved that it was negligent in ascertaining the pertinent facts.

No provision of this Indenture, the Bonds, the Assessment Ordinance, or any agreement, document, instrument, or certificate executed, delivered or approved in connection with the issuance, sale, delivery, or administration of the Bonds (the “Bond Documents”), shall

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require the Town to expend or risk its own general funds or otherwise incur any financial liability (other than with respect to the Pledged Revenues and the Annual Collection Costs) in the performance of any of its obligations hereunder, or in the exercise of any of its rights or powers, if in the judgment of the Town there are reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it.

Neither the Owners nor any other Person shall have any claim against the Town or any of its officers, officials, agents, or employees for damages suffered as a result of the Town’s failure to perform in any respect any covenant, undertaking, or obligation under any Bond Documents or as a result of the incorrectness of any representation in, or omission from, any of the Bond Documents, except to the extent that any such claim relates to an obligation, undertaking, representation, or covenant of the Town, in accordance with the Bond Documents and the PID Act. Any such claim shall be payable only from Pledged Revenues or the Annual Collection Costs. Nothing contained in any of the Bond Documents shall be construed to preclude any action or proceeding in any court or before any governmental body, agency, or instrumentality against the Town or any of its officers, officials, agents, or employees to enforce the provisions of any of the Bond Documents or to enforce all rights of the Owners of the Bonds by mandamus or other proceeding at law or in equity.

The Town may rely on and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, bond, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The Town may consult with counsel with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith.

Whenever in the administration of its duties under this Indenture the Town shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of willful misconduct on the part of the Town, be deemed to be conclusively proved and established by a certificate of the Trustee, an Independent Financial Consultant, an independent inspector or Town Manager or other person designated by the Town Council to so act on behalf of the Town, and such certificate shall be full warrant to the Town for any action taken or suffered under the provisions of this Indenture upon the faith thereof, but in its discretion the Town may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable.

In order to perform its duties and obligations hereunder, the Town may employ such persons or entities as it deems necessary or advisable. The Town shall not be liable for any of the acts or omissions of such persons or entities employed by it in good faith hereunder, and shall be entitled to rely, and shall be fully protected in doing so, upon the opinions, calculations, determinations, and directions of such persons or entities.

ARTICLE IX

THE TRUSTEE

Section 9.1. Trustee as Registrar and Paying Agent

The Trustee is hereby designated and agrees to act as Registrar and Paying Agent for and in respect to the Bonds.

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Section 9.2. Trustee Entitled to Indemnity

The Trustee shall be under no obligation to institute any suit, or to undertake any proceeding under this Indenture, or to enter any appearance or in any way defend in any suit in which it may be made defendant, or to take any steps in the execution of the trusts hereby created or in the enforcement of any rights and powers hereunder, until it shall be indemnified to its satisfaction against any and all costs and expenses, outlays, and counsel fees and other reasonable disbursements, and against all liability except as a consequence of its own negligence or willful misconduct. Nevertheless, the Trustee may begin suit, or appear in and defend suit, or do anything else in its judgment proper to be done by it as the Trustee, without indemnity, and in such case the Trustee may make transfers from the Pledged Revenue Fund to pay all costs and expenses, outlays, and counsel fees and other reasonable disbursements properly incurred in connection therewith and shall be entitled to a preference therefor over any Bonds Outstanding hereunder.

Section 9.3. Responsibilities of the Trustee.

The recitals contained in this Indenture and in the Bonds shall be taken as the statements of the Town and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or the Bonds or with respect to the security afforded by this Indenture, and the Trustee shall incur no liability with respect thereto. Except as otherwise expressly provided in this Indenture, the Trustee shall have no responsibility or duty with respect to: (i) the issuance of Bonds for value; (ii) the application of the proceeds thereof, except to the extent that such proceeds are received by it in its capacity as Trustee; (iii) the application of any moneys paid to the Town or others in accordance with this Indenture, except as to the application of any moneys paid to it in its capacity as Trustee; or (iv) any calculation of arbitrage or rebate under the Code.

The duties and obligations of the Trustee shall be determined by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture.

The Trustee shall not be liable for any action taken or omitted by it in the performance of its duties under this Indenture, except for its own gross negligence or willful misconduct.

Section 9.4. Property Held in Trust.

All moneys and securities held by the Trustee at any time pursuant to the terms of this Indenture shall be held by the Trustee in trust for the purposes and under the terms and conditions of this Indenture.

Section 9.5. Trustee Protected in Relying on Certain Documents.

The Trustee may rely upon any order, notice, request, consent, waiver, certificate, statement, affidavit, requisition, bond, or other document provided to the Trustee in accordance with the terms of this Indenture that it shall in good faith reasonably believe to be genuine and to have been adopted or signed by the proper board or Person or to have been prepared and furnished pursuant to any of the provisions of this Indenture, or upon the written opinion of any counsel, architect, engineer, insurance consultant, management consultant, or accountant believed by the Trustee to be qualified in relation to the subject matter, and the Trustee shall be under no duty to make any investigation or inquiry into any statements contained or matters

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referred to in any such instrument. The Trustee may consult with counsel, who may or may not be Bond Counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it in good faith and in accordance therewith.

Whenever the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under this Indenture, such matter may be deemed to be conclusively proved and established by a Town Certificate, unless other evidence in respect thereof be hereby specifically prescribed. Such Town Certificate shall be full warrant for any action taken or suffered in good faith under the provisions hereof, but in its discretion the Trustee may in lieu thereof accept other evidence of such fact or matter or may require such further or additional evidence as it may deem reasonable. Except as otherwise expressly provided herein, any request, order, notice, or other direction required or permitted to be furnished pursuant to any provision hereof by the Town to the Trustee shall be sufficiently executed if executed in the name of the Town by the Town Representative.

The Trustee shall not be under any obligation to see to the recording or filing of this Indenture, or otherwise to the giving to any Person of notice of the provisions hereof except as expressly required in Section 9.13 herein.

Section 9.6. Compensation.

Unless otherwise provided by contract with the Trustee, the Trustee shall transfer from the Administrative Fund, from time to time, reasonable compensation for all services rendered by it hereunder, including its services as Registrar and Paying Agent, together with all its reasonable expenses, charges, and other disbursements and those of its counsel, agents and employees, incurred in and about the administration and execution of the trusts hereby created and the exercise of its powers and the performance of its duties hereunder, subject to any limit on the amount of such compensation or recovery of expenses or other charges as shall be prescribed by specific agreement, and the Trustee shall have a lien therefor on any and all funds at any time held by it hereunder prior to any Bonds Outstanding. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if in the judgment of the Trustee there are reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it. If the Town shall fail to make any payment required by this Section, the Trustee may make such payment from any moneys in its possession under the provisions of this Indenture and shall be entitled to a preference therefor over any Bonds Outstanding hereunder.

Section 9.7. Permitted Acts.

The Trustee and its directors, officers, employees, or agents may become the owner of or may in good faith buy, sell, own, hold and deal in Bonds and may join in any action that any Owner of Bonds may be entitled to take as fully and with the same rights as if it were not the Trustee. The Trustee may act as depository, and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, the Town or any committee formed to protect the rights of holders of Bonds or to effect or aid in any reorganization growing out of the enforcement of the Bonds or this Indenture, whether or not such committee shall represent the holders of a majority in aggregate outstanding principal amount of the Bonds.

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Section 9.8. Resignation of Trustee.

The Trustee may at any time resign and be discharged of its duties and obligations hereunder by giving not fewer than 30 days’ notice, specifying the date when such resignation shall take effect, to the Town and each Owner of any Outstanding Bond. Such resignation shall take effect upon the appointment of a successor as provided in Section 9.10 and the acceptance of such appointment by such successor.

Section 9.9. Removal of Trustee.

The Trustee may be removed at any time by (i) the Owners of at least a majority of the aggregate outstanding principal of the Bonds by an instrument or concurrent instruments in writing signed and acknowledged by such Owners or by their attorneys-in-fact, duly authorized and delivered to the Town, or (ii) so long as the Town is not in default under this Indenture, the Town. Copies of each such instrument shall be delivered by the Town to the Trustee and any successor thereof. The Trustee may also be removed at any time for any breach of trust or for acting or proceeding in violation of, or for failing to act or proceed in accordance with, any provision of this Indenture with respect to the duties and obligations of the Trustee by any court of competent jurisdiction upon the application of the Town or the Owners of not less than 10% of the aggregate outstanding principal of the Bonds.

Section 9.10. Successor Trustee.

If the Trustee shall resign, be removed, be dissolved, or become incapable of acting, or shall be adjudged a bankrupt or insolvent, or if a receiver, liquidator, or conservator of the Trustee or of its property shall be appointed, or if any public officer shall take charge or control of the Trustee or of its property or affairs, the position of the Trustee hereunder shall thereupon become vacant.

If the position of Trustee shall become vacant for any of the foregoing reasons or for any other reason, a successor Trustee may be appointed within one year after any such vacancy shall have occurred by the Owners of at least twenty-five percent (25%) of the aggregate outstanding principal of the Bonds by an instrument or concurrent instruments in writing signed and acknowledged by such Owners or their attorneys-in-fact, duly authorized and delivered to such successor Trustee, with notification thereof being given to the predecessor Trustee and the Town.

Until such successor Trustee shall have been appointed by the Owners of the Bonds, the Town shall forthwith appoint a Trustee to act hereunder. Copies of any instrument of the Town providing for any such appointment shall be delivered by the Town to the Trustee so appointed. The Town shall mail notice of any such appointment to each Owner of any Outstanding Bonds within 30 days after such appointment. Any appointment of a successor Trustee made by the Town immediately and without further act shall be superseded and revoked by an appointment subsequently made by the Owners of Bonds.

If in a proper case no appointment of a successor Trustee shall be made within 45 days after the giving by any Trustee of any notice of resignation in accordance with Section 9.8 herein or after the occurrence of any other event requiring or authorizing such appointment, the Trustee or any Owner of Bonds may apply to any court of competent jurisdiction for the appointment of such a successor, and the court may thereupon, after such notice, if any, as the

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court may deem proper, appoint such successor and the Town shall be responsible for the costs of such appointment process.

Any successor Trustee appointed under the provisions of this Section shall be a commercial bank or trust company or national banking association (i) having a capital and surplus and undivided profits aggregating at least $50,000,000, if there be such a commercial bank or trust company or national banking association willing and able to accept the appointment on reasonable and customary terms, and (ii) authorized by law to perform all the duties of the Trustee required by this Indenture.

Each successor Trustee shall mail, in accordance with the provisions of the Bonds, notice of its appointment to the Trustee, any rating agency which, at the time of such appointment, is providing a rating on the Bonds and each of the Owners of the Bonds.

Section 9.11. Transfer of Rights and Property to Successor Trustee.

Any successor Trustee appointed under the provisions of Section 9.10 shall execute, acknowledge, and deliver to its predecessor and the Town an instrument in writing accepting such appointment, and thereupon such successor, without any further act, deed, or conveyance, shall become fully vested with all moneys, estates, properties, rights, immunities, powers, duties, obligations, and trusts of its predecessor hereunder, with like effect as if originally appointed as Trustee. However, the Trustee then ceasing to act shall nevertheless, on request of the Town or of such successor, execute, acknowledge, and deliver such instruments of conveyance and further assurance and do such other things as may reasonably be required for more fully and certainly vesting and confirming in such successor all the rights, immunities, powers, and trusts of such Trustee and all the right, title, and interest of such Trustee in and to the Trust Estate, and shall pay over, assign, and deliver to such successor any moneys or other properties subject to the trusts and conditions herein set forth. Should any deed, conveyance, or instrument in writing from the Town be required by such successor for more fully and certainly vesting in and confirming to it any such moneys, estates, properties, rights, powers, duties, or obligations, any and all such deeds, conveyances, and instruments in writing, on request and so far as may be authorized by law, shall be executed, acknowledged, and delivered by the Town.

Section 9.12. Merger, Conversion or Consolidation of Trustee.

Any corporation or association into which the Trustee may be merged or with which it may be consolidated or any corporation or association resulting from any merger, conversion or consolidation to which it shall be a party or any corporation or association to which the Trustee may sell or transfer all or substantially all of its corporate trust business shall be the successor to such Trustee hereunder, without any further act, deed or conveyance, provided that such corporation or association shall be a commercial bank or trust company or national banking association qualified to be a successor to such Trustee under the provisions of Section 9.10, or a trust company that is a wholly-owned subsidiary of any of the foregoing.

Section 9.13. Trustee To File Continuation Statements.

If necessary, the Trustee shall file or cause to be filed, such continuation statements as may be required by the Texas Uniform Commercial Code, as from time to time in effect (the “UCC”), in order to continue perfection of the security interest of the Trustee in such items of

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tangible or intangible personal property and any fixtures as may have been granted to the Trustee pursuant to this Indenture in the time, place and manner required by the UCC.

Section 9.14. Construction of Indenture.

The Trustee may construe any of the provisions of this Indenture insofar as the same may appear to be ambiguous or inconsistent with any other provision hereof, and any construction of any such provisions hereof by the Trustee in good faith shall be binding upon the Owners of the Bonds.

ARTICLE X

MODIFICATION OR AMENDMENT OF THIS INDENTURE

Section 10.1. Amendments Permitted.

This Indenture and the rights and obligations of the Town and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Indenture, except as provided below, pursuant to the affirmative vote at a meeting of Owners of the Bonds, or with the written consent without a meeting, of the Owners of at least sixty-six and two-thirds percent (66-2/3%) of the aggregate principal amount of the Bonds then Outstanding. No such modification or amendment shall (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the Town to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) permit the creation by the Town of any pledge or lien upon the Pledged Revenues superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by Applicable Laws or this Indenture), or reduce the percentage of Bonds required for the amendment hereof. Any such amendment may not modify any of the rights or obligations of the Trustee without its written consent.

This Indenture and the rights and obligations of the Town and of the Owners may also be modified or amended at any time by a Supplemental Indenture, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes:

(i) to add to the covenants and agreements of the Town in this Indenture contained, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power herein reserved to or conferred upon the Town;

(ii) to make modifications not adversely affecting any Outstanding Bonds in any material respect;

(iii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in this Indenture, or in regard to questions arising under this Indenture, as the Town and the Trustee may deem necessary or desirable and not inconsistent with this Indenture, and that shall not adversely affect the rights of the Owners of the Bonds; and

(iv) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Bonds.

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Section 10.2. Owners’ Meetings.

The Town may at any time call a meeting of the Owners of the Bonds. In such event the Town is authorized to fix the time and place of said meeting and to provide for the giving of notice thereof, and to fix and adopt rules and regulations for the conduct of said meeting.

Section 10.3. Procedure for Amendment with Written Consent of Owners.

The Town and the Trustee may at any time adopt a Supplemental Indenture amending the provisions of the Bonds or of this Indenture, to the extent that such amendment is permitted by Section 10.1 herein, to take effect when and as provided in this Section. A copy of such Supplemental Indenture, together with a request to Owners for their consent thereto, shall be mailed by first class mail, by the Trustee to each Owner of Bonds from whom consent is required under this Indenture, but failure to mail copies of such Supplemental Indenture and request shall not affect the validity of the Supplemental Indenture when assented to as in this Section provided.

Such Supplemental Indenture shall not become effective unless there shall be filed with the Trustee the written consents of the Owners as required by this Indenture and a notice shall have been mailed as hereinafter in this Section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Bonds for which such consent is given, which proof shall be such as is permitted by Section 11.6 herein. Any such consent shall be binding upon the Owner of the Bonds giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof), unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when the notice hereinafter in this Section provided for has been mailed.

After the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Indenture, the Town shall mail a notice to the Owners in the manner hereinbefore provided in this Section for the mailing of the Supplemental Indenture, stating in substance that the Supplemental Indenture has been consented to by the Owners of the required percentage of Bonds and will be effective as provided in this Section (but failure to mail copies of said notice shall not affect the validity of the Supplemental Indenture or consents thereto). Proof of the mailing of such notice shall be filed with the Trustee. A record, consisting of the papers required by this Section 10.3 to be filed with the Trustee, shall be proof of the matters therein stated until the contrary is proved. The Supplemental Indenture shall become effective upon the filing with the Trustee of the proof of mailing of such notice, and the Supplemental Indenture shall be deemed conclusively binding (except as otherwise hereinabove specifically provided in this Article) upon the Town and the Owners of all Bonds at the expiration of sixty (60) days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such sixty-day period.

Section 10.4. Effect of Supplemental Indenture.

From and after the time any Supplemental Indenture becomes effective pursuant to this Article X, this Indenture shall be deemed to be modified and amended in accordance therewith, the respective rights, duties, and obligations under this Indenture of the Town and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any

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such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes.

Section 10.5. Endorsement or Replacement of Bonds Issued After Amendments.

The Town may determine that Bonds issued and delivered after the effective date of any action taken as provided in this Article X shall bear a notation, by endorsement or otherwise, in form approved by the Town, as to such action. In that case, upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his Bond for that purpose at the designated office of the Trustee or at such other office as the Town may select and designate for that purpose, a suitable notation shall be made on such Bond. The Town may determine that new Bonds, so modified as in the opinion of the Town is necessary to conform to such Owners’ action, shall be prepared, executed, and delivered. In that case, upon demand of the Owner of any Bonds then Outstanding, such new Bonds shall be exchanged at the designated office of the Trustee without cost to any Owner, for Bonds then Outstanding, upon surrender of such Bonds.

Section 10.6. Amendatory Endorsement of Bonds.

The provisions of this Article X shall not prevent any Owner from accepting any amendment as to the particular Bonds held by such Owner, provided that due notation thereof is made on such Bonds.

Section 10.7. Waiver of Default

With the written consent of at least sixty-six and two-thirds percent (66-2/3%) in aggregate principal amount of the Bonds then Outstanding, the Owners may waive compliance by the Town with certain past defaults under the Indenture and their consequences. Any such consent shall be conclusive and binding upon the Owners and upon all future Owners.

ARTICLE XI

DEFAULT AND REMEDIES

Section 11.1. Events of Default.

Each of the following occurrences or events shall be and is hereby declared to be an “Event of Default,” to wit:

(i) The failure of the Town to deposit the Pledged Revenues to the Bond Pledged Revenue Account of the Pledged Revenue Fund;

(ii) The failure of the Town to enforce the collection of the Assessments including the prosecution of foreclosure proceedings; and

(iii) Default in the performance or observance of any covenant, agreement or obligation of the Town under this Indenture and the continuation thereof for a period of 60 days after written notice to the Town by the Trustee, or by the Owners of at least 25% of the aggregate outstanding principal of the Bonds with a copy to the Trustee, specifying such default by the Owners of at least 25% of the Bonds at the time Outstanding requesting that the failure be remedied.

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Section 11.2. Immediate Remedies for Default.

(a) Subject to Article VIII, upon the happening and continuance of any of the Events of Default described in Section 11.1, the Owners of at least 25% of the Bonds then Outstanding, may proceed against the Town for the purpose of protecting and enforcing the rights of the Owners under this Indenture, by action seeking mandamus or by other suit, action, or special proceeding in equity or at law, in any court of competent jurisdiction, for any relief to the extent permitted by Applicable Laws, including, but not limited to, the specific performance of any covenant or agreement contained herein, or injunction; provided, however, that no action for money damages against the Town may be sought or shall be permitted.

(b) THE PRINCIPAL OF THE BONDS SHALL NOT BE SUBJECT TO ACCELERATION UNDER ANY CIRCUMSTANCES.

(c) If the assets of the Trust Estate are sufficient to pay all amounts due with respect to Outstanding Bonds, in the selection of Trust Estate assets to be used in the payment of Bonds due under this Article, the Town shall determine, in its absolute discretion, and shall instruct the Trustee by Town Order, which Trust Estate assets shall be applied to such payment and shall not be liable to any Owner or other Person by reason of such selection and application. In the event that the Town shall fail to deliver to the Trustee such Town Order, the Trustee shall select and liquidate or sell Trust Estate assets as provided in the following paragraph, and shall not be liable to any Owner, or other Person, or the Town by reason of such selection, liquidation or sale.

(d) Whenever moneys are to be applied pursuant to this Article XI, irrespective of and whether other remedies authorized under this Indenture shall have been pursued in whole or in part, the Trustee may cause any or all of the assets of the Trust Estate, including Investment Securities, to be sold. The Trustee may so sell the assets of the Trust Estate and all right, title, interest, claim and demand thereto and the right of redemption thereof, in one or more parts, at any such place or places, and at such time or times and upon such notice and terms as the Trustee may deem appropriate and as may be required by law and apply the proceeds thereof in accordance with the provisions of this Section. Upon such sale, the Trustee may make and deliver to the purchaser or purchasers a good and sufficient assignment or conveyance for the same, which sale shall be a perpetual bar both at law and in equity against the Town, and all other Persons claiming such properties. No purchaser at any sale shall be bound to see to the application of the purchase money proceeds thereof or to inquire as to the authorization, necessity, expediency, or regularity of any such sale. Nevertheless, if so requested by the Trustee, the Town shall ratify and confirm any sale or sales by executing and delivering to the Trustee or to such purchaser or purchasers all such instruments as may be necessary or, in the judgment of the Trustee, proper for the purpose which may be designated in such request.

Section 11.3. Restriction on Owner’s Action.

(a) No Owner shall have any right to institute any action, suit or proceeding at law or in equity for the enforcement of this Indenture or for the execution of any trust thereof or any other remedy hereunder, unless (i) a default has occurred and is continuing of which the Trustee has been notified in writing, (ii) such default has become an Event of Default and the Owners of 25% of the aggregate principal amount of the Bonds then Outstanding have made written request to the Trustee and offered it reasonable opportunity either to proceed to

Appendix A-49


exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name, (iii) the Owners have furnished to the Trustee indemnity as provided in Section 9.2 herein, (iv) the Trustee has for 60 days after such notice failed or refused to exercise the powers hereinbefore granted, or to institute such action, suit, or proceeding in its own name, (v) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Owners of a majority of the aggregate principal amount of the Bonds then Outstanding, and (vi) notice of such action, suit, or proceeding is given to the Trustee; however, no one or more Owners of the Bonds shall have any right in any manner whatsoever to affect, disturb, or prejudice this Indenture by its, his or their action or to enforce any right hereunder except in the manner provided herein, and that all proceedings at law or in equity shall be instituted and maintained in the manner provided herein and for the equal benefit of the Owners of all Bonds then Outstanding. The notification, request and furnishing of indemnity set forth above shall, at the option of the Trustee, be conditions precedent to the execution of the powers and trusts of this Indenture and to any action or cause of action for the enforcement of this Indenture or for any other remedy hereunder.

(b) Subject to Article VIII, nothing in this Indenture shall affect or impair the right of any Owner to enforce, by action at law, payment of any Bond at and after the maturity thereof, or on the date fixed for redemption or the obligation of the Town to pay each Bond issued hereunder to the respective Owners thereof at the time and place, from the source and in the manner expressed herein and in the Bonds.

(c) In case the Trustee or any Owners shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or any Owners, then and in every such case the Town, the Trustee and the Owners shall be restored to their former positions and rights hereunder, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken.

Section 11.4. Application of Revenues and Other Moneys After Default.

(a) All moneys, securities, funds and Pledged Revenues and the income therefrom received by the Trustee pursuant to any right given or action taken under the provisions of this Article shall, after payment of the cost and expenses of the proceedings resulting in the collection of such amounts, the expenses (including its counsel), liabilities, and advances incurred or made by the Trustee and the fees of the Trustee in carrying out this Indenture, during the continuance of an Event of Default, the Trustee, on behalf of the Town, notwithstanding Section 11.2 hereof, be applied by the Trustee to the payment of interest and principal or Redemption Price then due on Bonds, as follows:

FIRST: To the payment to the Owners entitled thereto all installments of interest then due in the direct order of maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment, then to the payment thereof ratably, according to the amounts due on such installment, to the Owners entitled thereto, without any discrimination or preference; and

SECOND: To the payment to the Owners entitled thereto of the unpaid principal of Outstanding Bonds, or Redemption Price of any Bonds which shall have become due, whether at maturity or by call for redemption, in the direct order of their due dates and, if the amounts available shall not be sufficient to pay in full all the Bonds due on any date, then to the payment thereof ratably, according to

Appendix A-50


the amounts of principal due and to the Owners entitled thereto, without any discrimination or preference.

Within ten (10) days of receipt of such good and available funds, the Trustee may fix a record and payment date for any payment to be made to Owners pursuant to this Section 11.4.

(b) In the event funds are not adequate to cure any of the Events of Default described in Section 11.1, the available funds shall be allocated to the Bonds that are Outstanding in proportion to the quantity of Bonds that are currently due and in default under the terms of this Indenture.

(c) The restoration of the Town to its prior position after any and all defaults have been cured, as provided in Section 11.3, shall not extend to or affect any subsequent default under this Indenture or impair any right consequent thereon.

Section 11.5. Effect of Waiver.

(a) No delay or omission of the Trustee, or any Owner, to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by this Indenture to the Trustee or the Owners, respectively, may be exercised from time to time and as often as may be deemed expedient.

Section 11.6. Evidence of Ownership of Bonds.

(a) Any request, consent, revocation of consent or other instrument which this Indenture may require or permit to be signed and executed by the Owners of Bonds may be in one or more instruments of similar tenor, and shall be signed or executed by such Owners in person or by their attorneys duly appointed in writing. Proof of the execution of any such instrument, or of any instrument appointing any such attorney, or the holding by any Person of the Bonds shall be sufficient for any purpose of this Indenture (except as otherwise herein expressly provided) if made in the following manner:

(i) The fact and date of the execution of such instruments by any Owner of Bonds or the duly appointed attorney authorized to act on behalf of such Owner may be provided by a guarantee of the signature thereon by a bank or trust company or by the certificate of any notary public or other officer authorized to take acknowledgments of deeds, that the Person signing such request or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. Where such execution is by an officer of a corporation or association or a member of a partnership, on behalf of such corporation, association or partnership, such signature guarantee, certificate, or affidavit shall also constitute sufficient proof of his authority.

(ii) The ownership of Bonds and the amount, numbers and other identification and date of holding the same shall be proved by the Register.

(b) Except as otherwise provided in this Indenture with respect to revocation of a consent, any request or consent by an Owner of Bonds shall bind all future Owners of the same Bond in respect of anything done or suffered to be done by the Town or the Trustee in accordance therewith.

Appendix A-51


Section 11.7. No Acceleration.

In the event of the occurrence of an Event of Default under Section 11.1 hereof, the right of acceleration of any Stated Maturity is not granted as a remedy hereunder and the right of acceleration under this Indenture is expressly denied.

Section 11.8. Mailing of Notice.

Any provision in this Article for the mailing of a notice or other document to Owners shall be fully complied with if it is mailed, first class postage prepaid, only to each Owner at the address appearing upon the Register.

Section 11.9. Exclusion of Bonds.

Bonds owned or held by or for the account of the Town will not be deemed Outstanding for the purpose of consent or other action or any calculation of Outstanding Bonds provided for in this Indenture, and the Town shall not be entitled with respect to such Bonds to give any consent or take any other action provided for in this Indenture.

ARTICLE XII

GENERAL COVENANTS AND REPRESENTATIONS

Section 12.1. Representations as to Pledged Revenues.

(a) The Town represents and warrants that it is authorized by Applicable Laws to authorize and issue the Bonds, to execute and deliver this Indenture and to pledge the Pledged Revenues in the manner and to the extent provided in this Indenture, and that the Pledged Revenues are and will be and remain free and clear of any pledge, lien, charge, or encumbrance thereon or with respect thereto prior to, or of equal rank with, the pledge and lien created in or authorized by this Indenture except as expressly provided herein.

(b) The Town shall at all times, to the extent permitted by Applicable Laws, defend, preserve and protect the pledge of the Pledged Revenues and all the rights of the Owners and the Trustee, under this Indenture against all claims and demands of all Persons whomsoever.

(c) The Town will take all steps reasonably necessary and appropriate, and will direct the Trustee to take all steps reasonably necessary and appropriate, to collect all delinquencies in the collection of the Assessments and any other amounts pledged to the payment of the Bonds to the fullest extent permitted by the Act and other Applicable Laws.

(d) To the extent permitted by law, notice of the Annual Installments shall be sent by, or on behalf of the Town, to the affected property owners on the same statement or such other mechanism that is used by the Town, so that such Annual Installments are collected simultaneously with ad valorem taxes and shall be subject to the same penalties, procedures, and foreclosure sale in case of delinquencies as are provided for ad valorem taxes of the Town.

Appendix A-52


Section 12.2. Accounts, Periodic Reports and Certificates.

The Trustee shall keep or cause to be kept proper books of record and account (separate from all other records and accounts) in which complete and correct entries shall be made of its transactions relating to the Funds and Accounts established by this Indenture and which shall at all times be subject to inspection by the Town, and the Owner or Owners of not less than 10% in principal amount of any Bonds then Outstanding or their representatives duly authorized in writing.

Section 12.3. General.

The Town shall do and perform or cause to be done and performed all acts and things required to be done or performed by or on behalf of the Town under the provisions of this Indenture.

ARTICLE XIII

SPECIAL COVENANTS

Section 13.1. Further Assurances; Due Performance.

(a) At any and all times the Town will duly execute, acknowledge and deliver, or will cause to be done, executed and delivered, all and every such further acts, conveyances, transfers, and assurances in a manner as the Trustee shall reasonably require for better conveying, transferring, pledging, and confirming unto the Trustee, all and singular, the revenues, Funds, Accounts and properties constituting the Pledged Revenues, and the Trust Estate hereby transferred and pledged, or intended so to be transferred and pledged.

(b) The Town will duly and punctually keep, observe and perform each and every term, covenant and condition on its part to be kept, observed and performed, contained in this Indenture.

Section 13.2. Other Obligations or Other Liens; Additional Obligations.

(a) The Town reserves the right, subject to the provisions contained in this Section 13.2, to issue Additional Obligations under other indentures, assessment ordinances, or similar agreements or other obligations which do not constitute or create a lien on the Trust Estate and are not payable from Pledged Revenues.

(b) The Town will not create or voluntarily permit to be created any debt, lien or charge on the Trust Estate, and, will not do or omit to do or suffer to be or omitted to be done any matter or things whatsoever whereby the lien of this Indenture or the priority hereof might or could be lost or impaired; and further covenants that it will pay or cause to be paid or will make adequate provisions for the satisfaction and discharge of all lawful claims and demands which if unpaid might by law be given precedence over or any equality with this Indenture as a lien or charge upon the Pledged Revenues or Pledged Funds; provided, however, that nothing in this Section shall require the Town to apply, discharge, or make provision for any such lien, charge, claim, or demand so long as the validity thereof shall be contested by it in good faith, unless thereby, in the opinion of Bond Counsel or counsel to the Trustee, the same would endanger the security for the Bonds.

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(c) Although the Additional Obligations will not be secured by the Trust Estate, the Town reserves the right to issue Additional Obligations for any purpose permitted by the Act upon receipt by the Landowner that:

(i) at least eighty percent (80%) of the residential lots within the particular Phase for which the Additional Obligations are being issued are under contract with unrelated merchant homebuilders;

(ii) based on an independent appraisal, the ratio of the appraised value of all property within the Phase for which such Additional Obligations are being issued to the principal amount of the Additional Obligations is at least 3:1;

(iii) construction contracts for at least 75% of the costs of the Authorized Improvements to be paid with proceeds of the Additional Obligations being issued have been executed and are ready to proceed; and

(iv) construction of residences in all previously financed Phases, taken as a whole, are at least fifty percent (50%) complete.

Section 13.3. Books of Record.

(a) The Town shall cause to be kept full and proper books of record and accounts, in which full, true and proper entries will be made of all dealing, business and affairs of the Town, which relate to the Pledged Revenues, the Pledged Funds, and the Bonds.

(b) The Trustee shall have no responsibility with respect to the financial and other information received by it pursuant to this Section 13.3 except to receive and retain same, subject to the Trustee’s document retention policies, and to distribute the same in accordance with the provisions of this Indenture. Specifically, but without limitation, the Trustee shall have no duty to review such information, is not considered to have notice of the contents of such information or a default based on such contents, and has no duty to verify the accuracy of such information.

ARTICLE XIV

PAYMENT AND CANCELLATION OF THE BONDS AND SATISFACTION OF THE INDENTURE

Section 14.1. Trust Irrevocable.

The trust created by the terms and provisions of this Indenture is irrevocable until the Bonds secured hereby are fully paid or provision is made for their payment as provided in this Article.

Section 14.2. Satisfaction of Indenture.

If the Town shall pay or cause to be paid, or there shall otherwise be paid to the Owners, principal of and interest on all of the Bonds, at the times and in the manner stipulated in this Indenture, and all amounts due and owing with respect to the Bonds have been paid or provided for, then the pledge of the Trust Estate and all covenants, agreements, and other obligations of the Town to the Owners of such Bonds, shall thereupon cease, terminate, and become void and

Appendix A-54


be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Town copies of all such documents as it may have evidencing that principal of and interest on all of the Bonds has been paid so that the Town may determine if the Indenture is satisfied; if so, the Trustee shall pay over or deliver all moneys held by it in the in Funds and Accounts held hereunder to the Person entitled to receive such amounts, or, if no Person is entitled to receive such amounts, then to the Town.

Section 14.3. Bonds Deemed Paid.

All Outstanding Bonds shall prior to the Stated Maturity or redemption date thereof be deemed to have been paid and to no longer be deemed Outstanding if (i) in case any such Bonds are to be redeemed on any date prior to their Stated Maturity, the Trustee shall have given notice of redemption on said date as provided herein, (ii) there shall have been deposited with the Trustee either moneys in an amount which shall be sufficient, or Defeasance Securities the principal of and the interest on which when due will provide moneys which, together with any moneys deposited with the Trustee at the same time, shall be sufficient to pay when due the principal of and interest on of the Bonds to become due on such Bonds on and prior to the redemption date or maturity date thereof, as the case may be, (iii) the Trustee shall have received a report by an independent certified public accountant selected by the Town verifying the sufficiency of the moneys or Defeasance Securities deposited with the Trustee to pay when due the principal of and interest on of the Bonds to become due on such Bonds on and prior to the redemption date or maturity date thereof, as the case may be, and (iv) if the Bonds are then rated, the Trustee shall have received written confirmation from each rating agency that such deposit will not result in the reduction or withdrawal of the rating on the Bonds. Neither Defeasance Securities nor moneys deposited with the Trustee pursuant to this Section nor principal or interest payments on any such Defeasance Securities shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of and interest on the Bonds. Any cash received from such principal of and interest on such Defeasance Securities deposited with the Trustee, if not then needed for such purpose, shall, be reinvested in Defeasance Securities as directed in writing by the Town maturing at times and in amounts sufficient to pay when due the principal of and interest on the Bonds on and prior to such redemption date or maturity date thereof, as the case may be. Any payment for Defeasance Securities purchased for the purpose of reinvesting cash as aforesaid shall be made only against delivery of such Defeasance Securities.

ARTICLE XV

MISCELLANEOUS

Section 15.1. Benefits of Indenture Limited to Parties.

Nothing in this Indenture, expressed or implied, is intended to give to any Person other than the Town, the Trustee and the Owners, any right, remedy, or claim under or by reason of this Indenture. Any covenants, stipulations, promises or agreements in this Indenture by and on behalf of the Town shall be for the sole and exclusive benefit of the Owners and the Trustee.

Section 15.2. Successor is Deemed Included in All References to Predecessor.

Whenever in this Indenture or any Supplemental Indenture either the Town or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on

Appendix A-55


behalf of the Town or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not.

Section 15.3. Execution of Documents and Proof of Ownership by Owners.

Any request, declaration, or other instrument which this Indenture may require or permit to be executed by Owners may be in one or more instruments of similar tenor, and shall be executed by Owners in person or by their attorneys duly appointed in writing.

Except as otherwise herein expressly provided, the fact and date of the execution by any Owner or his attorney of such request, declaration, or other instrument, or of such writing appointing such attorney, may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which he purports to act, that the Person signing such request, declaration, or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer.

Except as otherwise herein expressly provided, the ownership of registered Bonds and the amount, maturity, number, and date of holding the same shall be proved by the Register.

Any request, declaration or other instrument or writing of the Owner of any Bond shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the Town or the Trustee in good faith and in accordance therewith.

Section 15.4. Waiver of Personal Liability.

No member, officer, agent, or employee of the Town shall be individually or personally liable for the payment of the principal of, or interest or any premium on, the Bonds; but nothing herein contained shall relieve any such member, officer, agent, or employee from the performance of any official duty provided by law.

Section 15.5. Notices to and Demands on Town and Trustee.

(a) Except as otherwise expressly provided in this Indenture, all notices or other instruments required or permitted under this Indenture, including any Town Certificate or Town Order, shall be in writing and shall be telexed, cabled, delivered by hand, mailed by first class mail, postage prepaid, or transmitted by facsimile or e-mail and addressed as follows:

If to the Town: Town of Little Elm, Texas 100 W. Eldorado Parkway Little Elm, Texas 75068 Attn: Finance Director

If to the Trustee or the Paying Agent/Registrar: The Bank of New York Mellon Trust Company, N.A.

2001 Bryan Street, 11th Floor Dallas, TX 75201 Attn: Michael Herberger

Any such notice, demand, or request may also be transmitted to the appropriate party by

telegram or telephone and shall be deemed to be properly given or made at the time of such

Appendix A-56


transmission if, and only if, such transmission of notice shall be confirmed in writing and sent as specified above.

Any of such addresses may be changed at any time upon written notice of such change given to the other party by the party effecting the change. Notices and consents given by mail in accordance with this Section shall be deemed to have been given five Business Days after the date of dispatch; notices and consents given by any other means shall be deemed to have been given when received.

(b) The Trustee shall mail to each Owner of a Bond notice of (i) any substitution of the Trustee; or (ii) the redemption or defeasance of all Bonds Outstanding.

(c) The Trustee agrees to accept and act upon instructions or directions pursuant to the Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that the Town shall provide to the Trustee an incumbency certificate listing designated persons authorized to provide such instructions, which incumbency certificate shall be amended whenever a person is to be added or deleted from the listing. If the Town elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Town agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk or interception and misuse by third parties.

Section 15.6. Partial Invalidity.

If any Section, paragraph, sentence, clause, or phrase of this Indenture shall for any reason be held illegal or unenforceable, such holding shall not affect the validity of the remaining portions of this Indenture. The Town hereby declares that it would have adopted this Indenture and each and every other Section, paragraph, sentence, clause, or phrase hereof and authorized the issue of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses, or phrases of this Indenture may be held illegal, invalid, or unenforceable.

Section 15.7. Applicable Laws.

This Indenture shall be governed by and enforced in accordance with the laws of the State of Texas applicable to contracts made and performed in the State of Texas.

Section 15.8. Payment on Business Day.

In any case where the date of the maturity of interest or of principal (and premium, if any) of the Bonds or the date fixed for redemption of any Bonds or the date any action is to be taken pursuant to this Indenture is other than a Business Day, the payment of interest or principal (and premium, if any) or the action need not be made on such date but may be made on the next succeeding day that is a Business Day with the same force and effect as if made on the date required and no interest shall accrue for the period from and after such date.

Appendix A-57


Section 15.9. Counterparts.

This Indenture may be executed in counterparts, each of which shall be deemed an original.

[remainder of page left blank intentionally]

Appendix A-58

57454967.9/11313004

IN WITNESS WHEREOF, the Town and the Trustee have caused this Indenture of Trust to be executed all as of the date hereof.

TOWN OF LITTLE ELM, TEXAS

By: _____________________________, DAVID HILLOCK, Mayor

Attest:

________________________________ KATHY PHILLIPS, Town Secretary

[TOWN SEAL]

Approved as to Form:

_________________________________ ROBERT BROWN, Town Attorney

THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee

By: _______________________________ Authorized Officer

Signature Page to Indenture of Trust relating to

TOWN OF LITTLE ELM, TEXAS, SPECIAL ASSESSMENT REVENUE BONDS, SERIES 2014

(VALENCIA PUBLIC IMPROVEMENT DISTRICT PHASES #2 – 5 MAJOR IMPROVEMENT PROJECT)

Appendix A-59

57454967.9/11313004 A-1

EXHIBIT A (a) Form of Bond.

NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF TEXAS, THE TOWN, OR ANY OTHER POLITICAL CORPORATION, SUBDIVISION OR AGENCY THEREOF, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THIS BOND.

REGISTERED REGISTERED

No. ______ $_____________

United States of America State of Texas

TOWN OF LITTLE ELM, TEXAS SPECIAL ASSESSMENT REVENUE BOND, SERIES 2014

(VALENCIA PUBLIC IMPROVEMENT DISTRICT PHASES #2 – 5 MAJOR IMPROVEMENT AREA PROJECT)

INTEREST RATE MATURITY DATE DATE OF DELIVERY CUSIP NUMBER

______% __________ ___________ ___________

The Town of Little Elm, Texas (the “Town”), for value received, hereby promises to pay, solely from the Pledged Revenues, to

_____________________________________

or registered assigns, on the Maturity Date, as specified above, the sum of

_____________________________ DOLLARS

unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provision for such payment shall have been made, and to pay interest on the unpaid principal amount hereof from the later of the Date of Delivery, as specified above, or the most recent Interest Payment Date to which interest has been paid or provided for until such principal amount shall have been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a 360-day year of twelve 30-day months, such interest to be paid semiannually on March 1 and September 1 of each year, commencing September 1, 2014, until maturity or prior redemption.

Capitalized terms appearing herein that are defined terms in the Indenture defined below, have the meanings assigned to them in the Indenture. Reference is made to the Indenture for such definitions and for all other purposes.

The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in East Syracuse, New York (the “Designated Payment/Transfer Office”), of The Bank of New York Mellon Trust Company, National Association, Dallas, Texas, as trustee and paying agent/registrar (the “Trustee”, which term includes any successor trustee under the Indenture), or, with respect to a successor trustee and paying agent/registrar, at the

Appendix A-60

Indenture of Trust 57454967.9/11313004 A-2

Designated Payment/Transfer Office of such successor. Interest on this Bond is payable by check dated as of the Interest Payment Date, mailed by the Trustee to the registered owner at the address shown on the registration books kept by the Trustee or by such other customary banking arrangements acceptable to the Trustee, requested by, and at the risk and expense of, the Person to whom interest is to be paid. For the purpose of the payment of interest on this Bond, the registered owner shall be the Person in whose name this Bond is registered at the close of business on the “Record Date,” which shall be the fifteenth day of the month next preceding such Interest Payment Date; provided, however, that in the event of nonpayment of interest on a scheduled Interest Payment Date, and for 30 days thereafter, a new record date for such interest payment (a “Special Record Date”) will be established by the Trustee, if and when funds for the payment of such interest have been received from the Town. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the “Special Payment Date,” which shall be 15 days after the Special Record Date) shall be sent at least five Business Days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Owner of a Bond appearing on the books of the Trustee at the close of business on the last Business Day preceding the date of mailing such notice.

If a date for the payment of the principal of or interest on the Bonds is a Saturday, Sunday, legal holiday, or a day on which banking institutions in the city in which the Designated Payment/Transfer Office is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding Business Day, and payment on such date shall have the same force and effect as if made on the original date payment was due.

This Bond is one of a duly authorized issue of assessment revenue bonds of the Town having the designation specified in its title (herein referred to as the “Bonds”), dated February 1, 2014 and issued in the aggregate principal amount of $12,240,000 and issued, with the limitations described herein, pursuant to an Indenture of Trust, dated as of February 1, 2014 (the “Indenture”), by and between the Town and the Trustee, to which Indenture reference is hereby made for a description of the amounts thereby pledged and assigned, the nature and extent of the lien and security, the respective rights thereunder to the holders of the Bonds, the Trustee, and the Town, and the terms upon which the Bonds are, and are to be, authenticated and delivered and by this reference to the terms of which each holder of this Bond hereby consents. All Bonds issued under the Indenture are equally and ratably secured by the amounts thereby pledged and assigned. The Bonds are being issued for the purpose of (i) paying a portion of the Costs of the Major Improvement Projects, (ii) paying a portion of the interest on the Bonds during and after the period of acquisition and construction of the Major Improvement Projects, (iii) funding a reserve fund for payment of principal and interest on Bonds, (iv) paying a portion of the costs incidental to the organization of the District, and (v) paying the costs of issuing the Bonds.

The Bonds are limited obligations of the Town payable solely from the Pledged Revenues as defined in the Indenture. Reference is hereby made to the Indenture, copies of which are on file with and available upon request from the Trustee, for the provisions, among others, with respect to the nature and extent of the duties and obligations of the Town, the Trustee and the Owners. The Owner of this Bond, by the acceptance hereof, is deemed to have agreed and consented to the terms, conditions and provisions of the Indenture.

Notwithstanding any provision hereof, the Indenture may be released and the obligation of the Town to make money available to pay this Bond may be defeased by the deposit of money and/or certain direct or indirect Defeasance Securities sufficient for such purpose as described in the Indenture.

Appendix A-61


The Bonds are issuable as fully registered bonds only in Authorized Denominations, subject to the provisions of the Indenture authorizing redemption in denominations of $100,000 and any multiple of $5,000 in excess thereof.

The Bonds maturing on September 1 in each of the years 2021, 2024, and 2027 are subject to sinking fund redemption prior to their respective maturities and will be redeemed by the Town in part at a price equal to the principal amount thereof plus accrued and unpaid interest thereon to the date set for redemption from moneys available for such purpose in the Redemption Fund pursuant to Article VI of the Indenture, on the dates and in the principal amounts as set forth in the following schedule:

Term Bonds Maturing September 1, 2021

Redemption Date Principal Amount September 1, 2016 $ 535,000 September 1, 2017 590,000 September 1, 2018 640,000 September 1, 2019 700,000 September 1, 2020 760,000 September 1, 2021 (maturity) 830,000

Term Bonds Maturing September 1, 2024 Term Bonds Maturing September 1, 2027

Redemption Date Principal Amount Redemption Date Principal Amount September 1, 2022 $ 900,000 September 1, 2025 $ 1,155,000 September 1, 2023 980,000 September 1, 2026 1,250,000 September 1, 2024 (maturity) 1,065,000 September 1, 2027 (maturity) 1,360,000

At least forty-five (45) days prior to each sinking fund redemption date, the Trustee shall select for redemption by lot, or by any other customary method that results in a random selection, a principal amount of Bonds of such maturity equal to the sinking fund installments of such Bonds to be redeemed, shall call such Bonds for redemption on such scheduled mandatory sinking fund redemption date, and shall give notice of such redemption, as provided in Section 4.6 of the Indenture.

The principal amount of Bonds required to be redeemed on any sinking fund redemption date shall be reduced, at the option of the Town, by the principal amount of any Bonds of such maturity which, at least 45 days prior to the sinking fund redemption date (i) shall have been acquired by the Town at a price not exceeding the principal amount of such Bonds plus accrued and unpaid interest to the date of purchase thereof, and delivered to the Trustee for cancellation, or (ii) shall have been redeemed pursuant to the optional redemption or extraordinary optional redemption and not previously credited to a sinking fund redemption.

The Town reserves the right and option to redeem Term Bonds maturing September 1, 2021 before their scheduled maturity date, in whole or in part, on any Interest Payment Date on or after March 1, 2016, such redemption date or dates to be fixed by the Town, at the Redemption Prices shown below, plus accrued interest to the date of redemption.



Appendix A-62


The Town reserves the right and option to redeem Term Bonds maturing September 1, 2024 before their scheduled maturity date, in whole or in part, on any Interest Payment Date on or after March 1, 2017, such redemption date or dates to be fixed by the Town, at the Redemption Prices shown below, plus accrued interest to the date of redemption.



The Town reserves the right and option to redeem Term Bonds maturing September 1,

2027 before their scheduled maturity date, in whole or in part, on any Interest Payment Date on or after March 1, 2018, such redemption date or dates to be fixed by the Town, at the Redemption Prices shown below, plus accrued interest to the date of redemption.



The Town reserves the right and option to redeem the Bonds maturing September 1,

2028 before their scheduled maturity date, in whole or in part, on any Interest Payment Date on or after March 1, 2020, such redemption date or dates to be fixed by the Town, at the Redemption Prices shown below, plus accrued interest to the date of redemption.



Bonds are subject to extraordinary optional redemption prior to maturity in whole or in

part, on the first day of any month, at a Redemption Price equal to the principal amount of the Bonds called for redemption, plus accrued and unpaid interest to the date fixed for redemption from amounts on deposit in the Redemption Fund as a result of Prepayments.

The Trustee shall give notice of any redemption of Bonds by sending notice by first class United States mail, postage prepaid, not less than 30 days before the date fixed for redemption, to the Owner of each Bond (or part thereof) to be redeemed, at the address shown on the Register. The notice shall state the redemption date, the Redemption Price, the place at which the Bonds are to be surrendered for payment, and, if less than all the Bonds Outstanding are to be redeemed, an identification of the Bonds or portions thereof to be redeemed. Any notice so given shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Town and the rights of the holders of the Bonds under the Indenture at any time Outstanding affected by such modification. The Indenture also contains provisions permitting the holders of specified percentages in

Appendix A-63


aggregate principal amount of the Bonds at the time Outstanding, on behalf of the holders of all the Bonds, to waive compliance by the Town with certain past defaults under the Bond Ordinance or the Indenture and their consequences. Any such consent or waiver by the holder of this Bond or any predecessor Bond evidencing the same debt shall be conclusive and binding upon such holder and upon all future holders thereof and of any Bond issued upon the transfer thereof or in exchange therefor or in lieu thereof, whether or not notation of such consent or waiver is made upon this Bond.

As provided in the Indenture, this Bond is transferable upon surrender of this Bond for transfer at the Designated Payment/Transfer Office, with such endorsement or other evidence of transfer as is acceptable to the Trustee, and upon delivery to the Trustee of such certifications and/or opinion of counsel as may be required under the Indenture for the transfer of this Bond. Upon satisfaction of such requirements, one or more new fully registered Bonds of the same Stated Maturity, of Authorized Denominations, bearing the same rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees.

Neither the Town nor the Trustee shall be required to issue, transfer or exchange any Bond called for redemption where such redemption is scheduled to occur within 45 calendar days of the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the registered owner of the uncalled principal balance of a Bond.

The Town, the Trustee, and any other Person may treat the Person in whose name this Bond is registered as the owner hereof for the purpose of receiving payment as herein provided (except interest shall be paid to the Person in whose name this Bond is registered on the Record Date or Special Record Date, as applicable) and for all other purposes, whether or not this Bond be overdue, and neither the Town nor the Trustee shall be affected by notice to the contrary.

The Town has reserved the right to issue Additional Obligations on the terms and conditions specified in the Indenture.

NEITHER THE FULL FAITH AND CREDIT NOR THE GENERAL TAXING POWER OF THE TOWN OF LITTLE ELM, TEXAS, DENTON COUNTY, TEXAS OR THE STATE OF TEXAS, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS.

IT IS HEREBY CERTIFIED AND RECITED that the issuance of this Bond and the series of which it is a part is duly authorized by law; that all acts, conditions and things required to be done precedent to and in the issuance of the Bonds have been properly done and performed and have happened in regular and due time, form and manner, as required by law; and that the total indebtedness of the Town, including the Bonds, does not exceed any Constitutional or statutory limitation.

IN WITNESS WHEREOF, the Town Council of the Town has caused this Bond to be executed under the official seal of the Town.

________________________________ Mayor, Town of Little Elm, Texas

________________________________ Town Secretary, Town of Little Elm, Texas

[Town Seal]

Appendix A-64


(b) Form of Comptroller’s Registration Certificate.

The following Registration Certificate of Comptroller of Public Accounts shall appear on the Initial Bond:

REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLIC ACCOUNTS

OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS § REGISTER NO.__________________ § THE STATE OF TEXAS §

I HEREBY CERTIFY THAT there is on file and of record in my office a certificate to the effect that the Attorney General of the State of Texas has approved this Bond, and that this Bond has been registered this day by me.

WITNESS MY SIGNATURE AND SEAL OF OFFICE this _____________________

__________________________________ Comptroller of Public Accounts of the State of Texas

[SEAL]

(c) Form of Certificate of Trustee.

CERTIFICATE OF TRUSTEE

It is hereby certified that this is one of the Bonds of the series of Bonds referred to in the within mentioned Indenture.

THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee

DATED: ___________________

By:__________________________ Authorized Signatory

(d) Form of Assignment.

ASSIGNMENT

Appendix A-65


FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto (print or typewrite name, address and zip code of transferee): __________________________________________________________________________ __________________________________________________________________________ _________________________________________________________________________

(Social Security or other identifying number: ______________________) the within Bond and all rights hereunder and hereby irrevocably constitutes and appoints _______________________ attorney to transfer the within Bond on the books kept for registration hereof, with full power of substitution in the premises.

Date: ________________ ______________________________________

Signature Guaranteed By: NOTICE: The signature on this Assignment must correspond with the name of the registered owner as it appears on the face of the within Bond in every particular and must be guaranteed in a manner acceptable to the Trustee.

_______________________________ _______________________________

Authorized Signatory

(e) The Initial Bond shall be in the form set forth in paragraphs (a) through (d) of this Exhibit A, except for the following alterations:

(i) immediately under the name of the Bond the heading “INTEREST RATE” and “MATURITY DATE” shall both be completed with the expression “As Shown Below,” and the reference to the “CUSIP NUMBER” shall be deleted;

(ii) in the first paragraph of the Bond, the words “on the Maturity Date specified above” shall be deleted and the following will be inserted: “on September 1 in each of the years, in the principal installments and bearing interest at the per annum rates set forth in the following schedule:

Years Principal Installments Interest Rates”

(Information to be inserted from Section 3.2(c) hereof); and

(iii) the Initial Bond shall be numbered T-1.

Appendix A-66

HOU:3384108.15

APPENDIX B

SERVICE AND ASSESSMENT PLAN

HOU:3384108.15

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

VALENCIA

PUBLIC IMPROVEMENT DISTRICT


February 13, 2014

MuniCap v 2.7.3

Appendix B-1

VALENCIA

PUBLIC IMPROVEMENT DISTRICT


Table of Contents

Section I Plan Description and Defined Terms 1 Section II Property Included in the PID 10 Section III Description of Authorized Improvements 12 Section IV Service Plan 18 Section V Assessment Plan 22 Section VI Terms of the Assessments 32 Section VII Assessment Roll 37 Section VIII Miscellaneous Provisions 39

List of Appendix

Appendix A The PID Map

Appendix B Estimated Costs of the Authorized Improvements

Appendix C Diagrams of the Authorized Improvements

Appendix D Lot Types and Equivalent Units

Appendix E Allocation of Assessments

Appendix F Phase #2–5 Major Improvement Assessment Roll

Appendix G Phase #1 Assessment Roll

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Appendix B-2

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Section I PLAN DESCRIPTION AND DEFINED TERMS

A. Introduction

On September 17, 2013, (the “Creation Date”) the Town Council (the "Town Council") of the Town Little Elm, Texas (the "Town") passed and approved Resolution No. 09171301 approving and authorizing the creation of the Valencia Public Improvement District (the “PID”) to finance the costs of certain public improvements for the benefit of property in the PID, all of which is located within the extraterritorial jurisdiction of the Town of Little Elm. The property in the PID is proposed to be developed in approximately five phases, and the PID will finance public improvements for each phase as each phase is developed. Assessments will be imposed on the all property in the PID for the public improvements that benefit the entire PID and on the property in each phase for the public improvements to be provided for that phase. Chapter 372 of the Texas Local Government Code, the "Public Improvement Assessment Act” (as amended, the “PID Act”), governs the creation and operation of public improvement districts within the State of Texas. This Valencia Public Improvement District Service and Assessment Plan (the "Service and Assessment Plan") has been prepared in accordance with the PID Act and specifically Sections 372.013, 372.014, 372.015 and 372.016, which address the requirements of a service and assessment plan and the assessment roll. According to Section 372.013 of the PID Act, a service plan “must cover a period of at least five years and must also define the annual indebtedness and the projected costs for improvements. The plan shall be reviewed and updated annually for the purpose of determining the annual budget for improvements.” The service plan is described in Section IV of this Service and Assessment Plan. Section 372.014 of the PID Act requires that “an assessment plan must be included in the annual service plan.” The assessment plan is described in Section V of this Service and Assessment Plan. Section 372.015 of the PID Act requires that “the governing body of the municipality or county shall apportion the cost of an improvement to be assessed against property in an improvement district.” The method of assessing the Authorized Improvement Costs and apportionment of such costs to the property in the PID is included in Section V of this Service and Assessment Plan. Section 372.016 of the PID Act requires that “after the total cost of an improvement is determined, the governing body of the municipality or county shall prepare a proposed assessment roll. The roll must state the assessment against each parcel of land in the district, as determined by the method of assessment chosen by the municipality or county under this subchapter.” The Assessment Rolls for the PID are included as Appendix F and G of this Service and Assessment Plan. The Assessments as shown on the Assessment Roll are based on the method of assessment and apportionment of costs described in Section V of this Service and Assessment Plan.

Appendix B-3

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B. Definitions Capitalized terms used herein shall have the meanings ascribed to them as follows:

“Actual Cost(s)” means, with respect to an Authorized Improvement, the demonstrated, reasonable, allocable, and allowable costs of constructing such Authorized Improvement, as specified in a Certification for Payment that has been reviewed and approved by the Town. Actual Cost may include (a) the costs for the design, planning, financing, administration, management, acquisition, installation, construction and/or implementation of such Authorized Improvement, including general contractor construction management fees, if any, (b) the costs of preparing the construction plans for such Authorized Improvement, (c) the fees paid for obtaining permits, licenses or other governmental approvals for such Authorized Improvement, (d) the costs for external professional costs associated with such Authorized Improvement, such as engineering, geotechnical, surveying, land planning, architectural landscapers, advertising, marketing and research studies, appraisals, legal, accounting and similar professional services, taxes (property and franchise) (e) the costs of all labor, bonds and materials, including equipment and fixtures, incurred by contractors, builders and material men in connection with the acquisition, construction or implementation of the Authorized Improvements, (f) all related permitting, zoning and public approval expenses, architectural, engineering, legal, and consulting fees, financing charges, taxes, governmental fees and charges (including inspection fees, County permit fees, development fees), insurance premiums, miscellaneous expenses, and all advances and payments for Administrative Expenses. Actual Costs include general contractor’s fees in an amount up to a percentage equal to the percentage of work completed and accepted by the Town or construction management fees in an amount up to five percent of the eligible Actual Costs described in a Certification for Payment. The amounts expended on legal costs, taxes, governmental fees, insurance premiums, permits, financing costs, and appraisals shall be excluded from the base upon which the general contractor and construction management fees are calculated. Actual Costs also may be paid to the Developer or any other person or entity only in the capacity of construction manager or only in the capacity of general contractor but not both. “Administrator” means the employee or designee of the Town, identified in any indenture of trust relating to the Bonds or in any other agreement approved by the Town Council, who shall have the responsibilities provided for herein. “Administrative Expenses” mean the administrative, organization, maintenance and operation costs associated with, or incident to, the administration, organization, maintenance and operation of the PID, including, but not limited to, the costs of: (i) creating and organizing the PID, including conducting hearings, preparing notices and petitions, and all costs incident thereto, including engineering fees, legal fees and consultant fees, (ii) the annual administrative, organization, maintenance, and operation costs and expenses associated with, or incident and allocable to, the administration, organization, and operation of the PID, (iii) computing, levying, billing and collecting Assessments or the Annual Installments thereof, (iv) maintaining the record of installments of the Assessments and the system of registration and transfer of the Bonds, (v) paying and redeeming the Bonds, (vi) investing or depositing of monies, (vii) complying with the PID Act and codes with respect to the Bonds, (viii) the Trustee fees and expenses relating to the Bonds, including reasonable fees, (ix) legal counsel, engineers, accountants, financial advisors,

Appendix B-4

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investment bankers or other consultants and advisors, and (x) administering the construction of the Authorized Improvements. Administrative Expenses do not include payment of the actual principal of, redemption premium, if any, and interest on the Bonds. Administrative Expenses collected and not expended for actual Administrative Expenses shall be carried forward and applied to reduce Administrative Expenses in subsequent years to avoid the over-collection of Administrative Expenses. “Annual Installment” means, with respect to each Parcel, each annual payment of: (i) the Assessment, as shown on the Assessment Rolls attached hereto as Appendix F and Appendix G, as applicable, or in an Annual Service Plan Update, and calculated as provided in Section VI of this Service and Assessment Plan, (ii) Administrative Expenses, (iii) the prepayment reserve described in Section IV of this Service and Assessment Plan, and (iv) the delinquency reserve. “Annual Service Plan Update” has the meaning set forth in the second paragraph of Section IV of this Service and Assessment Plan. “Assessed Property” means the property that benefits from the Authorized Improvements to be provided by the PID on which Assessments have been imposed as shown in the Assessment Roll, as the Assessment Roll is updated each year by the Annual Service Plan Update. Assessed Property includes Parcels within the PID other than Non-Benefited Property. “Assessment” means an assessment levied against a Parcel imposed pursuant to an Assessment Ordinance and the provisions herein, as shown on any Assessment Roll, subject to reallocation upon the subdivision of such Parcel or reduction according to the provisions herein and the PID Act. “Assessment Ordinance” means an Assessment Ordinance adopted by the Town Council approving the Service and Assessment Plan (including amendments or supplements to the Service and Assessment Plan) and levying the Assessments. “Assessment Revenues” mean the revenues actually received by or on behalf of the Town from the collection of Assessments. “Assessment Roll” means, as applicable, the Phases #2 – 5 Assessment Roll, the Phase #1 Assessment Roll, an Assessment Roll for Phases #2 - 5 of development or any other Assessment Roll in an amendment or supplement to this Service and Assessment Plan or in an Annual Service Plan Update. “Authorized Improvements” mean those public improvements described in Appendix B of this Service and Assessment Plan and Section 372.003 of the PID Act, constructed and installed in accordance with this Service and Assessment Plan, and any future updates and/or amendments. “Authorized Improvement Costs” mean the actual or budgeted costs, as applicable, of all or any portion of the Authorized Improvements, as shown in Appendix B. “Bonds” mean any bonds issued by the Town in one or more series and secured in whole or in part by the Assessment Revenues.

“Certification for Payment” means the certificate to be provided by the Developer, or his

Appendix B-5

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designee, to substantiate the Actual Cost of one or more Authorized Improvements. “

“Delinquent Collection Costs” mean interest, penalties and expenses incurred or imposed with respect to any delinquent installment of an Assessment in accordance with the PID Act and the costs related to pursuing collection of a delinquent Assessment and foreclosing the lien against the Assessed Property, including attorney’s fees. “Developer” means Valencia on the Lake, L.P., a Texas limited partnership. “Equivalent Units” mean, as to any Parcel the number of dwelling units by lot type expected to be built on the Parcel multiplied by the factors calculated and shown in Appendix D attached hereto. “Future Phases” means Phases that are fully developed after Phase #1, as such areas are generally depicted in Appendix A. The Future Phases are subject to adjustment and are shown for example only. “Homeowner Association Property” means property within the boundaries of the PID that is owned by or irrevocably offered for dedication to, whether in fee simple or through an exclusive use easement, a home owners’ association. “Lot” means a tract of land described as a “lot” in a subdivision plat recorded in the official public records of Denton County, Texas. “Lot Type” means a classification of final building lots with similar characteristics (e.g. commercial, light industrial, multifamily residential, single family residential, etc.), as determined by the Administrator and confirmed by the Town Council. In the case of single family residential lots, the Lot Type shall be further defined by classifying the residential lots by the estimated final average home value for each lot as of the date of the recorded subdivision plat, considering factors such as density, lot size, proximity to amenities, view premiums, location, and any other factors that may impact the average home value on the lot, as determined by the Administrator and confirmed by the Town Council. “Lot type 1” means lots identified as such on the Assessment Roll, being lots with 12,000 square feet size and a minimum lot width of 100 feet measured at front building line, which may be referred to as such in the development standards. “Lot type 2” means lots identified as such on the Assessment Roll, being lots with 10,000 square feet size and a minimum lot width of 80 feet measured at front building line, which may be referred to as such in the development standards. “Lot type 3” means lots identified as such on the Assessment Roll, being lots with 7,200 square feet size and a minimum lot width of 60 feet measured at front building line, which may be referred to as such in the development standards. “Lot type 4” means lots identified as such on the Assessment Roll, being lots with 4,000 square feet size and a minimum lot width of 40 feet measured at front building line, which may be referred to as such in the development standards.

Appendix B-6

7

“Lot type 5” means lots identified as such on the Assessment Roll, being lots with 2,500 square feet size and a minimum lot width of 125 feet measured at front building line, which may be referred to as such in the development standards. “Major Improvements” or “MI” mean the Authorized Improvements which benefit all Assessed Property within the PID and are described in Section III.B. “Non-Benefited Property” means Parcels that accrue no special benefit from the Authorized Improvements, including Homeowner Association Property, Public Property and easements that create an exclusive use for a public utility provider. Property identified as Non-Benefited Property at the time the Assessments (i) are imposed or (ii) are reallocated pursuant to a subdivision of a Parcel, is not assessed. Assessed Property converted to Non-Benefited Property, if the Assessments may not be reallocated pursuant to the provisions herein, remains subject to the Assessments and requires the Assessments to be prepaid as provided for in Section VI. E. 2. “Parcel” or “Parcels” means a parcel or parcels within the PID identified by either a tax map identification number assigned by the Denton Central Appraisal District for real property tax purposes or by lot and block number in a final subdivision plat recorded in the real property records of Denton County. “Phase” means one or more Parcels within the PID that will be developed in the same general time period. The Parcels within a Phase will be assessed in connection with the issuance of Phased PID Bonds for Authorized Improvements (or the portion thereof) designated in an update to this Service and Assessment Plan that specially benefit the Parcels within the Phase.

“Phase #1” means the initial Phase to be developed, identified as “Phase #1” and generally shown in Appendix A, as specifically depicted and described as the sum of all Parcels shown in Appendix G. “Phase #1 Assessed Property” means all Parcels within Phase #1 other than Non-Benefited Property and shown in the Phase #1 Assessment Roll against which an Assessment relating to the Phase #1 Improvements is levied. “Phases #1 Assessment Revenues” mean the actual revenues received by or on behalf of the Town from the collection of Assessments levied against Phase #1 Assessed Property, or the Annual Installments thereof, for the Phase #1 Improvements. “Phase #1 Assessment Roll” means the document included in this Service and Assessment Plan as Appendix G, as updated, modified or amended from time to time in accordance with the procedures set forth herein and in the PID Act, including updates prepared in connection with the issuance of Bonds or in connection with any Annual Service Plan Update. "Phase #1 Bonds" mean collectively the Phase #1A Bonds and the Phase #1B Bonds to be issued by the Town to finance the Phase #1 Improvements. “Phase #1 Improvements” mean (i) the pro rata portion of the Major Improvements allocable to Phase #1, and (ii) the Authorized Improvements which only benefit Phase #1 Assessed Property and are described in Section III.C.

“Phase #1A Bonds” mean those certain "Town of Little Elm, Texas, Special Assessment

Appendix B-7

8

Revenue Bonds, Series 2014 (Valencia Public Improvement District Phase #1 Project)" that are secured primarily by Phase #1 Assessment Revenue. “Phase #1B Bonds” mean the bonds to be issued subsequent to the Phase #1A Bonds to finance the remaining costs of the Phase #1 Improvements and that will be secured primarily by Phase #1 Assessment Revenue. “Phased PID Bonds” mean bonds issued to fund Authorized Improvements (or a portion thereof) in a Phase. In connection with the Phased PID Bonds, Assessments will be levied only on Parcels located within the Phase in question. “Phases #2 - 5” mean the property within the PID excluding Phase #1 which is to be developed subsequent to Phase #1 and generally depicted in Appendix A of this Service and Assessment Plan or any Annual Service Plan Update.

“Phases #2 - 5 Assessed Property” means, for any year, all Parcels within the PID other than (a) Non-Benefited Property, and (b) Parcels within Phase #1.

“Phases #2 – 5 Major Improvement Assessment Revenues” mean the revenues actually received by or on behalf of the Town from the collection of Assessments levied against Phases #2-5 Assessed Property, or the Annual Installments thereof, for the Major Improvements. “Phases #2 - 5 Major Improvement Assessment Roll” means the document included in this Service and Assessment Plan as Appendix F, as updated, modified or amended from time to time in accordance with the procedures set forth herein and in the PID Act, including updates prepared in connection with the issuance of Bonds or in connection with any Annual Service Plan Update.

“Phases #2 – 5 Major Improvement Bonds” mean those certain "Town of Little Elm, Texas, Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phases #2 – 5 Major Improvement Project)" that are secured primarily by Assessments levied Phases #2 - 5 Major Improvement Assessment Revenues. “PID” has the meaning set forth in Section I.A of this Service and Assessment Plan. “PID Act” means Texas Local Government Code Chapter 372, Public Improvement Assessment Act, Subchapter A, Public Improvement Districts, as amended. “Prepayment Costs” mean interest and expenses to the date of prepayment, plus any additional expenses related to the prepayment, reasonably expected to be incurred by or imposed upon the Town as a result of any prepayment of an Assessment. “Public Property” means property within the boundaries of the PID that is owned by or irrevocably offered for dedication to the federal government, the State of Texas, Denton County, the Town, a school district or any other public agency, whether in fee simple or through an exclusive use easement. “Reimbursement Agreement” means each Reimbursement Agreement by and between the Town and the Developer in which the Developer agrees to fund the Actual Costs of certain Authorized

Appendix B-8

9

Improvements and the Town agrees to reimburse the Developer for the Actual Costs of those Authorized Improvements funded by the Developer with interest as permitted by the Act. “Service and Assessment Plan” means this Service and Assessment Plan prepared for the PID pursuant to the PID Act, as the same may be amended from time to time. “TIRZ No. 4” means the Tax Increment Reinvestment Zone No. 4., Town of Little Elm, Texas.

“TIRZ Credit” means, for each Parcel, the prorated amount of TIRZ Revenues calculated pursuant to Section VI (B) of this Service and Assessment Plan. “TIRZ Ordinance” means an ordinance adopted by the Town Council authorizing the use of TIRZ Revenues for project costs under the Tax Increment Financing Act, Texas Tax Code, Chapter 311, as amended, relating to the Authorized Improvements as provided for in the Tax Increment Reinvestment Zone No. 4 Project Plan and Financing Plan (including amendments or supplements thereto).

“TIRZ Revenues” mean, for each year, the incremental property tax amounts from TIRZ No. 4 paid by the Town from the TIRZ No. 4 tax increment fund pursuant to the TIRZ Ordinance to reduce an Annual Installment, as calculated each year by the Administrator in collaboration with the Town, in accordance with Section VI.B of this Service and Assessment Plan. “Town” means the Town of Little Elm, Texas. “Town Council” means the duly elected governing body of the Town. “Trust Indenture” means an indenture of trust, ordinance or similar document setting forth the terms and other provisions relating to the Bonds, as modified, amended, and/or supplemented from time to time. “Trustee” means the fiscal agent or trustee as specified in the Trust Indenture, including a substitute fiscal agent or trustee.

Appendix B-9

10

Section II PROPERTY INCLUDED IN THE PID

A. Property Included in the PID The PID is presently located within the extraterritorial jurisdiction of Little Elm, Texas and contains approximately 447.9 acres of land. The owner of the property intends to request annexation of the property into the Town limits. A map of the property within the PID is shown on Appendix A to this Service and Assessment Plan. At completion, the PID is expected to consist of approximately 1,239 single family residential units, landscaping, and infrastructure necessary to provide roadways, drainage, and utilities to the PID. The estimated number of lots (1239) and the classification of each lot are based upon the Conceptual Plan. The property within the PID is proposed to be developed as follows:

Table II-A Proposed Development

Proposed Development Type Quantity Measurement

Single Family Residential – 100 Feet 164 units Single Family Residential – 80 Feet 163 units Single Family Residential – 60 Feet 409 units Single Family Residential – 40 Feet 450 units Single Family Residential – 25 Feet 53 units

Total 1,239 units

B. Property Included in Phase #1 and Phases #2 - 5 Phase #1 consists of approximately 69.3 acres and is projected to consist of 209 single family residential units, to be developed as Phase #1, as further described in Section III. Phases # 2 - 5 consist of approximately 447.9 acres and are projected to consist of approximately 1,239 residential units. A map of the property within Phase #1 and Phases #2 – 5 and depicting the boundaries of each proposed Phase is shown in Appendix A. C. Property Included in Future Phases As Phases are developed, in connection with the issuance of Phased PID Bonds, this Service and Assessment Plan will be updated to add additional details of each new Phase(s) as shown for Phase #1 in Section II.B. A map of the projected property within each Future Phase is shown in Appendix A. The Future Phases are shown for illustrative purposes only and are subject to adjustment.

The current Parcels in the PID are shown on the Assessment Rolls included as Appendix F and Appendix G.

Appendix B-10

11

The estimated number of units at the build-out of the PID is based on the land use approvals for the property, the anticipated subdivision of property in the PID, and the Developer’s estimate of the highest and best use of the property within the PID.

Appendix B-11

12

Section III DESCRIPTION OF THE AUTHORIZED IMPROVEMENTS

A. Authorized Improvement Overview Section 372.003 of the PID Act defines the improvements that may be undertaken by a municipality or county through the establishment of a public improvement district, as follows:

372.003. Authorized Improvements

(a) If the governing body of a municipality or county finds that it promotes the interests of the municipality or county, the governing body may undertake an improvement project that confers a special benefit on a definable part of the municipality or county or the municipality’s extraterritorial jurisdiction. A project may be undertaken in the municipality or county or the municipality’s extraterritorial jurisdiction.

(b) A public improvement may include:

(i) landscaping;

(ii) erection of fountains, distinctive lighting, and signs;

(iii) acquiring, constructing, improving, widening, narrowing, closing, or rerouting of sidewalks or of streets, any other roadways, or their rights-of way;

(iv) construction or improvement of pedestrian malls;

(v) acquisition and installation of pieces of art;

(vi) acquisition, construction, or improvement of libraries;

(vii) acquisition, construction, or improvement of off-street parking facilities;

(viii) acquisition, construction, improvement, or rerouting of mass transportation facilities;

(ix) acquisition, construction, or improvement of water, wastewater, or drainage

facilities or improvements;

(x) the establishment or improvement of parks;

(xi) projects similar to those listed in Subdivisions (i)-(x);

(xii) acquisition, by purchase or otherwise, of real property in connection with an authorized improvement;

(xiii) special supplemental services for improvement and promotion of the district,

including services relating to advertising, promotion, health and sanitation, water and wastewater, public safety, security, business recruitment, development, recreation, and cultural enhancement; and

Appendix B-12

13

(xiv) payment of expenses incurred in the establishment, administration and operation of the district.

After analyzing the public improvement projects authorized by the PID Act, the Town has determined that the Authorized Improvements as described in Appendix B and shown on the diagram included as Appendix C should be undertaken by the Town for the benefit of the property within the PID. B. Description of Estimated Costs of Major Improvements The Major Improvements benefit the entire PID. The costs of the Major Improvements are allocated proportionally throughout the entire PID, excluding Non-Benefited Property, in a manner that anticipates planned development of the PID based on the Equivalent Units as calculated and shown in Appendix D using the planned lot types and anticipated number of lots. The Major Improvements are described below. The costs of the Major Improvements are shown in Table III-A. The costs shown in Table III-A are estimates and may be revised in Annual Service Plan Updates, including such other improvements as deemed necessary to further improve the properties within the PID. Road Improvements The roadway portion of the improvements consists of constructing approximately 13,365 linear feet of a 2-lane divided thoroughfare (Rockhill Parkway) from the Doe Creek and Rockhill Parkway intersection to the opposite end of the PID. This will provide access off of FM 423 into the development by Rockhill Parkway; and from US 380 to Rockhill Parkway by Doe Creek Road. This improvement, which benefits the entire PID, will be constructed according to Town standards. Rockhill Parkway is expected to subsequently be widened to a 4-lane divided thoroughfare as part of the phased development of local area improvements for Phases #2 - 5 of the PID. Water Distribution System Improvements

A twenty (20”) inch water line was constructed to serve the Frisco Hills and Valencia Developments in 2010. The newly constructed 20-inch water line starts at the Town’s elevated storage tank located along FM 423 north of El Dorado Parkway, and continues on a northerly direction along FM 423 to the Frisco Ranch Development and then turns on a northwesterly direction to the Frisco Hills master metering station located within the Frisco Hills Development. The total length of the 20-inch water line is 9,560 linear feet. Frisco Hills Development is an adjacent development located within Denton County Fresh Water Supply District No. 8-C (DCFWSD 8-C). The PID and DCFWSD 8-C (Frisco Hills) developments will be sharing this line which will be operated and maintained by the Town. For cost sharing purposes, Frisco Hills consists of 1,128 connections with a 48 % share and Valencia consists of 1,239 connections with a 52% share of the cost. Furthermore, the off-site water line will be extended from the Frisco Hills master meter to the Valencia PID Development along the Brazos Electric Easement and Rockhill Parkway for approximately 8,100 linear feet to the Phase #1 limits.

Appendix B-13

14

A second point of connection consisting of an additional 8,200 linear feet of 12-inch water line and appurtenances will be constructed at a later date. This line will cross the Corps of Engineers land and connect to a Town water line within the Sunset Pointe development. The waterline improvements will include connection to the existing water-main, installation of associated 12” valves, fire hydrants, ductile iron fittings, erosion control, trench safety and testing. These water improvements, which benefit the entire project, will be constructed according to Town standards and specifications. Sanitary Sewer Improvements The sanitary sewer improvement projects consist of constructing a series of lift stations and approximately 5,380 linear feet of 10-inch force main and 2,125 linear feet of 16-inch of sanitary sewer gravity line generally flowing along the south side of the PID and Frisco Hills Developments and connecting to the Frisco Hills lift station. The Frisco Hills lift station will be shared by the PID and DCFWSD 8-C (Frisco Hills and Frisco Ranch) sending the wastewater flows to the Town treatment plant through a future 14-inch force main for approximately 5,000 linear feet. This force main will connect to an existing Town 14- inch force main located along the west side of FM 423. For cost sharing purposes, DCFWSD 8- C (Frisco Ranch and Frisco Hills) consist of 1,927 connections with a 60% share and the PID consists of 1,239 connections and 40 % share of the cost. Cutoff valves and air release valves will be constructed in accordance with Town and TCEQ regulations. The 10-inch force main and pumps were designed to maintain the 3.0 fps minimum velocity. The line will be designed and constructed in accordance with Town standards. Storm Drainage Improvements

The storm drainage improvement projects consist of drainage improvements to support the installation of Rockhill Parkway. This includes underground reinforced concrete storm sewer pipes, inlets and rock riprap protection at outfalls. This project will be constructed according to Town standards and specifications.

Appendix B-14

15

Table III-A Estimated Major Improvement Costs

Authorized Improvements Total Estimated

Major Improvement Costs

Road improvements Water distribution system improvements Sanitary sewer collection system improvements Storm sewer collection system improvements Soft costs including PID creation, Town, professional and miscellaneous soft costs

$4,114,953 $1,600,800 $1,659,539

$451,200

$3,580,527 Total – Estimated Major Improvement Costs $11,407,019

The costs shown in Table III-A are current estimates and may be revised in Annual Service Plan Updates. C. Description of Estimated Costs of Phase #1 Improvements Phase #1A Bonds fund a portion of the costs of the Phase #1 Improvements, which include the proportionate share of the costs of the Major Improvements (as described above in Section III.B) allocable to Phase #1, all of which only benefit Phase #1 Assessed Property. The Phase #1 Improvements that benefit only Phase #1 are described below. . The costs of the Phase #1 Improvements are shown in Table III-B. The costs shown in Table III-B are estimates and may be revised in Annual Service Plan Updates, including such other improvements as deemed necessary to further improve the properties within the PID. Road Improvements

Roadway improvements within Phase #1 include construction of approximately 10,110 linear feet of 6” thick, 31-foot wide, concrete pavement with curb and gutter. The concrete will be 3,600 pounds per square inch (psi) strength. Unclassified excavation for the project will consist of 120,400 cubic yards of cut and fill. 37,070 square yards (sy) of pavement sub-grade will be lime stabilized and compacted. Intersections, signage, lighting and re-vegetation of all disturbed areas within the right of way are included. These roadway improvements include streets that will provide street access to each lot within Phase #1. These projects will provide access to community roadways and state highways. All roadway projects will be designed and constructed in accordance with Town standards and specifications. Water Distribution System Improvements The Phase #1 water distribution system improvements consist of constructing approximately 10,430 linear feet of 8” water line, associated 8” gate valves. One-inch diameter water services will be provided to each of the 209 lots within Phase #1. All associated waterline testing, trench safety and erosion protection during construction are included. The waterline will be connected

Appendix B-15

16

to the 12” water line constructed in Rockhill Parkway. These lines will be designed and constructed in accordance with Town standards and specifications. These lines will include the necessary appurtenances to be fully operational transmission lines extending water service to the limits of Phase #1 and all lots within Phase #1. Sanitary Sewer Improvements

Wastewater Line (12” Gravity Line) Phase #1 sanitary sewer improvements consist of constructing approximately 250 linear feet of 12” gravity sewer trunk line flowing to the proposed lift station located at the southwest corner of Phase #1. This project will consist of constructing manholes, associated erosion control, trench safety and sewer line testing.

Wastewater Line (10” Gravity Line) Phase #1 wastewater improvements consist of constructing approximately 1,375 linear feet of 10” gravity sewer main line that connects to the 12” gravity sewer trunk line. This project will consist of constructing manholes, associated erosion control, trench safety and sewer line testing.

Wastewater Line (8” Gravity Line) Phase #1 wastewater Improvements also include construction of 10,110 linear feet of 8” gravity sanitary sewer line that connects to the 10” gravity sewer main line. Construction includes connection at multiple points through 36 concrete manholes. Services to individual lots are by 4” gravity sewer services. All lines will be designed and constructed in accordance with Town standards and specifications. These lines will include the necessary appurtenances to be fully operational extending wastewater service to the limits of Phase #1 and each of the Lots within Phase #1. Storm Drainage Improvements

The drainage portion of the Phase #1 Improvements consists of underground reinforced concrete storm sewer pipes, inlets and rock riprap protection at outfalls. The main means of conveyance of storm drainage within Phase #1 is within roadways and underground storm drain pipes. The roadway pavement section incorporates the use of curbs with integrated drainage inlets to control runoff and conveyance of storm-water throughout the drainage basins associated with Phase #1. The system includes underground reinforced concrete pipe (RCP) with associated headwalls, safety end treatments, manholes and storm sewer energy dissipaters at the points of discharge. All of the drainage areas within Phase #1 flow to Lake Lewisville. This project will be constructed in accordance with Town standards and specifications.

Appendix B-16

17

Table III-B Estimated Phase #1 Improvement Costs

Authorized Improvements

Total Estimated Phase #1 Improvement Costs

Road improvements Water distribution system improvements Sanitary sewer collection system improvements Storm sewer collection system improvements Soft costs including PID creation, Town, professional and miscellaneous soft costs

$1,799,960 $468,155 $600,493 $372,030

$737,245

Subtotal – Estimated Phase #1 Improvement Costs

Add: Proportional share of estimated Major Improvement Costs1

$3,977,883 $2,000,110

Total Estimated Phase #1 Improvement Costs $5,977,992 1 See Section V(C) for allocation of Major Improvement costs to Phase #1.

Additional details of the Phase #1 Improvements are shown in Appendix B attached to this Service and Assessment Plan. The method of cost allocation is explained in Section V (C). The costs shown in Tables III-A and III-B are estimates and may be revised in Annual Service Plan Updates. The detailed costs of the Authorized Improvements are shown in Appendix B to this Service and Assessment Plan. Savings from one line item may be applied to a cost increase in another line item. These savings may be applied only to increases in costs of the Authorized Improvements (i.e., the improvements for the benefit of property within the PID). D. Future Phase Authorized Improvements As Phases are developed, additional Phased Bonds will be issued to finance Authorized Improvements for each Future Phase. As Phased PID Bonds are issued for each Future Phase, this Service and Assessment Plan will be updated to identify the specific Authorized Improvements financed by such Phased PID Bonds that benefit each Phase (e.g., a Table III-C will be added to show the estimated costs for Phase 2 Authorized Improvements, etc.).

Appendix B-17

18

Section IV SERVICE PLAN

A. Sources and Uses of Funds The PID Act requires the service plan to cover a period of at least five years. The service plan is required to define the annual projected costs and indebtedness for the Authorized Improvements undertaken within the PID during the five year period. It is anticipated that it will take approximately 12 months for the Major Improvements to be constructed and approximately 12 months for the Phase #1 Improvements to be constructed. At some point after the Major Improvements and Phase #1 Improvements are constructed, Phase #2 will begin development. After Phase #2 is developed, it is anticipated that Phase #3 will begin development, and so on, with each Future Phase to be subsequently developed corresponding to the Service and Assessment Plan to be updated with that development. The estimated Actual Costs for Major Improvements and Phase #1 Improvements plus costs related to the issuance of the Bonds, in one or more series, for the Major Improvements and Phase #1 Improvements and payment of expenses incurred in the establishment, administration and operation of the PID is $19,675,000 as shown in Table IV-A. The service plan shall be reviewed and updated at least annually for the purpose of determining the annual budget for Administrative Expenses, updating the estimated Authorized Improvement costs, and updating the Assessment Roll(s). Any update to this Service and Assessment Plan is herein referred to as an “Annual Service Plan Update.” Table IV-A summarizes the sources and uses of funds required to construct the Major Improvements and Phase #1 Improvements, establish the PID, and issue the Phase #1 PID Bonds and Phases #2 – 5 Major Improvement Bonds. The sources and uses of funds shown in Table V-A shall be updated each year in the Annual Service Plan Update to reflect any budget revisions and Actual Costs. As Future Phases are developed in connection with the issuance of Phased PID Bonds, this Service and Assessment Plan will be amended (e.g. Table IV-A will be amended to add Phase #2, etc.). Bonds to finance the Major Improvements and Phase #1 Improvements are expected to be issued starting in 2014. Table IV-A shows the sources and uses of the Bonds.

Appendix B-18

19

Table IV-A

Estimated Sources and Uses

Sources of Funds

Phase #2 - 5 Major

Improvement Bonds

Phase #1 Bonds Total

Estimated Bond par amount $12,240,000 $7,435,000 $19,675,000 Total Sources $12,240,000 $7,435,000 $19,675,000 Uses of Funds Major Improvements Road improvements $3,393,436 $721,517 $4,114,953 Water distribution system improvements $1,320,115 $280,685 $1,600,800 Sanitary sewer improvements $1,368,555 $290,984 $1,659,539 Storm drainage improvements $372,086 $79,114 $451,200 Other soft and miscellaneous costs $2,952,716 $627,811 $3,580,527 Subtotal $9,406,909 $2,000,1101 $11,407,019 Phase 1 Improvements Road improvements $0 $1,799,960 $1,799,960 Water distribution system improvements $0 $468,155 $468,155 Sanitary sewer improvements $0 $600,493 $600,493 Storm drainage improvements $0 $372,030 $372,030 Other soft and miscellaneous costs $0 $737,245 $737,245 Subtotal $0 $3,977,883 $3,977,883 Estimated Bond issue costs $2,833,091 $1,457,008 $4,290,099

Total Uses $12,240,000 $7,435,000 $19,675,000 (1) Phase #1 Improvements include the Authorized Improvements listed under this heading plus the estimated $2.0M pro rata share of the Major Improvements allocated to Phase #1.

The Phase #1 Bonds shown in Table IV-A are anticipated to be issued in two series. The first series of Phase #1 Bonds (“Phase #1A Bonds”) are anticipated to be issued in 2014 and will be used to pay and/or reimburse the Developer for a portion of the costs of Phase #1 Improvements. The remaining costs of Phase #1 Improvements will be financed through a Reimbursement Agreement dated as of February 13, 2014 (the” Phase #1 Reimbursement Agreement”), which is anticipated to be replaced by the second series of Phase #1 Bonds (“Phase #1B Bonds”). The Phase #1B Bonds are anticipated to be issued in 2016 after some or all of the Phase #1 Improvements are constructed and will be used to pay replace the Reimbursement Agreement and/or reimburse the Developer for the remaining portion of the costs of Phase #1 Improvements.

Table IV-B below shows the estimated sources and uses of the two series of Phase #1 Bonds.

Appendix B-19

20

Table IV-B Estimated Sources and Uses – Phase #1 Bonds

Sources of Funds Phase #1A

Bonds Phase #1B

Bonds2 Total

Estimated Bond par amount $4,000,000 $3,435,000 $7,435,000 Total Sources $4,000,000 $3,435,000 $7,435,000 Uses of Funds Major Improvements1 Road improvements $721,517 $0 $721,517 Water distribution system improvements $280,685 $0 $280,685 Sanitary sewer improvements $290,984 $0 $290,984 Storm drainage improvements $79,114 $0 $79,114 Other soft and miscellaneous costs $627,811 $0 $627,811 Subtotal $2,000,110 $0 $2,000,110 Phase 1 Improvements Road improvements $505,870 $1,294,090 $1,799,960 Water distribution system improvements $131,573 $336,582 $468,155 Sanitary sewer improvements $168,766 $431,727 $600,493 Storm drainage improvements $104,557 $267,473 $372,030 Other soft and miscellaneous costs $207,199 $530,046 $737,245 Subtotal $1,117,965 $2,859,918 $3,977,883 Estimated Bond issue costs $881,926 $575,082 $1,457,008

Total Uses $4,000,000 $3,435,000 $7,435,000 (1) Phase #1 Improvements include the Authorized Improvements listed under this heading plus the estimated $2.0M

pro rata share of the Major Improvements allocated to Phase #1. (2) The cost of Phase 1 Improvements shown under Phase #1B bonds are initially funded through the Phase #1

Reimbursement Agreement, which is anticipated to be replaced by the Phase #1B Bonds in 2016 or 2017.

The annual projected costs and annual projected indebtedness is shown by Table IV-C. The annual projected costs and indebtedness is subject to revision and each shall be updated in the Annual Service Plan Update to reflect any changes in the costs or indebtedness expected for each year.

Appendix B-20

21

Table IV-C

Annual Projected Costs and Annual Projected Indebtedness

Year Annual Projected

Cost

Annual Projected

Indebtedness

Sources other than PID Bonds

2014 $19,675,000 $19,675,000 $0

2015 $0 $0 $0

2016 $0 $0 $0

2017 $0 $0 $0

2018 $0 $0 $0

$19,675,000 $19,675,000 $0

The annual projected costs shown in Table IV-C are the annual expenditures relating to the Major Improvements shown in Table III-A, the Phase #1 Improvements shown in Table III-B, and the costs associated with setting up the PID and costs of issuance including reserves shown in Table V-A. The difference between the total projected cost and the total projected indebtedness, if any, is the amount contributed by the Developer. As Future Phases are developed, in association with issuing Phased PID Bonds, this Table IV-B will be updated to identify the Authorized Improvements to be financed by each new series of the Phased PID Bonds and the projected indebtedness resulting from each additional series of the Phased PID Bonds.

Appendix B-21

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Section V ASSESSMENT PLAN

A. Introduction The PID Act requires the Town Council to apportion the costs of the Authorized Improvements on the basis of special benefits conferred upon the property because of the Authorized Improvements. The PID Act provides that the costs of the Authorized Improvements may be assessed: (i) equally per front foot or square foot; (ii) according to the value of the property as determined by the governing body, with or without regard to improvements on the property; or (iii) in any other manner that results in imposing equal shares of the cost on property similarly benefited. The PID Act further provides that the governing body may establish by ordinance or order reasonable classifications and formulas for the apportionment of the cost between the municipality and the area to be assessed and the methods of assessing the special benefits for various classes of improvements. The proposed bond issuance program entails a series of bond financings that are intended to finance the public infrastructure required for the development of Valencia. This financing will necessarily be undertaken in phases to coincide with the private investment and development of the Public Improvements. Following the initial Phase #1A Bonds and the Phases #2 – 5 Major Improvement Bonds to be issued in 2014 and the Phase #1B Bonds to be issued in 2015, subsequent financings are to be issued over the upcoming decade as the four subsequent phases (Phases #2 through #5) of Valencia are gradually constructed. The purpose of this gradual issuance of bonds in phases is to mirror the actual private development of the Authorized Improvements. The Bonds to be issued are most prudently and efficiently utilized when directly coinciding with construction of public infrastructure needed for private development that is to occur once the infrastructure is completed; it is most effective to issue the Bonds when the infrastructure is needed, not before. Furthermore, there is no economic advantage, and several disadvantages, to issuing debt and encumbering property within the PID prior to the need for the Authorized Improvements.

Additionally, phased issuance of debt will maintain a prudent value to lien ("VtL") within the financing program. In order to maintain a prudent VtL, the initial issuance of bonds for a specific set of Authorized Improvements may not fund the entire desired level of public infrastructure because the property value is not high enough to support the entire debt load at the VtL chosen for the development. In that case, the Developer will need to fund the additional infrastructure costs with cash at closing. This cash investment by the Developer for certain Authorized Improvements can be reimbursed by a subsequent parity lien bond financing, secured by the same special assessments, once the assessed property is partially or fully developed and the value has increased sufficiently to permit the issuance of the additional bonds in a prudent fashion. For example, the Phase #1A Bonds to be issued to finance a portion of the Phase #1 Improvements, including the pro-rata costs of the Major Improvements allocable to Phase #1 Assessed Property, followed by a second parity lien issuance of bonds (the Phase #1B Bonds) demonstrates this analysis.

Appendix B-22

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VALENCIA PID PHASED BOND ISSUANCE PLANNED CHRONOLOGY

Series 2014 - Phase #1A Bonds to finance (i) the pro-rata costs of the Major Improvements allocable to Phase #1 and, (ii) a portion of the Authorized Improvements that benefit only Phase #1. It is likely that this and the subsequent ‘A’ financings for each phase will only be able to fund a part of the internal public infrastructure (to maintain a prudent VtL) and the balance will be funded by a subsequent 'B' financing for each phase once the development within each phase is substantially complete as is contemplated with the issuance of the Phase #1B Bonds.

Phases #2 – 5 Major Improvement Bonds to finance the pro-rata costs allocable to the Phases #2 – 5 for the Major Improvements that will benefit the entire PID

Series 2015 - Phase #1B Bonds to finance or to reimburse the Developer for the remaining costs of the Phase #1 Improvements.

Series 2016-17 Phase #2A Bonds to finance a part of the internal subdivision Authorized Improvements within Phase #2.

Series 2018-19 Phase #3A Bonds to finance a part of the internal subdivision Authorized Improvements within Phase #3, and

Phase #2B parity bonds to complete the Developer reimbursements for the internal subdivision Authorized Improvements within Phase #2.





Series 2024-25 Phase #5B parity bonds to complete the Developer reimbursements for the internal subdivision Authorized Improvements within Phase #5.

It is currently estimated that the cost of public infrastructure within the PID will total approximately $36,000 per unit. Hence, for the total project, it is anticipated that the total amount of Bonds to be issued, excluding refinancing, will be approximately $45,000,000 over the upcoming 10 to 15 years.

As is noted above, the subsequent series of bonds to be issued for each additional phase will only be issued when private development is ready to proceed and the financing can be undertaken on a prudent basis with strong municipal marketplace acceptance. Each of the planned future issues are

Appendix B-23

24

to be structured similarly to the proposed Phase #1 Bonds and Phases #2 – 5 Major Improvement Bonds. Each of the individual Phase bond financings will contain an additional bonds test ("ABT") that will set forth credit tests for the issuance of these parity lien 'B' bonds when the debt is issued. The ABT is intended to protect the credit of the financing program by providing standards for the issuance of the parity bonds. For purposes of this Service and Assessment Plan, the Town Council has determined that the costs of the Major Improvements and Phase #1 Improvements shall be allocated as described below:

1. The Major Improvement and Phase #1 Improvement costs shall be allocated on the basis of the relative value of Parcels once such property is developed, and that such method of allocation will result in the imposition of equal shares of the costs of the Authorized Improvements to Parcels similarly benefited.

2. The Town Council has concluded that larger more expensive homes are likely to be built on the larger lots, and that larger more expensive homes are likely to make greater use of and receive greater benefit from the Authorized Improvements. In determining the relative values of Parcels, the Town Council has taken in to consideration (i) the type of development (i.e., residential, commercial, etc.), (ii) single-family lot sizes and the size of homes likely to be built on lots of different sizes, (iii) current and projected home process provided by the Developer, (iv) the Authorized Improvements to be provided and the estimated costs, and (v) the ability of different property types to utilize and benefit from the improvements.

3. The Assessed Property is classified into different Lot Types as described in Appendix D based on the type and size of proposed development on each Parcel.

4. Equivalent Units are calculated for each Lot Type based on the relative value of each Lot Type.

5. The Major Improvement costs are proportionally allocated to the Phases #2 – 5 Assessed Property and the Phase #1 Assessed Property based on the ratio of total Equivalent Units estimated for the Phases #2 - 5 Assessed Property and the Phase #1 Assessed Property.

6. The Phases #2 - 5 Assessed Property’s proportional share of the costs for the Major Improvements is allocated to each Parcel within the Phases #2 – 5 Assessed Property based on the total Equivalent Units estimated for each Parcel.

7. The Phase #1 Improvement costs (including Phase #1 Assessed Property’s proportional share of the costs of the Major Improvements) are allocated to each Parcel within the Phase #1 Assessed Property based on the total Equivalent Units estimated for each Parcel.

Appendix B-24

25

Table V-A provides the estimated allocation of costs of the Authorized Improvements constituting Major Improvements and Phase #1 Improvements. At this time it is impossible to determine with absolute certainty the amount of special benefit each Parcel within Future Phases will receive from internal subdivision Authorized Improvements that will benefit each individual phase and that are to be financed with Phased PID Bonds. Therefore, at this time Parcels will only be assessed for the special benefits conferred upon the Parcel because of the Major Improvements and Phase #1 Improvements. In connection with the issuance of Phased PID Bonds and/or execution of related reimbursement agreements, this Service and Assessment Plan will be updated to reflect the special benefit each Parcel of Assessed Property within a Future Phase receives from the specific Authorized Improvements funded with those Phased PID Bonds issued with respect to that Future Phase. Prior to assessing Parcels located within Future Phases in connection with issuance of Phased PID Bonds, each owner of the Parcels to be assessed must acknowledge that the Authorized Improvements to be financed confer a special benefit on their Parcel and must consent to the imposition of the Assessments to pay for the Actual Costs of such Authorized Improvements. This section of this Service and Assessment Plan currently (i) describes the special benefit received by each Parcel within the PID as a result of the Major Improvements and Phase #1 Improvements, (ii) provides the basis and justification for the determination that this special benefit exceeds the amount of the Assessments to be levied on the Phase #1 Assessed Property and Phases #2 – 5 Assessed Property for such improvements, and (iii) establishes the methodologies by which the Town Council allocates and reallocates the special benefit of the Major Improvements and Phase #1 Improvements to Parcels in a manner that results in equal shares of the Actual Costs of such improvements being apportioned to Parcels similarly benefited. The determination by the Town Council of the assessment methodologies set forth below is the result of the discretionary exercise by the Town Council of its legislative authority and governmental powers and is conclusive and binding on the Developer and all future owners and developers of the Assessed Property. As Future Phases are developed, in connection with the issuance of Phased PID Bonds this Service and Assessment Plan will be updated based on the Town’s determination of the assessment methodology for each Future Phase. B. Special Benefit Assessed Property must receive a direct and special benefit from the Authorized Improvements, and this benefit must be equal to or greater than the amount of the Assessments. The Authorized Improvements are provided specifically for the benefit of the Assessed Property. The Authorized Improvements (more particularly described in line-item format in Appendix B to this Service and Assessment Plan) and the costs of issuance and payment of costs incurred in the establishment of the PID shown in Table IV-A are authorized by the Act. These improvements are provided specifically for the benefit of the Assessed Property.

Each owner of the Assessed Property has acknowledged that the Authorized Improvements confer a special benefit on the Assessed Property and has consented to the imposition of the

Appendix B-25

26

Assessments to pay for the Actual Costs associated therewith. Each of the owners is acting in its interest in consenting to this apportionment and levying of the Assessments because the special benefit conferred upon the Assessed Property by the Authorized Improvements exceeds the amount of the Assessments. The public improvements provide a special benefit to the Assessed Property as a result of the close proximity of these improvements to the Assessed Property and the specific purpose of these improvements of providing infrastructure for the Assessed Property. In other words, the Assessed Property could not be used in the manner proposed without the construction of the Authorized Improvements. The Authorized Improvements are being provided specifically to meet the needs of the Assessed Property as required for the proposed use of the property. The Assessments are being levied to provide the Authorized Improvements that are required for the highest and best use of the Assessed Property (i.e., the use of the property that is most valuable, including any costs associated with that use). Highest and best use can be defined as “the reasonably probable and legal use of property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.” (Dictionary of Real Estate Appraisal, Third Edition.) The Authorized Improvements are expected to be required for the proposed use of the Assessed Property to be physically possible, appropriately supported, financially feasible, and maximally productive. The Developer has evaluated the potential use of the property and has determined that the highest and best use of the property is the use intended and the legal use for the property as described in Section II of this Service and Assessment Plan. The use of the Assessed Property as described herein will require the construction of the Authorized Improvements. The special assessments will repay financing that is on advantageous terms, as the Bonds issued to finance the public improvements will pay interest that is exempt from federal income tax. As a result, all other terms being equal (e.g., maturity, fixed vs. variable rate, credit quality), the tax- exempt bonds will have a lower interest rate than debt that is not tax-exempt. The Bonds also have a longer term than other available financings and may either be repaid or assumed by a buyer at the buyer’s option. As a result of these advantageous terms, the financing provided by the PID is the most beneficial means of financing the Authorized Improvements. Each owner of the Assessed Property will ratify, confirm, accept, agree to and approve; (i) the determinations and finding by the Town Council as to the special benefits described in this Service and Assessment Plan and the Assessment Ordinance; (ii) the Service and Assessment Plan and the Assessment Ordinance, and (iii) the levying of Assessments on the Assessed Property. Use of the Assessed Property as described in this Service and Assessment Plan and as authorized by the PID Act requires that Authorized Improvements be acquired, constructed, installed, and/or improved. Funding the Actual Costs of the Authorized Improvements through the PID has been determined by the Town Council to be the most beneficial means of doing so. As a result, the Assessments result in a special benefit to the Assessed Property, and this special benefit exceeds the amount of the Assessment. This conclusion is based on and supported by the evidence, information, and testimony provided to the Town Council. In summary, the Assessments result in a special benefit to the Assessed Property for the following reasons:

Appendix B-26

27

1. The Authorized Improvements are being provided specifically for the use of the Assessed Property, are necessary for the proposed best use of the property and provide a special benefit to the Assessed Property as a result;

2. The Developer has consented to the imposition of the Assessments for the purpose of

providing the Authorized Improvements and the Developer is acting in its interest by consenting to this imposition;

3. The Authorized Improvements are required for the highest and best use of the property; 4. The highest and best use of the Assessed Property is the use of the Assessed Property that

is most valuable (including any costs associated with the use of the Assessed Property); 5. Financing of the costs of the Authorized Improvement through the PID is determined to

be the most beneficial means of providing for the Authorized Improvements; and, 6. As a result, the special benefits to the Assessed Property from the Authorized Improvements will be equal to or greater than the Assessments.

C. Allocation of Costs to Assessed Property

The Major Improvements will provide a special benefit to all property in the PID. Accordingly, the estimated Major Improvement costs must be allocated throughout all Assessed Property in the District. Table V-A summarizes the allocation of estimated costs for each Major Improvement. The costs shown in Table V-A are estimates and may be revised in Annual Service Plan Updates, but the related Assessment may not be increased. Phase #1 is projected to contain 209 residential units. As shown in Appendix D, the total Equivalent Units for Phase #1 is calculated as 144.54. Phases #2 – 5 are projected to contain 1,030 residential units resulting in a total of 679.80 Equivalent Units as shown in Appendix D. The Total projected Equivalent Units in the PID is, therefore, calculated to be 824.34 (i.e., 144.54 + 679.80 = 824.34). As a result, 17.53 percent of the estimated costs of Major Improvements (i.e. 144.54 ÷ 824.34 = 17.53%) are allocated to the Phase #1 Assessed Property and 82.47 percent of the estimated costs Major Improvements (i.e., 679.80 ÷ 824.34 = 82.47%) are allocated to the Phases #2 - 5 Assessed Property. The Phases #2 – 5 Major Improvement Bonds will fund the proportionate share of the estimated costs of the Major Improvement allocated to Phases #2 – 5; and, Phase #1 Bonds will fund Phase #1’s proportionate share of the estimated costs of the Major Improvements.

Appendix B-27

28

Table V-A Allocation of Major Improvement Costs

Major Improvement Estimated Costs Authorized Improvement Estimated Costs

Road Improvements1 $4,114,953

Water Improvements1 $1,600,800

Sanitary Sewer Improvements1 $1,659,539

Storm Drainage Improvements1 $451,200

Other soft and miscellaneous costs1 $3,580,527 Total Major Improvements $11,407,019

Phase #1

Projected total Equivalent Units2 144.54 % of total Equivalent units 17.53% Proportionate Share of Costs $2,000,110

Phases #2 - 5

Projected total Equivalent Units2 679.80 % of total Equivalent units 82.47% Proportionate Share of Costs $9,406,909

Notes: 1 - See Appendix B for detailed Costs of the Authorized Improvements. 2 - See Appendix D for the detailed calculation of Equivalent Units

D. Assessment Methodology The Actual Costs may be assessed by the Town Council against the Assessed Property so long as the special benefit conferred upon the Assessed Property by the Authorized Improvements equals or exceeds the Assessments. The Actual Costs may be assessed using any methodology that results in the imposition of equal shares of the Actual Costs on Assessed Property similarly benefited.

1. Assessment Methodology for the Major Improvements for Phases #2 - 5

For purpose of this Service and Assessment Plan, the Town Council determined that the portion of Actual Costs of the Major Improvement costs to be allocated to Phases #2 - 5 shall be allocated to the Phases #2 - 5 Assessed Property by spreading the entire Assessment across the Parcels based on the estimated Equivalent Units as calculated and shown in Appendix D using the types, number and average home value of Lots anticipated to be developed on each Parcel. Having taken into consideration the matters described under Sections V (A) and (B) above, the Town Council has determined that allocating the Assessments among Parcels based on average home

Appendix B-28

29

value is best accomplished by creating classifications of benefited Parcels based on the Lot Types. These classifications (from Lot Type 1 (100 Ft Lots) representing the highest residential value to Lot Type 5 (25 Ft Lot) representing the lowest value. Assessments are allocated to each land use class on the basis of the average value for each Lot Type. This is accomplished by giving each Lot Type an Equivalent Unit factor. Equivalent Units are the ratio of the average value of lots within each Lot Type, setting the Equivalent Unit factor for Lot Type 1 (100 Ft Lots) to 1.0. Upon subsequent divisions of any Parcel, the Assessment applicable to it will then be apportioned pro rata based on the Equivalent Units of each newly created Parcel. For residential Lots, when final residential building sites are platted, Assessments will be apportioned proportionately among each Lot Type based on the ratio of the Equivalent Unit applicable to each Lot Type at the time residential Lots are platted to the total Equivalent Units of all Lots in the platted Parcel, as determined by the Administrator and confirmed by the Town Council. As part of the determination as to the ability of different Lot Types to utilize and benefit from the Authorized Improvements, the Town Council has taken into consideration that larger, more expensive homes, on average, will create more vehicle trips and greater demands for water and wastewater consumption, and larger, more expensive homes are likely to be built on larger, more valuable lots placing greater demand on the Authorized Improvements. The Assessment and Annual Installments for each Parcel or Lot located within Phases #2 - 5 is shown on the Phases #2 – 5 Major Improvement Assessment Roll, attached as Appendix F, and no Assessment shall be changed except as authorized by this Service and Assessment Plan or the PID Act.

2. Assessment Methodology for Phase #1 For purpose of this Service and Assessment Plan, the Town Council has determined that the Actual Costs of the Phase #1 Improvements, including and the portion of the Major Improvements to be financed with the Phase #1 Bonds, shall be allocated to the Phase #1 Assessed Property by spreading the entire Assessment across the Parcels based on the estimated Equivalent Units as calculated and shown in Appendix D using the types and number of lots anticipated to be developed on each Parcel within Phase #1. As part of the determination as to the ability of different Lot Types to utilize and benefit from the Authorized Improvements, the Town Council has taken into consideration that larger, more expensive homes, on average, will create more vehicle trips and greater demands for water and wastewater consumption, and larger, more expensive homes are likely to be built on larger, more valuable lots placing greater demand on the Authorized Improvements. Based on the estimates of the costs of the Phase #1 Improvements and the portion of the Phase #1 Improvements that benefit Phase #1 provided by Petitt/ Barraza, LLC., as set forth in Table III-B, the Town Council has determined that the benefit to Phase #1 property of the Phase #1 Improvements is at least equal to the Assessments levied on the Phase #1 property.

Upon subsequent divisions of any Parcel, the Assessment applicable to it will then be apportioned pro rata based on the Equivalent Units of each newly created Parcel. For residential Lots, when final residential building sites are platted, Assessments will be apportioned proportionately among each Lot Type based on the ratio of the Equivalent Unit applicable to each

Appendix B-29

30

Lot Type at the time residential Lots are platted to the total Equivalent Units of all Lots in the platted Parcel, as determined by the Administrator and confirmed by the Town Council. The result of this approach is that each final residential Lot within a recorded subdivision plat with similar values will have the same Assessment, with larger, more valuable Lots having a proportionately larger share of the Assessments than smaller, less valuable Lots. As part of the determination as to the ability of different Lot Types to utilize and benefit from the Authorized Improvements, the Town Council has taken into consideration that larger, more expensive homes, on average, will create more vehicle trips and greater demands for water and wastewater consumption, and larger, more expensive homes are likely to be built on larger, more valuable lots placing greater demand on the Authorized Improvements. The Assessment and Annual Installments for each Parcel or Lot located within Phase #1 is shown on the Phase #1 Assessment Roll, attached as Appendix G, and no Assessment shall be changed except as authorized by this Service and Assessment Plan or the PID Act. Appendix E shows the detailed calculation of the Assessment per Equivalent Unit and the Assessment for each Lot type.

3. Assessment Methodology for Future Phases When any given Future Phase is developed, and Phased PID Bonds for that Future Phase are to be issued, this Service and Assessment Plan will be amended to determine the assessment methodology that results in the imposition of equal shares of the Actual Costs on Assessed Property similarly benefited within that Phase.

E. Assessments The Assessments for the Phase #1 Bonds and the Phases #2 – 5 Major Improvement Bonds will be levied on each Parcel according to the Phases #2 – 5 Major Improvement Assessment Roll and the Phase #1 Assessment Roll, attached hereto as Appendix F and Appendix G, respectively. The Annual Installments for the Phases #2 – 5 Major Improvement Bonds and the Phase #1 Bonds will be collected at the time and in the amounts shown on the Phases #2 – 5 Major Improvement Assessment Roll and the Phase #1 Assessment Roll, respectively, subject to any revisions made during an Annual Service Plan Update. F. Administrative Expenses The cost of administering the PID and collecting the Annual Installments shall be paid for on a pro rata basis by each Parcel based on the amount of Assessment levied against the Parcel. The Administrative Expenses shall be collected as part of and in the same manner as Annual Installments in the amounts shown on the Assessment Roll, which may be revised based on actual costs incurred in Annual Service Plan Updates. G. Prepayment Reserve Pursuant to the PID Act, the interest rate for Assessments may exceed the actual interest rate per annum paid on the related Bonds by no more than one half of one percent (0.50%). The interest rate used to determine the Assessments is one half of one percent (0.50%) per annum higher than the actual rate paid on the Bonds, with up to 0.20% allocated to fund the associated interest

Appendix B-30

31

charged between the date of prepayment of an Assessment and the date on which Bonds are prepaid and up to 0.30% allocated to fund a delinquency reserve account as described below. The prepayment reserve shall be funded until it reaches 1.25% of the outstanding Bonds as stipulated in the Bond documents. Once the prepayment reserve is funded in full, any additional interest collected shall be allocated to fund delinquent payments as described in H below. H. Delinquency Reserve The Town has allocated up to 0.30% of the interest rate component of the Annual Installments to offset any possible delinquent payments. The additional reserve shall be funded up to 4% of the outstanding Bonds, but in no event will the annual collection, together with the Prepayment reserve, be more than 0.50% of the outstanding Bonds. The Town may allocate up to 0.50% of the interest rate component of the Annual Installments to pay for Administrative Expenses, improvement costs, any other use that benefits the Assessed Property or reduce the Assessments, as determined by the Town Council. I. TIRZ Credit

Pursuant to the TIRZ Ordinance, the Town has agreed to use TIRZ Revenues (the 46% of the property tax increment collected and deposited into the TIRZ No. 4 tax increment fund) generated from each Parcel to offset a portion of such Parcel’s PID assessments (the "TIRZ Credit"). The Annual Installment for each Parcel shall be calculated by taking into consideration any TIRZ Credit applicable to the Parcel. The TIRZ Credit applicable to each Parcel shall be calculated as described under Section VI (B) of this Service and Assessment Plan.

Appendix B-31

32

Section VI TERMS OF THE ASSESSMENTS

A. Amount of Assessments and Annual Installments for Parcels Located within Phases #2 - 5 The Assessment and Annual Installments for each Assessed Property located within Phases #2 - 5 are shown on the Phases #2 – 5 Major Improvement Assessment Roll, attached as Appendix F, and no Assessment shall be changed except as authorized by this Service and Assessment Plan and the PID Act. The Annual Installments shall be collected in an amount sufficient to pay principal and interest on the Phases #2 – 5 Major Improvement Bonds, to fund the prepayment reserve and delinquency reserve described in Section V, to cover Administrative Expenses of Phases #2 - 5. B. Amount of Assessments and Annual Installments for Parcels Located Within Phase #1 The Assessment and Annual Installments for each Assessed Property located within Phase #1 is shown on the Phase #1 Assessment Roll, attached as Appendix G, and no Assessment shall be changed except as authorized by this Service and Assessment Plan and the PID Act. The Annual Installments shall be collected in an amount sufficient to pay principal and interest on the Phase #1 Bonds, to fund the prepayment reserve and delinquency reserve described in Section V, and to cover Administrative Expenses of Phase #1. The Annual Installment for each Parcel shall be calculated by taking into consideration any TIRZ Credit applicable to the Parcel. The TIRZ Credit for each Parcel shall be calculated using the following formula:

A = B x (C ÷ D)

Where the terms have the following meanings:

A = the TIRZ Credit amount for a Parcel B = the total TIRZ Revenues collected for the preceding year C = the total Equivalent Unit of the Parcel D = the total Equivalent Units of all Parcels

The TIRZ Revenues collected in any given year shall be used to calculate the TIRZ Credit in the following year (i.e., TIRZ Revenues collected in 2014 shall be used to calculate the TIRZ Credit applicable to Annual Installments to be collected in 2015). TIRZ Credits shall be calculated for those Parcels that are subject to Assessments by the PID. The total TIRZ Revenues collected from all Parcels in each Phase shall be used to calculate the TIRZ Credit applicable to each Parcel within the Phase based on the above formula. The total TIRZ increment amount generated by all Phase #1 Assessed Property will be divided by the total Equivalent Units in Phase #1 to determine the TIRZ credit applicable to each Phase #1 Assessed Property. The total TIRZ increment amount generated by all Phase #2-5 Assessed Property will be divided by the total Equivalent Units in Phase #2 - 5 Assessed Property to determine the TIRZ credit applicable to each Phase #2 - 5 Assessed Property. The Equivalent Units to be used for the calculation of the TIRZ Credit shall be determined by the Administrator based on the information available to the

Appendix B-32

33

Administrator at the time of such calculations.

C. Amount of Assessments and Annual Installments for Parcels Located Within Future Phases

As Future Phases are developed, this Service and Assessment Plan will be amended to determine the Assessment and Annual Installments for each Assessed Property located within Future Phases (e.g., an Appendix will be added as the Assessment Roll for Phase 2, etc.). The Assessments shall not exceed the benefit received by the Assessed Property. D. Reallocation of Assessments 1. Subdivision Upon the subdivision of any Parcel, the Assessment for the Parcel prior to the subdivision shall be reallocated among the new subdivided Parcels according to the following formula:

A = B x (C ÷ D)

Where the terms have the following meanings:

A = the Assessment for each new subdivided Parcel B = the Assessment for the Parcel prior to subdivision C = the estimated Equivalent Units to be built on each new subdivided Parcel D = the sum of the estimated Equivalent Units to be built on all of the new subdivided

Parcels The calculation of the estimated number of units to be built on a Parcel shall be performed by the Administrator and confirmed by the Town Council based on the information available regarding the use of the Parcel. The estimate as confirmed shall be conclusive. The number of units to be built on a Parcel may be estimated by net land area and reasonable density ratios. The sum of the Assessments for all newly subdivided Parcels shall equal the Assessment for the Parcel prior to subdivision. The calculation shall be made separately for each newly subdivided Parcel. The reallocation of an Assessment for a Parcel that is a homestead under Texas law may not exceed the Assessment prior to the reallocation and to the extent the reallocation would exceed such amount, it shall be prepaid by such amount by the party requesting the subdivision of the Parcels. Any reallocation pursuant to this section shall be reflected in an Annual Service Plan Update approved by the Town Council. 2. Consolidation Upon the consolidation of two or more Parcels, the Assessment for the consolidated Parcel shall be the sum of the Assessments for the Parcels prior to consolidation. The reallocation of an Assessment for a Parcel that is a homestead under Texas law may not exceed the Assessment prior to the reallocation and to the extent the reallocation would exceed such amount, it shall be prepaid by such amount by the party requesting the consolidation of the Parcels. Any reallocation pursuant to this section shall be reflected in an Annual Service Plan Update

Appendix B-33

34

approved by the Town Council.

E. Mandatory Prepayment of Assessments 1. If a Parcel subject to Assessments is transferred to a party that is exempt from the payment of the Assessment under applicable law, or if an owner causes a Parcel subject to Assessments to become Non-Benefited Property, the owner of such Parcel shall pay to the Town the full amount of the principal portion of the Assessment on such Parcel, plus all Prepayment Costs, prior to any such transfer or act. 3. The payments required above shall be treated the same as any Assessment that is due and owing under the Act, the Assessment Ordinance, and this Service and Assessment Plan, including the same lien priority, penalties, procedures, and foreclosure specified by the Act. F. Reduction of Assessments

1. If after all Authorized Improvements to be funded with a series of Bonds have been completed and Actual Costs for such Authorized Improvements are less than the Actual Costs used to calculate the Assessments securing such series of Bonds, resulting in excess Bond proceeds being available to redeem Bonds of such series, then the Assessment securing such series of Bonds for each Parcel of Assessed Property shall be reduced by the Town Council pro rata such that the sum of the resulting reduced Assessments for all Assessed Properties equals the actual reduced Actual Costs and such excess Bond proceeds shall applied to redeem Bonds of such series. The Assessments shall not be reduced to an amount less than the related outstanding series of Bonds. If all of the Authorized Improvements are not completed, the Town may reduce the Assessments in another method if it determines such method would better reflect the benefit received by the Parcels from the Authorized Improvements completed. 2. If all the Authorized Improvements are not undertaken, resulting in excess Bond proceeds being available to redeem Bonds, then the Assessments and Annual Installments for each Parcel shall be appropriately reduced by the Town Council to reflect only the amounts required to repay the Bonds, including interest on the Bonds and Collection Costs, and such excess Bond proceeds shall be applied to redeem Bonds. The Town Council may reduce the Assessments and the Annual Installments for each Parcel (i) in an amount that represents the Authorized Improvements provided for each Parcel or (ii) by an equal percentage calculated based on Equivalent Units, if determined by the Town Council to be the most fair and practical means of reducing the Assessments for each Parcel, such that the sum of the resulting reduced Assessments equals the amount required to repay the Bonds, including interest on the Bonds and Collection Costs. The Principal Portion of the Assessment for each Parcel shall be reduced pro rata to the reduction in the Assessments for each Parcel such that the sum of the resulting reduced Principal Portion of the Bonds is equal to the outstanding principal amount of the Bonds. G. Payment of Assessments 1. Payment in Full (a) The Assessment for any Parcel may be paid in full at any time. Such payment shall include all Prepayment Costs. If prepayment in full will result in redemption of Bonds, the payment amount shall be reduced by the amount, if any, of interest through the date of

Appendix B-34

35

redemption of Bonds and reserve funds applied to the redemption under the Trust Indenture, net of any other costs applicable to the redemption of Bonds. (b) If an Annual Installment has been billed prior to payment in full of an Assessment, the Annual Installment shall be due and payable and shall be credited against the payment-in-full amount. (c) Upon payment in full of the Assessment and all Prepayment Costs, the Town shall deposit the payment in accordance with the Trust Indenture; whereupon, the Assessment shall be reduced to zero, and the owner’s obligation to pay the Assessment and Annual Installments thereof shall automatically terminate. (d) At the option of the owner, the Assessment on any Parcel plus Prepayment Costs may be paid in part in an amount sufficient to allow for a convenient redemption of Bonds as determined by the Administrator. Upon the payment of such amounts for a Parcel, the Assessment for the Parcel shall be reduced, the Assessment Roll shall be updated to reflect such partial payment, and the obligation to pay the Annual Installment for such Parcel shall be reduced to the extent the partial payment is made. 2. Payment in Annual Installments The Act provides that an Assessment for a Parcel may be paid in full at any time. If not paid in full, the Act authorizes the an Assessment to be paid in installments and additionally allows the Town to collect interest, administrative expenses and other authorized charges in installments. An Assessment for a Parcel that is not paid in full will be collected in Annual Installments each year in the amounts shown on the Assessment Roll, as updated as provided for herein, which include interest, Administrative Expenses, and payments required for the Prepayment Reserve and Delinquency Reserve. Payment of the Annual Installments shall commence with tax bills mailed after the initial issuance of Bonds. Each Assessment shall be paid with interest of no more than the lesser of (i) the actual interest rate paid on the Bonds and (ii) 9.5 percent per annum. The Phases #2-5 Assessment Roll sets forth for each year the Annual Installment for each Parcel based on the Bond interest rates of 6.65%, 6.90%, 7.15% and 7.4% for the Phases #2-5 Bonds due in 2021, 2024, 2027, and 2028, respectively, and additional interest at the rate of 0.5% for administrative expenses, Prepayment Reserve and Delinquency Reserve. The Phases #1 Assessment Roll sets forth for each year the Annual Installment for each Parcel based on the Bond interest rates of 6.40%, 6.65%, 6.90% and 7.15% for the Phases #1A Bonds due in 2023, 2028, 2032, and 2037, respectively, Phase #1 Reimbursement Agreement interest rate of 7.25%, and additional interest at the rate of 0.5% for administrative expenses, Prepayment Reserve and Delinquency Reserve. Furthermore, the Annual Installments may not exceed the amounts shown on the Assessment Rolls. The Assessment Rolls, updated with the actual interest rates on the Bonds, are shown as Appendix F and Appendix G. The Annual Installments shall be reduced to equal the actual costs of repaying the Bonds and actual Administrative Expenses (as provided for in the definition of such term), taking into consideration any other available funds for these costs, such as interest income on account balances.

Appendix B-35

36

The Town reserves and shall have the right and option to refund the Bonds in accordance with Section 372.027 of the PID Act. In the event of such refunding, the Administrator shall recalculate the Annual Installments, and if necessary, may adjust, or decrease, the amount of the Annual Installments so that total Annual Installments of Assessments will be produced in annual amounts that are required to pay the refunding bonds when due and payable as required by and established in the ordinance and/or the indenture authorizing and securing the refunding bonds, and such refunding bonds shall constitute Bonds for purposes of this Service and Assessment Plan. F. Collection of Annual Installments No less frequently than annually, the Administrator shall prepare, and the Town Council shall approve, an Annual Service Plan Update to allow for the billing and collection of Annual Installments. Each Annual Service Plan Update shall include an updated Assessment Roll and a calculation of the Annual Installment for each Parcel. Annual Collection Costs shall be allocated among Parcels in proportion to the amount of the Annual Installments for the Parcels. Each Annual Installment shall be reduced by any credits applied under the applicable Trust Indenture, such as capitalized interest, interest earnings on any account balances, and any other funds available to the Trustee for such purpose, including any existing deposits for a prepayment reserve. Annual Installments shall be collected by the Town in the same manner and at the same time as ad valorem taxes and shall be subject to the same penalties, procedures, and foreclosure sale in case of delinquencies as are provided for ad valorem taxes of the Town. The Town Council may provide for other means of collecting the Annual Installments to the extent permitted under the PID Act. The Assessments shall have lien priority as specified in the Act. Any sale of property for nonpayment of the Annual Installments shall be subject to the lien established for the remaining unpaid Annual Installments against such property and such property may again be sold at a judicial foreclosure sale if the purchaser thereof fails to make timely payment of the non-delinquent Annual Installments against such property as they become due and payable.

Appendix B-36

37

Section VII THE ASSESSMENT ROLL

A. Major Improvement Area Assessment Roll

Each Parcel within Phases #2 - 5 has been evaluated by the Town Council (based on the concept plan, developable area, proposed Homeowner Association Property and Public Property, the Major Improvements, best and highest use of land, and other development factors deemed relevant by the Town Council) to determine the Assessed Property within each Parcel.

Phases #2 – 5 Major Improvement Assessed Property will be assessed for the special benefits conferred upon the property as a result of the Major Improvements. Table IV-A summarizes the $12,240,000 in special benefit received by Phases #2 - 5 from the Major Improvements, the pro rata costs of the PID formation, and issuance costs for the proposed Phases #2 – 5 Major Improvement Bonds. The amount of Phases #2 – 5 Major Improvement Bonds is $12,240,000, which is equal to the benefit received by Phases #2 – 5 Major Improvement Assessed Property, and as such the total Assessment for all Assessed Property within Phases #2 - 5 is $12,240,000 plus annual Administrative Expenses. The Assessment for each Parcel of Assessed Property within the Phases #2 - 5 is calculated based on the allocation methodologies described in Section V.D of this Service and Assessment Plan. The Phases #2 – 5 Major Improvement Assessment Roll is attached hereto as Appendix F. B. Phase #1 Assessment Roll Phase #1 Assessed Property will be assessed for the special benefits conferred upon the property as a result of the Phase #1 Improvements that benefit Phase #1, which include a proportionate share of the Major Improvements allocable to Phase #1. Table IV-A summarizes the $7,435,000 in special benefit received by Phase #1 Assessed Property from the Phase #1 Improvements that benefit Phase #1, including the proportionate share of the Major Improvements allocable to Phase #1, the pro rata costs of the PID formation, and Bond issuance costs. The amount of Phase #1 Bonds is $7,435,000, which is equal to the benefit received by Phase #1 Assessed Property, and as such the total Assessment for all Assessed Property within Phase #1 is $7,435,000 plus annual Administrative Expenses and other authorized charges. The Assessment for each Parcel of Assessed Property within Phase #1 is calculated based on the allocation methodologies described in Section V.D of this Service and Assessment Plan. The Phase #1 Assessment Roll is attached hereto as Appendix G. C. Future Phase Assessment Roll As Future Phases are developed, this Service and Assessment Plan will be updated to determine the Assessment for each Parcel located within Future Phases (e.g., an Appendix will be added as the Assessment Roll for Phase #2, etc.). D. Annual Assessment Roll Updates The Administrator shall prepare, and shall submit to the Town Council for approval, annual updates to the Phases #2 – 5 Major Improvement Assessment Roll and Phase #1 Assessment Roll

Appendix B-37

38

in conjunction with the Annual Service Plan Update to reflect the following matters, together with any other changes helpful to the Administrator or the Town and permitted by the Act: (i) the identification of each Parcel (ii) the Assessment for each Parcel of Assessed Property, including any adjustments authorized by this Service and Assessment Plan or in the PID Act; (iii) the Annual Installment for the Assessed Property for the year (if the Assessment is payable in installments); and (iv) payments of the Assessment, if any, as provided by Section VI.H of this Service and Assessment Plan. Once Bonds are issued, the Assessment Rolls shall be updated, which update may be done in the next Annual Service Plan Update, to reflect any changes resulting from the issuance of the Bonds. This update shall reflect the actual interest on the Bonds on which the Annual Installments shall be paid, any reduction in the Assessments, and any revisions in the Actual Costs to be funded by the Bonds and Developer funds.

Appendix B-38

39

Section VIII MISCELLANEOUS PROVISIONS

A. Administrative Review The Town may elect to designate a third party to serve as Administrator. The Town shall notify Developer in writing at least thirty (30) days in advance before appointing a third party Administrator. To the extent consistent with the Act, an owner of an Assessed Parcel claiming that a calculation error has been made in the Assessment Roll(s), including the calculation of the Annual Installment, shall send a written notice describing the error to the Town not later than thirty (30) days after the date any amount which is alleged to be incorrect is due prior to seeking any other remedy. The Administrator shall promptly review the notice, and if necessary, meet with the Assessed Parcel owner, consider written and oral evidence regarding the alleged error and decide whether, in fact, such a calculation error occurred. If the Administrator determines that a calculation error has been made and the Assessment Roll should be modified or changed in favor of the Assessed Parcel owner, such change or modification shall be presented to the Town Council for approval to the extent permitted by the Act. A cash refund may not be made for any amount previously paid by the Assessed Parcel owner (except for the final year during which the Annual Installment shall be collected or if it is determined there are sufficient funds to meet the expenses of the PID for the current year), but an adjustment may be made in the amount of the Annual Installment to be paid in the following year. The decision of the Administrator regarding a calculation error relating to the Assessment Roll may be appealed to the Town Council. Any amendments made to the Assessment Roll(s) pursuant to calculation errors shall be made pursuant to the PID Act. The decision of the Administrator, or if such decision is appealed to the Town Council, the decision of the Town Council shall be conclusive as long as there is a reasonable basis for such determination. This procedure shall be exclusive and its exhaustion by any property owner shall be a condition precedent to any other appeal or legal action by such owner. B. Termination of Assessments

Each Assessment shall be extinguished on the date the Assessment is paid in full, including unpaid Annual Installments and Delinquent Collection Costs, if any. After the extinguishment of an Assessment and the collection of any delinquent Annual Installments and Delinquent Collection Costs, the Town shall provide the owner of the affected Parcel a recordable “Notice of the PID Assessment Termination”. C. Amendments Amendments to the Service and Assessment Plan can be made as permitted or required by the PID Act and under Texas law. The Town Council reserves the right to the extent permitted by the Act to amend this Service and Assessment Plan without notice under the Act and without notice to property owners of Parcels:

Appendix B-39

40

(i) to correct mistakes and clerical errors; (ii) to clarify ambiguities; and (iii) to provide procedures for the collection and enforcement of Assessments, Prepayment Costs, Collection Costs, and other charges imposed by the Service and Assessment Plan. D. Administration and Interpretation of Provisions The Town Council shall administer the PID, this Service and Assessment Plan, and all Annual Service Plan Updates consistent with the PID Act, and shall make all interpretations and determinations related to the application of this Service and Assessment Plan unless stated otherwise herein or in the Trust Indenture, such determination shall be conclusive. E. Severability If any provision, section, subsection, sentence, clause or phrase of this Service and Assessment Plan or the application of same to an Assessed Parcel or any person or set of circumstances is for any reason held to be unconstitutional, void or invalid, the validity of the remaining portions of this Service and Assessment Plan or the application to other persons or sets of circumstances shall not be affected thereby, it being the intent of the Town Council in adopting this Service and Assessment Plan that no part hereof or provision or regulation contained herein shall become inoperative or fail by reason of any unconstitutionality, voidness or invalidity of any other part hereof, and all provisions of this Service and Assessment Plan are declared to be severable for that purpose. If any provision of this Service and Assessment Plan is determined by a court to be unenforceable, the unenforceable provision shall be deleted from this Service and Assessment Plan and the unenforceable provision shall, to the extent possible, be rewritten to be enforceable and to give effect to the intent of the Town.

Appendix B-40

Appendix A

The PID MAP

Appendix B-41

Appendix B-42

Appendix B-43

Appendix B

ESTIMATED COSTS OF AUTHORIZED IMPROVEMENTS

Appendix B-44

Appendix BEstimated Cost of Authorized Improvements

Major Future PhaseImprovements Phase 1 Costs to be

to be funded with Improvements Funded withSeries 2014 Phase to be funded with Future Bonds

#2-5 Major Series 2014 and 2015 (For information

Improvement Bonds Phase 1 Bonds purposes only)

Road ImprovementsRight-of-way clearing & Grubbing $19,980 $72,240 $337,380Unclassified Excavation $123,763 $301,000 $1,761,538Concrete Paving $1,438,300 $888,165 $6,311,775Lime Stabilization $143,063 $129,745 $847,403Lime Material $114,750 $103,500 $674,250Temporary Pavement Section $0 $31,365 $05' Concrete Sidewalk $98,400 $8,480 $186,720Curlex Erosion Control Matting $20,048 $15,165 $117,788Franchise Utility Sleeves $29,825 $32,400 $178,625Concrete Header & Barricade $4,875 $11,800 $4,875Enhanced Paving Crosswalk $64,000 $0 $64,000Barrier Free Ramps $14,300 $31,900 $165,000Maintenance Bond $0 $0 $0Street Signs $0 $7,500 $44,000Street Lights $68,000 $80,000 $564,000Pavement Markings $55,000 $0 $60,000Screening Wall (Including Columns) $1,041,500 $0 $1,041,500Landscape / Irrigation (Median) $467,775 $0 $520,975Landscape / Irrigation (Parkway) $334,125 $0 $353,125Erosion Control and Storm Water Pollution Prevention $41,250 $62,700 $364,250Traffic Control $36,000 $24,000 $204,000

Subtotal - Road Improvements $4,114,953 $1,799,960 $13,801,203

Authorized Improvement

Estimated Costs

B ‐ 1 Appendix B-45





Improvement Bonds Phase 1 Bonds purposes only)Authorized Improvement

Estimated Costs

Water ImprovementsEx. 20" PVC Waterline $598,000 $0 $012" PVC Waterline $652,000 $0 $155,0008" PVC Waterline $0 $229,460 $1,005,620Waterline Installation by Bore $160,000 $0 $012" Gate Valve & Box $38,000 $0 $20,0008" Gate Valves & Box $0 $44,400 $228,000Fire Hydrant Assembly $10,500 $59,500 $469,000Connect to Existing 12" Waterline $1,000 $0 $1,000Connect to Existing Waterline W/ Wet Tap $10,000 $0 $0End and Plug $350 $4,200 $01" Single Water Service $0 $114,950 $583,000Seeding $5,500 $0 $0Sod $41,000 $0 $0Silt Fence $10,000 $0 $0Land Acquisition Costs $50,000 $0 $0Trench Safety $8,150 $5,215 $24,793Test (Excluding Geotech) $16,300 $10,430 $49,585

Subtotal - Water Improvements $1,600,800 $468,155 $2,535,998







Estimated Costs

Sanitary Sewer Improvements Frisco Hills Lift Station (40%) $339,070 $0 $06" Force Main $0 $0 $79,56010" Force Main $161,400 $0 $15,40014" Force Main $395,958 $0 $08" PVC Sanitary Sewer Line $0 $222,420 $891,77010" PVC Sanitary Sewer Line $0 $41,250 $012" PVC Sanitary Sewer Line $0 $10,000 $207,00016" PVC Sanitary Sewer Line $74,375 $0 $0Extra Depth Sanitary Sewer $0 $32,000 $04" Service Lines $0 $114,950 $578,0505' Dia. Manhole $14,700 $0 $0Sanitary Sewer Manhole $0 $126,000 $612,500Cleanout $0 $0 $2,4502000 PSI Concrete Encasement $0 $12,800 $0Metering Station $50,000 $0 $0Lift Station No. 1 - 0.1 MGD $0 $0 $125,000Lift Station No. 2 - 0.44 MGD $0 $0 $175,000Lift Station No. 3 - 0.1 MGD $0 $0 $125,000Lift Station No. 4 - 1.5 MGD $600,000 $0 $0Trench Safety $6,868 $11,735 $50,680Test (Excluding Geotech) $17,169 $29,338 $126,700

Subtotal - Sanitary Improvements $1,659,539 $600,493 $2,989,110







Estimated Costs

Storm Drainage ImprovementsRoadway Drainage $0 $0 $22,800Reinforced Concrete Storm Sewer Pipe $260,330 $211,930 $2,112,610Debris Separators $50,000 $37,500 $362,500Inlets W/Protection $109,125 $93,000 $604,125Outfall Structures $11,500 $10,500 $99,000Rock Rip Rap $6,000 $7,200 $66,000Grade to Drain $8,000 $8,150 $8,000End and Plug $700 $0 $700Trench Safety $5,545 $3,750 $27,220

Subtotal - Drainage Improvements $451,200 $372,030 $3,302,955TOTAL $7,826,492 $3,240,638 $22,629,265

Soft CostsContingency hard costs (5%) $391,325 $162,032 $1,131,463Engineering, Design & Surveying fees (12%) $939,179 $388,877 $2,715,512Geotechnical and Materials Testing (2.5%) $195,662 $81,016 $565,732Inspection Fees (3.25%) $254,361 $105,321 $735,451ROW Cost $1,800,000 $1,000,000General Contractor feeGeneral ConditionsPIDLegal

Subtotal Soft Costs $3,580,527 $737,245 $6,148,158Grand Total Improvements + Soft Costs $11,407,019 $3,977,883 $28,777,423Estimated Major Improvement Costs allocated to Phase 1 ($2,000,110) $2,000,110Total Estimated Improvement Costs to be funded $9,406,909 $5,977,992 $8,453,828







Estimated Costs

Estimated Bond issuance related costsDeposits to Debt Service Reserve Fund $1,224,000 $620,025Deposits to Capitaized Interest $525,040 $178,810Other costs of issuance (underwriters, bond counsel etc) $1,084,051 $658,173Total estimated Bond issuance related costs $2,833,091 $1,457,008

TOTAL ESTIMATED COSTS $12,240,000 $7,435,000


Appendix C

DIAGRAMS OF THE AUTHORIZED IMPROVEMENTS

Appendix B-50

Appendix B-51

Appendix B-52

Appendix B-53

Appendix B-54

Appendix B-55

Appendix B-56

Appendix D

LOT TYPES AND EQUIVALENT UNITS

Appendix B-57

D - 1 v2.7

Appendix D Lot Types and Equivalent Units

For purposes of allocating the Assessments, the Assessed Property has been classified in one of five Lot Types. The following table shows the proposed residential Lot Types within the PID.

Table D-1 Proposed Development within the PID

Lot Type Description Proposed Development

Residential Lot Type 1 100 Ft Lots 164 units Lot Type 2 80 Ft Lots 163 units Lot Type 3 60 Ft Lots 409 units Lot Type 4 40 Ft Lots 450 units Lot Type 5 25 Ft Lots 53 units

Total 1,239 units Table D-2 below shows the proposed residential Lot Types within Phase #1.

Table D-2 Proposed Development – Phase #1

Type Description Proposed

Development

Residential Lot Type 2 80 Ft Lots 41 units Lot Type 3 60 Ft Lots 168 units

Total 209 units Table D-3 below shows the proposed residential Lot Types within Phases #2 - 5.

Appendix B-58

D - 2 v2.7

Table D-3 Proposed Development - Phases #2 - 5

Type Description Proposed Development

Residential Lot Type 1 100 Ft Lots 164 units Lot Type 2 80 Ft Lots 122 units Lot Type 3 60 Ft Lots 241 units Lot Type 4 40 Ft Lots 450 units Lot Type 5 25 Ft Lots 53 units

Total 1,030 units

As explained under Section IV-D, For purpose of this Service and Assessment Plan, the Town Council has determined that the Actual Costs of the portion of the Major Improvements to be financed with the Phases #2 – 5 Major Improvement Bonds shall be allocated to the Phases #2 - 5 Assessed Property by spreading the entire Assessment across the Parcels based on the estimated Equivalent Units.

For purposes of this Service and Assessment Plan, the Town Council has determined that the Assessments shall be allocated to the Phases #2 -5 Assessed Property on the basis of the average home value of each Lot Type, and that such method of allocation will result in the imposition of equal shares of the Assessments on Parcels similarly benefited. In determining the average home value of each Lot Type, the Town Council has taken into consideration (i) the type of lots (i.e., 100 Ft, 80 Ft, etc.); (ii) current and projected home prices; (iii) the costs of the Authorized Improvements, and (iv) the ability of different property types to utilize and benefit from the Authorized Improvements.

Having taken into consideration the matters described above, the Town Council has determined that allocating the Assessments among Parcels based on average home value is best accomplished by creating classifications of benefited Parcels based on the “Lot Types” defined above. These classifications (from Lot Type 1 (100 Ft Lots) representing the highest value to Lot Type 5 (25 Ft Lot) representing the lowest value for residential lots are set forth in Table D-4 below. Assessments are allocated to each Lot Type on the basis of the average home value for each class of lots. This is accomplished by giving each Lot Type an Equivalent Unit factor. Equivalent Units are the ratio of the average value of lots within each assessment class, setting the Equivalent Unit factor for Lot Type 1 (100 Ft Lots) to 1.0.

Appendix B-59

D - 3 v2.7

Table D-4 Equivalent Unit Factors

Lot Type

Estimated Average Unit

Value Equivalent Unit

Factor Lot Type 1 (100 ft Lots) $450,000 1.00 per dwelling unit Lot Type 2 (80 ft Lots) $350,000 0.78 per dwelling unit Lot Type 3 (60 ft Lots) $300,000 0.67 per dwelling unit Lot Type 4 (40 ft Lots) $240,000 0.53 per dwelling unit Lot Type 5 (25 ft Lots) $175,000 0.39 per dwelling unit

The total estimated Equivalent Units for Phase #1 are shown in Table D-5 below as calculated based on the Equivalent Unit factors shown above, estimated Lot Types and number of units estimated to be built within Phase 1.

Table D-5 Estimated Equivalent Units - Phase #1

Lot Type Planned

No. of units Equivalent Unit Factor

Total Equivalent

Units Lot Type 2 (80 ft Lots) 41 0.78 31.98 Lot Type 3 (60 ft Lots) 168 0.67 112.56 Total Equivalent Units 209 144.54

The total estimated Equivalent Units for Phases #2 - 5 are shown in Table D-6 below as calculated based on the Equivalent Unit factors shown in Table D-4, estimated Lot Types and number of units estimated to be built within Phases #2 - 5.

Table D-6

Estimated Equivalent Units - Phases #2 - 5

Lot Type Planned

No. of unitsEquivalent Unit Factor

Total Equivalent

Units Lot Type 1 (100 ft Lots) 164 1.00 164.00 Lot Type 2 (80 ft Lots) 122 0.78 95.16 Lot Type 3 (60 ft Lots) 241 0.67 161.47 Lot Type 4 (40 ft Lots) 450 0.53 238.50 Lot Type 5 (25 ft Lots) 53 0.39 20.67 Total Equivalent Units 1,030 679.80

Appendix B-60

Appendix E

ALLOCATION OF ASSESSMENTS

Appendix B-61

E - 1 v2.7

Appendix E Allocation of Assessments

A) Allocation of Assessments to Lot Types in Phases #2 - 5

As shown in Section IV of this Service and Assessment Plan, the total amount of the Phases #2 – 5 Major Improvement Bonds, which represents the total Assessment to be allocated to all Parcels in the Phases #2 – 5 Assessed Property, is $12,240,000. As shown in Appendix D, there are a total of 679.80 estimated Equivalent Units in Phases #2 - 5, resulting in an Assessment per Equivalent Unit of $18,005.30. The Assessment per dwelling unit or acre is calculated as the product of (i) $18,005.30 multiplied by (ii) the applicable Equivalent Unit value for each Lot Type. For example, the Assessment for a Lot Type 1 (100 Ft Lot) dwelling unit is $18,005.30 (i.e. $18,005.30 × 1.00). The Assessment for a Lot Type 2 (80 Ft Lot) dwelling unit is $14,044.13 (i.e. $18,005.30 × 0.78). Table E-1 sets forth the Assessment per dwelling unit for each of the five Lot Types in Phases #2 - 5.

Table E-1 Assessment per Unit - Phases #2 - 5

Type

Planned No. of Units

Assessment per

Equivalent Unit

Equivalent Unit

Factor Assessment per Unit Total

Assessments

Residential Lot Type 1 164 $18,005.30 1.00 $18,005.30 per dwelling unit $2,952,868Lot Type 2 122 $18,005.30 0.78 $14,044.13 per dwelling unit $1,713,384Lot Type 3 241 $18,005.30 0.67 $12,063.55 per dwelling unit $2,907,315Lot Type 4 450 $18,005.30 0.53 $9,542.81 per dwelling unit $4,294,263Lot Type 5 53 $18,005.30 0.39 $7,022.07 per dwelling unit $372,169

Total 1,030 $12,240,000

B) Allocation of Assessments to Lot Types in Phase #1 As shown in Section IV of this Service and Assessment Plan, the total amount of the Phase #1 Bonds, which represents the total Assessment to be allocated on all Parcels within Phase #1, is $7,435,000. As shown in Appendix D, there are a total of 144.54 estimated Equivalent Units in Phase #1, resulting in an Assessment per Equivalent Unit of $51,439.05. The Assessment per dwelling unit or acre is calculated as the product of (i) $51,439.05 multiplied by (ii) the applicable Equivalent Unit value for each Lot Type. For example, the Assessment for a Lot Type 2 (80 Ft Lot) dwelling unit is $40,122.46 (i.e. $51,439.05 × 0.78). The Assessment for a Lot Type 3 (60 Ft Lot) dwelling unit is $34,464.16 (i.e. $51,439.05 × 0.67). Table E-2 sets forth the Assessment per dwelling unit for each of the two Lot Types in Phase #1.

Appendix B-62

E - 2 v2.7

Table E-2 Assessment per Unit - Phase #1

Type

Planned No. of Units

Assessment per

Equivalent Unit

Equivalent Unit

Factor Assessment per Unit Total

Assessments

Residential Lot Type 2 41 $51,439.05 0.78 $40,122.46 per dwelling unit $1,645,021Lot Type 3 168 $51,439.05 0.67 $34,464.16 per dwelling unit $5,789,979

Total 209 $7,435,000

Appendix B-63

F ‐

Appendix F

ASSESSMENT ROLL –Phases #2-5 Assessed Property

Appendix B-64

Parcel All ParcelsAssessment $12,240,000Total Equivalent Units 679.80

Year Principal1 Interest1

Administrative

Expenses2Total Annual Installment

1 $0 $466,343 $24,480 $490,8232 $0 $912,410 $24,970 $937,3803 $535,000 $912,410 $25,469 $1,472,8794 $590,000 $874,158 $25,978 $1,490,1365 $640,000 $831,973 $26,498 $1,498,4706 $700,000 $786,213 $27,028 $1,513,2407 $760,000 $736,163 $27,568 $1,523,7318 $830,000 $681,823 $28,120 $1,539,9429 $900,000 $622,478 $28,682 $1,551,16010 $980,000 $555,878 $29,256 $1,565,13311 $1,065,000 $483,358 $29,841 $1,578,19812 $1,155,000 $404,548 $30,438 $1,589,98513 $1,250,000 $316,190 $31,047 $1,597,23714 $1,360,000 $220,565 $31,667 $1,612,23215 $1,475,000 $116,525 $32,301 $1,623,82616 $0 $0 $0 $017 $0 $0 $0 $018 $0 $0 $0 $019 $0 $0 $0 $020 $0 $0 $0 $021 $0 $0 $0 $022 $0 $0 $0 $023 $0 $0 $0 $024 $0 $0 $0 $025 $0 $0 $0 $026 $0 $0 $0 $027 $0 $0 $0 $028 $0 $0 $0 $029 $0 $0 $0 $030 $0 $0 $0 $0

Total $12,240,000 $8,921,030 $423,343 $21,584,373

Appendix F Phases #2 - 5 Major Improvement Assessment Roll

1 - The principal and interest amounts are based on the Series 2014 Phase#2-5 Bonds.2 - The Administrative Expenses shown include the estimated District administration and assessment collection costs. The additional 0.5% interest to be collected for Prepayment reserve, Delinquencyreserve and other authorized costs is included under Interest together with the estimated Bond interest.

F ‐ 1 Appendix B-65

Parcel R38646Assessment $1,084,099Total Equivalent Units 60.21


Administrative


1 $0 $41,304 $2,168 $43,4722 $0 $80,812 $2,212 $83,0243 $47,385 $80,812 $2,256 $130,4534 $52,256 $77,424 $2,301 $131,9825 $56,685 $73,688 $2,347 $132,7206 $61,999 $69,635 $2,394 $134,0287 $67,313 $65,202 $2,442 $134,9578 $73,513 $60,389 $2,491 $136,3939 $79,713 $55,133 $2,540 $137,38610 $86,799 $49,234 $2,591 $138,62411 $94,327 $42,811 $2,643 $139,78112 $102,299 $35,831 $2,696 $140,82513 $110,713 $28,005 $2,750 $141,46814 $120,455 $19,535 $2,805 $142,79615 $130,641 $10,321 $2,861 $143,82316 $0 $0 $0 $017 $0 $0 $0 $018 $0 $0 $0 $019 $0 $0 $0 $020 $0 $0 $0 $021 $0 $0 $0 $022 $0 $0 $0 $023 $0 $0 $0 $024 $0 $0 $0 $025 $0 $0 $0 $026 $0 $0 $0 $027 $0 $0 $0 $028 $0 $0 $0 $029 $0 $0 $0 $030 $0 $0 $0 $0

Total $1,084,099 $790,137 $37,496 $1,911,732






Administrative


1 $0 $150,886 $7,921 $158,8062 $0 $295,211 $8,079 $303,2903 $173,100 $295,211 $8,241 $476,5524 $190,895 $282,835 $8,405 $482,1355 $207,073 $269,186 $8,573 $484,8326 $226,486 $254,380 $8,745 $489,6117 $245,899 $238,186 $8,920 $493,0058 $268,547 $220,604 $9,098 $498,2509 $291,196 $201,403 $9,280 $501,87910 $317,080 $179,855 $9,466 $506,40111 $344,582 $156,391 $9,655 $510,62812 $373,701 $130,892 $9,848 $514,44113 $404,439 $102,304 $10,045 $516,78814 $440,029 $71,364 $10,246 $521,64015 $477,238 $37,702 $10,451 $525,39116 $0 $0 $0 $017 $0 $0 $0 $018 $0 $0 $0 $019 $0 $0 $0 $020 $0 $0 $0 $021 $0 $0 $0 $022 $0 $0 $0 $023 $0 $0 $0 $024 $0 $0 $0 $025 $0 $0 $0 $026 $0 $0 $0 $027 $0 $0 $0 $028 $0 $0 $0 $029 $0 $0 $0 $030 $0 $0 $0 $0

Total $3,960,265 $2,886,409 $136,973 $6,983,647

Appendix F

1 - The principal and interest amounts are based on the Series 2014 Phase#2-5 Bonds.

Phases #2 - 5 Major Improvement Assessment Roll

2 - The Administrative Expenses shown include the estimated District administration and assessment collection costs. The additional 0.5% interest to be collected for Prepayment reserve, Delinquencyreserve and other authorized costs is included under Interest together with the estimated Bond interest.




Administrative


1 $0 $114,102 $5,990 $120,0922 $0 $223,244 $6,109 $229,3533 $130,901 $223,244 $6,232 $360,3774 $144,358 $213,884 $6,356 $364,5995 $156,592 $203,563 $6,483 $366,6386 $171,272 $192,366 $6,613 $370,2527 $185,953 $180,120 $6,745 $372,8198 $203,080 $166,825 $6,880 $376,7859 $220,207 $152,305 $7,018 $379,53010 $239,781 $136,009 $7,158 $382,94911 $260,579 $118,265 $7,301 $386,14612 $282,600 $98,983 $7,447 $389,03013 $305,844 $77,364 $7,596 $390,80414 $332,758 $53,967 $7,748 $394,47315 $360,895 $28,511 $7,903 $397,30916 $0 $0 $0 $017 $0 $0 $0 $018 $0 $0 $0 $019 $0 $0 $0 $020 $0 $0 $0 $021 $0 $0 $0 $022 $0 $0 $0 $023 $0 $0 $0 $024 $0 $0 $0 $025 $0 $0 $0 $026 $0 $0 $0 $027 $0 $0 $0 $028 $0 $0 $0 $029 $0 $0 $0 $030 $0 $0 $0 $0

Total $2,994,821 $2,182,752 $103,581 $5,281,154






Administrative


1 $0 $154,563 $8,114 $162,6762 $0 $302,405 $8,276 $310,6813 $177,318 $302,405 $8,441 $488,1654 $195,547 $289,727 $8,610 $493,8845 $212,119 $275,745 $8,782 $496,6476 $232,005 $260,579 $8,958 $501,5427 $251,891 $243,991 $9,137 $505,0198 $275,092 $225,980 $9,320 $510,3929 $298,292 $206,311 $9,506 $514,11010 $324,807 $184,238 $9,696 $518,74111 $352,979 $160,202 $9,890 $523,07112 $382,808 $134,081 $10,088 $526,97813 $414,295 $104,797 $10,290 $529,38114 $450,753 $73,103 $10,496 $534,35115 $488,868 $38,621 $10,706 $538,19416 $0 $0 $0 $017 $0 $0 $0 $018 $0 $0 $0 $019 $0 $0 $0 $020 $0 $0 $0 $021 $0 $0 $0 $022 $0 $0 $0 $023 $0 $0 $0 $024 $0 $0 $0 $025 $0 $0 $0 $026 $0 $0 $0 $027 $0 $0 $0 $028 $0 $0 $0 $029 $0 $0 $0 $030 $0 $0 $0 $0

Total $4,056,773 $2,956,748 $140,311 $7,153,832




Parcel R584981Assessment $144,042Total Equivalent Units 8.00


Administrative


1 $0 $5,488 $288 $5,7762 $0 $10,737 $294 $11,0313 $6,296 $10,737 $300 $17,3334 $6,943 $10,287 $306 $17,5365 $7,532 $9,791 $312 $17,6346 $8,238 $9,252 $318 $17,8087 $8,944 $8,663 $324 $17,9328 $9,768 $8,024 $331 $18,1229 $10,591 $7,325 $338 $18,25410 $11,533 $6,542 $344 $18,41911 $12,533 $5,688 $351 $18,57312 $13,592 $4,761 $358 $18,71113 $14,710 $3,721 $365 $18,79714 $16,005 $2,596 $373 $18,97315 $17,358 $1,371 $380 $19,10916 $0 $0 $0 $017 $0 $0 $0 $018 $0 $0 $0 $019 $0 $0 $0 $020 $0 $0 $0 $021 $0 $0 $0 $022 $0 $0 $0 $023 $0 $0 $0 $024 $0 $0 $0 $025 $0 $0 $0 $026 $0 $0 $0 $027 $0 $0 $0 $028 $0 $0 $0 $029 $0 $0 $0 $030 $0 $0 $0 $0

Total $144,042 $104,984 $4,982 $254,009




G ‐ 1

Appendix G

ASSESSMENT ROLL – Phase #1 Assessed Property

Appendix B-71

Parcel All ParcelsAssessment $7,435,000Total Equivalent Units 144.54

Year Principal1 Interest1 Principal2 Interest2

Administrative


1 $0 $149,934 $0 $136,459 $8,000 $294,3932 $0 $295,545 $0 $249,038 $8,160 $552,7423 $85,000 $310,525 $0 $249,038 $8,323 $652,8864 $90,000 $304,660 $0 $249,038 $8,490 $652,1875 $95,000 $298,450 $0 $249,038 $8,659 $651,1476 $105,000 $291,895 $0 $249,038 $8,833 $654,7657 $110,000 $284,650 $0 $249,038 $9,009 $652,6978 $115,000 $277,060 $0 $249,038 $9,189 $650,2879 $125,000 $269,125 $0 $249,038 $9,373 $652,536

10 $135,000 $260,500 $0 $249,038 $9,561 $654,09811 $140,000 $251,185 $0 $249,038 $9,752 $649,97412 $150,000 $241,175 $0 $249,038 $9,947 $650,15913 $160,000 $230,450 $0 $249,038 $10,146 $649,63314 $170,000 $219,010 $0 $249,038 $10,349 $648,39615 $185,000 $206,855 $0 $249,038 $10,556 $651,44816 $195,000 $193,628 $0 $249,038 $10,767 $648,43217 $210,000 $179,198 $0 $249,038 $10,982 $649,21718 $225,000 $163,658 $0 $249,038 $11,202 $648,89719 $240,000 $147,008 $0 $249,038 $11,426 $647,47120 $255,000 $129,248 $0 $249,038 $11,654 $644,93921 $270,000 $109,740 $0 $249,038 $11,888 $640,66522 $290,000 $89,085 $0 $249,038 $12,125 $640,24823 $315,000 $66,900 $0 $249,038 $12,368 $643,30524 $335,000 $42,803 $0 $249,038 $12,615 $639,45525 $0 $0 $395,000 $266,213 $12,867 $674,08026 $0 $0 $420,000 $235,600 $13,125 $668,72527 $0 $0 $455,000 $203,050 $13,387 $671,43728 $0 $0 $485,000 $167,788 $13,655 $666,44329 $0 $0 $520,000 $130,200 $13,928 $664,12830 $0 $0 $560,000 $89,900 $14,207 $664,10731 $0 $0 $600,000 $46,500 $14,491 $660,991

Total 4,000,000 $5,012,284 $3,435,000 $7,003,571 $339,036 $19,789,891

1 - The principal and interest amounts are base don the Series 2014 Phase #1A Bonds.

2 - The principal and interest amounts are based on the Phase #1 Reimbursement Agreement.

3 - The Administrative Expenses shown include the estimated District administration and assessment collection costs.

The additional 0.5% interest to be collected for prepayment reserve, delinquency reserve and other authorized costs

is included under Interest together with the estimated Phase #1A Bond interest.

Appendix GPhase #1 Assessment Roll

G ‐ 1 Appendix B-72



Administrative


1 $0 $42,395 $0 $38,585 $2,262 $83,2422 $0 $83,568 $0 $70,418 $2,307 $156,2933 $24,035 $87,804 $0 $70,418 $2,353 $184,6094 $25,448 $86,145 $0 $70,418 $2,401 $184,4125 $26,862 $84,389 $0 $70,418 $2,449 $184,1186 $29,690 $82,536 $0 $70,418 $2,498 $185,1417 $31,104 $80,487 $0 $70,418 $2,547 $184,5568 $32,517 $78,341 $0 $70,418 $2,598 $183,8759 $35,345 $76,098 $0 $70,418 $2,650 $184,510

10 $38,172 $73,659 $0 $70,418 $2,703 $184,95211 $39,586 $71,025 $0 $70,418 $2,757 $183,78612 $42,414 $68,194 $0 $70,418 $2,813 $183,83913 $45,241 $65,162 $0 $70,418 $2,869 $183,69014 $48,069 $61,927 $0 $70,418 $2,926 $183,34015 $52,310 $58,490 $0 $70,418 $2,985 $184,20316 $55,138 $54,750 $0 $70,418 $3,044 $183,35017 $59,379 $50,670 $0 $70,418 $3,105 $183,57218 $63,621 $46,276 $0 $70,418 $3,167 $183,48219 $67,862 $41,568 $0 $70,418 $3,231 $183,07820 $72,104 $36,546 $0 $70,418 $3,295 $182,36321 $76,345 $31,030 $0 $70,418 $3,361 $181,15422 $82,000 $25,190 $0 $70,418 $3,429 $181,03623 $89,069 $18,917 $0 $70,418 $3,497 $181,90024 $94,724 $12,103 $0 $70,418 $3,567 $180,81225 $0 $0 $111,690 $75,274 $3,638 $190,60226 $0 $0 $118,759 $66,618 $3,711 $189,08827 $0 $0 $128,655 $57,414 $3,785 $189,85528 $0 $0 $137,138 $47,443 $3,861 $188,44329 $0 $0 $147,035 $36,815 $3,938 $187,78830 $0 $0 $158,345 $25,420 $4,017 $187,78231 $0 $0 $169,655 $13,148 $4,097 $186,901

Total $1,131,036 $1,417,269 $971,278 $1,980,324 $95,865 $5,595,772










Administrative


1 $0 $107,539 $0 $97,874 $5,738 $211,1512 $0 $211,977 $0 $178,620 $5,853 $396,4493 $60,965 $222,721 $0 $178,620 $5,970 $468,2764 $64,552 $218,515 $0 $178,620 $6,089 $467,7755 $68,138 $214,061 $0 $178,620 $6,211 $467,0296 $75,310 $209,359 $0 $178,620 $6,335 $469,6247 $78,896 $204,163 $0 $178,620 $6,462 $468,1418 $82,483 $198,719 $0 $178,620 $6,591 $466,4129 $89,655 $193,027 $0 $178,620 $6,723 $468,025

10 $96,828 $186,841 $0 $178,620 $6,857 $469,14611 $100,414 $180,160 $0 $178,620 $6,995 $466,18812 $107,586 $172,981 $0 $178,620 $7,134 $466,32113 $114,759 $165,288 $0 $178,620 $7,277 $465,94414 $121,931 $157,083 $0 $178,620 $7,423 $465,05615 $132,690 $148,365 $0 $178,620 $7,571 $467,24516 $139,862 $138,878 $0 $178,620 $7,722 $465,08217 $150,621 $128,528 $0 $178,620 $7,877 $465,64518 $161,379 $117,382 $0 $178,620 $8,034 $465,41519 $172,138 $105,440 $0 $178,620 $8,195 $464,39320 $182,896 $92,702 $0 $178,620 $8,359 $462,57721 $193,655 $78,710 $0 $178,620 $8,526 $459,51122 $208,000 $63,895 $0 $178,620 $8,697 $459,21223 $225,931 $47,983 $0 $178,620 $8,871 $461,40524 $240,276 $30,700 $0 $178,620 $9,048 $458,64325 $0 $0 $283,310 $190,938 $9,229 $483,47826 $0 $0 $301,241 $168,982 $9,414 $479,63727 $0 $0 $326,345 $145,636 $9,602 $481,58228 $0 $0 $347,862 $120,344 $9,794 $478,00029 $0 $0 $372,965 $93,385 $9,990 $476,34030 $0 $0 $401,655 $64,480 $10,190 $476,32531 $0 $0 $430,345 $33,352 $10,393 $474,090

Total 2,868,964 $3,595,015 $2,463,722 $5,023,248 $243,170 $14,194,119








HOU:3384108.15

APPENDIX C

FORM OF OPINION OF BOND COUNSEL

HOU:3384108.15


57595088.2

Fulbright & Jaworski LLP

2200 Ross Avenue, Suite 2800 Dallas, Texas 75201-2784 United States

Tel +1 214 855 8000 Fax +1 214 855 8200 nortonrosefulbright.com

Fulbright & Jaworski LLP is a limited liability partnership registered under the laws of Texas.

Fulbright & Jaworski LLP, Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz, Inc.), each of which is a separate legal entity, are members of Norton Rose Fulbright Verein, a Swiss Verein. Details of each entity, with certain regulatory information, are at nortonrosefulbright.com. Norton Rose Fulbright Verein helps coordinate the activities of the members but does not itself provide legal services to clients.

February 27, 2014

IN REGARD to the authorization and issuance of the “Town of Little Elm, Texas, Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phases #2-5 Major Improvement Project)” (the “Bonds”), dated February 1, 2014, in the principal amount of $12,240,000, we have examined the legality and validity of the issuance thereof by the Town of Little Elm, Texas (the “Town”) solely to express legal opinions as to the validity of the Bonds and the exclusion of the interest on the Bonds from gross income for federal income tax purposes, and for no other purpose. We have not been requested to investigate or verify, and we neither expressly nor by implication render herein any opinion concerning, the financial condition or capabilities of the Town, the disclosure of any financial or statistical information or data pertaining to the Town and used in the sale of the Bonds, or the sufficiency of the security for or the value or marketability of the Bonds.

THE BONDS are issued in fully registered form only and mature, unless redeemed prior to maturity in accordance with the terms stated on the Bonds, on September 1 in each of the years specified in an Indenture of Trust (the “Indenture”), dated as of February 1, 2014, with The Bank of New York Mellon Trust Company, National Association, as trustee (the “Trustee”), approved by the Town Council of the Town pursuant to an ordinance (the “Ordinance”) adopted by the Town Council of the Town authorizing the issuance of the Bonds. The Bonds accrue interest from the date, at the rates, and in the manner and interest is payable on the dates, all as provided in the Indenture.

We have acted as Bond Counsel for the Town solely to pass upon the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes, and none other. We have not been requested to investigate or verify, and have not independently investigated or verified, any records, data or other material relating to the financial condition or capabilities of the Town or the history or prospects of the collection of Pledged Revenues, and have not assumed any responsibility with respect thereto. Capitalized terms used herein and not otherwise defined have the meanings assigned in the Indenture.

IN RENDERING THE OPINIONS herein we have examined and rely upon (i) original or certified copies of the proceedings had in connection with the issuance of the Bonds, including the Indenture, the Ordinance and an examination of the initial Bond executed and delivered by the Town (which we found to be in due form and properly executed); (ii) certifications of officers of the Town relating to the expected use and investment of proceeds of the sale of the Bonds and certain other funds of the Town and (iii) other documentation and such matters of law as we deem relevant. In the examination of the proceedings relating to the issuance of the Bonds, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies, and the accuracy of the statements contained in such documents and certifications.

Appendix C-1

of Legal Opinion of Fulbright & Jaworski LLP Re: Town of Little Elm, Texas, Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phases #2-5 Major Improvement Project)

57595088.2

BASED ON OUR EXAMINATION, we are of the opinion that, under applicable law of the United States of America and the State of Texas in force and effect on the date hereof:

1. The Bonds have been authorized, issued and delivered in accordance with law; that the Bonds are valid, legally binding and enforceable limited obligations of the Town in accordance with their terms payable solely from the Pledged Revenues, except to the extent the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws now or hereafter enacted relating to creditors’ rights generally.

2. Assuming continuing compliance after the date hereof by the Town with the provisions of the Indenture and in reliance upon representations and certifications of the Town made in a certificate of even date herewith pertaining to the use, expenditure, and investment of the proceeds of the Bonds, interest on the Bonds for federal income tax purposes (i) will be excludable from gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date hereof, of the owners thereof pursuant to section 103 of such Code, existing regulations, published rulings, and court decisions thereunder, and (ii) will not be included in computing the alternative minimum taxable income of individuals or, except as hereinafter described, corporations. Interest on the Bonds owned by a corporation will be included in such corporation’s adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporations, other than an S corporation, a qualified mutual fund, a real estate mortgage investment conduit, a real estate investment trust, or a financial asset securitization investment trust (FASIT). A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by Section 55 of the Code will be computed.

We express no opinion with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, property and casualty insurance companies, life insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement Benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations.

Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

Appendix C-2

HOU:3384108.15

APPENDIX D

FORM OF DISCLOSURE AGREEMENT

HOU:3384108.15


Execution Version

HOU:3388989.3

TOWN OF LITTLE ELM, TEXAS SPECIAL ASSESSMENT REVENUE BONDS, SERIES 2014

(VALENCIA PUBLIC IMPROVEMENT DISTRICT PHASES #2-5 MAJOR IMPROVEMENT PROJECT)

CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement dated as of February 1, 2014 (this “Disclosure Agreement”) is executed and delivered by and among the Town of Little Elm, Texas (the “Issuer”), The Bank of New York Mellon Trust Company, National Association (the “Dissemination Agent”), and Valencia on the Lake, L.P. (the “Developer”), with respect to the Issuer’s Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phases #2-5 Major Improvement Project) (the “Bonds”). The Issuer, the Dissemination Agent and the Developer covenant and agree as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Issuer, the Dissemination Agent and the Developer for the benefit of the Owners (as hereinafter defined) and beneficial owners of the Bonds. Unless and until a different filing location is designated by the MSRB or the SEC, all filings made by the Dissemination Agent pursuant to this Agreement shall be filed with the MSRB through EMMA.

SECTION 2. Definitions. In addition to the definitions set forth above and in the Indenture of Trust dated as of February 1, 2014, relating to the Bonds (the “Indenture”), which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Bond Disclosure Report” shall mean any Annual Bond Disclosure Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Disclosure Representative” shall mean the Director of Finance of the Issuer or his or her designee, and the general partner of the Developer or his or her designee, or such other officer or employee as the Issuer or the Developer, as applicable, may designate in writing to the Dissemination Agent from time to time.

“Dissemination Agent” shall mean the Trustee, or any successor Dissemination Agent designated in writing by the Issuer and which has filed with the Trustee a written acceptance of such designation.

“EMMA” shall mean the Electronic Municipal Market Access System available on the internet at http://emma.msrb.org.

“Fiscal Year” means the calendar year from October 1 through September 30.

Appendix D-1

2 HOU:3388989.3

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

“MSRB” means the Municipal Securities Rulemaking Board or any other entity designated or authorized by the SEC to receive reports pursuant to the Rule.

“Owner” means the registered owner of any Bonds.

“Participating Underwriter” shall mean Jefferies LLC and its successors and assigns.

“Phases #2-5” means Phases #2-5 of the Valencia Public Improvement District established by the Issuer and related to the Bonds.

“Rule” shall mean Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“SEC” shall mean the United States Securities and Exchange Commission.

“Tax-exempt” shall mean that interest on the Bonds is excluded from gross income for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating any other tax liability, including any alternative minimum tax liability.

“Trustee” shall mean The Bank of New York Mellon Trust Company, National Association, or any successor trustee pursuant to the Indenture.

SECTION 3. Provision of Annual Bond Disclosure Reports.

(a) The Issuer shall cause and hereby directs the Dissemination Agent to, not later than six months after the end of the Issuer’s Fiscal Year, commencing with the Fiscal Year ending September 30, 2014, provide or cause to be provided to the MSRB, in the electronic or other form required by the MSRB, an Annual Bond Disclosure Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. In each case, the Annual Bond Disclosure Report may be submitted as a single document or as separate documents comprising a package and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Issuer, if prepared and when available, may be submitted separately from the balance of the Annual Bond Disclosure Report, and later than the date required in this paragraph for the filing of the Annual Bond Disclosure Report if audited financial statements are not available by that date and unaudited financial information is submitted not later than six months after the end of the Issuer’s Fiscal Year. If the Issuer’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(d). All documents provided to the MSRB shall be accompanied by identifying information as prescribed by the MSRB.

(b) The Issuer shall or shall cause the Dissemination Agent to:

Appendix D-2

3 HOU:3388989.3

(i) determine the filing address or other filing location of the MSRB each year prior to filing the Annual Bond Disclosure Report on the date required in subsection (a);

(ii) file the Annual Bond Disclosure Report (excluding the audited financial statements of the Issuer, if any, which shall be filed by the Issuer or the Dissemination Agent upon receipt from the Issuer) containing or incorporating by reference the information set forth in Section 4 hereof; and

(iii) file a report with the Issuer and the Developer certifying that the Annual Bond Disclosure Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and that it was filed with the MSRB.

SECTION 4. Content of Annual Bond Disclosure Reports. The Annual Bond Disclosure Report for the Bonds shall contain or incorporate by reference, and the Issuer agrees to provide or cause to be provided to the Dissemination Agent, the following:

(a) If prepared and when available, the audited financial statements of the Issuer for the most recently ended Fiscal Year, prepared in accordance with generally accepted accounting principles applicable from time to time to the Issuer. If audited financial statements of the Issuer are not available by the date required by Section 3(a), the Issuer shall provide unaudited financial information not later than such date.

(b) Tables setting forth the following information, as of the end of such Fiscal Year:

(i) For the Bonds, the maturity date or dates, the interest rate or rates, the original aggregate principal amount and principal amount remaining Outstanding.

(ii) The amounts in the funds and accounts securing the Bonds and a description of the related investments.

(c) Updates to the information in the Service and Assessment Plan (“SAP”) as most recently amended or supplemented.

(d) Listing of any Phases #2-5 property or property owner representing more than twenty percent (20%) of the Assessments, the amount of the levy of Assessments against such landowners, and the percentage of such Assessments relative to the entire levy of Assessments, all as of the previous October 1.

(e) The total amount of Annual Installments assessed and collected during such Fiscal Year, together with the amount of Assessments prepaid during such Fiscal Year.

(f) The amount of Assessments collected from the property owners during such Fiscal Year.

(g) The amount of Assessments delinquent greater than six months, one year and two years, and, if delinquencies amount to more than five percent (5%) of aggregate amount of Assessments due in any year, a list of property owners whose Assessments are delinquent.

Appendix D-3

4 HOU:3388989.3

(h) The amount of delinquent Assessments by Fiscal Year: (1) which are subject to institution of foreclosure proceedings (but as to which such proceedings have not been instituted); (2) which are currently subject to foreclosure proceeding which have not been concluded; (3) which have been reduced to judgment but not collected; (4) which have been reduced to judgment and collected; and (5) the result of any foreclosure sales of assessed property within Phases #2-5 if the assessed property represents more than three percent (3%) of the total amount of Assessments.

(i) The principal and interest paid on the Bonds during the most recent Fiscal Year and the minimum scheduled principal and interest required to be paid on the Bonds in the next Fiscal Year;

(j) Any changes to the methodology for levying the Assessments in Phases #2-5 since the report of the most recent Fiscal Year;

(k) A description of any amendment to this Disclosure Agreement and a copy of any restatements to the Issuer’s audited financial statements.

See Exhibit B hereto for a form for submitting the information set forth in the preceding paragraph.

Any or all of the items listed above may be included by specific reference to other documents, including disclosure documents of debt issues of the Issuer, which have been submitted to and are publicly accessible from the MSRB. If the document included by reference is a final offering document, it must be available from the MSRB. The Issuer shall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, each of the following is a Listed Event with respect to the Bonds:

1. Principal and interest payment delinquencies.

2. Non-payment related defaults, if material.

3. Modifications to rights of Owners, if material.

4. Optional or unscheduled redemptions or repayments of the Bonds, if material.

5. Defeasances.

6. Rating changes.

7. Unscheduled draws on debt service reserves reflecting financial difficulties.

8. Unscheduled draws on credit enhancements reflecting financial difficulties.

9. Substitution of credit or liquidity providers, or their failure to perform.

10. Release, substitution, or sale of property securing repayment of the Bonds, if material.

Appendix D-4

5 HOU:3388989.3

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

12. Tender offers to any Owners, if material.

13. Bankruptcy, insolvency, receivership or similar event of the Issuer or the Developer.

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

15. Appointment of a successor or additional trustee under the Indenture or the change of name of a trustee, if material.

16. Failure to provide annual audited financial statements or unaudited financial information as required under this Disclosure Agreement.

Whenever the Issuer obtains knowledge of the occurrence of a Listed Event applicable to it, the Issuer shall promptly notify the Dissemination Agent in writing and the Issuer shall direct the Dissemination Agent to immediately file a notice of such occurrence with the MSRB. Whenever the Developer obtains knowledge of the occurrence of a Listed Event applicable to it, the Developer shall promptly notify the Issuer and the Dissemination Agent in writing and the Issuer shall direct the Dissemination Agent to immediately file a notice of such occurrence with the MSRB. Any such notice is required to be filed within ten (10) Business Days of the occurrence of such Listed Event.

Any notice under the preceding paragraph shall be accompanied with the text of the disclosure that the Issuer or the Developer, as the case may be, desires to make, the written authorization of the Issuer for the Dissemination Agent to disseminate such information as provided herein, and the date the Issuer desires for the Dissemination Agent to disseminate the information (which date shall not be more than ten (10) Business Days after the occurrence of the Listed Event).

In all cases, the Issuer shall have the sole responsibility for the content, design and other elements comprising substantive contents of all disclosures.

(b) The Dissemination Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any Listed Event with respect to the Bonds, notify the Disclosure Representative of such Listed Event. It is agreed and understood that the duty to make or cause to be made the disclosures herein is that of the Issuer or the Developer and not that of the Trustee or the Dissemination Agent. It is agreed and understood that the Dissemination Agent has agreed to give the foregoing notice to the Issuer and the Developer as an accommodation to assist it in monitoring the occurrence of such event, but is under no obligation to investigate whether any such event has occurred. As used above, “actual knowledge” means the actual fact or statement of knowing, without a duty to make any investigation with respect thereto. In no event shall the Dissemination Agent be liable in damages or in tort to the Participating Underwriter, the Issuer, the Developer or any Owner or

Appendix D-5

6 HOU:3388989.3

beneficial owner of any interests in the Bonds as a result of its failure to give the foregoing notice or to give such notice in a timely fashion.

(c) If in response to a request under subsection (b), the Issuer determines that the Listed Event under number 2, 3, 4, 10, 12, 14 or 15 of subparagraph (a) above is not material under applicable federal securities laws, the Issuer shall promptly notify the Developer, the Dissemination Agent and the Trustee (if the Dissemination Agent is not the Trustee) in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (d).

(d) If the Dissemination Agent has been instructed by the Issuer to report the occurrence of a Listed Event, the Dissemination Agent shall immediately file a notice of such occurrence with the MSRB.

SECTION 6. Quarterly Reporting Obligations of the Developer.

(a) The Developer shall provide, or cause to be provided, at its cost and expense, to the Issuer and the Dissemination Agent, on or before each March 30, June 30, September 30 and December 30 (beginning June 30, 2014), the information described in this Section 6, and the Dissemination Agent shall provide such information to the MSRB within fifteen (15) days of its receipt thereof. The Developer shall provide, or cause to be provided, the information described in this Section 6 during the period from the delivery of the Bonds until such time as the Developer is no longer responsible for the payment of Annual Installments of Assessments equal to at least 20% of the total Annual Installments of Assessments for any year. Such information shall include:

(i) Statement with respect to the Developer or any affiliate of the Developer as to the status of development loans and any permanent financing with respect to any development undertaken by the Developer in Phases #2-5 not financed with Bond proceeds, including loan balance, existence of deeds of trust or other similar encumbrances against the property within Phases #2-5, existence of any default and remaining term;

(ii) Statement as to available funds to complete Phases #2-5 development under construction as contemplated (both Bond financed and non-Bond financed development undertaken by the Developer or any affiliate of the Developer);

(iii) Status of parcel and/or lot sales from the Developer to any other party by type and average pricing, as well as anticipated future absorption sales;

(iv) A statement as to material changes, if any, in the form, organization or controlling ownership of the Developer;

(v) The status of any governmental approvals (other than customary home building permits required after a delivery of a finished lot) required for completion of Major Improvement Projects within Phases #2-5;

(vi) Any information regarding the Authorized Improvements within Phases #2-5 or other information as may be reasonably requested by the Issuer relating to the

Appendix D-6

7 HOU:3388989.3

ability of the Developer or any affiliate of the Developer to fulfill its obligations under the Indenture or the SAP;

(vii) Written notification of any significant zoning or land use entitlement changes or any other matter that would have a material adverse impact on land values within Phases #2-5, development potential of lands within Phases #2-5 or the likelihood of the timely payment of the Assessments levied on land or parcels owned by the Developer; and

(viii) Any changes to the land use designation for the property in Phases #2-5 that might negatively impact its development for those purposes identified in the final SAP, as the same may be amended and supplemented from time to time.

(b) Additionally, the Developer shall provide or cause to be provided filings as follows:

(i) The number, dollar amount, and property type (e.g., developed lots, undeveloped pads, parcels, raw land) under contract with wholesale purchasers and the name of each such purchaser;

(ii) For each residential home builder, on a per quarter and running total basis, (A) the number of residential units for which construction has begun, (B) the number of residential units for which construction has been completed, and (C) the number of residential units which have been sold to end users and the average sales price therefor; and

(iii) For each residential home builder, the estimated date of completion for all residential units expected to be constructed in Phases #2-5.

(c) With respect to the design-engineering and the Project Fund for the Major Improvement Projects, the Developer will establish an accounting and budgeting system that will show:

(i) Total expected costs for design and engineering to be completed after delivery of the Bonds;

(ii) Total expected construction budget;

(iii) Construction budget allocated to progress “Milestones;”

(iv) Forecast construction “Milestones” of progress;

(v) Forecast completion date; and

(vi) Forecast Issuer acceptance date.

The Developer shall prepare, within ninety (90) days of the issuance of the Bonds, a schedule reflecting the points listed above for each of the Authorized Improvements within Phases #2-5 to be funded by the Bond proceeds. Monthly design and construction expenditure progress reports, reflecting the points listed above, will be summarized by the Developer on a

Appendix D-7

8 HOU:3388989.3

quarterly basis to reflect the progress and conformance with the overall project budget. These quarterly summaries will be filed with the Dissemination Agent. Budget overruns in excess of $250,000 per quarter or delays of greater than sixty (60) days will be highlighted and explained and the Developer shall include a plan to remedy the situation.

(d) If the Developer sells, assigns or otherwise transfers ownership of real property in Phases #2-5 to a third party, which results in such third party owning property representing at least twenty percent (20%) of the total Annual Installments of the Assessments first coming due after such transfer of ownership, the Developer shall require such third party to comply with the Developer’s disclosure obligations hereunder with respect to such acquired real property for so long as such third party is the owner of property representing at least twenty percent (20%) of the total of Annual Installments of the Assessments next coming due.

SECTION 7. Event Reporting Obligations of Developer. Whenever the Developer or an affiliate of the Developer obtains actual knowledge of the occurrence of one or more of the following events, the Developer shall notify, or cause such affiliate to notify, the Issuer and Dissemination Agent of such occurrences and the Dissemination Agent shall immediately report and file a notice of such event in the manner as provided in Section 5 for the Listed Events specified therein:

(i) Failure to pay any real property taxes or Assessments levied within Phases #2-5 on a parcel owned by the Developer, or an affiliate of the Developer;

(ii) Material damage to or destruction of any development or improvements, including the Authorized Improvements within Phases #2-5;

(iii) Material default by the Developer or any affiliate of the Developer on any loan with respect to the development or permanent financing of District development undertaken by the Developer or any affiliate of the Developer;

(iv) Material default by the Developer or any affiliate of the Developer on any loan secured by property within Phases #2-5 owned by the Developer or any affiliate of the Developer;

(v) The bankruptcy filing of the Developer or of any affiliate of the Developer or any determination that the Developer or any affiliate of the Developer is unable to pay its debts as they become due;

(vi) The filing of any lawsuit with claim for damage, in excess of $1,000,000 against the Developer or any affiliate of the Developer which may adversely affect the completion of Phases #2-5 development or litigation which would materially adversely affect the financial condition of the Developer or any affiliate of the Developer; and

(vii) Any change in the legal structure, chief executive officer or controlling ownership of the Developer or any affiliate of the Developer.

For purposes of Section 6 and 7, the term “affiliate” shall mean an entity that owns property within Phases #2-5 and is controlled by, controls, or is under common control of the Developer.

Appendix D-8

9 HOU:3388989.3

SECTION 8. Termination of Reporting Obligations. The obligations of the Issuer, the Developer and the Dissemination Agent under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds, when the Issuer or the Developer is no longer an obligated person with respect to the Bonds, or upon delivery by the Disclosure Representative to the Dissemination Agent of an opinion of nationally recognized bond counsel to the effect that continuing disclosure is no longer required. If such termination occurs prior to the final maturity of the Bonds, the Issuer shall give notice of such termination in the same manner as for a Listed Event with respect to such series of Bonds under Section 5(d).

SECTION 9. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent or successor Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge such Dissemination Agent, with or without appointing a successor Dissemination Agent. If at any time there is not any other designated Dissemination Agent, the Issuer shall be the Dissemination Agent. The initial Dissemination Agent appointed hereunder shall be The Bank of New York Mellon Trust Company, National Association.

SECTION 10. Amendment; Waiver. Notwithstanding any other provisions of this Disclosure Agreement, the Issuer, the Developer and the Dissemination Agent may amend this Disclosure Agreement (and the Dissemination Agent shall not unreasonably withhold its consent to any amendment so requested by the Issuer and the Developer), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the delivery of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either (i) is approved by the Owners of the Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Owners or beneficial owners of the Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Issuer shall describe such amendment in the next related Annual Bond Disclosure Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Issuer. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(d), and (ii) the Annual Bond Disclosure Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting

Appendix D-9

10 HOU:3388989.3

principles. No amendment which adversely affects the Dissemination Agent may be made without its consent (which consent will not be unreasonably withheld or delayed).

SECTION 11. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Bond Disclosure Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Issuer chooses to include any information in any Annual Bond Disclosure Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Bond Disclosure Report or notice of occurrence of a Listed Event.

SECTION 12. Default. In the event of a failure of the Issuer or the Developer to comply with any provision of this Disclosure Agreement, the Dissemination Agent may (and, at the request of any Participating Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Bonds, shall, upon being indemnified to its satisfaction as provided in the Indenture), or any Owner or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate to cause the Issuer or the Developer, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture with respect to the Bonds, and the sole remedy under this Disclosure Agreement in the event of any failure of the Issuer or the Developer to comply with this Disclosure Agreement shall be an action to mandamus or specific performance.

SECTION 13. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall not have any duty with respect to the content of any disclosures made pursuant to the terms hereof. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and no implied covenants shall be read into this Disclosure Agreement with respect to the Dissemination Agent. To the extent permitted by law, the Issuer and the Developer separately agree to hold harmless the Dissemination Agent, its officers, directors, employees and agents, against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct; provided, however, that nothing herein shall be construed to require (i) the Issuer to indemnify the Dissemination Agent for losses, expenses or liabilities arising from information provided to the Dissemination Agent by the Developer or the failure of the Developer to provide information to the Dissemination Agent as and when required under this Agreement or (ii) the Developer to indemnify the Dissemination Agent for losses, expenses or liabilities arising from information provided to the Dissemination Agent by the Issuer or the failure of the Issuer to provide information to the Dissemination Agent as and when required under this Agreement. The obligations of the Issuer and the Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment in full of the Bonds. Nothing in this Disclosure Agreement shall be construed to mean or to imply that the Dissemination Agent is an “obligated person” under the Rule. The Dissemination Agent is not acting in a fiduciary capacity in connection with the performance of its respective obligations hereunder. The fact that the Dissemination Agent may have a banking relationship with the Issuer or the Developer or any person with whom the Issuer or the Developer contracts in connection with the transaction described in the

Appendix D-10

11 HOU:3388989.3

Indenture, apart from the relationship created by the Indenture or this Disclosure Agreement, shall not be construed to mean that the Dissemination Agent has actual knowledge of any event described in Section 5 above, except as may be provided by written notice to the Dissemination Agent pursuant to this Disclosure Agreement. The Dissemination Agent shall not in any event incur any liability with respect to (i) any action taken or omitted to be taken in good faith upon advice of legal counsel given with respect to any question relating to duties and responsibilities of the Dissemination Agent hereunder, or (ii) any action taken or omitted to be taken in reliance upon any document delivered to the Dissemination Agent and believed to be genuine and to have been signed or presented by the proper party or parties.

The Dissemination Agent may, from time to time, consult with legal counsel of its own choosing in the event of any disagreement or controversy, or question or doubt as to the construction of any of the provisions hereof or their respective duties hereunder, and the Dissemination Agent shall not incur any liability and shall be fully protected in acting in good faith upon the advice of such legal counsel. UNDER NO CIRCUMSTANCES SHALL THE DISSEMINATION AGENT, THE DEVELOPER, OR THE ISSUER BE LIABLE TO THE OWNER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE ISSUER, THE DEVELOPER, OR THE DISSEMINATION AGENT, RESPECTIVELY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS DISCLOSURE AGREEMENT, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. THE DISSEMINATION AGENT IS UNDER NO OBLIGATION NOR IS IT REQUIRED TO BRING SUCH AN ACTION.

SECTION 14. Assessment Timeline. The basic expected timeline for the collection of Assessments and the anticipated procedures for pursuing the collection of delinquent Assessments is set forth in Exhibit C which is intended to illustrate the general procedures expected to be followed in enforcing the payment of delinquent Assessments.

SECTION 15. No Personal Liability. No covenant, stipulation, obligation or agreement of the Issuer, Developer or Dissemination Agent contained in this Disclosure Agreement shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future officer, agent or employee of the Issuer, Developer or Dissemination Agent in other than that person's official capacity.

SECTION 16. Severability. In case any section or provision of this Disclosure Agreement, or any covenant, stipulation, obligation, agreement, act or action, or part thereof made, assumed, entered into, or taken thereunder or any application thereof, is for any reasons held to be illegal or invalid, such illegality or invalidity shall not affect the remainder thereof or any other section or provision thereof or any other covenant, stipulation, obligation, agreement, act or action, or part thereof made, assumed, entered into, or taken thereunder (except to the extent that such remainder or section or provision or other covenant, stipulation, obligation, agreement, act or action, or part thereof is wholly dependent for its operation on the provision determined to be invalid), which shall be construed and enforced as if such illegal or invalid portion were not contained therein, nor shall such illegality or invalidity of any application thereof affect any legal and valid application thereof, and each such section, provision, covenant, stipulation, obligation, agreement, act or action, or part thereof shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law.

Appendix D-11

12 HOU:3388989.3

SECTION 17. Sovereign Immunity. The Developer and the Dissemination Agent agree that nothing in this Disclosure Agreement shall constitute or be construed as a waiver of the Issuer’s sovereign or governmental immunities regarding liability or suit.

SECTION 18. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Developer, the Dissemination Agent, the Participating Underwriter and the Owners and the beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Nothing in this Disclosure Agreement is intended or shall act to disclaim, waive or otherwise limit the duties of the Issuer under federal and state securities laws.

SECTION 19. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of Texas.

SECTION 20. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

[remainder of page left blank intentionally]

Appendix D-12

[signature page of Continuing Disclosure Agreement] HOU:3388989.3

TOWN OF LITTLE ELM, TEXAS By: ____________________________________

Matt Mueller, Town Manager

Appendix D-13


THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION,

(as Dissemination Agent) By: ____________________________________

Authorized Officer

Appendix D-14


VALENCIA ON THE LAKE, L.P., a Texas limited partnership

By: Valencia on the Lake G.P., L.L.C., a Texas

limited liability company, Its General Partner

By: __________________________________ Mehrdad Moayedi

Manager

Appendix D-15

A-1

HOU:3388989.3

EXHIBIT A

NOTICE TO MSRB OF FAILURE TO FILE ANNUAL BOND DISCLOSURE REPORT

Name of Issuer: Town of Little Elm, Texas

Name of Bond Issue: Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phases #2-5 Major Improvement Project)

Date of Delivery: ______________, 20__

NOTICE IS HEREBY GIVEN that the Town of Little Elm, Texas, has not provided an Annual Bond Disclosure Report with respect to the above-named bonds as required by the Continuing Disclosure Agreement dated February 1, 2014, between the Issuer, Valencia on the Lakes, L.P., a Texas limited partnership (the “Developer”), and The Bank of New York Mellon Trust Company, National Association, as dissemination agent. The Issuer anticipates that the Annual Bond Disclosure Report will be filed by ________________.

Dated: _________________

THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, on behalf of the Town of Little Elm, Texas By:____________________________________ Title:__________________________________

cc: Town of Little Elm, Texas

Appendix D-16

B-1

HOU:3388989.3

EXHIBIT B

TOWN OF LITTLE ELM, TEXAS SPECIAL ASSESSMENT REVENUE BONDS, SERIES 2014

(VALENCIA PUBLIC IMPROVEMENT DISTRICT PHASES #2-5 MAJOR IMPROVEMENT PROJECT)

______________________________________________________________________________

ANNUAL BOND DISCLOSURE REPORT* ______________________________________________________________________________

Delivery Date: __________, 20__

TRUSTEE

Name: _________________________________________ Address: _________________________________________ City: _________________________________________ Telephone: _________________________________________ Contact Person: _________________________________________

BONDS OUTSTANDING

CUSIP Number

Maturity Date

Interest Rate

Original Principal Amount

Outstanding Principal Amount

Outstanding Interest Amount

INVESTMENTS

Fund/

Account Name Investment Description

Par Value Book Value Market Value

_________________________ *Excluding Audited Financial Statements of the Issuer

Appendix D-17

B-2

HOU:3388989.3

ASSETS & LIABILITIES OF PLEDGED TRUST ESTATE

Bonds (Principal Balance) ___________________

Funds and Accounts [list] ___________________

TOTAL ASSETS ___________________

LIABILITIES

Outstanding Bond Principal ___________________

Outstanding Program Expenses (if any) ___________________

TOTAL LIABILITIES ___________________

EQUITY

Assets Less Liabilities ___________________

Parity Ratio ___________________

Form of Accounting � Cash � Accrual � Modified Accrual

ITEMS REQUIRED BY SECTION 4(c) - (k) [Insert a line item for each applicable listing]

Appendix D-18

C-1

HOU:3388989.3

EXHIBIT C

BASIC TIMELINE FOR ASSESSMENT COLLECTIONS AND PURSUIT OF

DELINQUENCIES

Date Delinquency Clock (Days)

Activity

January 31 Assessments are due.

February 1 1 Assessments Delinquent if not received

February 15 15 Issuer forwards payment to Trustee for all collections received as of February 15, along with detailed breakdown. Subsequent payments and relevant details will follow monthly thereafter.

Issuer and/or Administrator should be aware of actual and specific delinquencies

Issuer should be aware if Reserve Fund needs to be utilized for debt service payment on March 1. If there is to be a shortfall, the Trustee and Dissemination Agent should be immediately notified.

Issuer should also be aware if, based on collections, there will be a shortfall for September payment.

Issuer and/or Administrator should determine if previously collected surplus funds, if any, plus actual collections will be fully adequate for debt service in March and September.

At this point, if total delinquencies are under 5% and if there is adequate funding for March and September payment, no further action is anticipated for collection of Assessments except that the Issuer or Administrator, working with the City Attorney or an appropriate designee, will begin process to cure deficiency. For properties delinquent by more than one year or if the

Appendix D-19

C-2

HOU:3388989.3

delinquency exceeds $10,000 the matter will be referred for commencement of foreclosure.

If there are over 5% delinquencies or if there is inadequate funding in the Pledged Revenue Fund for transfer to the Principal and Interest Account of such amounts as shall be required for the full March and September payment, the collection-foreclosure procedure will proceed against all delinquent properties.

March 1

29/30

Trustee pays bond interest payments to bondholders.

Reserve Fund payment to Bond Fund may be required if Assessments are below approximately 50% collection rate.

Dissemination Agent to notify MSRB if Reserve Fund utilized for debt service.

Use of Reserve Fund for debt service payment should trigger commencement of foreclosure on delinquent properties.

March 5 33/34 Issuer to notify Dissemination Agent for disclosure to MSRB of all delinquencies.

If any property owner with ownership of property responsible for more than $10,000 of the Assessments is delinquent or if a total of delinquencies is over 5%, or if it is expected that Reserve Fund moneys will need to be utilized for either the March or September bond payments, the Director of Finance shall work with Town Attorney's office, or the appropriate designee, to satisfy payment of all delinquent Assessments.

April 15 74/75 Preliminary Foreclosure activity commences.

If Dissemination Agent has not received Foreclosure Schedule and Plan of Collections, Dissemination Agent to request same from the Issuer.

Appendix D-20

C-3

HOU:3388989.3

May 1 89/90 If the Issuer has not provided the Dissemination Agent with Foreclosure Schedule and Plan of Collections, Dissemination Agent requests that the Issuer commence foreclosure or provide plan for collection.

May 15 103/104 The designated lawyers or law firm will be preparing the formal foreclosure documents and will provide periodic updates to the Dissemination Agent for dissemination to those bondholders who have requested to be notified of collections progress. The goal for the foreclosure actions is a filing by no later than June 1 (day 120/121).

June 1 120/121 Foreclosure action to be filed with the court.

June 15 134/135 Issuer notifies Dissemination Agent of Foreclosure filing status. Dissemination Agent notifies bondholders.

July 1 150/151 If bondholders and Dissemination Agent have not been notified of a foreclosure action, Dissemination Agent will notify MSRB and the Issuer that it is appropriate to file action.

A committee of not less than 25% of the bondholders may request a meeting with the Director of Finance to discuss the Issuer’s actions in pursuing the repayment of any delinquencies. This would also occur after day 30 if it is apparent that a Reserve Fund draw is required. Further, if delinquencies exceed 5%, bondholders may also request a meeting with the Issuer at any time to discuss the Issuer’s plan and progress on collection and foreclosure activity. If the Issuer is not diligently proceeding with the foreclosure process, the bondholders may seek an action for mandamus or specific performance to direct the Issuer to pursue the collections of delinquent Assessments.

Appendix D-21

HOU:3384108.15


HOU:3384108.15

APPENDIX E

APPRAISAL OF VALENCIA ON THE LAKES

HOU:3384108.15


SELF-CONTAINED APPRAISAL REPORT OF

Valencia on the Lake A Proposed Multiphase Residential Subdivision To Be Located on the North and South Sides of

Doe Creek Road (Future Rockhill Parkway) West of FM-423 and South of US-380 Little Elm ETJ, Denton County, Texas

Prepared For:

JEFFERIES, LLC Mr. Mark Curran

Managing Director 300 Crescent Court, Suite 500

Dallas, Texas 75201

Prepared By:

JACKSON CLABORN, INC. Real Estate Consulting and Appraisal Services

5800 W. Plano Parkway, Suite 220 Plano, Texas 75093

Appendix E-1

Headquarters: 5800 W. Plano Parkway Suite 220 Plano, Texas 75093 (1572) 732-0051 FAX (1572) 733-1403

Jackson Claborn, Inc. Real Estate Consulting and Appraisal Services

Plano, Texas www.jacksonclaborn.com

Jimmy H. Jackson, MAI Allen W. Gardner, SRA David B. Ray, SRA

December 27, 2013 Mr. Mark Curran Jefferies, LLC Managing Director 300 Crescent Court, Suite 500 Dallas, Texas 75201 RE: Valencia on the Lake, a proposed Multiphase residential subdivision to be located on

the north and south sides of Doe Creek Road (Future Rockhill Parkway), west of FM-423 and south of US-380, Little Elm ETJ, Denton County, Texas; D-353-F/G; JCI File No. 1310126

Dear Mr. Curran:

At your request and authorization, Jackson Claborn, Inc. has prepared an appraisal presented in a self-contained appraisal format of the market value in the above-referenced real property. The subject was physically inspected on November 8, 2013. The date of the report is December 27, 2013. Per the request of the client, we have provided the fee simple estate values for the subject property as follows:

Prospective Value of Phase I, “As If Improved As Proposed" on November 8, 2014 Prospective Value of Villages/Phases 2A and 2B combined on November 8, 2014 Prospective Value of Village/Phase 3 on November 8, 2014 Prospective Value of Village/Phase 4 on November 8, 2014 Prospective Value of Village/Phase 5 on November 8, 2014

Data, information, and calculations leading to the value conclusion are incorporated in the report following this letter. The report, in its entirety, including all assumptions and limiting conditions, is an integral part of, and inseparable from, this letter. Any special assumptions and limiting considerations are noted in Section 2 of this report. Your attention is directed to these "General Assumptions and Limiting Conditions" which are part of this report. We suggest that you thoroughly read and familiarize yourself with these, since the appraisal is based upon these assumptions.

Appendix E-2

Mr. Mark Curran Page Two December 27, 2013 The following appraisal sets forth the most pertinent data gathered, the techniques employed, and the reasoning leading to the opinion of value. The analyses, opinions, and conclusions were developed based on, and this report has been prepared in conformance with, our interpretation of the guidelines and recommendations set forth in the Uniform Standards of Professional Appraisal Practice (USPAP), the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Title XI Regulations appraisal standards. Based upon an inspection of the property and the information and analysis provided in the following report, it is our opinion that the “Prospective Value” of the fee simple interest in the subject’s 209 proposed residential lots within Valencia on the Lake, Phase 1 “As If Improved As Proposed" on November 8, 2014 will be:

TWELVE MILLION DOLLARS

($12,000,000)

Furthermore, it is our opinion that the “Prospective Value” of the fee simple interest in the subject’s Villages/Phases 2A and 2B combined (110.039 acres of partially developed land) as of November 8, 2014 will be:

ELEVEN MILLION NINE HUNDRED SEVENTY THOUSAND DOLLARS ($11,970,000)

It is our opinion that the “Prospective Value” of the fee simple interest in the subject’s Village/Phase 3 (112.164 acres of partially developed land) as of November 8, 2014 will be:

TWELVE MILLION DOLLARS ($12,000,000)


SEVEN MILLION ONE HUNDRED THOUSAND DOLLARS ($7,100,000)

Appendix E-3

Mr. Mark Curran Page Three December 27, 2013 Finally, it is our opinion that the “Prospective Value” of the fee simple interest in the subject’s Village/Phase 5 (91.179 acres of partially developed land) as of November 8, 2014 will be:

NINE MILLION NINE HUNDRED THOUSAND DOLLARS ($9,900,000)

It must be noted that our opinions of value are subject to the following extraordinary assumptions and hypothetical conditions. In addition, within the confines of our extraordinary assumptions and hypothetical conditions shown below, we may also have included scope of work issues which may or may not necessarily be extraordinary assumptions and hypothetical conditions, yet could contribute to and influence our assignment results:

All information, including land and lot areas and other pertinent data that was provided by Petitt Barraza, LLC (engineers and surveyors), Valencia on the Lake, LP (owner), and the Denton Central Appraisal District is assumed to be correct. If it is found that the information supplied to us is significantly different than our assumption, our assignment results might be affected.

The overall subject property totals 447.942 gross acres and has been paper-

platted and engineered to eventually be developed as a master-planned community to be known as “Valencia on the Lake” with frontage on Lewisville Lake. This future development is planned to eventually consist of 1,239 single-family lots, an amenity center, a school site, and possibly a marina. Furthermore, although approximately 76.0 gross acres (17%) of the overall site has been estimated by the engineers to be located within a 100-year floodplain, the subject is mandated under its “Joint Development Agreement” with the Town of Little Elm to have 65.0 acres of open space; therefore, there is minimal land loss over and above this mandate. In addition, the subject’s owner/developer has signed a “Joint Development Agreement” with the adjoining property owner/developer (Frisco Hills, LP). Finally, the Town of Little Elm has approved and adopted the following infrastructure programs relative to the subject property: The major points are as follows:

A “Valencia Public Improvement District No. 1” (PID) has been adopted by the City of Little Elm for the “Valencia on the Lake” master-planned development.

A Water Control and Improvement District (“WCID”) was approved in February of 2008 which outlined the district’s construction of the water distribution system for the “Valencia on the Lake” master-planned development. This will be dissolved due to the creation of the PID.

Appendix E-4

Mr. Mark Curran Page Four December 27, 2013

The Tax Increment Reinvestment Zone (“TIRZ”) was adopted in December of 2008 for the “Valencia on the Lake” master-planned development. The TIRZ will be in place to administer the reimbursement through the PID.

Frisco Hills and Valencia on the Lake will mutually develop and extend Rockhill

Parkway on their respective properties upon development. The subject’s portion of Rockhill Parkway will be constructed with funds from the initial PID funds (funding in January 2014).

Frisco Hills and Valencia on the Lake will have mutual cooperation for

development easements including water, sewer, and drainage as well as the extension of utilities including sanitary sewer and water.

Valencia on the Lake will be incorporated into the Town of Little Elm and zoned

to allow development per the master plan.

It is assumed this information is correct. If it is found that the information supplied to us is significantly different than our assumption, our assignment results might be affected.

According to the surveys, legal descriptions, concept plan, and plat of Phase 1

provided, the subject represents 209 proposed residential lots within Phase 1 on 69.357 gross acres within the proposed multiphase subdivision to be known as Valencia on the Lake. The subject also represents the remaining land that will be partially developed upon completion of this first phase of development. Our “Prospective” opinions of value will be based upon the following acreage sizes and based on the assumption that Phase/Village 1 is complete. Phase 1 development includes the interior streets and utilities for 209 single family lots as well as the completion of Rock Hill Parkway from its existing location throughout the entire 447.942 gross acres allowing access to all five phases. Following is a summary for the subject’s remaining undeveloped acreage:

Tract/Village 1 69.357 gross acres/209 developed lots Tract/Village 2A/2B 110.039 gross acres Tract/Village 3 112.164 gross acres Tract/Village 4 65.202 gross acres Tract/Village 5 91.179 gross acres


Appendix E-5

Mr. Mark Curran Page Five December 27, 2013

It is noted that a minority portion of Phase 1 and most of Phase 2A are located in the Denton Independent School District. We have been informed that Denton Independent School District is willing to relinquish their rights to this development. However, there is no formal agreement to do so. This has been considered in our analysis.

As the subject represents a proposed construction project, this report contains

prospective opinions of value. As such, we have assumed that the market conditions as discussed and considered within this report will be similar on the prospective valuation date. Further, we cannot be held responsible for unforeseeable events that alter market conditions prior to this prospective effective date. The prospective market value date is approximately 12 months from the effective date of this appraisal, due to the development taking approximately 12 months to complete.

Local and regional lending institutions appear to remain active within the subject’s market for specific projects. Therefore, we specifically assume that the financial markets will continue to function in a competitive, efficient fashion. However, we cannot be held responsible for unforeseeable events that alter market conditions.

Jackson Claborn, Inc. does not authorize the out-of-context quoting from or partial reprinting of this appraisal report. Further, neither all nor any part of this appraisal report shall be disseminated to the general public by the use of media for public communication without the prior written consent of the appraiser signing this report. Please refer to the attached appraisal report, plus exhibits, for documentation of these value opinions contained herein. It has been a pleasure to assist you in this assignment. If you have any questions concerning the analysis, or if Jackson Claborn, Inc. can be of further service, please contact us. Respectfully submitted, JACKSON CLABORN, INC.

Ernest E. Gatewood, III Jimmy H. Jackson, MAI Vice President - Commercial Division President/CEO TX-1324355-G TX-1324004-G

Expiration: December 31, 2014 Expiration: November 30, 2014

Appendix E-6

TABLE OF CONTENTS SECTION 1 — Summary of Salient Facts 1 SECTION 2 — Certification and Limiting Conditions 3 Certification 3 General Assumptions and Limiting Conditions 5 SECTION 3 — Premises of the Appraisal 13 SECTION 4 — Presentation of Data Collected 19 Metropolitan Area Data 19 Neighborhood Data 46 Site Analysis - Phase 1 / 209 proposed Lots 63 Site Analysis - Phase 2A/2B 69 Site Analysis - Phase 3/4/5 76 SECTION 5 — Highest and Best Use Analysis 75 SECTION 6 — Valuation of the Subject 83 SECTION 7 — Reconciliation and Final Opinions of Value 145 SECTION 8 — Addendums 146

Appendix E-7

1

SECTION 1 — SUMMARY OF SALIENT FACTS Property File Number:

1310126

General Property Type: Residential

Specific Property Type: Proposed lots/excess land

General Property Location: North and south sides of Doe Creek Road (Future Rockhill Parkway), west of FM-423 and south of US-380, Little Elm ETJ, Denton County, Texas

Mapsco: D-353-F/G

Report Format: Self-Contained

Date of Appraisal Report: December 27, 2013

Date of Values: November 8, 2014

Date of Inspection: November 8, 2013

Real Estate Interest Appraised: Fee simple

Function of the Appraisal:

To provide an opinion of value for the underwriting of development bonds

“As Is” Undeveloped Land Area: 447.942 net acres

Typical Developed Lot Sizes: (209 Lots Proposed for Phase 1)

168 lots: 60’ x 112’ (6,720 square feet) 41 lots: 80’ x 135’ (10,800 square feet) 209 lots

School Districts: Zoning Designation:

Little Elm and Denton ISD (see assumptions) None (ETJ Little Elm)

Highest and Best Use as Vacant: Future residential development

Marketing Period: 42± months to sell-out of 209 lots within Phase 1 (after 12-month construction period) Six to 12 months for bulk sale of lots Six to 12 months as vacant site

Appendix E-8

2

Exposure Period: Six to 12 months Value Indications:

“Prospective” Phase/Village 1: (209 Proposed Lots)

$12,000,000 ($57,416 average per lot)

“Prospective” Phase/Village 2A/2B: (110.039 Acres Partially Developed Land)

$11,970,000 ($2.50/square foot)

“Prospective” Phase/Village 3: (112.164 Acres Partially Developed Land)

$12,000,000 ($2.46/net square foot)


$7,100,000 ($2.50/net square foot)


$9,900,000 ($2.49/net square foot)

Market Observations: The future long-term outlook for the immediate market area appears promising with substantial public and private investments in the form of roads, tax increment funding, and other public services. The subject is located in a submarket that contains a large amount of vacant land, yet is experiencing high demand for vacant tracts for residential development, investment, as well as recreational opportunities. While a large amount of vacant land remains, the future potential of the area is positive.

Appendix E-9

3

SECTION 2 — CERTIFICATION AND LIMITING CONDITIONS We certify to the best of our knowledge and belief: The statements of fact contained in this report are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported

assumptions and limiting conditions and our personal, impartial and unbiased professional analyses, opinions, and conclusions.

We have no present or prospective interest in or bias with respect to the property

that is the subject of this report and have no personal interest in or bias with respect to the parties involved with this assignment.

Our engagement in this assignment was not contingent upon developing or

reporting predetermined results.

Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.

This appraisal assignment was not based upon a requested minimum valuation,

a specific valuation, or the approval of a loan. Our analyses, opinions, and conclusions were developed, and this report has

been prepared, in conformity with requirements of the State of Texas and also conforms to the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

The reported analysis, opinions, and conclusions were developed, and this report has been prepared in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute

relating to review by its duly authorized representatives. As of the date of this report, Jimmy H. Jackson, MAI has completed the

continuing education program of the Appraisal Institute.

Appendix E-10

4

As of the date of this report, Ernest E. Gatewood, III has completed the Standards and Ethics Education Requirements for Practicing Affiliates of the Appraisal Institute.

Ernest E. Gatewood, III has made a personal inspection of the property that is the subject of this report. Jimmy H. Jackson, MAI has not made a personal inspection of the property that is the subject of this report.

We have performed two previous appraisal assignments regarding the property

that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.

No one provided significant real property appraisal assistance to the persons

signing this report.

Ernest E. Gatewood, III and Jimmy H. Jackson, MAI, are currently certified in the State of Texas and have completed the continuing education requirements set forth with the State of Texas

Although other appraisers may be contacted as a part of our routine market

research investigations, absolute client confidentiality and privacy are maintained at all times with regard to this assignment without conflict of interest.

Ernest E. Gatewood, III and Jimmy H. Jackson, MAI, are in compliance with the

Competency Provision in the USPAP as adopted in FIRREA 1989 and have sufficient education and experience to perform the appraisal of the subject property.

Ernest E. Gatewood, III Jimmy H. Jackson, MAI Vice President - Commercial Division President/CEO TX-1324355-G TX-1324004-G Expiration: December 31, 2014 Expiration: November 30, 2014

Appendix E-11

5

GENERAL ASSUMPTIONS AND LIMITING CONDITIONS

Information Used

No responsibility is assumed for accuracy of information furnished by others or from others, including the client, its officers and employees, or public records. We are not liable for such information or for the work of contractors, subcontractors and engineers. The comparable data relied upon in this appraisal has been confirmed with one or more parties familiar with the transaction unless otherwise noted; all are considered appropriate for inclusion to the best of my factual judgment and knowledge.

Certain information upon which the opinions and values are based may have

been gathered by research staff working with the appraiser. Names, professional qualifications and extent of their participation can be furnished to the client upon request.

Legal, Engineering, Financial, Structural/Mechanical, Hidden Components, Soil

No responsibility is assumed for matters legal in character or nature, nor matters of survey, nor of any architectural, structural, mechanical or engineering nature. No opinion is rendered as to the legal nature or condition of the title to the property, which is presumed to be good and marketable. The property is appraised assuming it is free and clear of all mortgages, liens or encumbrances, unless otherwise stated in particular parts of this report.

The legal description is presumed to be correct, but we have not confirmed it by

survey or otherwise. We assume no responsibility for the survey, any encroachments or overlapping or other discrepancies that might be revealed thereby.

We have inspected, as far as possible by observation, the land and

improvements thereon; however, it was not possible to personally observe conditions beneath the soil or hidden structural, or other components, or any mechanical components within the improvement; as a result, no representation is made herein as to such matters unless otherwise specifically stated. The market value opinion assumes that no such conditions exist that would cause a loss of value. We do not warrant against the occurrence of problems arising from any of these conditions. It is assumed that there are no hidden or unapparent conditions to the property, soil, subsoil or structures, which would render them more or less valuable. No responsibility is assumed for any such conditions or for any expense or engineering to discover them. All mechanical components are assumed to be in operating condition standard for the properties of the subject's type. If applicable, the condition of the heating, cooling, ventilation, electric and plumbing equipment is considered to be commensurate with the condition of the

Appendix E-12

6

balance of the improvements, unless otherwise stated. No judgment is made as to the adequacy of insulation, engineering or energy efficiency of the improvements or equipment.

Information relating to the location or existence of public utilities has been

obtained through verbal inquiry to the appropriate utility authority, or has been ascertained from visual evidence. No warranty has been made regarding the exact location or capacities of public utility systems. Subsurface oil, gas or mineral rights were not considered in this report unless otherwise stated.

Legality of Use

The appraisal is based on the premise that there is or will be full compliance with all applicable Federal, State and local environmental regulations and laws, unless otherwise stated in the report; and that all appropriate zoning, building and use regulations and restrictions of all types have been or will be complied with and required licenses, consent, permits or other authority, whether local, State, Federal and/or private, have been or can be obtained or renewed for the use intended and considered in the opinion of value.

Component Values

The distribution of the total valuation of this report between land and improvements applies only under the proposed program of utilization. The separate valuations of land and buildings must not be used in conjunction with any other appraisal, and are invalid if so used.

A report related to an estate that is less than the whole fee simple estate applies

only to the fractional interest involved. The value of this fractional interest, plus the value of all other fractional interests, may or may not equal the value of the entire fee simple estate considered as a whole.

A report relating to the geographic portion of a larger property applies only to

such geographic portion and should not be considered as applying with equal validity to other portions of the larger property or tract. The value for such geographic portions, plus the value of all other geographic portions, may or may not equal the value of the entire property or tract considered as a single entity.

All valuations in the report are applicable only under the estimated program of

the highest and best use and are not necessarily appropriate under other programs of use.

Appendix E-13

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Auxiliary and Related Studies

No environmental or impact studies, special market study or analysis, highest and best use analysis study or feasibility study has been requested or made by us unless otherwise specified in this report or in my agreement for services. I reserve the unlimited right to alter, amend, revise or rescind any of these statements, findings, opinions, values, estimates or conclusions upon any subsequent study or analysis or previous study or analysis that subsequently becomes available to us.

Dollar Values, Purchasing Power

The opinion of value and the costs used herein are as of the date of the opinion of value. All dollar amounts are based on the purchasing power and price of the United States dollar as of the date of opinion of value.

Inclusions

Furnishings and equipment or business operations, except as otherwise specifically indicated, have been disregarded, with only the real estate being considered.

Proposed Improvements Conditioned Value

For the purpose of this appraisal, on- or off-site improvements proposed, if any, as well as any repairs required, are considered to be completed in a good and workmanlike manner according to information submitted and/or considered by us. In cases of proposed construction, the report is subject to change upon inspection of the property after construction is complete. The opinion of value, as proposed, is as of the date shown, as if completed and operating at levels shown and projected.

Value Change, Dynamic Market Influences

The opinion of value is subject to change with market changes over time. Value is highly related to interest rates, exposure, time, promotional effort, supply and demand, terms of sale, motivation and conditions surrounding the offering. The opinion of value considers the productivity and relative attractiveness of the property both physically and economically in the marketplace.

The opinion of value in this report is not based in whole or in part upon race,

color or national origin of the present owners or occupants of the properties in the vicinity of the property appraised.

Appendix E-14

8

In the event this appraisal includes the capitalization of income, the opinion of value is a reflection of such benefits and my interpretation of income and yields and other factors which were derived from general and specific market information. Such opinions of value are made as of the date of the opinion of value. As a result, they are subject to change, as the market is dynamic and may naturally change over time. The date upon which the opinion of value applies is only as of the date of valuation, as stated in the letter of transmittal. The appraisal assumes no responsibility for economic or physical factors occurring at some later date which may affect the opinion stated herein.

An appraisal is the product of a professionally trained person, but nevertheless is

an opinion only, and not a provable fact. As a personal opinion, a valuation may vary between appraisers based upon the same facts. Thus, the appraiser warrants only that the value conclusions are his best opinion as of the date of valuation. There are no guaranties, either written or implied, that the property would sell for the expressed opinion of value.

Sales History

Unless otherwise stated, the appraiser has not reviewed an abstract of title relating to the subject property. No title search has been made, and the reader should consult an attorney or title company for information and data relative to the property ownership and legal description. It is assumed that the subject title is marketable, but the title should be reviewed by legal counsel. Any information given by the appraiser as to a sales history is information that the appraiser has researched; to the best of our knowledge, this information is accurate, but not warranted.

Management of the Property

It is assumed that the property which is the subject of this report will be under prudent and competent ownership and management over the entire life of the property. If prudent and competent management and ownership are not provided, this would have an adverse effect upon the value of the property appraised.

Confidentiality

We are not entitled to divulge the material (evaluation or valuation) content of this report and analytical findings or conclusions, or give a copy of this report to anyone other than the client or his designee, as specified in writing, except as may be required by the Appraisal Institute, as they may request in confidence for ethic enforcement, or by a court of law with the power of subpoena.

All conclusions and opinions concerning the analyses as set forth herein are

prepared by the appraisers whose signatures appear. No change of any item in

Appendix E-15

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the report shall be made by anyone other than the appraiser, and the firm shall have no responsibility if any such unauthorized change is made.

Whenever our opinion herein with respect to the existence or absence of fact is

qualified by the phrase or phrases "to the best of our knowledge", "it appears" or "indicated", it is intended to indicate that, during the course of our review and investigation of the property, no information has come to our attention which would give us actual knowledge of the existence or absence of such facts.

The client shall notify the appraiser of any error, omission or invalid data herein

within 10 days of receipt and return of the report, along with all copies, to the appraiser for corrections prior to any use whatsoever. Neither our name nor this report may be used in connection with any financing plans which would be classified as a public offering under State or Federal Security Laws.

Copies, Publication, Distribution, Use of Report

Possession of this report, or any copy thereof, does not carry with it the right of publication, nor may it be used for other than its intended use. The physical report remains the property of the firm for the use of the client, with the fee being for the analytical services only. This report may not be used for any purpose by any person or corporation other than the client or the party to whom the report is addressed. Additional copies may not be made without the written consent of an officer of the firm, and then only in its entirety.

Neither all nor any part of the contents of this report shall be conveyed to the

public through advertising, public relations effort, news, sales or other media without my prior written consent and approval of the client.

It has been assumed that the client or representative thereof, if soliciting funds

for his project, has furnished to the user of this report complete plans, specifications, surveys and photographs of land and improvements, along with all other information which might be deemed necessary to correctly analyze and appraise the subject property.

Trade Secrets

The information found within this report was obtained from Jackson Claborn, Inc. or related companies and/or its individuals and consists of "trade secrets and commercial or financial information" which is privileged and confidential. Notify the appraisers signing the report or an officer of Jackson Claborn, Inc. of any request to reproduce this report in whole or in part.

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Testimony, Consultation, Completion of Contract for Appraisal Services

A contract for appraisal, consultation or analytical services is fulfilled and the total fee is payable upon completion of the report. The appraisers or those assisting in the preparation of the report will not be asked or required to give testimony in court or hearing because of having made the appraisal in full or in part, nor will they be asked or required to engage in post appraisal consultation with client or third parties except under separate and special arrangement and at an additional fee.

Any subsequent copies of this appraisal report will be furnished on a cost plus

expenses basis, to be negotiated at the time of request. Limit of Liability

Liability of the firm and the associates is limited to the fee collected for preparation of the appraisal. There is no accountability or liability to any third party.

Fee

The fee for this appraisal or study is for the service rendered, and not for time spent on the physical report. The acceptance of the report by the client takes with it the agreement and acknowledgement that the client will pay the negotiated fee, whether said agreement was verbal or written. The fee is in no way contingent on the value opinion.

Special Conditions of Appraisal Report

All information, including land and lot areas and other pertinent data that was provided by Petitt Barraza, LLC (engineers and surveyors), Valencia on the Lake, LP (owner), and the Denton Central Appraisal District is assumed to be correct. If it is found that the information supplied to us is significantly different than our assumption, our assignment results might be affected.

Appendix E-17

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The overall subject property totals 447.942 gross acres and has been paper-platted and engineered to eventually be developed as a master-planned community to be known as “Valencia on the Lake” with frontage on Lewisville Lake. This future development is planned to eventually consist of 1,239 single-family lots, an amenity center, a school site, and possibly a marina. Furthermore, although approximately 76.0 gross acres (17%) of the overall site has been estimated by the engineers to be located within a 100-year floodplain, the subject is mandated under its “Joint Development Agreement” with the Town of Little Elm to have 65.0 acres of open space; therefore, there is minimal land loss over and above this mandate. In addition, the subject’s owner/developer has signed a “Joint Development Agreement” with the adjoining property owner/developer (Frisco Hills, LP). Finally, the Town of Little Elm has approved and adopted the following infrastructure programs relative to the subject property: The major points are as follows:

A “Valencia Public Improvement District No. 1” (PID) has been adopted by the City of Little Elm for the “Valencia on the Lake” master-planned development.

A Water Control and Improvement District (“WCID”) was approved in February of 2008 which outlined the district’s construction of the water distribution system for the “Valencia on the Lake” master-planned development. This will be dissolved due to the creation of the PID.

The Tax Increment Reinvestment Zone (“TIRZ”) was adopted in December of 2008 for the “Valencia on the Lake” master-planned development. The TIRZ will be in place to administer the reimbursement through the PID.

Frisco Hills and Valencia on the Lake will mutually develop and extend

Rockhill Parkway on their respective properties upon development. The subject’s portion of Rockhill Parkway will be constructed with funds from the initial PID funds (funding in January 2014).

Frisco Hills and Valencia on the Lake will have mutual cooperation for

development easements including water, sewer, and drainage as well as the extension of utilities including sanitary sewer and water.

Valencia on the Lake will be incorporated into the Town of Little Elm and

zoned to allow development per the master plan.


Appendix E-18

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According to the surveys, legal descriptions, concept plan, and plat of Phase 1 provided, the subject represents 209 proposed residential lots within Phase 1 on 69.357 gross acres within the proposed multiphase subdivision to be known as Valencia on the Lake. The subject also represents the remaining land that will be partially developed upon completion of this first phase of development. Our “Prospective” opinions of value will be based upon the following acreage sizes and based on the assumption that Phase/Village 1 is complete. Phase 1 development includes the interior streets and utilities for 209 single family lots as well as the completion of Rock Hill Parkway from its existing location throughout the entire 447.942 gross acres allowing access to all five phases. Following is a summary for the subject’s remaining undeveloped acreage:

Tract/Village 1 69.357 gross acres/209 developed lots Tract/Village 2A/2B 110.039 gross acres Tract/Village 3 112.164 gross acres Tract/Village 4 65.202 gross acres Tract/Village 5 91.179 gross acres

It is assumed this information is correct. If it is found that the information supplied to

us is significantly different than our assumption, our assignment results might be affected.

It is noted that a minority portion of Phase 1 and most of Phase 2A are located in

the Denton Independent School District. We have been informed that Denton Independent School District is willing to relinquish their rights to this development. However, there is no formal agreement to do so. This has been considered in our analysis.

As the subject represents a proposed construction project, this report contains

prospective opinions of value. As such, we have assumed that the market conditions as discussed and considered within this report will be similar on the prospective valuation date. Further, we cannot be held responsible for unforeseeable events that alter market conditions prior to this prospective effective date. The prospective market value date is approximately 12 months from the effective date of this appraisal, due to the development taking approximately 12 months to complete.

Local and regional lending institutions appear to remain active within the subject’s market for specific projects. Therefore, we specifically assume that the financial markets will continue to function in a competitive, efficient fashion. However, we cannot be held responsible for unforeseeable events that alter market conditions.

Appendix E-19

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SECTION 3 — PREMISES OF THE APPRAISAL

Purpose of Appraisal

The purpose of this appraisal is to provide an opinion of the “Prospective” market value of the fee simple interest of the property described on an “as if development was complete” basis under the reporting requirements of the Uniform Standards of Professional Appraisal Practice (USPAP), as defined by the Appraisal Foundation. Competency of Appraisers The appraisers' specific qualifications are included within this report. These qualifications serve as evidence of their competence for the completion of this appraisal assignment in compliance with the competency provision contained within the Uniform Standards of Professional Appraisal Practice as promulgated by the Appraisal Standards Board of the Appraisal Foundation. The appraisers' knowledge and experience, combined with their professional qualifications, are commensurate with the complexity of this assignment based on the following:

Professional experience Educational background and training Business, professional, academic affiliations and activities

The appraisers have previously provided consultation and opinion of values for various types of similar properties in Texas. Intended Use of Appraisal

It is our understanding that the intended use of the appraisal is to provide an opinion of value for the underwriting of development bonds. Intended User of Appraisal The intended user of this appraisal assignment is identified as Jefferies, LLC. No one other than the stated and specifically identified intended user should rely upon the estimate of value or any other conclusions contained in this appraisal report. Prohibited users include any participants from equity participation and/or debt structured participation, as well as present or future purchasers/lessees or sellers/lessors of the subject property. Jackson Claborn, Inc. assumes no liability to any and all unnamed third party non-intended users who attempt to rely upon this appraisal report for any purposes.

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Date of Opinion of Values The “Prospective” market value opinions presented in this appraisal report are applicable as of November 8, 2014. Date of Property Inspection The subject property was physically inspected by Ernest E. Gatewood, III on November 8, 2013. Scope of Assignment and Reporting Process This is an appraisal reported in a “Self-Contained Report” which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(a) of the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation. The scope of this appraisal has been to collect, confirm, and report data. Other general market data and conditions have been considered. Consideration has been given the property’s zoning and surrounding improvements and neighborhood. The work performed for this assignment included:

The property being appraised, as well as the neighborhood in which it is located, was inspected on November 8, 2013. During the inspection, an inventory of the property attributes was collected based upon visual observation. (NOTE: The term “inspection” should not be construed to be a professional engineer’s report concerning the condition of the building, structural integrity, or condition of any mechanical items. If the client has concerns of this type, a professional engineer’s inspection and report are recommended. That type of inspection is beyond the scope of work of this assignment and the professional abilities of a certified appraiser. This inspection is made only for observation of property attributes).

Investigated public records for the property’s zoning, flood hazard area

classification, property tax assessor’s records, for attributes of the property.

Consideration of the highest and best use of the land and property as vacant and improved.

Collection and analysis of comparable land sales in order to form an opinion of

the value of the underlying land, if applicable.

Investigated comparable sales of similar improved properties, made a comparative analysis which would lead to completion of the Sales Comparison Approach to Value.

Preparation of a written report.

Appendix E-21

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To develop the opinion of value, Jackson Claborn, Inc. performed an Appraisal as defined by the Uniform Standards of Professional Appraisal Practice (USPAP). In this appraisal, Jackson Claborn, Inc. used the Sales Comparison Approach to value. Other approaches, if any, were not applicable or not necessary to develop a reliable value indication. Furthermore, the value conclusion reflects all information about the subject, market conditions, and available data. This appraisal of the subject has been presented in the form of a Self-Contained Appraisal Report, which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(a) of the USPAP.

It is noted that the scope of work is stated throughout the report.

Definition of Value

We have been asked to appraise the market value of the subject, which is defined by The Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice, and the Code of Federal Regulators under Chapter 12 C.F.R. Part 34.42(g) as follows:

The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: Buyer and seller are typically motivated;

Both parties are well informed or well advised, and each acting in

what they consider their own best interests; A reasonable time is allowed for exposure in the open market;

Payment is made in terms of cash with U.S. dollars or in terms of

financial arrangements comparable thereto; and The price represents the normal consideration for the property sold

unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. 1

1 12 C.F.R. Part 34.42 (g) and The Dictionary of Real Estate Appraisers 5th Edition, the Appraisal Institute, Chicago, Illinois (U.S. 2010)

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Property Rights The property ownership rights appraised in this appraisal are those known as “fee simple”. Fee Simple Interest “Absolute ownership unencumbered by any other interest or estate; subject to the four powers of government. The four powers of government are eminent domain, escheat, police power, and taxation”.2 Prospective Market Value “A forecast of the value expected at a specified future date. A prospective value opinion is most frequently sought in connection with real estate projects that are proposed, under construction, or under conversion to a new use, or those that have not achieved sellout or a stabilized level of long-term occupancy at the time the appraisal report is written”. Identification of the Property The subject represents a vacant tract of land totaling 447.942 gross acres which is planned as a future master-planned community to be known as “Valencia on the Lake”. The property that is the subject of this report is identified as:

Location: North and south sides of Doe Creek Road (Future Rockhill Parkway), west of FM-423 and south of US-380, Little Elm ETJ, Denton, Texas

County: Denton Legal Description: Being 447.942 gross acres within a tract of

land situated in the A. Cooper Survey, Abstract No. 250, the S. Guarrara Survey, Abstract No. 456, and the T. Rodriguez Survey, Abstract No. 1068, Denton County, Texas

Current Owner of Record: Valencia on the Lake, LP Parcel Numbers: 44219, 38646, 43806, and 43910

2 Ibid.

Appendix E-23

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History of the Property The Uniform Standards of Professional Appraisal Practice requires a statement of the sales history of the subject property for the three years prior to the effective date of the appraisal. The subject has been under the current ownership for more than three years. Further, to our knowledge, the subject is not currently under contract or offered for sale, but is planned to be developed as a master-planned residential community to be known as “Valencia on the Lake”. The 209 residential lots proposed to be developed within the first phase are not currently under contract, but the developer is in negotiations with several major homebuilders. Cheldan Homes and Megatel Homes, at base lot prices of $68,000/lot for lots with 60’ frontages and $78,000/lot for lots with 80’ frontages. Takedown is scheduled for 8 lots per builder, per quarter. Based on the sales data found herein, the reported contracted lot prices for the developed lots are supported by current sales data. Appraisal Analysis and Report Type The Appraisal Standards Board controls the process of making an appraisal of a parcel of real estate. The Board issues rules and guidelines from which all appraisals and resulting reports are made. The process of administration of those rules and guidelines is addressed to the Real Estate Appraiser Commission of each respective state. The Appraisal Standards Board issues the rules and guidelines in the form of a document update published each year by The Appraisal Foundation. That document is entitled “The Uniform Standards of Professional Appraisal Practice” (USPAP).

The analysis process is composed of several distinctive steps that appraisers follow to gain a thorough understanding of the property and factors that affect its value. There are three types of reports under each appraisal type; self contained, summary, and restricted use. The following definitions have been adopted for each type of report:

Self-Contained: A written report prepared under Standards Rule 2-2(a) Summary: A written report prepared under Standards Rule 2-2(b) Restricted Use: A written report prepared under Standards Rule 2-2(c)

This appraisal of the subject has been presented in the form of a Self-Contained Appraisal Report, which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(a) of the USPAP. Exposure Time Exposure time is the estimated length of time the property would have been offered prior to a hypothetical market value sale on the effective date of appraisal. It is a retrospective estimate based upon an analysis of recent past events, assuming a competitive and open market. It assumes not only adequate, sufficient, and reasonable time but also adequate, sufficient, and reasonable marketing effort. Exposure time is therefore interrelated with appraisal conclusion of value.

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An estimate of exposure time is not intended to be a prediction of a date of sale or a simple one-line statement. Instead, it is an integral part of the appraisal analysis and is based upon one or more of the following:

statistical information about days on the market

information gathered through sales verification

interviews of market participants. The reasonable exposure period is a function of price, time, and use. It is not an isolated estimate of time alone. Exposure time is different for various types of real estate and under various market conditions. In consideration of these factors, we have analyzed the following:

exposure periods of comparable sales revealed during the course of this appraisal;

macroeconomic exposure times for the subject property type across the subject

MSA and the entire United States as published in multiple articles and websites.

knowledgeable real estate professionals. Based upon the foregoing analysis, an exposure time of six to 12 months is reasonable, defensible, and appropriate. This exposure time assumes the subject would have been competitively priced and aggressively promoted within the market area. Marketing Time Marketing time is the period a prospective investor would forecast to sell the subject property immediately after the date of value, at the value opinion. The marketing time is an estimate of the number of months it will require to sell the subject from the date of value, into the future. The anticipated marketing time is essentially a measure of the perceived level of risk associated with the marketability, or liquidity, of the subject property. The marketing time estimate is based upon the data used in estimating the reasonable exposure time, in addition to an analysis of the anticipated changes in market conditions following the date of appraisal. The future price for the subject (at the end of the marketing time) may or may not equal the value opinion found herein. The future price depends upon unpredictable changes in the physical real estate, demographic and economic trends, real estate markets in general, supply/demand characteristics for the property type, and many other factors. Based upon the premise that present market conditions are the best indicators of future performance, a prudent investor will forecast that, under the conditions described above, the subject will require an overall marketing time of approximately six to 12 months as a bulk sale and as vacant land and approximately 42± months to sell-out of the subject’s 209 proposed lots within Phase 1.

Appendix E-25

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SECTION 4 — PRESENTATION OF DATA COLLECTED In summary, the interaction of the environmental, governmental, social and economic forces has contributed to the diversified economic base of the Metroplex. The overall real estate market throughout the Metroplex is experiencing a moderate downward cycle following market conditions currently transpiring across the United States. Future economic recovery is anticipated. The recovery of the economy should translate into the continued growth of the local real estate markets. Quality of life should continue to remain good due to the abundance of cultural and recreational facilities. The Metroplex is in an excellent position for a recovery and future growth. It has a strong and diverse employment base that enables it to weather economic cycles. Employment and population growth is projected to spur further growth in the real estate market over the next five to ten years. Dallas/Fort Worth and the region have excellent accessibility to North America's major markets. The following metropolitan area analysis was obtained in whole from Property & Portfolio Research, Inc. The following map provides a general overview of the metropolitan area.

DFW AREA MAP

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Appendix E-27

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Appendix E-28

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Appendix E-29

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Appendix E-30

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Appendix E-31

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Appendix E-32

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Appendix E-33

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Appendix E-34

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Appendix E-35

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Appendix E-36

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Appendix E-37

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Appendix E-38

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Appendix E-39

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Appendix E-40

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Appendix E-41

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Appendix E-42

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Appendix E-43

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Appendix E-44

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Appendix E-45

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Appendix E-46

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Appendix E-47

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Appendix E-48

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Appendix E-49

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Appendix E-50

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Appendix E-51

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Appendix E-52

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NEIGHBORHOOD DATA A neighborhood is a grouping of complementary land uses affected by similar operation of the four forces that affect property value. These four forces include social, economic, governmental, and environmental forces. The objective of doing an analysis of the neighborhood is to observe and/or quantify data indicating discernible patterns of growth, structure, and change that may detract or enhance property values. The subject property is physically located in the City of Little Elm ETJ within Denton County, Texas near the northeastern sector of The Colony and northwest Frisco, Texas. The following table and map reflect the subject's neighborhood boundaries:

UNEIGHBORHOOD BOUNDARIES

North: US-380 South: Eldorado Parkway/FM-720 East: FM-423 West: FM-720

NEIGHBORHOOD MAP

Appendix E-53

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General Development General development within the neighborhood consists of residential and commercial properties. The defined neighborhood has been dominated by residential uses. Most of the residential land development within close proximity of the subject ranges from new to 50 years old, more or less. Land uses are primarily residential (single-family) in nature with several new and emerging commercial support developments. Other land uses within close proximity to the subject include retail uses, churches, etc. Area influences include a strong residential base. Neighborhood Life Stage The life stage of the neighborhood is growth. Area/Neighborhood Summary

Population Trend: Upward Range in Improvement Ages: New to 50 years Public Transportation: None Development Built-up: 40% Maintenance/Condition: Good Property Compatibility: Good Appeal/Appearance: Good Protection/Adverse Influence: Good Development Potential: Good Neighborhood Access: Average Police/Fire: Average as compared to other

neighborhoods in this market area (the City of Little Elm’s Fire Department will provide fire protection to the Valencia on the Lake development)

Appendix E-54

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Supply/Demand: Vacant lot supply within the “Little Elm”

submarket is estimated to be between 1.5± to 1.7± years which is below the ideal level of two to 2.5 years.

Development Trend: Vacant land to residential and various

commercial usages Value Trend: Stable to increasing Population Trend: Upward Employment Stability: Average Vacancy Trend: Decreasing Change in Land Use: Vacant land to residential and

commercial support facilities

Appendix E-55

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DEMOGRAPHIC PROFILE A study prepared by Site to Do Business (STDB) in November 2013, based upon 2010 census data and forecasted figures for 2013 - 2018, analyzes the population within a five-mile radius of the subject property, and includes the majority of the subject neighborhood. The following is a summary of the demographic data.

DEMOGRAPHIC PROFILE MAP

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Appendix E-57

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Appendix E-58

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Appendix E-59

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Area Developments Following is a summary of recent development trends which affect the neighborhood area:

UPaloma Creek Uis a 1,000-acre residential subdivision on US-380, approximately five miles west of the US-380 and the Dallas North Tollway intersection. This development consists of a series of distinct residential villages, all linked together into a single master plan by acres of greenbelts, nature areas and parks, and miles of hike and bike trails. Each village is populated with residences from some of the top names in homebuilding and each boasts a community center complete with swimming pool and play areas designed for the exclusive use of its residents. Paloma Creek totals 4,506 lots. Several amenity centers will serve the ultimate development, along with elementary and middle schools and open space reserves. Five separate municipal utility districts support the growth of this community and provide long-term stability for the residents.

PProvidence is located at the northeast quadrant of FM-2931 and US-380. The

550-acre project in Denton County features amenities typically found in a higher-end community, yet its homes sell for $89,000 to $165,000. Providence harkens back to the early 1900s, a pedestrian-friendly development with short-block streets and small setbacks. Homes are designed in a neo-traditional, Cape Cod style. Eight different models are available, with some featuring wrap-around porches. Amenities at Providence include an 8,200-square-foot, two-story clubhouse with 24-hour fitness facility, a water park with two water slides, three swimming pools, gardens, irrigated soccer and baseball fields, hike and bike trails, and three stocked lakes.

USavannah U - A Huffines project in Denton County, the 575-acre Savannah is

located at the northwest corner of FM-1385 and US-380. Approximately 18 acres have been developed as a school site and community center. The 20,000-square foot club house includes a spectacular ballroom with 45' soaring cathedral ceiling, two sitting areas, plasma TV, an elegant library with huge fireplace and a commercial kitchen set up for catering, cooking shows, and future summer burger café. The facility also includes a complete weight room with marble locker rooms with separate men's and women's saunas, a jetted gunite hot tub on the verandah overlooking pool. Outdoor recreation at the Club Savannah includes regulation baseball field, sand volleyball court, four lighted regulation tennis courts, full-court covered basketball court/rollerblading, a party pavilion, irrigated landscaped soccer field, play structure, and numerous picnic areas. In addition, the project includes a recreation/swim center, Junior Olympic swimming pool with racing lanes for the Savannah Swim Team, a separate adult pool with water volleyball, 16' and 25' tall open-air inner tube slides, separate waterslide pool which cascades three feet to main pool, and a 15'-tall rock waterfall in surrounding lake. Other amenities include a huge rock grotto in pool, spray park beach entry kiddie pool with island, and separate covered sand beach. The park system includes a six-acre stocked lake surrounding Club Savannah, a one-acre

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stocked lake at the development’s entry, motorized paddle boats, a six foot-wide hike and bike trail system, extensive landscaping, greenbelts, and mature trees.

Lone Star Ranch, a 4,000-acre, master-planned community will eventually

evolve into a town within itself, providing a West Frisco location and everything residents need from recreation, parks, schools, and churches to medical care, offices, specialty retail, and entertainment venues. The development includes rolling hills, lakes, streams, parks, and paths meandering throughout the neighborhoods. There are also 10 miles of shoreline along Lake Lewisville to enjoy. The development is located near Lebanon Road and FM-423.

Philips Creek Ranch, 940 acres located on the east side of FM-423, north of Lebanon Road in Frisco, Texas. Currently in the early construction stages, Phase 1 was completed in late 2012. Phillips Creek Ranch will eventually have more than 3,700 homes at completion and over 12,000 residents. Phase 1 will eventually include 547 homes with a price range of $300,000 to $1 million.

Sunset Pointe is a 1,025-acre master-planned community (3,387 lots planned)

in the northeast portion of the Town of Little Elm, near FM-720 and FM-423. In addition, the new Little Elm High School will be built in this community as well as other schools to service the growing needs of the area.

Frisco Lakes, currently under construction, will be a 2,500-lot, multiphase, adult-

living residential community located on the west side of FM-423 between Hackberry Road and Lebanon Road on the shores of Lake Lewisville. Amenities in this community, being developed by Pulte Homes of Texas, will include an 18-hole golf course and clubhouse, a resort pool, fitness center, and planned parks and trails.

Waterstone is a gated, multiphase, residential community located at the corner

of FM-423 and Lebanon Road developed by Pulte Homes of Texas. The development offers an amenity center with a resort pool, fitness center, and club room.

The Tribute is a luxury lakefront, lakeview, and golfing community on Lake

Lewisville. Nestled between two world-class golf courses and the 23,200-acre lake, The Tribute offers first-class luxury amenities anchored by a spectacular clubhouse with restaurants and meeting facilities. This 1,150-acre, master–planned development will have beautiful amenity centers, resort-style pools, gardens, parks and playgrounds, on-site elementary school and middle school, over six miles of hike and bike trails, beautifully landscaped canals, and hundreds of acres of accessible open space that will provide a natural setting reminiscent of the Scottish Highlands. A total of 559 residential lots with a mixture of lot dimensions have been developed.

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STEM Academy - the Little Elm ISD Board of Trustees recently approved plans to build a $15 million K – 8 school as a science, technology, engineering, and math (STEM) “Academy“ to open in the fall of 2015 to be located within The Tribute community located within The Colony, Texas.

Hidden Cove Marina located on Lake Lewisville west of FM-423, provides the area with camping, boating, and other water activity facilities.

A new marina is currently under construction in Cottonwood Park located south of FM-720 off of Lobo Lane. This is a full service marina with 154 slips, fuel pumps, and ship’s store.

Lake Lewisville is one of the largest lakes in north Texas spanning 29,000 acres with 233 miles of shoreline. This recreational lake is great for fishing, skiing, relaxing, and recreational boating. There are numerous parks located around the lake with plenty of beaches, campgrounds, hiking and biking trails, golf courses, and other outdoor activities.

Other residential neighborhoods in the area (all in the Town of Little Elm) include

Eldorado Estates West (1,040 lots planned), Eldorado Estates (1,222 lots planned), Cross Oak Range (2,000 lots planned), and Villages of Woodlake (1,032 lots planned).

Dallas North Tollway Northern Extension, Phase 4B/5A is expected to extend the “Tollway” northward from US-380 an additional 18 miles into Grayson County providing a link from the Dallas Central Business District and cities located within Dallas, Collin, Denton, and Grayson counties. The NTTA Board approved the schematic design and environmental evaluation in June 2011 for the Phase 4B/5A extension project. The extension will be a limited access toll road with six main lanes and four frontage road lanes. A scope of work is currently under development, which includes corridor analysis, initial toll feasibility and environmental analysis. A summary of the current progress report and a map of the extension follow:

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Appendix E-63

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Sports Village USA is a 50-acre, $100 million mixed-use project at the corner of Frisco Street and All Star Way and includes sports facilities, a proposed hotel, office, and retail space. The centerpiece is the “FieldhouseUSA”, a 144,000 square foot state-of-the-art indoor sports facility. Completed in March 2009, FieldhouseUSA features 12 full-sized hardwood courts, an indoor football and soccer turf field, as well as the finest athletic training and competition to regional participants in basketball, volleyball, soccer, football, and other sports. This project was developed by Sports Village USA, LLC and UDC Hospitality, LLC. As part of the development, Sports Village donated about 10 acres to the city.

The Dallas Cowboys formally announced in August 2013 that they are moving their headquarters from suburban Irving to suburban Frisco after winning overwhelming approval for a $115 million development that includes a 12,000-seat indoor stadium for practice and use by area prep teams. The multi-use sports facilities, which will be shared with Frisco Independent School District's sports teams, are expected to open in 2016. The 91-acre development, which is to be located at the corner of the Dallas North Tollway and Warren Parkway, will include 25 acres for the Cowboys' facilities, while the remaining 66 acres will be used for stores, restaurants, and a luxury hotel. The stadium will be paid for mostly through a city sales tax, with the school district funding part of the construction. The deal calls for the Cowboys to manage the facilities and pay operating costs.

Conclusion

The future long-term outlook for the immediate market area appears promising with substantial public and private investments in the form of roads, tax increment funding, and other public services. The subject is located in a submarket that contains a large amount of vacant land, yet is experiencing demand for vacant tracts for residential development and investment, as well as recreational opportunities. While a large amount of vacant land remains, the future potential of the area is positive.

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http://www.nfl.com/teams/dallascowboys/profile?team=DAL

http://www.nfl.com/teams/dallascowboys/profile?team=DAL

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VALENCIA MASTER PLAN

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GENERAL DESCRIPTION OF VALENCIA ON THE LAKE The overall subject property totals 447.942 gross acres and has been paper-platted and engineered to eventually be developed as a master-planned community to be known as “Valencia on the Lake” with frontage on Lake Lewisville. This future development is planned to eventually consist of 1,239 single-family lots, an amenity center, a school site, and possibly a marina. Furthermore, although approximately 76.0 gross acres (17%) of the overall site has been estimated by the engineers to be located within a 100-year floodplain, the subject is mandated under its “Joint Development Agreement” with the Town of Little Elm to have 65.0 acres of open space; therefore, there is minimal land loss over and above this mandate. The master plan calls for five phases of lot development. The first phase of development will include offsite costs such as the extension of Rockhill Parkway from its current location at the subject’s northeast boundary southwestwardly to its ending point in Phase 5. Water and sewer will be extended to serve this Phase 1, as well as the future Phase 2A/2B and Phases 3, 4, and 5. Finally, all interior street and utility development will be completed to serve the 209 single family lots in Phase 1. Upon completion of Phase 1, Phase 2A/2B will be partially developed including off sites. Furthermore, Phase 2A, Phase 3, Phase 4, and Phase 5 will have full access via Rockhill Parkway. It is noted that the five phases have varying lot sizes proposed and also have varying costs of development based on a combination of the lot sizes and the utility of each site in regards to ease or difficulty in development. We have provided a summary of the phases including density and cost of development per acre in the following table:

SUMMARY OF PHASES

Phase Land Size/Acres # Lots Units per Acre Cost per Acre

1 69.357 209 3.01 $26,231

2A 57.762 155 2.68 $24,886

2B 52.277 101 1.93 $30,005

2A/B 110.039 256 2.33 $26,906

3 112.164 241 2.15 $33,427

4 65.202 266 4.08 $23,427

5 91.179 267 2.93 $26,545

Shaded area indicates total for valuation of Phase 2

The preceding information will be utilized in our valuation of the individual phases. It is noted that Phase 2 contains two non-contiguous parcels that will be valued as one land group.

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SURVEY — PHASE 1

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PHASE 1 LOT LAYOUT

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SITE ANALYSIS — PHASE 1 (209 PROPOSED LOTS)

Phase 1 of the subject represents the 209 proposed lots within A proposed Multiphase subdivision to be known as Valencia on the Lake. Phase 1 is planned for 209 lots on 69.357 acres with two typical lot sizes; approximately 168 lots being 60’ x 112’ (6,720 square feet) and 41 lots being 80’ x 135’ (10,800 square feet). Although Doe Hill Road, an unimproved road, bisects the site, Rockhill Parkway (a major east/west thoroughfare) has been extended from FM-423 to the northeastern edge of Phase 1. Furthermore, an extension form Preston Road to FM 428 is currently under construction. For a visual depiction of Phase 1, see the overall site plan as well as a survey and lot layout of Phase 1 found on the previous pages. The general characteristics of the subject follow. General Site Information Location: North and south sides of Doe Creek Road (Future

Rockhill Parkway), west of FM-423 and south of US-380, Little Elm ETJ, Denton County, Texas

Frontage: The subject’s 209 proposed lots within Phase 1 will

have approximately 3,379± feet of frontage on the south side of Rockhill Parkway (northern boundary).

Typical Developed Lot Sizes: (209 Lots Phase 1)

168 lots: 60’ x 112’ (6,720 square feet) 41 lots: 80’ x 135’ (10,800 square feet) 209 lots

School District: Little Elm ISD/Denton ISD (see assumption) Utilities to Site: The utilities are assumed to be available and of

adequate capacity to service the site for low density residential of uses.

Shape of Tract: Slightly irregular

Topography: Rolling to level terrain Zoning: As discussed, the subject is to be annexed by the

Town of Little Elm and zoned to allow the development as shown herein.

Access: The site currently has average accessibility and

visibility with its access from Rockhill Parkway (northern boundary) which will be expanded from its current location at the eastern boundary to the western boundary of Phase 1.

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Easements & Encroachments: According to the survey and site plan, the subject appears to be free from any adverse easements and/or encroachments.

Surface Drainage: Appears adequate Soils: A soil analysis for the site has not been provided for

the preparation of this appraisal. In the absence of a soil report, it is a specific assumption that the site has adequate soils to support the highest and best use.

Subsurface Conditions: It is assumed that there are no hidden or unapparent

conditions to the property, soil, or subsoil, which would render them more or less valuable. Subsurface oil, gas, or mineral rights were not considered in this report unless otherwise stated.

Nuisances and Hazards: No nuisances or hazards were noted that would

adversely affect the use of the property. Adjacent Uses: North: Vacant land/Open space South: Vacant land/Open space East: Vacant land/Single family home sites West: Vacant land/Open space Street Improvements: Doe Creek Road is currently an unpaved road

providing minor north/south access to the subject. This road will be rebuilt as Rockhill Parkway.

Rockhill Parkway was recently expanded from FM-

423 to the eastern edge of the subject site providing average east/west access to the site.

Flood Designation: The subject is located on FEMA Panel 48121C0410G

dated April 18, 2011 found below. According to this map, none of the Phase 1 is located within a floodplain area.

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FLOOD MAP

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Site Improvements: The subject represents 209 proposed residential lots on 69.357 acres within Phase 1 of a planned multiphase residential community to be known as Valencia on the Lake. This phase of the development will have three entrances from the proposed extension of Rockhill Parkway along the northern boundary. The 209 proposed lots are designed as front-entry lots. This phase of development will offer several greenbelt areas. Also, the subdivision will be developed with concrete streets with curbs, gutters and sidewalks. Street lights will also be installed within this phase of development.

Conclusions: Overall, Phase 1 is well suited for single-family

residential development. All utilities are assumed to be available and there will be no easements, restrictions, or encumbrances that appear to negatively affect the value or marketability of the subject’s 209 proposed residential lots.

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SURVEY — PHASE 2A

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SURVEY — PHASE 2B

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SITE ANALYSIS — PHASE 2A/2B

Phases 2A and 2B are two non-contiguous tracts (or villages) of land that will be created after the completion of Phase 1 development. Phase 2A will be located on the north side of Rockhill Parkway while Phase 2B will be located on the south side of Phase 1 and accessed through this phase. Phase 2A is planned for a total of 155 lots (60’ x 120’) with 24 lots backing directly to open space. Phase 2B is planned for a total of 101 lots (63 – 60’ x 120’ and 38 - 100’ x 120’) with 32 lots backing directly to open space. Overall density is 2.4 units per acre. The general characteristics of the subject follow. For a visual depiction of these phases, see the survey of each as well as the master plan shown earlier indicating the location of Phase 2A/2B. General Site Information Location: North side of Future Rockhill Parkway, west of

FM-423 and south of US-380, Little Elm ETJ, Denton County, Texas

Land Area: 57.762 acres = Phase 2A

52.277 acres = Phase 2B 110.039 acres = Assembled size

Zoning Designation:

As discussed, the subject is to be annexed by the Town of Little Elm and zoned to allow the development as shown herein.

School District: Little Elm ISD and Denton ISD (2A Only/see assumption)

Frontage: The subject has approximately 1,968± feet of

frontage on the south side of the recently expanded Rockhill Parkway (northern boundary) as well as frontage on the east side of Doe Creek Road which is currently unpaved yet planned to be expanded and paved in the near future as additional phases are developed.

Utilities to Site: The utilities are assumed to be available and of


Shape of Tract: Both are slightly irregular Topography: Rolling to level terrain

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Nuisances and Hazards: No nuisances or hazards were noted that would adversely affect the use of the property.

Access: Phase 2A will have average accessibility and

visibility with its direct access from Rockhill Parkway. Phase 2B will be accessed through Phase 1 which is typical of secondary phases of development and will benefit from the Rockhill Parkway extension of Phase 1.

Easements & Encroachments: According to the survey provided, the subject appears to be free from any adverse easements and/or encroachments.

Surface Drainage: Appears adequate Soils: A soil analysis for the site has not been

provided for the preparation of this appraisal. In the absence of a soil report, it is a specific assumption that the site has adequate soils to support the highest and best use.

Subsurface Conditions: It is assumed that there are no hidden or

unapparent conditions to the property, soil, or subsoil, which would render them more or less valuable. Subsurface oil, gas, or mineral rights were not considered in this report unless otherwise stated.

Flood Designation: The subject is located on FEMA Panel

48121C0410G dated April 18, 2011 found on the following page. According to this map, as well as the master plan presented earlier, a portion of the site is located within a floodplain area, but is considered minimal. The acreage within the floodplain is not considered to be an adverse condition due to the aesthetic views and recreational opportunities offered by the overall design of the development.

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FLOOD MAP

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Adjacent Uses Phase 2A: North: Open space South: Phase 1 homes/lots East: Vacant land/Future school site West: Vacant land/Open space Adjacent Uses Phase 2B: North: Phase 1 homes/lots South: Open space East: Vacant land/Single family home sites West: Vacant land Street Improvements: Rockhill Parkway will be extended along the southern

boundary of Phase 2A. Site Improvements: Existing infrastructure completed within Phase I of the

subject’s development will serve to enhance Phases 2A/2B. These road and public utility extensions will provide these two future phases with lower development costs as compared to typical undeveloped properties in the market area.

Proposed Site Improvements: Phase 2A of the development will eventually have four

entrances from the proposed extension of Rockhill Parkway along the southern boundary. The 155 proposed lots in Phase 2A are designed as front-entry lots. This phase of development will also offer a greenbelt area. Also, the subdivision will be developed with concrete streets with curbs, gutters and sidewalks. Street lights will also be installed within this phase of development.

Phase 2B of the development will eventually have

three entrances through Phase 1. The 101 proposed lots in Phase 2B are designed as front-entry lots. This phase of development will also offer a greenbelt area. Also, the subdivision will be developed with concrete streets with curbs, gutters and sidewalks. Street lights will also be installed within this phase of development.

Conclusions: Overall, the subject’s partially developed land within

Phase 2A/2B is considered to be functional for future residential development as demand dictates. All utilities are in close proximity and there are no easements, restrictions, or encumbrances that appear to negatively affect the value or marketability of the property.

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SURVEY — PHASE 3

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SITE ANALYSIS — PHASE 3

Phase 3 will be created after the completion of Phase 1 development. This phase or pod will be one of four remaining tracts/villages of excess land of the overall development upon completion of Phase 1. Rockhill Parkway will extend along this phases northern boundary upon completion of Phase 1. Phase 3 is planned for a total of 241 lots (99 - 40’ x 100’, 95 – 80’ x 135’, and 47 – 100’ x 120’) with 43 lots backing directly to open space. Overall density is 2.2 units per acre. The general characteristics of the subject follow. For a visual depiction of this phase, see the survey of each as well as the master plan shown earlier indicating the location of all phases. General Site Information Location: On the south side of future Rockhill Parkway,

west of FM-423 and south of US-380, Little Elm ETJ, Denton County, Texas

Land Area: 112.164 acres

Zoning Designation:


School District: Little Elm ISD Frontage: The subject has no direct road frontage. Utilities to Site: The utilities are assumed to be available and of


Shape of Tract: Overall, the assemblage is irregular. Topography: Rolling to level terrain Nuisances and Hazards: No nuisances or hazards were noted that would

adversely affect the use of the property. Access: Phase 3 will have average accessibility and

visibility with its access from Rockhill Parkway.


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Adjacent Uses Phase 3: North: Open space South: Open space East: Phase 1 homes/lots West: Vacant land/Open space Street Improvements: Rockhill Parkway will extend along the entire northern

boundary of Phase 3. Site Improvements: Existing infrastructure completed within Phase I of the

subject’s development will serve to enhance Phase 3. The road and public utility extensions will provide this future phase with lower development costs as compared to typical undeveloped properties within the market area.

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FLOOD MAP

Appendix E-83

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Proposed Site Improvements: This phase of the development will eventually have three entrances from the proposed extension of Rockhill Parkway. The 241 proposed lots in Phase 3 are designed as front-entry lots. This phase of development will also offer two greenbelt areas on the north and south boundaries. Also, the subdivision will be developed with concrete streets with curbs, gutters and sidewalks. Street lights will also be installed within this phase of development.


Phase 3 is considered to be functional for future residential development as demand dictates. All utilities are in close proximity and there are no easements, restrictions, or encumbrances that appear to negatively affect the value or marketability of the property.

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SURVEY — PHASE 4

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79


Phase 4 will be created after the completion of Phase 1 development. This phase or pod will be one of four remaining tracts/villages of excess land of the overall development upon completion of Phase 1. Rockhill Parkway will bisect this phase upon completion of Phase 1. Phase 4 is planned for a total of 266 lots (195 – 40’ x 100’, 23 – 60’ x 120’, 27 – 80’ x 135’, and 21 - 100’ x 120’) with 51 lots backing directly to open space. Overall density is 4.1 units per acre. The general characteristics of the subject follow. For a visual depiction of this phase, see the survey of each as well as the master plan shown earlier indicating the location of all phases. General Site Information Location: On both sides of future Rockhill Parkway, west

of FM-423 and south of US-380, Little Elm ETJ, Denton County, Texas


Zoning Designation:








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Adjacent Uses Phase 4: North: Open space South: Vacant land/Open space East: Vacant land/Open space West: Vacant land/Open space Street Improvements: Rockhill Parkway will bisect the entire phase. Site Improvements: Existing infrastructure completed within Phase I of the


Appendix E-87

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FLOOD MAP

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Proposed Site Improvements: Phase 4 of the development will be bisected by, but not have any entrances from, Rockhill Parkway. However, it will be accessed through seven streets within Phase 3. The 266 proposed lots in Phase 4 are designed as front-entry lots. This phase of development will also offer a greenbelt area. Also, the subdivision will be developed with concrete streets with curbs, gutters and sidewalks. Street lights will also be installed within this phase of development.



Appendix E-89

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SURVEY — PHASE 5

Appendix E-90

84


Phase 4 will be created after the completion of Phase 1 development. This phase or pod will be one of four remaining tracts/villages of excess land of the overall development upon completion of Phase 1. Rockhill Parkway will bisect this phase upon completion of Phase 1. Phase 5 is planned for a total of 267 lots (53 - 25’ x 100’, 156 – 40’ x 100’, and 58 – 100’ x 120’) with 42 lots backing directly to open space. Overall density is 2.9 units per acre. The general characteristics of the subject follow. For a visual depiction of this phase, see the survey of each as well as the master plan shown earlier indicating the location of all phases. General Site Information Location: On both sides of future Rockhill Parkway, west

of FM-423 and south of US-380, Little Elm ETJ, Denton County, Texas


Zoning Designation:








Appendix E-91

85







Adjacent Uses Phase 5: North: Vacant land South: Open space East: Open space West: Open space Street Improvements: Rockhill Parkway will bisect the entire phase. Site Improvements: Existing infrastructure completed within Phase I of the


Appendix E-92

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FLOOD MAP

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Proposed Site Improvements: Phase 5 of the development will be bisected by and have three entrances from Rockhill Parkway as well as access through several streets within Phase 4. The 267 proposed lots in Phase 5 are designed as front-entry lots. This phase of development will also offer several greenbelt areas, the amenity center for the entire development and possibly a marina. Also, the subdivision will be developed with concrete streets with curbs, gutters and sidewalks. Street lights will also be installed within this phase of development.



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ZONING AND DEED RESTRICTIONS As discussed, the subject is to be annexed by the Town of Little Elm and upon annexation, will be zoned under the guidelines of a “Planned Development” District which is to permit development as shown herein. There are no apparent or known deed restrictions further affecting the use of the property. However, this should not be taken as a guaranty or warranty that no such restrictions exist. Deed restrictions are a legal matter and normally only a title search by a competent title attorney would uncover them. Thus, it is recommended that a title search be made if any questions regarding deed restrictions arise.

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AD VALOREM TAXES Tax Rates The Denton Central Appraisal District does assessments on a countywide basis. Because assessed value is typically the result of a mass appraisal process based more on statistical probability than individual property characteristics, it should be noted that there is frequently a difference between assessed value and market value for an individual property. It is noted that 70.03 acres of the site are currently located in the Denton ISD. However, the tax rates for both Little Elm and Denton ISD are almost identical (1.53% and 1.54%). The tax rates are set in October of each year. Therefore, the 2013 tax rates for the taxing authorities pertaining to the subject are shown as follows:

2013 TAX RATES

Authority Tax Rate Per $100

Denton County $0.282867 Little Elm/Denton ISD $1.540000 W35 (Valencia on the Lake WCID) $0.000000 Total Tax Rate $1.822867 Source: Denton Central Appraisal District

Tax Liability In Texas, real property is required by law to be assessed at 100% of its estimated market value. The subject is currently assessed as vacant land under four account numbers (44219, 38646, 43806, and 43910) with a total 2013 certified assessment of $25,840,232 ($58,824/gross acre) based on the tax district’s total land size of 439.2799 gross acres. Based on the comparable sales found within this report, it appears that the Denton Central Appraisal District has substantially under-valued the subject site. It is noted that the subject property is located within W35-Valencia on the Lake WCID District which has not yet set the tax rate. However, the total overall tax rate is expected to be similar to other competing properties. Thus, utilizing the Denton Central Appraisal District’s 2013 certified assessed values and the 2013 tax rates, the estimated property taxes for the subject are $471,033. It is noted that the estimated taxes for the subject as 209 proposed residential lots will be based upon our market value opinions within the discounted cash flow statement within this report.

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Roll Back Taxes It is also important to note that the subject is presently taxed under an agricultural exemption with a total 2013 assessment of $67,967. As such, under development, the developer of the site is liable for five years of back real estate taxes plus interest annually. This is considered typical of properties located in growth corridors such as the subject and are considered typical for the market.

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SECTION 5 — HIGHEST AND BEST USE ANALYSIS

Highest and best use is a market-driven concept which identifies the most profitable and competitive use for which a property can be used. It is defined by The Appraisal of Real Estate, Thirteenth Edition as:

The reasonable and probable use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.

The use which is the highest and best use of the property must be physically possible, legally permissible, financially feasible, and maximally productive. Following is a discussion of these factors.

Physically Possible The physical aspects of the site dictate the first constraint imposed on the possible use of the property. Size, location within a given block, topography, and availability of utilities are the most important physical determinants of the highest and best use of a site. The subject represents 209 proposed residential lots which represent the first phase of a future multiphase development known as Valencia on the Lake. In addition, the subject represents the remaining undeveloped land totaling 378.584 acres. With future road frontage on the both sides of the proposed Rockhill Parkway and being sufficient in size to allow a wide range of development, most allowed uses could be physically placed on the site without any unreasonable hindrance. Legally Permissible Potential legal restrictions that apply to the subject include public (zoning) and private restrictions (deed restrictions, easements, etc.). As discussed, the subject site located is located within the ETJ of Little Elm in an unincorporated area of Denton County and is presently not governed by a zoning district, but will be annexed and zoned as part of this bond project and restricted to the master plan provided herein. Financially Feasible and Maximally Productive When analyzing the financially feasible and maximally productive use of the site, all of the uses that are both physically possible and legally permissible must be considered. For the subject, the primary potential use is considered to be single-family residential development. As mentioned, the subject is zoned for residential use. Thus, an important factor affecting development of the subject is the surrounding land usage. The neighborhood is predominantly vacant land that is being developed into single-family residential uses. The immediate area surrounding the subject is residential and/or rural in nature.

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During the past decade, residential real estate market has seen many positive changes. With the steady increase in multifamily residential rental rates, coupled with the steady decrease in interest rates and the large numbers pertaining to job growth, there has been a trend of individuals choosing to purchase homes rather than to rent apartments and multifamily housing. Furthermore, with the decline in the availability of vacant developable land, population growth has quickly expanded into the suburban areas of the Dallas/Fort Worth area. As such, the proposed absorption of single-family home lots in the subject’s neighborhood will be analyzed using historical absorption data provided by Residential Strategies, Inc., a locally recognized information provider, as well as information obtained from area market participants and developers. It is important to note that our absorption data is based on historical trends. Inasmuch as we are forecasting an economy for this area that is at least equal to recent trends, using these historical trends is felt to be quite justifiable. Economic Climate Summary Following is a summary of the macro and micro economic climate pros and cons within the Texas and Dallas/Fort Worth metroplex, as well as the subject’s “Little Elm” submarket. Macroeconomic Cons

Nationally, the United States is creating about 2.2 million jobs per year representing a growth rate in the employment sector of about 1.7%.

Mortgage rates declined dramatically during the past two years, falling from an average of around 5% back in 2011 to a record low level this past Spring of just under 3.5%. May, 2013, Bernanke insinuated that, when the unemployment rate fell to 7%, the Fed would begin to taper its bond buying program and eventually raise interest rates. Many investors believed that the beginning of the end of Quantitative Easing would start to take place as soon as September, 2013. In anticipation of this, the bond markets sold off and we saw an enormous run up in interest rates in the months of May and June. Correspondingly, the 30-yr mortgage rate climbed by 111 basis points from 3½% at the beginning of May to a little over 4½% by July. However, more recently, and in the aftermath of a) the Fed’s September decision to delay the taper, b) the October government shutdown and c) the continued lackluster employment growth prognosis from the Fed, interest rates have subsided slightly. Since mid-September, mortgage rates have fallen about 45 basis points to their current level of just over 4%. Nonetheless, mortgage costs are still up, and likely will remain higher than they were last Spring.

3Q13 preliminary GDP figures were belatedly released in November, coming in at 2.8%. This is slightly above the generally anticipated 2% range that had been forecasted. Nonetheless, the economy appears to be drifting these days in a low percentage growth mode, and the employment markets, as well, seem to make only modest improvements.

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Microeconomic Cons

Development financing for new lots remains restrictive with acquisition and development financing still concentrated within a smaller subset of banks with most requiring at least 30% equity.

Almost 1 in 9 jobs created in the United States occurs here in Texas.

DFW job growth rate is up about 12,000. In fact, DFW’s job growth rate of 111,000 or 3.67% is one of the highest in the nation. In aggregate, the DFW area employs 3,135,000 net workers.

Texas has a fairly aggressive property taxation system which hinders some buyers of real estate product across most price ranges.

Foreclosures have steadily decreased since early 2011 in the DFW market as shown in the following chart:

The unemployment rate (not seasonally adjusted) stands at 7.3% for the US, Texas is at 6.3%, and DFW stands at 6%.

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Macroeconomic Pros

Dallas/Fort Worth home starts rose again in Third Quarter 2013 as area builders experienced strong demand for new housing. With the extremely tight inventory of existing home listings, consumers increasingly are gravitating to the new home market. The combined effect of a strengthening economy, solid job growth, low supply of existing home listings, and an ultra-low mortgage rate creates a compelling environment for a new home purchase.

The U.S. housing start rate is up 43% year-over-year with most parts of the

country benefitting from an improvement in new home construction.

Through August, the national month supply of new home inventory stood at a 5-month supply, just below the 6-month level considered equilibrium.

On a national basis, prices are up almost 13% year-over-year, but they are still about 20% below the mid-2006 record highs.

Despite the slight slow-down in the sales pace of housing during 3Q13, housing

inventories remained tight in most markets. Thus, it should not come as a surprise that prices continue to increase.

Appendix E-101

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Appendix E-102

96

Texas is becoming more of a target corporate relocation market due to legislative deficit imbalances evident in many states. Texas has a low cost of living index and does not have a state income tax.

Affordable homes, low mortgage and interest rates, and first-time homebuyer tax credits create an ideal climate within Texas.

Texas has an efficient transportation system of interstate highways and airports to accommodate delivery of goods and services.

Texas is a resource rich state that generates long-term sustaining tax revenue to state coffers.

Texas created 41,500 construction jobs in 2012 making the state the nation's leader in job growth over the past year. Texas added 111,000 jobs from January to August 2013.

Microeconomic Pros

Dallas-Ft. Worth new home construction continued to expand during the 3rd quarter despite reports from builders that traffic and sales were more moderate in July and August. Area builders initiated 5,805 starts, an increase of 573 units compared to a year ago.

The overall lot supply within the combined “Little Elm” submarket is estimated to be between 1.5± to 1.7± years (18± to 20± months).

The supply of lots within the competitive supply is dramatically below equilibrium

levels (2.0 to 2.5 years) with only a 13 to 19-month supply.

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RSI has classified the lot inventory into three categories; A, B, and C. This analysis indicates the following statistics (see chart below):

While the overall DFW lot supply is projected to be much tighter next

year at 17.6 months, the A quality submarkets are expected to see an even tighter supply. Furthermore, lots closest to delivery are highly concentrated in A markets. While instinctively, it is clear that the lot supply in A submarkets is getting tighter, there is a real possibility these submarkets could be faced with less than a year’s supply at the end of 2014.

B submarkets now represent the primary suburban growth markets – the conditions in these submarkets have returned to healthy levels and much of the product in these areas is focused on the $200-300K home price range.

C submarkets are still working through the recovery – many still have an excess lot supply and development activity remains somewhat limited to subsequent phases of established neighborhoods.

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The subject is physically located within the Little Elm ETJ within the eastern sector of Denton County and is to be annexed by the Town of Little Elm. Therefore, data obtained from Residential Strategies as of Third Quarter 2012 for Little Elm submarket will be analyzed. A summary of the details are as follows: “Little Elm” Submarket According to Residential Strategies, Inc. for the subject’s “Little Elm” submarket, a total of 370 single-family homes/lots were absorbed in 2011, increasing in 2012 to 536 homes/lots absorbed. Absorption has continued to increase into Third Quarter 2013 with 422 homes/lots absorbed (on pace for an annual absorption of 563 homes/lots). Thus, the 2.75-year annual absorption average is 483 homes/lots with an annual absorption of 540 homes/lots in the past 12 months from 10/12 to 09/13. As absorption rose dramatically in late 2011 and 2012, the number of vacant developed lots within the “Little Elm” submarket decreased from a high of 1,336 vacant lots in First Quarter 2012 to only 821 vacant developed lots as of Third Quarter 2013. Based on Residential Strategies absorption figures of the more recent 12-month period, currently there is only an 18±-month (821 lots ÷ 540 lots/year = 1.5± years) total supply of existing lots available in the subject’s immediate submarket. However, utilizing the longer 2.75-year absorption average of 483 homes/lots, the total supply of existing lots available increases slightly to 20±-months (821 ÷ 483 lots/year = 1.7± years).

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Thus, the overall lot supply within the combined “Little Elm” submarket is estimated to be between 1.5± to 1.7± years (18± to 20± months). This total supply is considered to drastically below equilibrium lot supply levels of 2.0 to 2.5 years utilizing both the shorter, more recent absorption period as well as the longer absorption period. Therefore, it appears that additional lot product in the “Little Elm” submarket is feasible at the current time based on continuing demand and dwindling lot supply levels. Furthermore, as the subject is not expected to be complete for approximately 12 months (November 2014), the lot supply levels would indicate that the subject’s Phase 1, as proposed, is considered feasible. As we have determined that the subject’s 209 proposed lots are feasible based on current market supply and demand, we will now narrow our residential analysis to specific competing subdivisions in the subject’s market area to determine the projected time of absorption for the subject’s proposed lots. It is noted that the subject has two distinct lot sizes. Therefore, our absorption data is presented in two groupings, 60-foot lots and 80-foot lots. These analyses are as follows: Subject Neighborhood – 60-foot Lots As discussed, the subject is located within Little Elm ETJ in Denton County, Texas and represents 168 proposed residential lots with a typical lot dimension of 60’ x 112’ (6,720 square feet). Furthermore, home prices are projected to range from $250,000 to $300,000. As such, the comparables presented are believed to accurately reflect the potential demand/absorption of the subject’s lots, as proposed.

The similarities considered to be most important are lot size, home price range, and amenity features. The tables that follow detail the active subdivisions that are considered to compete with the subject’s 168 proposed lots per Residential Strategies, Inc. as of Third Quarter 2013

Home Prices Typical Typical

Subdivisions (000's) Available Lots* Lot Dimensions Lot SF

Lakewood Estates, Section 3 $163-$208 34 60' x 100' 6,000Little ElmFrisco Hills, Section 1 $256-$362 32 60' x 115' 6,900Little Elm

Sunset Point, 19A/24A $266-$330 0 60' x 120' 7,200Little ElmPanther Ridge/Sunset Pointe, Section 7 $231-$271 59 60' x 115' 6,900Little Elm

TOTAL 125

*Source: Residential Strategies, Inc. as of Third Quarter 2013

COMPETITIVE SUPPLY

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The competitive supply presented above recognizes four residential developments which are located in the subject’s immediate vicinity. The lot sizes, home prices, and amenities in the subdivisions shown are similar relative to the subject. Thus, the four residential developments are considered to be the immediate competition for the subject’s proposed 60-foot lots and are believed to accurately reflect the potential absorption levels for the subject’s lots at this time. Having addressed the immediate competition, we will determine the approximate absorption time frame for the subject by analyzing absorption trends of the previously shown developments. Absorption Analysis – 60-foot Lots The following table outlines the monthly absorption of the four residential developments listed in the competitive supply. It should be noted that all data is as of Third Quarter 2013.

Available Building No. Units Per Months

Subdivisions Lots Starts* Months Month Supply

Lakewood Estates, Section 3 34 29 15 1.93 17.6

Frisco Hills, Section 1 32 35 15 2.33 13.7

Sunset Point, 19A/24A 0 49 21 2.33 0.0

Panther Ridge/Sunset Pointe, Section 7 59 32 12 2.67 22.1

TOTALS 125 145 9.26/2.32 13.5

MONTHLY ABSORPTION PERFORMANCE


Based on the number of available lots and average absorption per month, the 136 lots remaining within these four residential developments indicate only a 13.5-month supply (1.1± years). This appears to be representative of a severe under-supply of lots within the subject’s projected price/lot size range. Additionally, it is also important to note that at the absorption rates presented, one of the four residential developments presented sold out within the past quarter with two others projected to be sold out within 14.2 months which is near the time the subject is completed (12 months). Thus, it is reasonable that the subject, upon completion, may capture a portion of the demand that these projects currently enjoy. As discussed, all of the subject’s 209 proposed lots are being negotiated to two homebuilders, Cheldan Homes and Megatel Homes at an average absorption level of 8.0 lots per builder per quarter for two lot types, or approximately 1.3 upm, per lot type. However, historically, the smaller 60-foot lots have sold faster in the marketplace relative to the higher-priced 80-foot lots. As such, the takedown time frame for the smaller lots is expected to be faster than for the larger lots.

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Overall, the four residential developments, with 60-foot lots, indicate an absorption range of 1.9 units to 2.7 units per month, with an overall average of 2.3 units per month. To summarize, it is important to note the following facts:

Three of the four residential developments presented are projected to be sold

out within 13.6± months near the time the subject is completed (12 months). All 168 of the subject’s proposed 60-foot lots are to be contracted by two volume

homebuilders (Cheldan Homes and Megatel Homes) with a takedown schedule based on 8 lots per quarter (8 lots/quarter to Beazer Homes and 8 lots/quarter to MHI Homes) or an overall average absorption of 1.3 upm.

The subject’s competitive supply is considerably under-supplied with only a

14.6± month-supply of developed lots.

Thus, the preceding data supports a projected absorption for the subject’s proposed 60-foot lots to be 4.0 units per month, or 12.0 units per quarter (24 units per semi-annual period), which is somewhat similar relative to the subject’s lot contracts with Cheldan Homes and Megatel Homes (16.0 units per quarter for two lot types) and is strongly supported by the current market data. The semi-annual absorption projection is shown in the following summary:

Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Oct-17 42± Months

# OF LOTS 24 24 24 24 24 24 24 168 Lots

PROJECTED SEMI-ANNUAL LOT ABSORPTION SUMMARY

Conclusion In summary, we project the overall absorption for the subject’s 168 proposed 60-foot lots within Valencia on the Lake, Phase 1 to be 42± months, or 3.5± years (overall average of 4.0± lots/month). Subject Neighborhood – 80-foot Lots As discussed, the subject is located within Little Elm ETJ in Denton County, Texas and represents 41 proposed residential lots with a typical lot dimension of 80’ x 135’ (10,800 square feet). Furthermore, home prices are projected to range from $300,000 to $350,000. As such, the comparables presented are believed to accurately reflect the potential demand/absorption of the subject’s lots, as proposed. The similarities considered to be most important are lot size, home price range, and amenity features. The tables that follow detail the active subdivisions that are considered to compete with the subject’s 41 proposed lots per Residential Strategies, Inc. as of Third Quarter 2013.

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Home Prices Typical Typical

Subdivisions (000's) Available Lots* Lot Dimensions Lot SF

Sunset Point, 11/17/18 $327-$398 12 70' x 120' 8,400Little ElmSunset Point, 17/18 $313-$382 25 80' x 120' 9,600Little Elm

Glen at the Tribute, Section 1 $307-$532 26 85' x 130' 11,050The ColonyShores at Waterstone/Frisco Lakes $306-$408 71 70' x 130' 9,100Frisco

TOTAL 134

COMPETITIVE SUPPLY


The competitive supply presented above recognizes four residential developments which are located in the subject’s immediate vicinity. The lot sizes, home prices, and amenities in the subdivisions shown are similar relative to the subject. Thus, the four residential developments are considered to be the immediate competition for the subject’s proposed 80-foot lots and are believed to accurately reflect the potential absorption levels for the subject’s lots at this time. Having addressed the immediate competition, we will determine the approximate absorption time frame for the subject by analyzing absorption trends of the previously shown developments. Absorption Analysis – 80-foot Lots The following table outlines the monthly absorption of the four residential developments listed in the competitive supply. It should be noted that all data is as of Third Quarter 2013.

Available Building No. Units Per Months

Subdivisions Lots Starts* Months Month Supply

Sunset Point, 11/17/18 12 51 33 1.55 7.76

Sunset Point, 17/18 25 18 12 1.50 16.7

Glen at the Tribute, Section 1 26 32 15 2.13 12.2

Shores at Waterstone/Frisco Lakes 71 22 12 1.83 38.7

TOTALS 134 123 7.01/1.75 19.1

MONTHLY ABSORPTION PERFORMANCE


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Based on the number of available lots and average absorption per month, the 134 lots remaining within these four residential developments indicate only a 19.1-month supply (1.6± years). This appears to be representative of a severe under-supply of lots within the subject’s projected price/lot size range. Additionally, it is also important to note that at the absorption rates presented, one of the four residential developments presented are projected to be sold out within 7.7± months with one other sold out within 12.2 months which is near the time the subject is completed (12 months). Thus, it is reasonable that the subject, upon completion, may capture a portion of the demand that these projects currently enjoy. As discussed, all of the subject’s 209 proposed lots are being negotiated to two homebuilders, Cheldan Homes and Megatel Homes at an average absorption level of 8.0 lots per builder per quarter for two lot types, or approximately 1.3 upm, per lot type. However, historically, the larger 80-foot lots have sold slower in the marketplace relative to the lower priced 60-foot lots. As such, the takedown time frame for the smaller lots is expected to be faster than for the larger lots. Overall, the four residential developments, with comparable 80-foot lots, indicate an absorption range of 1.5 units to 2.1 units per month, with an overall average of 1.75 units per month. To summarize, it is important to note the following facts:

Two of the four residential developments presented are projected to be sold out

within 12.2± months near the time the subject is completed (12 months). All 41 of the subject’s proposed 80-foot lots are to be contracted by two volume

homebuilders (Cheldan Homes and Megatel Homes) with a takedown schedule based on 8 lots per quarter (8 lots/quarter to Cheldan Homes and 8 lots/quarter to Megatel Homes) or an overall average absorption of 1.3 upm.

The subject’s competitive supply is considerably under-supplied with only a

19.1± month-supply of developed lots.

Thus, the preceding data supports a projected absorption for the subject’s proposed 80-foot lots to be 2.0 units per month, or 6.0 units per quarter (12 units per semi-annual period), which is somewhat similar relative to the subject’s lot contracts with Cheldan Homes and Megatel Homes (16.0 units per quarter for two lot types) and is strongly supported by the current market data. The semi-annual absorption projection is shown in the following summary:

Nov-14 May-15 Nov-15 May-16 21± Months

# OF LOTS 12 12 12 5 41 Lots


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Conclusion In summary, we project the overall absorption for the subject’s 41 proposed 80-foot lots within Valencia on the Lake, Phase 1 to be 21± months, or 1.7± years (overall average of 2.0± lots/month).

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SECTION 6 — VALUATION OF THE SUBJECT

The valuation process is defined as:

"The systematic set of procedures an appraiser follows to provide answers to a client’s questions about real property value.”3

Valuation is a term used interchangeably with appraisal. Real estate markets are a function of the location in which they are located. The overall market environment can have a profound effect on the manner in which buyers and sellers perform the act of transferring property rights. Considerations made by the participants are generally based on certain fundamental principles. Those principles and their definitions are as follows:

Anticipation: “The perception that value is created by the expectation of benefits to be derived in the future. Value is created by the anticipation of future benefits.

Change: The result of the cause and effect relationship among the forces that influence real property value.

Supply and Demand: In economic theory, the principle of supply and demand states that the price of a commodity, good, or service varies directly, but not necessarily proportionately, with demand and inversely, but not necessarily proportionately with supply. Thus, an increase in the supply of an item or decrease in the demand for an item tends to reduce the equilibrium price; the opposite conditions produce an opposite effect. The relationship between supply and demand may not be directly proportional, but the interaction of these forces is fundamental to economic theory. The interaction of suppliers and demanders, or sellers and buyers, constitutes a market.

Competition: Between purchasers or tenants, the interactive efforts of two or more potential buyers or tenants to make a sale or secure a lease; between sellers or landlords, the interactive efforts of two or more potential sellers or landlords to complete a sale or lease; among competitive properties, the level of productivity and amenities or benefits characteristic of each property considering the advantageous or disadvantageous position of the property relative to the competitors.

Substitution: The appraisal principle that states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price attracts the greatest demand and widest distribution. This is the primary principle upon which the cost and sales comparison approaches are based.

3 The Appraisal of Real Estate, 13th Edition, the Appraisal Institute, Chicago, Illinois (U.S., 2009)

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Balance: The principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium.

Contribution: The concept that the value of a particular component is measured in terms of its contribution to the value of the whole property or as the amount that its absence would detract from the value of the whole.

Surplus Productivity: The net income that remains after the cost of various agents of production has been paid.

Conformity: The appraisal principle that real property value is created and sustained when the characteristics of a property conform to the demands of its market.

Externalities: The principle economies outside a property have a positive effect on its value while diseconomies outside a property have a negative effect upon its value.”4

The Cost Approach, wherein the land is appraised as if vacant and available for development to its highest and best use. To this result is added the improvements estimated cost of reproduction new less depreciation accruing from all causes.

The Income Approach, which requires a study of the earnings capacity of the real estate, and the conversion of such net income into value by means of a capitalization process.

The Sales Comparison Approach, involving an analysis of the sale of other property having similar attributes and/or improvements, and a comparison of such data with the property appraised, giving due consideration to the elements of dissimilarity.

Historical Background: “The appraisal procedures that are now identified as the three approaches to value were developed after the stock market crash of 1929. The economic crisis that ensued had an immediate impact on the appraisal practices of the time. The collapse of the real estate market in the 1930s seemed to discredit the notion that market price is central to value”.5

There are several accepted methods which can be used to provide an opinion of the value of land. However, only the Sales Comparison Approach is considered to be applicable in this instance. The Sales Comparison Approach is a method that involves analyzing and comparing sales of sites that are similar to the subject and adjusting the sales prices for relative differences such as property rights conveyed, financing terms, conditions of sale, marketing conditions, location, and physical characteristics. This method is the most common technique of land valuation and is preferential to the other methods when comparable sales are available.

4 The Appraisal of Real Estate, 13th Edition, the Appraisal Institute, Chicago, Illinois (U.S., 2009) 5 Ibid.

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Under the Lot Development Approach, the subject is assumed to be developed into a subdivision, with the individual lots being sold over a projected period of time. Expenses that are incurred are deducted from the proceeds of the lot sales and the resulting income stream is discounted into a present value. The following sections provide the rationale and assumptions inherent in the Sales Comparison Approach as well as the Lot Development Approach. We will utilize the Lot Development Approach to value to provide a bulk or wholesale value for the 209 proposed lots in Phase 1. The Sales Comparison Approach of value will be utilized for the subject’s individual phases of excess land after development is complete.

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LOT DEVELOPMENT APPROACH The first step in the process of providing a market value opinion of the subject, as developed, is to determine the market value of the individual lots (retail value). This will be done by using the Sales Comparison Approach. Retail Lot Price 60-Foot Lots Because of their size and potential uses, the sum of the individual lots in a subdivided parcel is more valuable than the site as a whole. The value of the individual lots is commonly referred to as the "retail value" of the lots, since this is essentially the value of the site to the end-user of the site. To estimate the value of the subject’s developed lots, we will utilize lot sales from several different subdivisions located in the immediate area. The sales that were verified can be found in the following summary.

SUMMARY OF COMPARABLE LOT SALES

Sale No.

Subdivisions

Contract Date

Typical Lot Dimensions (SF)

Base Lot Price

Lot Prices With Interest

Prices per FF With Interest

1 Frisco Hills, Phase 1B Little Elm ETJ, Denton County, Texas

2012 60’ x 115’ (6,900)

$54,000 $58,050 $941

2 Castle Hills West, Phase 5A Lewisville ETJ, Denton County, Texas

2011 60’/70’ x 110/120’ (6,600-8,400)

$83,000-$99,875

$96,280-$115,855

$1,605-$1,655

3 Hills of Kingswood, Phases 2A/2B, Frisco, Texas

2013 Proposed

65’ x 125’ (8,125)

$83,000

$83,000

$1,277

4 Sheridan at Philips Creek Ranch Frisco, Denton County, Texas

2013 55’ x 115’ (6,325)

$88,000 $91,520 $1,644

Subject 168 proposed Lots within Valencia, Phase 1 Little Elm ETJ, Texas

60’ x 112’ (6,720)

The single-family lot comparables utilized for the typical 60-foot lots in Valencia, Phase 1, range in base sales prices from $54,000 to $83,000 per lot ($58,050 to $96,280/lot with interest carry) for competitive lots with 60’ frontages in the subject's market area. The smaller 50-foot lots in the market area are selling for $88,000 ($91,520 with interest). All of the comparable subdivisions are located in the subject’s immediate market area. Thus, all of the subdivisions are influenced by their similar proximity to shopping and employment districts. Finally, factors such as property rights conveyed, financing, conditions of sale, or market conditions did not influence the lot sales. A map showing the location of the comparable lots relative to the subject’s developed lots within Valencia on the Lake, Phase 1, is shown as follows.

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LOT COMPARABLE MAP

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110

The individual subdivisions are detailed as follows: 1) Frisco Hills, Phase 1B is located directly east of the subject on the south side of Rockhill Road, west of FM-423, and south of US-380 in Little Elm ETJ, Texas. Phase 1B was platted and developed with a total 39 lots with lot dimensions of 60’ x 115’ (6,900 SF) which is similar in size relative to the subject’s lots, as proposed (60’ x 112’ or 6,720 SF). Lots in this development are located within the Frisco Independent School District, while the subject lots are to be located within the Little Elm ISD. Overall, this development is considered slightly inferior in location relative to the subject’s lakeside location with view lots and open space. Amenities are to include an amenity center with pools and playgrounds. Overall, this development is considered similar in amenities relative to the subject. Lots in this development are being contracted to First Texas Homes and Grand Homes at a 2012 base lot price of $54,000/lot ($58,050/lot with interest carry) for the 60’ lots. This equates to a price per front footage of $941/FF. As such, the subject’s lots, as proposed, should be slightly higher on a front footage basis relative to the current lot prices of this comparable. 2) Castle Hills West, Phase 5A is located southwest of the subject on the east side of the “SRT (Tollway), south of Parker Road within a multi-phase development in an unincorporated area of Denton County. Lots in this development are located within the Lewisville Independent School District, while the subject lots are to be located within the Little Elm ISD. Overall, this phase has superior locational characteristics to that of the subject due to its closer proximity to major development. This phase was platted and developed with 270 lots with a typical lot size of 60’/70’ x 110/120’ (6,600 SF - 8,400 SF) which is somewhat similar relative to the subject’s lots, as proposed (60’ x 112’ or 6,720 SF). Lot sales in this phase are to American Legend Homes and David Weekley Homes at base lot prices set in 2011 of $83,000 ($96,280/lot with interest carry) for the 60-foot lots and $99,875 ($115,855/lot with interest carry) for the 70 foot lots. This equates to price per front footage of $1,605/FF and $1,655/FF. Based on the preceding, the lot prices for the subject’s lots, as proposed, should be substantially lower on a front footage basis relative to the current lot prices of this comparable. 3) Hills of Kingswood, Phases 2A & 2B are located southeast of the subject south of Lebanon Road at Rock Creek Parkway in the western sector of Frisco, Texas. Phases 2A & 2B are currently under construction with a total of 111 lots with a typical lot dimension of 65’ x 125’ (8,125 SF) which is a slightly superior size relative to the subject’s lots, as proposed (60’ x 112’ or 6,720 SF). Lots in this development are located within the Lewisville Independent School District, while the subject lots are to be located within the Little Elm ISD. Overall, this development is considered similar in location relative to the subject. Amenities include one main private, gated entry with a palatial guard house/amenity center, as well as several greenbelt areas, a hiking/biking path, and extensive landscaping. Overall, this development is considered superior in amenities relative to the subject. Lots in this development are contracted to Grand Homes at a base lot price, upon completion, of $83,000/lot (no interest carry applies at this time). This equates to a price per front footage of $1,277/FF. As such, the subject’s lots, as proposed, should be lower on a front footage basis relative to the current lot prices of this comparable.

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111

4) Sheridan at Phillips Creek Ranch, Phase 1 is located southeast of the subject and represents a new phase completed in late 2012 within a future 950-acre master-planned development located at the southeast corner of Stonebrook Parkway and Lone Star Ranch Parkway in the western sector of Frisco, Texas. This development is located within the Frisco Independent School District, while the subject is located within the Little Elm ISD. Overall, this development is considered superior in location relative to the subject due to its closer proximity to major development. Amenities will eventually include Olympic pools, fitness center, 11 miles of parks/trails, 102 acres of green space and lakes. Thus, overall, this development is considered superior in amenities relative to the subject. This phase was platted and developed with a total of 315 single-family lots with a mixture of lot sizes:

92 lots (55’ x 115’ or 6,325 SF)

126 lots (65’ x 120’ or 7,800 SF)

61 lots (74’ x 125’ or 9,250 SF)

36 lots (83’ x 130’ or 10,790 SF) As such, the 55’ lots are considered inferior in size relative to the subject lots, as proposed (60’ x 112’ or 6,720 SF lots). Lot sales represent a base lot price set in early 2013 at $1,600/FF or $88,000/lot ($91,520/lot with interest carry) for the 55’ frontage lots sold to Highland Homes. This current price equates to a price per front footage of $1,664. As such, the subject’s lots should be lower on a front footage basis relative to the lot prices within this phase of development. Summary – 60-foot Lots In summary, the single-family lot comparables utilized range in base sales prices from $54,000 to $88,000 per lot ($58,050 to $91,520/lot with interest carry) for competitive lots with 55’ to 65’ frontages in the subject's market area. The subject’s lots are generally considered to be superior to the lots within Frisco Hills which have a base lot price of $54,000/lot ($58,050 with interest carry) while inferior with the lots in Hills of Kingwood which are set at $83,000/lot. It is noted that the lots prices for Frisco Hills were contracted in 2012 and do not recognize the large price increases experienced over the past year whereas the Hills of Kingswood are current contracts and are more representative to the current market. Based on the preceding, the subject’s 168 lots, with 60-foot frontages, are well supported by the comparable sales at a value of $68,000/lot ($1,133/FF) which is the subject’s reported proposed lot contract price.

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112

Retail Lot Price 80-Foot Lots Because of their size and potential uses, the sum of the individual lots in a subdivided parcel is more valuable than the site as a whole. The value of the individual lots is commonly referred to as the "retail value" of the lots, since this is essentially the value of the site to the end-user of the site. To estimate the value of the subject’s developed lots, we will utilize lot sales from several different subdivisions located in the immediate area. The sales that were verified can be found in the following summary.

SUMMARY OF COMPARABLE LOT SALES

Sale No.

Subdivisions

Contract Date

Typical Lot Dimensions (SF)

Base Lot Price

Lot Prices With Interest

Prices per FF With Interest

1 Glen at Tribute The Colony, Denton County, Texas

2011 77’ x 130’ (10,010)

$88,825 $99,484 $1,290

2 Crestview at Prosper Prosper, Colin County, Texas

2013 85’/140’ (11,900)

$90,000 $90,000 $1,059

3 Hills of Kingswood, Phases 2A/2B, Frisco, Texas

2013 Proposed

65’ x 125’ (8,125)

$83,000 $83,000 $1,277

4 Sheridan at Philips Creek Ranch Frisco, Denton County, Texas

2013 74’ x 125’ (9,250)

$122,100 $126,984 $1,644

Subject 41 proposed Lots within Valencia, Phase 1 Little Elm ETJ, Texas

80’ x 135’ (10,800)

The single-family lot comparables utilized for the 80-foot lots within Valencia, Phase 1, range in base sales prices from $83,000 to $122,100 per lot ($83,000 to $126,984/lot with interest carry) for competitive lots with 65’ to 85’ frontages in the subject's market area. Also, all of the comparable subdivisions are located in the subject’s immediate market area. Thus, all of the subdivisions are influenced by their similar proximity to shopping and employment districts. Finally, factors such as property rights conveyed, financing, conditions of sale, or market conditions did not influence the lot sales. A map showing the location of the comparable lots relative to the subject’s developed lots within Valencia on the Lake, Phase 1, is shown as follows.

Appendix E-119

113

LOT COMPARABLE MAP

Appendix E-120

114

The individual subdivisions are detailed as follows: 1) Glen at Tribute is located south of the subject on the east side of Lebanon Road, south of Lochside in The Colony, Texas and is one of many phases of development within a master-planned community, The Tribute. This phase is considered to be similar in lakeside location, but is located in a closer in area with superior amenities relative to the subject. However, lots in this development are located within the Little Elm ISD like the subject lots. The Glen at Tribute was platted and developed with 43 lots with a typical lot size of 77’ x 130’ (10,010 SF) which is slightly smaller than the subject’s lots, (80’ x 135’ or 10,800 SF). Lot sales in this phase are to Highland Homes and American Homes at a base lot price set in 2011 at $88,825 ($99,484/lot with interest carry). This equates to a price per front footage of $1,292/FF. Based on the preceding, the lot prices for the subject’s lots, as proposed, should be slightly lower on a front footage basis relative to the current lot prices of this comparable. 2) Crestview at Prosper is located northeast of the subject on the south side of Prosper Trail, east of Coleman Street in Prosper, Texas. Lots in this development are located within the Prosper Independent School District, while the subject lots are to be located within the Little Elm ISD. Overall, this phase has superior locational characteristics to that of the subject due to the quality of surrounding development. This phase was platted and developed with 77 lots with a typical lot size of 85’ x 140’ (11,900 SF) which is superior relative to the subject’s lots, as proposed (60’ x 112’ or 6,720 SF). Lot sales in this phase are to Megatel Homes at a base lot price set in 2012 at $90,000 with no interest carry. This equates to price per front footage of $1,059/FF. Based on the preceding, the lot prices for the subject’s lots, as proposed, should be slightly lower on a front footage basis relative to the current lot prices of this comparable. 3) Hills of Kingswood, Phases 2A & 2B are located southeast of the subject south of Lebanon Road at Rock Creek Parkway in the western sector of Frisco, Texas. Phases 2A & 2B are currently under construction with a total of 111 lots with a typical lot dimension of 65’ x 125’ (8,125 SF) which is a slightly superior size relative to the subject’s lots, as proposed (60’ x 112’ or 6,720 SF). Lots in this development are located within the Lewisville Independent School District, while the subject lots are to be located within the Little Elm ISD. Overall, this development is considered similar in location relative to the subject. Amenities include one main private, gated entry with a palatial guard house/amenity center, as well as several greenbelt areas, a hiking/biking path, and extensive landscaping. Overall, this development is considered superior in amenities relative to the subject. Lots in this development are contracted to Grand Homes at a base lot price, upon completion, of $83,000/lot (no interest carry applies at this time). This equates to a price per front footage of $1,277/FF. As such, the subject’s lots, as proposed, should be lower on a front footage basis relative to the current lot prices of this comparable.

Appendix E-121

115

4) Sheridan at Phillips Creek Ranch, Phase 1 is located southeast of the subject and represents a new phase completed in late 2012 within a future 950-acre master-planned development located at the southeast corner of Stonebrook Parkway and Lone Star Ranch Parkway in the western sector of Frisco, Texas. This development is located within the Frisco Independent School District, while the subject is located within the Little Elm ISD. Overall, this development is considered superior in location relative to the subject due to its closer proximity to major development. Amenities will eventually include Olympic pools, fitness center, 11 miles of parks/trails, 102 acres of green space and lakes. Thus, overall, this development is considered superior in amenities relative to the subject. This phase was platted and developed with a total of 315 single-family lots with a mixture of lot sizes:

92 lots (55’ x 115’ or 6,325 SF)

126 lots (65’ x 120’ or 7,800 SF)

61 lots (74’ x 125’ or 9,250 SF)

36 lots (83’ x 130’ or 10,790 SF) As such, the 74’ lots are considered slightly inferior in size relative to the subject lots, as proposed (80’ x 135’ or 10,800 SF lots). Lot sales represent a base lot price set in early 2013 at $1,650/FF or $122,100/lot ($126,984/lot with interest carry) for the 74’ frontage lots sold to Drees Homes and Shaddock Homes. This current price equates to a price per front footage of $1,664. As such, the subject’s lots should be lower on a front footage basis relative to the lot prices within this phase of development. Summary – 80-foot Lots In summary, the single-family lot comparables utilized range in base sales prices from $83,000 to $122,100 per lot ($83,000 to $126,984/lot with interest carry) for competitive lots with 65’ to 85’ frontages in the subject's market area. The subject’s lots are generally considered to be inferior to all of the comparable subdivisions, but most similar to the lots within Crestview at Prosper which have a base lot price of $90,000/lot for a larger lot size while inferior the lot sizes in Hills of Kingwood which are set at $83,000/lot. It is noted that the lots prices for both these subdivisions were set in 2013 and recognize the large price increases experienced over the past year. Based on the preceding, the subject’s 41 80-foot lots are well supported by the comparable sales at a value of $84,000/lot ($1,050/FF) which is the subject’s reported proposed lot contract price.

Appendix E-122

116

Summary of all Lot Values Thus, utilizing the preceding lot values, the cumulative retail proceeds from the 209 proposed lots within Valencia on the Lake, Phase 1 are $14,868,000, or $71,139 average per lot, as shown below.

CUMULATIVE RETAIL LOT VALUE CALCULATION

No. Lots

Lot Dimensions (SF)

Average Lot Price

Total Retail Value

168 60’ x 112’ $68,000 $11,424,000 41 80’ x 135’ $84,000 $3,444,000 209 6,720 SF – 10,800 SF $71,139 $14,868,000

The sales proceeds will be received as the lots sell over the projected absorption period.

Appendix E-123

117

SUMMARY OF BULK LOT VALUE CONCLUSION The preceding value was based on a retail lot sale of two to 10 lots at a time under a rolling option takedown. However, frequently entire subdivisions are sold to builders, or other investors, at a discount. These builders will then warehouse the land themselves, or the investors will resell the lots to builders over a longer term takedown schedule. Thus, to determine the appropriate discount for the subject, we have assembled a number of bulk sales of other developed subdivision lots located throughout the Dallas/Fort Worth metroplex. The comparables presented represent the bulk sale of developed lots to homebuilders and/or investors. As shown below, the discount for the sales presented ranged from 5% to 14% of the retail value in 2005 - 2007, but increased significantly from 2008 through early 2012 with the declining economic conditions. However, the market is much stronger now and demand is high. Thus, when consideration is given to the subject’s marketing period of 21±-42± months to sell the subject’s 209 proposed lots within Phase I, a net to gross sales price ratio (average bulk sale value per lot/average retail sales price per lot) at the mid to upper end of the range indicated below, or 80%, is deemed appropriate. The bulk sale comparables are listed in the following table.

BULK LOT SALE SUMMARY

Subdivision Name

D.O.S.

Total # Lots

Lot Size

Bulk Price/Lot

Retail Price/Lot

N/G Ratio

Austin Ridge Frisco

04/10 192 55’ x 115’ 80’ x 125’

$46,700 $62,500 74.7%

Chase Oaks Village (TH) Plano 07/10 92 25’ x 100’ $18,587 $30,000 62.0%

Stone River Estates Royse City 12/10 69 65’ x 125’

75’ x 125’ $11,594 $25,000 46.4%

Myers Meadows Garland 09/10 35 65’ x 120’ $35,000 $62,000 56.5%

Founders Addition Kaufman County 06/11 38 150’ x 320’ $20,000 $40,000 50.0%

Williamsburg Fate 11/11 75 50’ x 110’

$30,000 $32,500 92.3%

Hidden Creek, Phase 1 Royse City 03/12 26 70’/80’ x 105’ $19,000 $30,141 63.0%

Woodland Creek Royse City 07/12 68 60’ x 120’ $17,000 $25,000 68.0%

Ovilla Parc Ovilla U/C 50 100’ x 200’ $$43,200 $50,000 86.0%

Mission Ridge Estates Fort Worth 06/12 20 50’ x 120’ $12,000 $20,000 60.0%

Hunters Field Fort Worth 06/12 78 50’ x 120’ $15,120 $20,000 75.6%

Deer Meadows Fort Worth 06/12 75 50’ x 120’ $20,000 $25,500 78.4%

Prestwyck McKinney 01/13 90 50’/60’ x

110’/120’ $53,000 $62,500-$67,500 78.5%-84.8%

Valencia on the Lake Royse City ETJ 02/13 28 40’/50’ x 110’ $22,857 $25,974 88.0%

Canyon West Parker County, Texas 07/13 25 200’ x 220’ $10,750 $30,000 64.2%

Appendix E-124

118

Based on the preceding, it is our opinion that the market value of the subject’s 209 proposed residential lots utilizing an average retail lot value of $71,139/lot and a net/gross ratio of 75% on November 8, 2014 would be $11,900,000 (R), or $56,938 average per developed lot as shown in the following table.

MARKET VALUE SUMMARY

Average Lot Value # Lots N/G Ratio Total Market Value (R)

$71,139 x 209 x 80% = $11,900,000

Appendix E-125

119

MARKET VALUE "UPON COMPLETION" ON APPRAISAL DATE Having completed the retail valuation section of the assignment, we will now provide an opinion of the market value of the property to a single purchaser, as of this date. Obviously, this value will include a provision for compensating the developer/sponsor, i.e., profit for risk and expenditure of time. This value contemplates that the developer/sponsor of the subject would sell the subject property to another developer who would in turn sell the developed lots on a retail basis. This value represents the concept of market value to a single purchaser as of this date, wherein a portion of the overall real property rights or physical asset would typically be sold to its ultimate users over some future time period. Valuations involving such properties must fully reflect all appropriate deductions and discounts as well as the anticipated cash flows to be derived from the disposition of the asset over time. Appropriate deductions and discounts are considered to be those which reflect all expenses associated with the disposition of the realty, as of the date of completion, as well as the cost of capital and entrepreneurial profit. This latter item of entrepreneurial profit is accounted for herein as part of the discount rate. Based on our experience, profit is not expensed as a line item as it is not realized until the project’s expenses (including debt) are paid. The various assumptions necessary to complete our Discounted Cash Flow Analysis for the developed subject subdivision are discussed in detail in the following paragraphs. Overall Absorption Summary

As discussed in detail in the "Single-Family Analysis" section of our analysis, we have projected the overall absorption for the subject’s 41, 80-foot lots to be 21 months with the 60-foot lots absorbing in 42 months simultaneously. Thus, the 209 proposed lots are projected to be absorbed simultaneously within a total of 42± months or 3.5 years with the (overall average of 5.0 upm) as follows: Valencia on the Lake, 60 Foot Lots We have projected the overall absorption for the subject’s 168 proposed lots with 60’ frontages within Valencia on the Lake, Phase 1 to be 42± months, or 3.5± years (an overall absorption average of 4.0± upm). Our projected absorption is very similar to the proposed lot contracts Cheldan Homes and Megatel Homes (16.0 units per quarter for two lot types) and is strongly supported by the current market data.

Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Oct-17 42± Months

# OF LOTS 24 24 24 24 24 24 24 168 Lots


Appendix E-126

120

Valencia on the Lake, 80 Foot Lots We have projected the overall absorption for the subject’s 41 proposed lots with 80’ frontages within Valencia on the Lake, Phase 1 to be 21± months, or 1.75± years (an overall absorption average of 2.0± upm). Our projected absorption is very similar to the proposed lot contracts Cheldan Homes and Megatel Homes (16.0 units per quarter for two lot types) and is strongly supported by the current market data.

Nov-14 May-15 Nov-15 May-16 21± Months

# OF LOTS 12 12 12 5 41 Lots


Price/Value Increases Over the Sellout Period Despite overall national recessionary effects on real estate in general, price/values for residential and commercial land in the overall Dallas/Fort Worth marketplace have remained reasonably stable. As can be seen from the following table, the past few years have seen a reduction in previous strong inflation rates. This is due in large part to the federal government’s efforts to curb inflation, as well as the effect of level or declining prices for agricultural goods, petroleum and related manufactured products.

TRENDS IN NATIONAL INFLATION AND INTEREST RATES

Year U.S. Prime Rate Increase in U.S. CPI Real Rate of Return

2002 4.25% 1.6% 2.65% 2003 4.00% 2.3% 1.70% 2004 5.00% 2.7% 2.30% 2005 7.00% 3.4% 3.60% 2006 8.25% 3.2% 5.05% 2007 7.50% 2.9% 4.60% 2008 4.00% 3.8% 0.20% 2009 3.25% -0.4% 3.65% 2010 3.25% 1.5% 1.75% 2011 3.25% 3.0% 0.25% 2012 3.25% 1.7% 1.55%

06/2013 3.25% 1.7% 1.55% Source: Federal Reserve Bank of St. Louis, U. S. Financial Data;

U.S. Department of Commerce, Bureau of Economic Analysis

Appendix E-127

121

As shown in the preceding table, CPI increases ranged from -0.4% to 3.8% from 2002 through June 2013 with 3.25% to 8.25% prime rates resulting in real annual rates of returns ranging from 0.2% to 5.05% (with the most current real rate of return at 1.55%). Thus, the real rates of return are substantially affected with fluctuations in the prime rates and the increases/decreases in the consumer price index. (The increase is calculated relative to the previous year-to-year December index rates). Historically, in the sales contracts of the volume lot sales in the marketplace, the lot prices are typically adjusted upward at rates ranging from the prime rate to the prime rate, plus one percent (annually). Thus, as the prime rate is currently 3.25%, for valuation purposes herein, we have estimated annual appreciation on the sale of the subject units at 6% per year for the subject’s 209 proposed lots within Valencia on the Lake, Phase 1. This is considered reasonable given the supply of available housing product in the area, the historical collection of interest carry/appreciation by developers within the Dallas/Fort Worth market area, and the subject’s potential lot contracts with two volume homebuilders, Cheldan Homes and Megatel Homes on a takedown basis with annual interest carry set at six percent. Expenses Cost of Sales has been estimated at 0.5% of gross sales proceeds for various

closing costs and title policies. Taxes are paid by the developer annually. The estimation of taxes paid per period is based upon the premise that taxes are prorated at closing and are paid in arrears. Therefore, we have deducted taxes based upon the estimated retail market value of the unsold lots. The taxes are prorated in each calendar year based upon the projected sales in each period. Based upon our experience and information gathered from numerous reputable builders/ developers and taxing authorities, this methodology and percentage estimate (2.0%) is well founded. The taxes will be applied individually to the 60’ and 80’ lots based on their projected absorption.

Marketing expense is not included in this analysis as all of the subject’s 209

proposed lots within Valencia on the Lake, Phase 1 are to be contracted to volume homebuilders (Cheldan Homes and Megatel Homes). Both are of the volume homebuilders in the Dallas/Fort Worth area that typically provide their marketing.

HOA expense is included in this analysis and is based on a per lot expense of

$150/lot on an annual basis. This fee is for the remaining lots only in every sales period.

Appendix E-128

122

Entrepreneurial Coordination/Remuneration: The last major deduction is that for Entrepreneurial (i.e., the developer/sponsor)/ coordination talent expenditure (see Hewitt: Condominium Developed Lot Discounting Concepts...Again; The Real Estate Appraiser and Analyst; SREA, January/February, 1980). Inasmuch as the discount rate will include a provision for return on the equity investment, this deduction will be for actual time and expenses only. Typically, the developer will allow a budgeted line item equal to 0.5% to 2.0%, of sales and/or costs, depending on the size of the project, expertise required and management developmental time involved. Because the site requires planning and development, an expense of 1.0% is deemed appropriate and will be a direct line-item deduction from the gross sales proceeds.

Appendix E-129

123

Appendix E-130

124

Appendix E-131

125

Discount Rate According to the Dictionary of Real Estate Appraisal, Fourth Addition, Discount Rate is defined as “an interest rate used to convert future payments or receipts into present value. The discount rate may or may not be the same as the internal rate of return (IRR), or yield rate, depending on how it is extracted from the market and/or used in the analysis.” Furthermore, Internal Rate of Return (IRR) is defined as “the annualized yield rate or rate of return on capital that is generated or capable of being generated within an investment or portfolio over a period of ownership. The IRR is the rate of discount that makes the net present value of the investment equal to zero. The IRR discounts all returns from the investment, including returns from its reversion, to equal the original capital outlay. This rate is similar to the equity yield rate. As a measure of investment performance, the IRR is the rate of discount that produces a profitability index of one and a net present value of zero. It may be used to measure profitability after income taxes, i.e., the after-tax equity yield rate.” In other words, it is a rate of profit (or loss) or a measure of performance. It is literally, an interest rate. The effective interest rate on a real estate investment is the equity investor's IRR. The yield to maturity on a bond is the bond holder's IRR, when the bond is held for its full term. The IRR is the rate of return on capital expressed as a ratio per unit of time; for example, 10% per annum. The discount rate utilized herein is essentially an anticipated IRR for the subject property, as estimated from investment performance realized by market participants. Although the investment vehicle being analyzed herein is real property, competition for investment dollars in other investment media is intense, and the prudent investment manager must carefully consider all options. Because of the element of risk involved in real estate investment versus alternative investment vehicles, the prudent investment manager must compare rates of return. The performance of real estate is dependent upon and could fluctuate with the degree of quality of management, unexpected competition, disasters, or economic cycles, particularly in the subject's market area. Therefore, it entails a greater degree of risk than instruments such as government-backed bonds or fixed-rate mortgages. As of November 1, 2013, the prime rate was 3.25%. Rates for AAA corporate bonds have significantly decreased to 4.47% from a high of 5.38% on April 9, 2010. In addition, the 10-year treasuries have decreased to 2.54% from a high of 3.94% on April 9, 2010. However, these rates have been steadily increasing since April 2013. One of the more comprehensive surveys of IRR’s for real estate investments is performed within the Korpacz Report, as published by PricewaterhouseCoopers. In its most recent Second Quarter 2013 National Land Yield Study (See the chart on the following page), pretax IRRs for these higher risk properties currently range from 10% to 25%, with an average of 18.90% for mixed-use respondents in regards to vacant land, which has a slightly inferior diminishing return asset as the subject - developed residential lots. The IRRs are down 27 basis points since Fourth Quarter 2012 (19.17% average).

Appendix E-132

126

This is somewhat supported by the IRR rates obtained from actual developments which we have previously appraised. The IRR’s found in the chart below have been abstracted from a large number of subdivision developments that are located throughout the Dallas/Fort Worth market area. These developments have been, or are currently being developed, with the data presented being the projected sales and cost figures at the time of development. Therefore, while these may not represent actual rates of return, they do provide an excellent perspective relative to local developer expectations. The IRR’s are summarized below:

INTERNAL RATE OF RETURN SUMMARY

Subdivision

Date

Home Prices (000’s)

Net

Acres

Total Proposed Lots

Typical Lot Dimensions

Development Costs/Acre

Total Investment

Costs

Average/Lot

Value

Projected Absorption (Months)

IRR

Southwest Village (2) Grand Prairie

07/10 $130-146

10.362 44 50’ x 105’ $91,720 $950,403 $27,500 22.8 20.49%

Villages of Woodland Springs West (7-4), Ft. Worth

07/10 $125-$250

32.375 103 60’ x 115’ $46,453 $3,048,980 $36,000 19.3 18.87%

Rolling Ridge Estates (6) Murphy

03/11 $400-$610

22.380 53 85’ x 140’ $70,343 $3,729,381 $100,000 26.5 25.45%

Hillside on the Lake, (1) Garland

01/12 $200-$250

6.510 30 64’ x 110’ $136,921 $1,499,676 $60,000 24 15.98%

Breezy Hill (1) Rockwall

02/12 $360-$500

61.261 27 90’ x 250’ $69,232 $1,878,549 $90,185 20 22.56%

The Highlands at Trophy Club (6-3B), Trophy Club

07/11 $270-$500

37.578 98 80’ x 125’ 90’ x 135’/145’

$84,358 $7,176,045 $89,918 23.2 17.05%

AVERAGE 20.07%

Source: JCI Based on a six to nine-month development period and 6% annual escalation

Appendix E-133

127

The local comparables shown in the preceding chart indicate that a discount rate (IRR) between 15.98% and 25.45% (20.07% average). However, the internal rates presented represent the total expected return on a project from land purchase to the last lot sold. Therefore, the subject’s discount rate should be less than a typical land project, as the value to be determined is for a fully developed project that is available for immediate resale and which will ultimately possess less risk than that of the total development process. Therefore, a “risk-adjusted discount rate” is deemed appropriate herein. The Fifth Edition of the Dictionary of Real Estate Appraisal defines this term as “a discount rate that is adjusted to offset one or more risk factors, i.e., when a future downswing in the business cycle is likely, the risk associated with a project may increase near the end of its term, necessitating a special adjustment to the discount rate. Such discount rates include all of the elements of risk associated with an income stream for a specified period adjusted to offset additional term risk”.6 Thus, it is our opinion that a potential purchaser would expect to receive a much lower return on his investment for a completed project similar to the subject, which has a purchaser of the end product relative to that of a vacant tract of land awaiting eventual development (higher risk of escalating costs to site development and of the eventual timing of completion). Based upon the preceding, an IRR that is slightly below the middle of the range as indicated in the National Land Yield Study as of Second Quarter 2013 (10% - 25%; 18.90% average) and which is supported by the returns indicated by the local comparables presented (15.98% to 25.45% or 20.07% average) is considered appropriate. Hence, we have selected a discount rate of 13% for the subject’s 209 proposed lots which takes into consideration the degree of risk, developer profit, and the liquidity inherent in a project such as the subject, as well as the current market conditions. It should be noted that our cash flow also deducts a straight 1.0% entrepreneurial coordination/remuneration (management cost) from all sales proceeds, which effectively increases the discount rate to approximately 14.0% for the subject’s lots for the 209 proposed lots within Valencia on the Lake, Phase 1. To be consistent with the timing of the cash flows, the annual income stream is discounted semi-annually. With each of the required elements now identified, we are able to analyze the subject’s 209 proposed lots within the DCF analysis as shown on the following page.

6 The Dictionary of Real Estate Appraisal, Fifth Edition, the Appraisal Institute, Chicago, Illinois

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Appendix E-135

129

SALES COMPARISON APPROACH – VILLAGES/PHASES 2A AND 2B There are several accepted methods that can be used to value land. However, only the Sales Comparison Approach is considered to be applicable in this instance. This method involves analyzing and comparing sales of sites that are similar to the subject assembled and adjusting the sale prices for relative differences such as property rights conveyed, financing terms, conditions of sale, marketing conditions, location, and physical characteristics. This method is the most common technique of land valuation and is preferred relative to the other methods when comparable sales are available. As discussed earlier in the Highest and Best Use Analysis and Zoning Analysis, the physical characteristics of the subject lend themselves to residential development. Thus, our emphasis is placed on residential and potentially residential zoned land in the valuation of the subject. The sale comparables must be reduced to a common unit of comparison, such as price per square foot, price per acre, or price per unit. For sites similar to the subject assembled, the most market-oriented unit of comparison is the sale price per square foot. The following table presents a summary of comparable sales. Detailed sales information on these comparables is located in the Addenda, while a map showing the location of the comparables relative to the subject is located on the following page.

Date of Net SizeLocation Sale Zoning (Acres) Price/SF

1 North of Panther Creek Parkway at Hillcrest Road,Frisco, Texas

7/10/2013 SF-7, SF-8.5 262.620 $2.05

2 South of US-380, between FM-423 and Fields Road,Frisco ETJ, Denton County, Texas

Pending PH, SF-7, and SF-8.5 287.275 $2.32

3 Northside of Stonebrook Parkway, between FM 423and Teel Parkway, Frisco, Texas

1/6/2012 PD 285.000 $3.40

4 Southeast quadrant of Preston Road and FrontierParkway, Prosper, Texas

7/26/2013 PD-15 124.655 $1.72

5 Southwest corner of Preston Road and CR 26, Frisco,Texas

Pending C-1, I 115.147 $3.00

Subject North and south sides of Future Rockhill Road, west of FM 423, Little Elm, Denton County, Texas

PD 110.039

SUMMARY OF LAND SALES

Comp No.

The five comparables (including two pending sales) utilized ranged in sale price from $1.72 to $3.40 per net square foot. Upward adjustments are required to the sale price per square foot of the comparables relative to the subject for inferior characteristics, while downward adjustments are required for superior features.

Appendix E-136

130

COMPARABLE LAND SALES MAP

Appendix E-137

131

A summary of the adjustments that are made is shown at the end of this section. Where possible, we have used the paired data set analysis to make adjustments to the sale price of the comparables relative to the subject. In using this analysis, adjustments are made by comparing sales that are similar to the subject in all but one respect. However, because of the narrow sampling of similar properties, it is sometimes difficult to accurately account for the impact of a single factor on value. Consequently, while this type of analysis is theoretically sound and is market derived, judgment must also be used. The comparables are discussed as follows: Sale No. 1 is located southeast of the subject, north of Panther Creek Parkway at Hillcrest Road in Frisco, Texas. This development is located within the Frisco Independent School District, while the subject is located within the Little Elm ISD. Overall, this site is considered superior in location relative to the subject. This site is considered inferior (larger) in size relative to the subject. This property was purchased to be developed with 667 single-family lots (2.5 upa). As such, this site is considered similar in zoning relative to the subject. Finally, this site is considered slightly superior in site utility to the subject due to the large land loss to open space in Phase 2, yet this site requires major off sites. As such, this site is still slightly inferior in site utility. This site is not located in a PID. Sale No. 2 is located due east of the subject, south of US 380 and east of FM 423 in Frisco, Texas. This development is located within the Frisco Independent School District, while the subject is located within the Little Elm ISD. Overall, this site is considered superior in location relative to the subject due to its closer proximity to US 380 and the Dallas North Tollway. However, this site is considered inferior (larger) in size while generally similar in zoning and existing improvements relative to the subject. This site is being purchased as a future multi-phase development and is planned with 891 lots (3.1 upa). Finally, this site is considered slightly superior in site utility to the subject due to the large land loss to open space in Phase 2. This site is not located in a PID. Sale No. 3 is located southeast of the subject on the north side of Stonebrook Parkway, between Fm 423 and Teel Parkway in Frisco, Texas. This development is located within the Frisco Independent School District, while the subject is located within the Little Elm ISD. Overall, this site is considered vastly superior in location due to its closer proximity to major development. However, this site is larger (inferior) in size while generally similar in zoning and existing improvements relative to the subject. This site was purchased to be developed with 878 single-family lots (3.1 upa). Finally, this site is considered slightly superior in site utility to the subject due to the large land loss to open space in Phase 2. This site is not located in a PID. Sale No. 4 is located northeast of the subject at the southeast quadrant of Preston Road and Frontier Parkway in Prosper, Texas. This development is located within the Prosper Independent School District, while the subject is located within the Little Elm ISD. Overall, this site is considered inferior in location relative to the subject, due its

Appendix E-138

132

more rural nature and its further proximity to major shopping and employment centers. However, this site is considered similar in size, zoning. Finally, this site is considered slightly superior in site utility to the subject due to the large land loss to open space in Phase 2, yet this site requires major off sites. As such, this site is still slightly inferior in site utility. This site was purchased as a single family development and is planned with 320 lots (2.6 upa). This site is not located in a PID. Sale No. 5 (Pending) is located east of the subject at the southwest corner of Preston Road and CR-26 in Frisco, Texas. This development is located within the Prosper Independent School District, while the subject is located within the Little Elm ISD. Overall, this site is considered superior in location due to its closer proximity to major shopping and employment centers. However, this site is considered similar in size, zoning. This site was purchased as a single family development and is supposedly planned for approximately 2.5 upa. Finally, this site is considered slightly superior in site utility to the subject due to the large land loss to open space in Phase 2. This site is not located in a PID. Property Rights The price paid by a purchaser is always predicated on the property interest conveyed. Differences between the property rights conveyed of the comparables relative to the subject could have an impact on the indicated value. We are appraising the fee simple interest in the subject, which is similar to the rights conveyed to all of the comparables. Therefore, no adjustments have been made for variances in property rights. Financing Terms The price paid for a property may be different from an identical property because of different financing arrangements. If a purchaser received financing from the seller that was below what could typically be achieved from a third party, or if the purchaser assumed a loan that was at a favorable rate, a premium price was probably paid for the property. Conversely, if the financing obtained was higher than was typical for the market, a lower price was probably paid. All comparables were purchased on a cash or cash equivalent basis and, therefore, do not require adjustments for financing terms. Conditions of Sale Adjustments are made to the sale prices of the comparables for conditions of sale to reflect any extraneous motivations involved with the transaction. Examples include premiums paid for an assemblage, or sale of a property under duress would require adjustments for conditions of sale. An additional example might include a condition whereby a corporation may sell to a related entity or a family may sell property to another family member at a reduced price. All of the comparables are considered similar relative to the subject for this factor.

Appendix E-139

133

Market Conditions Since market conditions change over time and the date of the appraisal is as of a specific time, the comparables must be analyzed in relation to the changes, which have occurred. While these adjustments are typically known as "time adjustments", time is not the adjustment. Rather, it is the change in market conditions over time that is adjusted. One of the sales utilized sold in 2012, two sold in 2013, and two sales are pending. As such, all are considered to be influenced by the same market factors currently affecting the subject. As such, no adjustments have been made for market conditions. Location Location is one of the most important attributes that affect the value of real estate. For sites such as the subject, the most important locational features are accessibility, visibility, and the density and types of development surrounding the site. As discussed previously, Sale Nos. 1, 2, 3, and 4 are considered superior in location, while Sale No. 4 is considered inferior in location relative to the subject. None of the sales are truly similar to the subject in location so we were unable to show an abstraction of adjustment from the sales. Therefore, we have subjectively adjusted Sale Nos. 1, 2, and 5 downward by 20% for their superior location whereas Sale No. 3 is adjusted downward by 40% for its superior location. In contrast, Sale No. 4 is adjusted upward by 20% for its inferior location relative to the subject. Physical Characteristics The physical differences between the subject and the comparables must also be analyzed. These differences include size, site utility, and zoning. Size Size plays a part in the marketplace in creating more or less utility and limiting the market segment, which can afford each property. Therefore, size adjustments are generally required when there is a significant difference in the size of two properties. Generally, smaller sites sell for higher prices per square foot than their larger counterparts since the overall price is relatively modest in comparison to larger properties. However, when a site is too small to be developed except in conjunction with an adjacent property, this principle reverses and the smaller site becomes less valuable than its larger neighbors. In regard to the comparables presented, the five comparables range in size from 115.15 acres to 284.275 acres, while the subject site is 110.039 acres in size.

Appendix E-140

134

As discussed previously, Sale Nos. 1, 2, 3, and 4 are considered superior in location, while Sale No. 4 is considered inferior in location relative to the subject. Furthermore, as Sale Nos. 1, 2, and 3 (262.62, 287.275, and 285.00 acres, respectively) are larger (inferior) in site size to the subject, none of the sales are truly similar to the subject so we were unable to show an abstraction of adjustment from the sales. Therefore, we have subjectively adjusted Sale Nos. 1, 2, and 3 upward by 20% for their inferior site size relative to the subject. Sale Nos. 4 and 5 (124.66 and 115.15 acres, respectively) are considered similar to the subject tin size. Site Utility/Floodplain Also to be considered is the shape and/or frontage of a site, which has an impact upon its value, or land lost to a flood prone area. As discussed, the subject has typical road frontage as compared to its overall site size. All five sales are considered to be generally similar in this respect. Zoning As mentioned earlier in this report, the subject’s highest and best use is future residential usages with a density of approximately 2.3 units per acre. As discussed previously, no adjustment is considered necessary to the comparables for zoning relative to the subject. Site Reimbursements/PID As mentioned earlier in this report, the subject is located within a PID and is able to be reimbursed for its development costs. None of the five comparables have this attribute. As such, all are inferior in this respect. Instead of a straight line item adjustment for this factor. We have abstracted form the marketplace a per acre premium for this attribute. As discussed, according to information provided from the owner/developer, the subject is in “Valencia Public Improvement District No. 1” which allows for the right to receive reimbursements for the future development/maintenance costs of various on and off-site infrastructure improvements including but not limited to water, sanitary sewer, sewage treatment plants, storm drainage related to roads and road improvements for the community. Thus, the subject with assistance from the Town of Little Elm, will be allow to sell bonds which will be used to repay the developers for a large majority of their expenses. There have been limited sales of properties with this attribute in the area over the past five years. As such, we have provided several separate comparisons to assist in determining the premium for having reimbursements. The first comparison consists of two known sales of similar properties located in the Kaufman County market area around Dallas that sold between 2007 and 2008 along with two sales of non-reimbursement sales. The second consists of two sales with reimbursements located in the Denton/Collin/Grayson County market area that sold in 2010 and 2012 along with two sales that lack this attribute. A summary of these sales along with a map of their locations follows:

Appendix E-141

135

Kaufman County Comparison

Net SizeLocation Zoning (Acres) Price/Acre

A North side of FM 548, west of SH 205,Kaufman County, Texas

MUD 790.721 $27,823

B Eastern quadrant of SH 205 and FM 550,McLendon-Chisholm, Texas

MUD 463.040 $27,659

C West side of FM 986, north of Town NorthDrive, Terrell, Texas

None 494.307 $9,015

D East corner of FM 148 and CR 262,Kaufman County, Texas

None 219.810 $10,463

COMPARISON OF DISTRICT/NON-DISTRICT SALES (A-D)

Comp No.

As can be seen, the two MUD/”District” sales form a tight range of $27,659 to $27,823 per acre (say $27,750/acre) while the two “Non-District” sales form a range of $9,015 to $10,463 per acre, (say $10,200/acre). As such, it appears that the price differential between “District” and “Non-District” sales is approximatley $17,550 per acre.

Appendix E-142

136

Denton/Collin/Grayson County Comparison


E North side of FM 543 and east and west sides of CR 206, north of CR 279, Collin County, Texas

MUD 1,350.000 $20,370

F South side of SH 121, east of Block Road, Grayson County, Texas

None 999.830 $6,451

G Southwest quadrant of FM 1385 and Bryan Road, Denton County, Texas (50% reimbursements only)

MUD 255.976 $24,002

H Southeast corner of FM 1385 and FM 455, Denton County, Texas

None 102.848 $14,000

COMPARISON OF DISTRICT/NON-DISTRICT SALES (E-H)

Comp No.

As can be seen, the MUD/”District” Sale E has a price of $20,370 whereas the non district sale is only $6,451/acre. It is noted that these two sales are somewhat simar in size, yet appear to have major locational differences. However, Sale F surrounds a major residential golf course development. A general comparison suggests a price differential between “District” and “Non-District” sales of approximatley $13,919 per acre. This is also supported by a comparison of Sale G and H wherein the disitrict cost is approximately $10,002 per acre higher than the non-district sale. This differential is understated due to the fact that Sale G only recieves 50% of the reimbursments.

Appendix E-143

137

Thus, considering the fact that all of these sales have other subtle differences including location and size, it appears that the price differential between “District” and “Non-District” sales is approximatley $15,000 per acre.


I Northwest corner of FM 2931 E/W and FM 2931 N/S, Denton County

MUD 346.000 $28,757

J North side of Liberty Road, west of FM 2931 E/W, Denton County, Texas

None 479.000 $12,526

COMPARISON OF DISTRICT/NON-DISTRICT SALES (I-J)

Comp No.

This represents an assembalge purchased by the same buyer of two tracts, one with a MUD and one without. As can be seen, the MUD/”District” Sale No. I has a price of $28,757 whereas the non district Sale No. J is only $12,526/acre. It is noted that these two sales are somewhat simar in size, yet appear to have only a slight locational differences based on the specific road frontage. A general comparison suggests a price differential between “District” and “Non-District” sales of approximatley $16,231 per acre.

Appendix E-144

138

Thus, considering the the fact that all of these sales have other subtle differences including location and size, it is our opinon that the “District” contributes approximately $15,000 to $17,550 per net acre. Based on the preceeding, we will apply a $17,000 per acre premium, or a total of $1,870,000 to the overall value, as a line-item adjustment to the determinied value of the site, without consideration of the district. Summary of Adjustments

Land Value - Market Approach to Value

Subject Sale #1 Sale #2 Sale #3 Sale #4 Sale #5

Location:

North and south sides of Future

Rockhill Road, w est of FM 423, Little Elm,

Denton County, Texas

North of Panther Creek Parkw ay at

Hillcrest Road, Frisco, Texas

South of US-380, betw een FM-423 and Fields Road, Frisco ETJ, Denton County,

Texas

Northside of Stonebrook Parkw ay, betw een FM 423 and Teel Parkw ay, Frisco,

Texas

Southeast quadrant of Preston Road and

Frontier Parkw ay, Prosper, Texas

Southw est corner of Preston Road and CR

26, Frisco, Texas

Sale/List Price: N/A $23,500,000 $29,017,676 $42,209,640 $9,349,125 $15,047,410

Zoning PD SF-7, SF-8.5 PH, SF-7, and SF-8.5 PD PD-15 C-1, I

Sale Date: N/A 7/10/2013 Pending 1/6/2012 7/26/2013 PendingLand Size (Net Acres): 110.039 262.62 287.275 285.00 124.66 115.15

Price/SF N/A $2.05 $2.32 $3.40 $1.72 $3.00

Sale #1 Sale #2 Sale #3 Sale #4 Sale #52.05$ 2.32$ 3.40$ 1.72$ 3.00$

0% 0% 0% 0% 0%0% 0% 0% 0% 0%0% 0% 0% 0% 0%0% 0% 0% 0% 0%

2.05$ 2.32$ 3.40$ 1.72$ 3.00$

-30% -20% -40% 20% -20%20% 20% 20% 0% 0%10% -10% -10% 10% -10%0% 0% 0% 0% 0%0% -10% -30% 30% -30%

2.05$ 2.09$ 2.38$ 2.24$ 2.10$ Jackson Claborn, Inc.

LocationSize

Sales Adjustment

Adj Price/SF

Financing TermsConditions of Sale

Land Sales

Other Adjustments:

Final Adjusted Price/SF

Site Utility

Carried Forw ard Price/SF

Property Rights Conveyed

Market Conditions

Net Other AdjustmentsZoning

Appendix E-145

139

Land Value Conclusion - Villages/Phases 2A AND 2B In an analysis of comparable properties, five comparables were used as comparisons for the subject site in order to gain market insight into the sales prices of comparable properties. In addition to the base land value range of $2.05 to $2.38 per square foot, we have added an additional value premium of $17,000 per acre, or $1,870,000 to the site’s base value to compensate for the ability to receive reimbursements for the future development/maintenance costs (“District Premium”). The calculation of the land value estimate for the subject property is as follows:

Final Value Analysis - Sales Comparison Approach

$2.05 $9,846,609$2.38 $11,408,051

110.039110.039

Subject T o tal Square F eet

Jackson Claborn, Inc.

$11,970,000

$1,870,000

Value Indicat io n B y M arket A ppro ach:

X A djusted Value/ SF

4,793,299

Say,

P lus C o ntributo ry Value o f D istrict

$2.11$10,100,000

Based upon the preceding, our opinion of value for the subject site is $11,970,000, or $2.50 per square foot on the subject’s acreage of 110.039 acres.

Appendix E-146

140

SALES COMPARISON APPROACH – VILLAGE/PHASE 3 There are several accepted methods that can be used to value land. However, only the Sales Comparison Approach is considered to be applicable in this instance. This method involves analyzing and comparing sales of sites that are similar to the subject assembled and adjusting the sale prices for relative differences such as property rights conveyed, financing terms, conditions of sale, marketing conditions, location, and physical characteristics. This method is the most common technique of land valuation and is preferred relative to the other methods when comparable sales are available. As discussed earlier in the Highest and Best Use Analysis and Zoning Analysis, the physical characteristics of the subject lend themselves to residential development. Thus, our emphasis is placed on residential and potentially residential zoned land in the valuation of the subject. The sale comparables must be reduced to a common unit of comparison, such as price per square foot, price per acre, or price per unit. For sites similar to the subject assembled, the most market-oriented unit of comparison is the sale price per square foot. The following table presents a summary of comparable sales. Detailed sales information on these comparables is located in the Addenda, while a map showing the location of the comparables relative to the subject is located on the following page.



7/10/2013 SF-7, SF-8.5 262.620 $2.05




1/6/2012 PD 285.000 $3.40


7/26/2013 PD-15 124.655 $1.72


Pending C-1, I 115.147 $3.00

Subject South side of Future Rockhill Road, west of FM 423,Little Elm, Denton County, Texas

PD 112.164


Comp No.


Appendix E-147

141


Appendix E-148

142


Appendix E-149

143


Appendix E-150

144


Appendix E-151

145


Appendix E-152

146




MUD 790.721 $27,823


MUD 463.040 $27,659


None 494.307 $9,015


None 219.810 $10,463


Comp No.


Appendix E-153

147




MUD 1,350.000 $20,370


None 999.830 $6,451


MUD 255.976 $24,002


None 102.848 $14,000


Comp No.


Appendix E-154

148




MUD 346.000 $28,757


None 479.000 $12,526


Comp No.


Appendix E-155

149




Location:

South side of Future Rockhill Road, w est of FM 423, Little Elm,





Texas


Texas




26, Frisco, Texas




Price/SF N/A $2.05 $2.32 $3.40 $1.72 $3.00


0% 0% 0% 0% 0%0% 0% 0% 0% 0%0% 0% 0% 0% 0%0% 0% 0% 0% 0%

2.05$ 2.32$ 3.40$ 1.72$ 3.00$

-30% -20% -40% 20% -20%20% 20% 20% 0% 0%10% -10% -10% 10% -10%0% 0% 0% 0% 0%0% -10% -30% 30% -30%



Site Utility



Market Conditions


LocationSize

Sales Adjustment

Adj Price/SF


Land Sales

Other Adjustments:

Appendix E-156

150

Land Value Conclusion - Village/Phase 3 In an analysis of comparable properties, five comparables were used as comparisons for the subject site in order to gain market insight into the sales prices of comparable properties. In addition to the base land value range of $2.05 to $2.38 per square foot, we have added an additional value premium of $17,000 per acre, or $1,910,000 to the site’s base value to compensate for the ability to receive reimbursements for the future development/maintenance costs (“District Premium”). The calculation of the land value estimate for the subject property is as follows:


$2.05 $10,036,760$2.38 $11,628,356


$2.07$10,090,000

112.164112.164



$12,000,000

$1,910,000



4,885,864

Say,


Appendix E-157

151




7/10/2013 SF-7, SF-8.5 262.620 $2.05




1/6/2012 PD 285.000 $3.40


7/26/2013 PD-15 124.655 $1.72


Pending C-1, I 115.147 $3.00

Subject Both sides of Future Rockhill Road, west of FM 423,Little Elm, Denton County, Texas

PD 65.202


Comp No.


Appendix E-158

152


Appendix E-159

153


Appendix E-160

154


Appendix E-161

155


Appendix E-162

156


Appendix E-163

157




MUD 790.721 $27,823


MUD 463.040 $27,659


None 494.307 $9,015


None 219.810 $10,463


Comp No.


Appendix E-164

158




MUD 1,350.000 $20,370


None 999.830 $6,451


MUD 255.976 $24,002


None 102.848 $14,000


Comp No.


Appendix E-165

159




MUD 346.000 $28,757


None 479.000 $12,526


Comp No.


Appendix E-166

160




Location:

Both sides of Future Rockhill Road, w est of FM 423, Little Elm,





Texas


Texas




26, Frisco, Texas




Price/SF N/A $2.05 $2.32 $3.40 $1.72 $3.00


0% 0% 0% 0% 0%0% 0% 0% 0% 0%0% 0% 0% 0% 0%0% 0% 0% 0% 0%

2.05$ 2.32$ 3.40$ 1.72$ 3.00$

-30% -20% -40% 20% -20%20% 20% 20% 0% 0%10% -10% -10% 10% -10%0% 0% 0% 0% 0%0% -10% -30% 30% -30%



Site Utility



Market Conditions


LocationSize

Sales Adjustment

Adj Price/SF


Land Sales

Other Adjustments:

Appendix E-167

161



$2.05 $5,834,464$2.38 $6,759,674


$2.11$5,990,000

65.20265.202



$7,100,000

$1,110,000



2,840,199

Say,


Appendix E-168

162




7/10/2013 SF-7, SF-8.5 262.620 $2.05




1/6/2012 PD 285.000 $3.40


7/26/2013 PD-15 124.655 $1.72


Pending C-1, I 115.147 $3.00

Subject Both sides of Future Rockhill Road, west of FM 423,Little Elm, Denton County, Texas

PD 91.179


Comp No.


Appendix E-169

163


Appendix E-170

164


Appendix E-171

165


Appendix E-172

166


Appendix E-173

167


Appendix E-174

168




MUD 790.721 $27,823


MUD 463.040 $27,659


None 494.307 $9,015


None 219.810 $10,463


Comp No.


Appendix E-175

169




MUD 1,350.000 $20,370


None 999.830 $6,451


MUD 255.976 $24,002


None 102.848 $14,000


Comp No.


Appendix E-176

170




MUD 346.000 $28,757


None 479.000 $12,526


Comp No.


Appendix E-177

171




Location:

Both sides of Future Rockhill Road, w est of FM 423, Little Elm,





Texas


Texas




26, Frisco, Texas




Price/SF N/A $2.05 $2.32 $3.40 $1.72 $3.00


0% 0% 0% 0% 0%0% 0% 0% 0% 0%0% 0% 0% 0% 0%0% 0% 0% 0% 0%

2.05$ 2.32$ 3.40$ 1.72$ 3.00$

-30% -20% -40% 20% -20%20% 20% 20% 0% 0%10% -10% -10% 10% -10%0% 0% 0% 0% 0%0% -10% -30% 30% -30%



Site Utility



Market Conditions


LocationSize

Sales Adjustment

Adj Price/SF


Land Sales

Other Adjustments:

Appendix E-178

172



$2.05 $8,158,962$2.38 $9,452,782


$2.10$8,350,000

91.17991.179



$9,900,000

$1,550,000



3,971,757

Say,


Appendix E-179

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RECONCILIATION AND FINAL OPINION OF VALUE

In the previous sections we have provided an opinion of the market value of the fee simple interest in the subject’s developed residential lots using the Sales Comparison Approach, the Land Development Approach, and the Net/Gross ratio analysis. Following is a summary of the values indicated by these approaches.

SUMMARY OF VALUE INDICATIONS

Net/Gross Ratio (Bulk Value) $11,900,000 Discounted Cash Flow Analysis $12,125,000

The first approach used was the Sales Comparison Approach. This approach is based on the theory of substitution, and implies that a purchaser would pay no more for a property than it would cost to buy, or build, a substitute property. This approach is the base technique for valuing a proposed subdivision, as it recognizes the development issues that unique to each tract of vacant land. In addition, we also utilized the Land Development Approach, which is based on the assumption that the subject is developed into a residential subdivision, with the individual lots sold to builders to value the subject, upon completion of development. Furthermore, the Net/Gross ratio analysis, as well as the Discounted Cash Flow analysis, forms a fairly tight range. Thus, we have reconciled our final value at $11,950,000. Based upon an inspection of the property and the information and analysis provided in the following report, it is our opinion that the “Prospective Value” of the fee simple interest in the subject’s 209 proposed residential lots within Valencia on the Lake, Phase 1 “As If Improved As Proposed" on November 8, 2014 will be:

TWELVE MILLION DOLLARS

($12,000,000)

Appendix E-180

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Furthermore, it is our opinion that the “Prospective Value” of the fee simple interest in the subject’s Villages/Phases 2A and 2B combined (110.039 acres of partially developed land) as of November 8, 2014 will be:

ELEVEN MILLION NINE HUNDRED SEVENTY THOUSAND DOLLARS ($11,970,000)


TWELVE MILLION DOLLARS ($12,000,000)


SEVEN MILLION ONE HUNDRED THOUSAND DOLLARS ($7,100,000)

Finally, it is our opinion that the “Prospective Value” of the fee simple interest in the subject’s Village/Phase 5 (91.179 acres of partially developed land) as of November 8, 2014 will be:

NINE MILLION NINE HUNDRED THOUSAND DOLLARS ($9,900,000)

Appendix E-181

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SECTION 8 — ADDENDUMS

Appendix E-182

176

AERIAL PHOTOGRAPHS

Appendix E-183

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OVERALL AERIAL

Rockhill Parkway

Doe Creek Road

FM 423

Phase 2B

Excess Land

Phase 1

Phase 3

Phase 2A

Phase 4

Phase 5

Appendix E-184

178

SUBDIVISION/LOT SALE COMPRABLES – 60 FOOT LOTS

Appendix E-185

179

SUBDIVISION COMPARABLE NO. 1

Computer ID Number: RDV13-07-132 Mapsco: D-353-A/D Development Name: Frisco Hills, Phase 1-B Location: South side of Virginia (Rockhill) Parkway, west

of FM-423 and south of Us-380, Little Elm ETJ, Denton County, Texas

School District: Frisco Independent School District Developer: Centurion American

Home Builders: Grand Homes, First Texas Homes

Platted Lots: 39

Number of Available Lots: 39

Lots Sold to Date: 0

Estimated Lot Absorption: 0 lots

Typical Lot Size: 6,900 SF

Typical Lot Dimensions: 60’ x 115’

Home Prices: $228,000 - $343,000

Amenities: An amenity center with pool and playgrounds are planned

Representative Lot Sales: $54,000/lot (base set in 2012) Survey Date: 11/01/2013 Verified by: Jeff Shirley (11/01/2013; 469-892-7200)

Appendix E-186

180

Frisco Hills, Phase 1-B, Little Elm ETJ, Denton County Continued

Comments: *Per Residential Strategies, Inc. as of Third Quarter 2013.

This represents a phase of a multiphase development that is under development with a targeted completion date of January 2014. The base lot prices were set in September 2012. As such, the lot prices on day of completion based on 6% interest carry will be approximately $58,050 ($967.50/FF) for the 60’ lots.

Appendix E-187

181


Computer ID Number: RDV13-11-133

Mapsco: D-653-J

Development Name: Castle Hills West, Phase 5A

Location: East side of Sam Rayburn Tollway (SH-121) and the west side of Old Denton Road (FM-2281) south of Parker Road, Lewisville ETJ, Denton County, Texas

School District: Lewisville Independent School District

Developer: Chris Bright

Home Builders: American Legend Homes, David Weekley Homes

Platted Lots: 270



Estimated Lot Absorption: 108 lots sold from 01/12 to 09/13 = 5.1 units per month

Typical Lot Size: 6,600 SF – 8,400 SF Typical Lot Dimensions: 60’ x 110’; 70’ x 120’ Home Prices: $381,000 - $506,000

Amenities: Part of a 2,500-acre master planned community with a full-service country club featuring a Jay Morrish-designed 18-hole championship course - additional amenities include 20 parks, lakes, hike-and-bike trails, a community center with five swimming pools, basketball and tennis courts, fitness rooms, sports fields, and onsite schools. Also a one-million SF “Castle Hills Village Shops & Plaza” offering residents services such as dry cleaning, dining, salon, and dental.

Appendix E-188

182

Castle Hills West, Phase 5A, Lewisville ETJ, Denton County, Texas Continued Representative Lot Sales: 60’ Lots: $83,000/lot – base set in 03/2011 70’ Lots: $99,875/lot – base set in 03/2011 Survey Date: 07/24/2013

Verified by: Keegan Smith – Castle Hills – 972-410-6504

Comments: *Per Residential Strategies as of Third Quarter 2013.

This represents one phase within a master-planned community known as “Castle Hills”. The base lot prices were reset in March 2011. As such, the lot prices as of November 2013 with 6% interest carry are as follows:

60’ Lots: $96,280 70’ Lots: $115,855 Overall, the current price per front footage

ranges from $1,605/FF to $1,655/FF.

Appendix E-189

183



Mapsco: D-454-Y

Development Name: Hills of Kingswood, Phases 2A & 2B

Location: South of Lebanon Road at the southern end of Rock Creek Parkway, Frisco, Denton County, Texas


Developer: Tower Group

Home Builders: Grand Homes

Platted Lots: 111

Number of Available Lots: Under construction

Lots Sold to Date: Under construction

Estimated Lot Absorption: Under construction


Typical Lot Dimensions: 65’ x 125’ Home Prices: $390,000 - $800,000

Amenities: Elaborate private guarded entry/amenity center, trails, Lewisville Lake, rolling terrain

Representative Lot Sales: $83,000 ($1,277/FF)

Survey Date: 07/10/2013

Verified by: Grand Homes (Beau Brooks – 214-750-6528)

Comments: This is a new phase currently under construction within the Hills of Kingswood multiphase residential development. Completion is scheduled for early 2014.

Appendix E-190

184



Mapsco: D-454-P

Development Name: Sheridan at Phillips Creek Ranch, Phase I

Location: Southeast corner of Stonebrook Parkway and Lone Star Ranch Parkway, Frisco, Denton County, Texas

School District: Frisco Independent School District

Developer: Republic Property Group

Home Builders: Highland Homes and Lionsgate Homes

Platted Lots: 92

Number of Available Lots: 42*



Typical Lot Size: 6,325

Typical Lot Dimensions: 55’ X 115’

Home Prices: $363,000 - $450,000

Amenities: Amenity center with pool, playground and parks, and several open spaces

Representative Lot Sales: $88,000/lot (base set in March 2013) Survey Date: 07/09/2013

Verified by: Highland Homes (Tracey Winkler)

Appendix E-191

185

Sheridan at Phillips Creek Ranch, Phase I Continued


This represents one phase within a master-planned community known as “Phillips Creek Ranch”. The base lot prices were negotiated in November 2012 with interest beginning 03/13. As such, the current lot prices with 6% interest carry is approximately $91,250 ($1,664/FF) for 55’ lots and $110,240/lot for 65’ lots. The base was set at $1,696/FF.

Appendix E-192

186

SUBDIVISION/LOT SALE COMPARABLES – 80 FOOT LOTS

Appendix E-193

187



Mapsco: D-553-B

Development Name: Glen at Tribute

Location: East side of Lebanon Road, south of Lochside, The Colony, Denton County, Texas

School District: Little Elm Independent School District

Developer: Matthews Southwest

Home Builders: American Legend Homes, Highland Homes

Platted Lots: 43





Typical Lot Dimensions: 77 x 130’

Home Prices: $401,000 - $496,000

Amenities: Amenity center with pool,, playground and parka, large ponds, and several open spaces

Representative Lot Sales: $88,825/lot (base set in November 2011) Survey Date: 07/29/2013

Verified by: Highland Homes (Tracey Winkler)


This represents one phase within a master-planned community known as “The Tribute”. The base lot prices were set in November 2011. As such, the current lot prices with 6% interest carry is approximately $99,484 ($1,292/FF).

Appendix E-194

188



Mapsco: D-256-F

Development Name: Crestview at Prosper (formerly Prosper Creek Estates)

Location: South side of Prosper Trail, east of N. Coleman Street, Prosper, Collin County, Texas

School District: Prosper Independent School District

Developer: Centurion American

Home Builders: Megatel Homes

Platted Lots: 77






Home Prices: $449,000 - $2,000,000

Amenities: Gated entry, three man-made lakes, open space

Representative Lot Sales: $90,000/lot - $1,059/FF


Verified by: Jeff Shirley - Centurion American (6/10/2013)

Comments: *Per Residential Strategies, Inc. as of Third Quarter 2013

The original developer filed bankruptcy. As such, this development was completed by Centurion American with lot sales beginning in First Quarter 2012. Sale prices do not include interest carry.

Appendix E-195

189



Mapsco: D-454-Y

Development Name: Hills of Kingswood, Phases 2A & 2B

Location: South of Lebanon Road at the southern end of Rock Creek Parkway, Frisco, Denton County, Texas


Developer: Tower Group

Home Builders: Grand Homes

Platted Lots: 111

Number of Available Lots: Under Construction

Lots Sold to Date: Under Construction

Estimated Lot Absorption: Under Construction



Home Prices: $390,000 - $800,000

Amenities: Elaborate private guarded entry/amenity center, trails, Lake Lewisville, rolling terrain

Representative Lot Sales: $83,000/lot


Verified by: Grand Homes (Beau Brooks – 214-750-6528)

Comments: This is a new phase current under construction within the Hills of Kingswood multiphase residential development. Completion is scheduled for early 2014.

Appendix E-196

190



Mapsco: D-454-P

Development Name: Sheridan at Phillips Creek Ranch, Phase I

Location: Southeast corner of Stonebrook Parkway and Lone Star Ranch Parkway, Frisco, Denton County, Texas

School District: Frisco Independent School District

Developer: Republic Property Group

Home Builders: Drees Homes, Shaddock Homes, Coventry Homes

Platted Lots: 61




Typical Lot Size: 9,250

Typical Lot Dimensions: 74’ X 125’

Home Prices: $508,000 - $597,000

Amenities: Amenity center with Olympic sized pool, park/ trails, lakes, and several open spaces

Representative Lot Sales: $122,100/lot ($1,650/ FF) Survey Date: 11/03/2013

Verified by: Jennifer Johnson (972-834-6953)

Comments: This base price was set in March 2013 with 6% annual interest carry; takedowns in November 2013 were $126,984/Lot.

Appendix E-197

191

COMPARABLE LAND SALES

Appendix E-198

192

LAND SALE NO. 1

Property Identification Record ID 7452 Property Type Single Family Address North of Panther Creek Parkway at Hillcrest Road,

Frisco, Collin County, Texas Tax ID 2669088, 2649191, 963309, 963318, 2629132 Mapsco D-356-M School District Prosper ISD Legal Description See Remarks Sale Data Grantor Hillcrest 306 Partners LP Grantee Beazer Homes Texas LP Sale Date July 10, 2013 Deed Book/Page 2013071000961240 Property Rights Fee Simple Financing Cash to Seller Verification Rex Robertson, James Feagin; August 09, 2013 Sale Price $23,500,000 Upward Adjustment $1,200,000 Roll Backs Adjusted Price $24,700,000 Land Data Zoning PD-204 Topography SF-7/SF-8.5 Utilities All Available Shape Irregular Flood Info None Intended Use Miramonte subdivision Improvements None Density 2.5 Upa Land Size Information Gross Land Size 262.620 Acres or 11,439,727 SF Indicators Sale Price/Gross Acre $89,483 Sale Price/Gross SF $2.05 Sale Price/Planned Unit $37,031

Appendix E-199

193

North of Panther Creek Parkway at Hillcrest Road, Frisco, Collin County, Texas Continued Remarks Legal: Collin County School Land #11 Survey, Abstract #155 and John H. Collins Survey, Abstract #219. This tract has been land planned for 667 homes with 90 homes already existing in the first phase of the development knows as "Miramonte".

Appendix E-200

194

PENDING LAND SALE NO. 2

Property Identification Record ID 7608 Property Type Single Family Address South of US-380, between FM-423 and Fields Road,

Frisco ETJ, Denton County, Texas Tax ID 43412, 43530, 43712, 73796, 43808, 97871,

137842, 137849, 137856 Mapsco D-457-M School District Frisco ISD Legal Description Abstract 73, 582, 1487, 1510,1620, 167 Sale Data Grantor Eland Energy Inc. Grantee Weatherston Development Closing Date Pending Deed Book/Page N/A Property Rights Fee Simple Financing Cash to Seller Verification Confidential; November 13, 2013 Contract Price $29,017,676 Land Data Zoning Agricultural Topography Level Utilities All to Site (See Comments) Shape Rectangular Flood Info None Intended Use 891 Single Family lots Improvements None Density 2.5 Upa Land Size Information Gross Land Size 287.275 Acres or 12,513,699 SF Indicators Sale Price/Gross Acre $101,010 Sale Price/Gross SF $2.32 Sale Price/Planned Unit $32,568 Remarks This site is subject to annexation zoning by the City of Frisco. The City of Frisco has also agreed to provide utilities from Teal Parkway to the site. This site is zoned Ag, but the contract is subject to PH, SF-7, SF-8.5

Appendix E-201

195

LAND SALE NO. 3

Property Identification Record ID 7453 Property Type Single Family Address North side of Stonebrook Parkway, between FM-423

and Teel Parkway, Frisco, Denton County, Texas Tax ID N/A Mapsco D-454-K School District Frisco ISD Legal Description N/A Sale Data Grantor PCR Land Company LLC Grantee Standard Pacific Homes of Texas Sale Date January 06, 2012 Deed Book/Page 2012/1507 Property Rights Fee Simple Financing Cash to Seller Verification Rex Robertson; August 13, 2013 Sale Price $42,209,640 Land Data Zoning SF, Planned Development Topography Rolling Utilities All Available Shape Irregular Flood Info None Intended Use 878 Single Family Homes Improvements None Density 3.1 UPA Land Size Information Gross Land Size 285.000 Acres or 12,414,600 SF Front Footage Stonebrook Parkway Indicators Sale Price/Gross Acre $148,104 Sale Price/Gross SF $3.40 Sale Price/Planned Unit $48,075 Remarks This site is part of a 950-acre master planned development known as Phillips Creek Ranch. Development includes a $2,000,000 Welcome Center and three miles of hike/bike trails. This transaction is believed to be a joint venture and master development agreement between the land owner and the home builder. A deed transfer for the entire acreage could not be found.

Appendix E-202

196

LAND SALE NO. 4

Property Identification Record ID 7051 Property Type Single Family Address Southeast quadrant of Preston Road and Frontier

Parkway, Prosper, Collin County, Texas Tax ID 2684168 Mapsco D-256-D School District Prosper ISD Legal Description Tracts 1 & 2, Abstract 172, Collin County School

Land #13 Survey Sale Data Grantor H & M Fund, LLC (dba Beechwood Homes) Grantee Meritage Homes Texas LLC Sale Date July 26, 2013 Deed Book/Page 20130726001053280 Property Rights Fee Simple Financing Cash to Seller Verification John Harris, August 08, 2013 Sale Price $9,349,125 Land Data Zoning PD-15 (SF-15) Topography Level Utilities All Available Shape Semi-rectangular Flood Info None Intended Use Future residential development with 320+ lots Improvements None Density 2.6 UPA Land Size Information Gross Land Size 124.655 Acres or 5,429,972 SF Planned Units 320 Front Footage Preston Road Indicators Sale Price/Gross Acre $75,000 Sale Price/Gross SF $1.72 Sale Price/Planned Unit $29,216 Remarks This site is being purchased forfeiture single family development with a typical lot sizes being 15,000 square feet. Approximately 320 units are eventually planned.

Appendix E-203

197

PENDING LAND SALE NO. 5

Property Identification Record ID 7454 Property Type Single Family Address Southwest corner of Preston Road and CR-26,

Frisco, Collin County, Texas Tax ID 943876 Mapsco D-356-A School District Prosper ISD Legal Description Collin County School Land #10 Survey, Abstract

#148 Sale Data Grantor Frisco Enterprises LTD Partnership Grantee Pulte Homes Deed Book/Page N/A Property Rights Fee Simple Financing Cash to Seller Verification James Feagin; 972-380-5900, August 13, 2013 Contract Price $15,047,410 Land Data Zoning I, C-1 Topography Level Utilities All Available Shape Rectangular Flood Info None Intended Use Approximately 400 Single Family Homes Improvements None Density 3.5 UPA Land Size Information Gross Land Size 115.147 Acres or 5,015,803 SF Front Footage Preston Road;CR-26 Indicators Sale Price/Gross Acre $130,680 Sale Price/Gross SF $3.00 Sale Price/Planned Unit $37,619 Remarks Although zoned for commercial and industrial development, this site is being down-zoned to allow single family residential. This site is reportedly very efficient in land planning. The total number of lots is estimated to be approximately 400.

Appendix E-204

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LEGAL DESCRIPTIONS

Appendix E-205

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Appendix E-206

200

Appendix E-207

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Appendix E-208

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Appendix E-209

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Appendix E-210

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Appendix E-211

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Appendix E-212

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Appendix E-213

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Appendix E-214

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Appendix E-215

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Appendix E-216

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Appendix E-217

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Appendix E-218

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Appendix E-219

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Appendix E-220

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Appendix E-221

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Appendix E-222

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Appendix E-223

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Appendix E-224

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Appendix E-225

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Appendix E-226

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Appendix E-227

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Appendix E-228

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Appendix E-229

223

Appendix E-230

224

TAX DATA

Appendix E-231

225

Appendix E-232

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Appendix E-233

227

Appendix E-234

228

Appendix E-235

229

Appendix E-236

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Appendix E-237

231

Appendix E-238

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Appendix E-239

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Appendix E-240

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Appendix E-241

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Appendix E-242

236

Appendix E-243

237

QUALIFICATIONS AND STATE CERTIFICATIONS

Appendix E-244

238

EXPERIENCE AND QUALIFICATIONS OF ERNEST E. GATEWOOD III

Education Richland Junior College, Dallas, Texas University of North Texas, Denton, Texas MAI Required Appraisal Institute Courses Real Estate Appraisal Principles (I A-1) (1983) Basic Valuation Procedures (IA-2) (1983) Capitalization Theory and Technique Part A (1 B-A) (1989) Various Seminars See Attached – Education Transcript Professional Licenses and Memberships Licensed Real Estate Salesman in the State of Texas (Number 277705-32) Candidate for membership into Appraisal Institute State Certified General Real Estate Appraiser (Certificate No. TX 1324355-G) Professional History 1993-Present Jackson Claborn, Inc. Vice President - Commercial Division 1990-1993 Heartland Real Estate Group Director of Acquisitions 1980-1990 Crosson Dannis, Inc. Appraiser Areas of Special Competence Real estate appraisal, consulting and feasibility for income-producing properties including office buildings, shopping centers, apartment complexes, industrial properties, mixed-use developments, single-family subdivisions, and free-standing retail buildings. Also experienced in the appraisal of single-family residences, vacant land, right-of-way valuation and expert witness testimony for real estate. Additional expertise in market research, data analysis, feasibility coordination, site planning, purchase and sale negotiations, engineering coordination for single-family subdivisions.

Appendix E-245

239

Program Name End Date Category Hours

Unusual Appraisal Challenges for IRS 02/14/2012 Classroom 2.00

Land Development in the DFW Metroplex and 2012 Outlook

01/10/2012 Classroom 2.00

3rd Annual North Texas Realty Symposium 12/07/2011 Classroom 8.00

The TALCB Complaint Process -The Defense Perspective

11/08/2011 Classroom 2.00

7-Hour National USPAP Update Course 10/03/2011 Classroom 7.00

Highest & Best Use/Expert Witnesses in Eminent Domain Cases

05/10/2011 Classroom 2.00

Loss Prevention Seminar 03/08/2011 Classroom 2.00

Using MLS Data as a Tool in Valuing Properties 01/11/2011 Classroom 2.00

Recreational and Agricultural Land Value in North Texas

11/09/2010 Classroom 2.00

Economic Conditions in the Dallas/Fort Worth Region

05/11/2010 Classroom 2.00

Legislative Update for Appraisers 03/09/2010 Classroom 2.00

Expert Witness Testimony for Appraisers 02/09/2010 Classroom 2.00

Condemnation for Electric Power Lines 01/12/2010 Classroom 2.00

Online Business Practices and Ethics 12/26/2009 Online 8.00

Appendix E-246

240

Appendix E-247

241

EXPERIENCE AND QUALIFICATIONS OF JlMMY H. JACKSON, MAI

Education Texas Tech University, Lubbock, Texas Bachelor of Business Administration in Real Estate Finance - May 1984 Appraisal Institute Courses Real Estate Appraisal Principles (1A-1) 1986) Basic Valuation Procedures (1A-2) (1986)

USPAP Standards of Prof. Practice (1989, 1996, 2000, 2002, 2004, 2006, 2008, 2010, 2012)

Capitalization Theory & Technique (A & B) ( 1988) Valuation Analysis and Report Writing (2-2) (1989) Case Studies in Real Estate Valuation (2-1) (1989) Advanced Applications (Course 550) (1997) Various Seminars/Courses: See Attachment Since 2007 During Current AI Continuing Education Cycle FHA/HUD Residential Appraisal Course (1994) Dynamics of Office Building Valuation (2001) Appr. of Nursing Home/Cong. Care Facilities (1997) Online Residential Design and Funct. Utility (2002) The Internet and Appraising (1997) Online Analyzing Operating Expenses (2002) The Appraisal of High End/Historical Homes (1997) Mark-to-Market: The Next FIRREA (2002) Small Hotel/Motel Valuation (1997) Valuation of Detrimental Conditions in RE (2002) Environ. Site Analysis – Impact on RE Trans. (1997) Fannie Mae and the Appraisal Process (2002) Dallas/Fort Worth Apartment Operating (1997) Roddy’s Barometer for Vacant Land Market (2004) TX Property Tax Law – Taxpayer Remedies (1998) Using Your HP-12C (2004) The FHA and the Appraisal Process (1999) Online Appraising from Blueprints (2004) Rebuilding the Inner City Neighborhoods (1999) Feasibility, Market Value, Inv. (2004) Networking Opportunities (2000) Subdivision Valuation Seminar (2006) Use of GIS Technology in RE Mkt. Research (2000) Scope of Work Seminar (2006) New Tech. for the Residential Appraiser (2001) Forecasting Revenue Seminar (2006) Appraisal of Local Retail Properties (2001) Business Practices and Ethics (2006) Texas Appraisal Licensing & Certification (2001) Analyzing Distressed Real Estate (2006) The Dallas/Fort Worth Apartment Market (2001)

Professional Licenses, Licenses Memberships, & Office Held Member of Appraisal Institute (MAI) State Certified General Appraiser (No. TX-1324004-G) Member of Region 8 Ethics and Counseling Regional Panel (1992-1995) Chair – Public Relations North Texas Chapter (2003, 2004) Co-Chair – Public Relations North Texas Chapter (2005) Board Member – North Texas Chapter (2005-2007) PROFESSIONAL HISTORY

1/93-Present Jackson Claborn, Inc. President/CEO 08/91-12/92 Travis, Wolff Consulting, Inc. Vice President, Real Estate Advisory Services 5/84-08/91 Crosson Dannis, Inc. Senior Appraiser (7 Years)

AREAS OF SPECIAL COMPETENCE Real estate appraisal, consulting and feasibility for income-producing properties including hotels/motels, office buildings, shopping centers, apartment complexes, industrial properties, mixed-use developments, subdivisions, nursing homes, and free-standing retail buildings. Also experienced in appraisal of single-family residences.

Appendix E-248

242

Program Title End Date Type Hours

How to Deal with an Aggressive Attorney at Deposition/Trial 09/10/2013 Program 2.00

Texas' Water Crisis 05/14/2013 Program 2.00

Metropolitan Transportation Update 03/12/2013 Program 2.00

Downtown Dallas: Urban Life Realized 02/12/2013 Program 2.00

The Trinity River Project-Today and the Future

01/08/2013 Program 2.00

Using MYRETA.COM as a Tool in Valuing Commercial RE

11/13/2012 Program 2.00

7-Hour National USPAP Update Course

10/12/2012 Classroom 7.00

Factoring Sustainability into Asset Valuation

09/11/2012 Program 2.00

The Parks Dallas & Data Center Real Estate Industry Trends

05/01/2012 Program 2.00

Online Business Practices and Ethics 05/15/2012 Online 7.0

Unusual Appraisal Challenges for IRS 02/14/2012 Program 2.0

Land Development in the DFW Metroplex and 2012 Outlook 01/10/2012 Program 2.0

3rd Annual North Texas Realty Symposium 12/07/2011 Program 8.0

Residential Green and Energy Efficient Addendum 11/17/2011 Online 2.0

The TALCB Complaint Process -The Defense Perspective 11/08/2011 Program 2.0

Understanding the Impact of the Interagency Appraisal and Evaluation Guidelines for Appraisers and Lenders

10/26/2011 Online 2.0

Appraisal Curriculum Overview (2-day General) 09/16/2011 Program 15.0

Real Estate Appraiser Enforcement & Discipline 09/13/2011 Program 2.0

Highest & Best Use/Expert Witnesses in Eminent Domain Cases

05/10/2011 Program 2.0

Loss Prevention Seminar 03/08/2011 Program 2.0

Regulatory Update: GSE, Dodd-Frank & Interagency Guidelines

02/08/2011 Program 2.0

Using MLS Data as a Tool in Valuing Properties 01/11/2011 Program 2.0

Recreational and Agricultural Land Value in North Texas 11/09/2010 Program 2.0

7-Hour National USPAP Update Course 10/14/2010 SPP 7.0

Economic Conditions in the Dallas/Fort Worth Region 05/11/2010 Program 2.0

Legislative Update for Appraisers 03/09/2010 Program 2.0

Expert Witness Testimony for Appraisers 02/09/2010 Program 2.0

Condemnation for Electric Power Lines 01/12/2010 Program 2.0

Real Estate Capital Gains Taxes 11/17/2009 Program 2.0

Cowboy Stadium Complex Development Project 10/13/2009 Program 2.0

Current Conditions in the Hospitality Market/Mkt. Adjust for Vacant Lands

09/15/2009 Program 2.0

Affects of IRS Filings on Cons. Easements & Appraisers/Dallas RED

02/10/2009 Program 2.0

2009 Economic Outlook: Impact on Valuation Issues 01/13/2009 Program 2.0

Appendix E-249

243

2008 Commercial Real Estate Trends and 2009 Projections 11/11/2008 Program 2.0

Appraiser Liability: How to Avoid Litigation 10/14/2008 Program 2.0

7-Hour National USPAP Update Course 10/02/2008 SPP 7.0

Appraiser Independence, What Do HVCC and Reg. Z Mean to Me?

09/09/2008 Program 2.0

Overview of Appraisal Regulations from a Lender's Perspective

05/13/2008 Program 2.0

Barnett Shale: Truth and Consequences 03/11/2008 Program 2.0

Changes to USPAP for 2008 02/12/2008 Program 2.0

Committee CE Credit - Chapter level 12/31/2007 Meetings 7.0

Apartment Market Trends and Review 09/11/2007 Program 2.0

DFW Signposts to the Real Estate Market 05/10/2007 Program 2.0

Victory Dev. Update/Real Estate Development in Downtown Dallas

03/08/2007 Program 2.0

Conservation Easements, Land Trusts, and Appraisals 01/11/2007 Program 2.0

Appendix E-250

244

Appendix E-251

HOU:3384108.15


HOU:3384108.15

APPENDIX F

CONSTRUCTION, FUNDING, AND ACQUISITION AGREEMENT

HOU:3384108.15


PHASES #2 – 5 MAJOR IMPROVEMENT CONSTRUCTION, FUNDING, AND ACQUISITION AGREEMENT

THIS CONSTRUCTION, FUNDING, AND ACQUISITION AGREEMENT (this “Agreement”), dated as of February 13, 2014, is by and between TOWN OF LITTLE ELM, TEXAS, a home-rule municipality of the State of Texas (the “Town”), and VALENCIA ON THE LAKE, L.P., a Texas Limited Partnership owner of 447.492 acres within the extraterritorial jurisdiction of the Town (the “Developer”).

ARTICLE I DEFINITIONS

The following terms shall have the meanings ascribed to them in this Article I for purposes of this Agreement. Unless otherwise indicated, any other terms, capitalized or not, when used herein shall have the meanings ascribed to them in the Indenture (as hereinafter defined).

"Act" means the Public Improvement District Assessment Act, Texas Local Government Code, Chapter 372, as amended.

“Actual Costs” means the costs of the Major Improvement Projects actually paid or incurred for construction and installation of the Major Improvement Projects.

“Administrator” means, initially, Municap, Inc., or any other individual or entity designated by the Town to administer the District.

“Annual Service Plan Update” means the annual update to the Service and Assessment Plan conducted by the Administrator pursuant to Section IV of the Service and Assessment Plan.

"Bond Ordinance" means Ordinance No. 1203 adopted by the Town Council on February 13, 2014 authorizing the issuance of the Bonds pursuant to the Indenture.

"Bonds" means the Towns bonds designated "Town of Little Elm, Texas, Special Assessment Revenue Bonds, Series 2014 (Valencia Public Improvement District Phases # 2 – 5 Major Improvement Project)".

“Budgeted Costs” means the costs shown for the Phases #2 – 5 Major Improvements in the Valencia Public Improvement District Services and Assessment Plan dated February 13, 2014 (the “Services and Assessment Plan”).

“Certification for Payment” means a certificate, substantially in the form of Exhibit C hereto or otherwise agreed to by the Developer, Administrator and Town Representative, executed by an engineer, construction manager or other person or entity acceptable to the Town, as evidenced by the signature of a Town Representative (as defined in the Indenture), provided

Appendix F-1

each month to the Town Representative and the Trustee, specifying the amount of work performed and the amount charged for that work, including materials and labor costs, presented to the Trustee to request payment under the Indenture.

“Closing Disbursement Request” means the certificate, substantially in the form of Exhibit A hereto or otherwise agreed to by the Developer, Administrator and Town Representative, executed by an engineer, construction manager or other person or entity acceptable to the Town, as evidenced by the signature of a Town Representative (as defined in the Indenture), specifying the amounts to be disbursed for the right of way costs and the costs of creation of the district and the costs of issuance of the bonds.

“Construction Contracts” means the contracts for the construction of the Major Improvement Projects. “Construction Contract” means any one of the Construction Contracts.

“Cost” means the Budgeted Costs or the cost of a Major Improvement Project as reflected in a Construction Contract, if greater.

“Cost Overrun” means, with respect to each Authorized Improvement, the Cost or Actual Cost as appropriate of such Major Improvement Project in excess the Budgeted Cost.

“Development Agreement” means that certain "Valencia on the Lake Pre-Annexation Agreement, Development Agreement, Public Improvement District Agreement and Tax Increment Reinvestment Zone Agreement" executed by and between Valencia on the Lake, L.P. and the Town effective November 5, 2013.

“Final Completion” means completion of a Major Improvement Project in compliance with existing Town standards for dedication under the Town’s ordinances and the Development Agreement.

“Indenture” means that certain Indenture of Trust between the Town and The Bank of New York Mellon Trust Company, National Association, as trustee, dated as of February 1, 2014 relating to the Bonds.

“Inspector” means an individual employed by the Town whose job is, in part or in whole, to inspect infrastructure for compliance with all rules and regulations applicable to the development and the infrastructure inspected.

“Land and Rights-of-Way” means the land, easements and rights-of-way described in the Service and Assessment Plan.

“Major Improvement Projects” mean, collectively, the Major Improvement Projects listed in the Services and Assessment Plan. An individual Major Improvement Project, including a completed segment or part, shall be referred to as a Major Improvement Project.

Appendix F-2

“Plans” means the plans, specifications, schedules and related construction contracts for the Major Improvement Projects, respectively, approved pursuant to the applicable standards and directives of the Town, the Development Agreement, and any other applicable governmental entity.

“Project Fund” means the fund, including the accounts created and established under such fund, where monies from the proceeds of the sale of the Bonds, excluding those deposited in other funds in accordance with the Indenture, shall be deposited, and the fund by such name created under the Indenture.

“Service and Assessment Plan” means the Service and Assessment Plan adopted by Ordinance No. 1201 on February 13, 2014 by the Town Council, prepared pursuant to the Act.

“Substantial Completion” means the time at which the construction of a Major Improvement Project (or specified part thereof) has progressed to the point where such Major Improvement Project (or a specified part thereof) is sufficiently complete in accordance with the Construction Contracts related thereto so that such Major Improvement Project (or a specified part thereof) can be utilized for the purposes for which it is intended.

“Supplement” means a written document agreed upon by the parties to this Agreement amending, supplementing or otherwise modifying this Agreement and any exhibit hereto, including any amendments to the list of Authorized Improvements in the Services and Assessment Plan in a manner consistent with the Service and Assessment Plan, the Act, the Bond Ordinance, the Indenture, and this Agreement.

“Town Representative” means that official or agent of the Town authorized by the Town Council to undertake the action referenced herein.

ARTICLE II RECITALS

Section 2.01. The District and the Authorized Improvements.

(a) The Town has created the District under the Act for the financing of, among other things, the acquisition, construction and installation of the Major Improvement Projects.

(b) The Town has authorized the issuance of the Bonds in accordance with the provisions of the Act, the Bond Ordinance and the Indenture, the proceeds of which Bonds shall be used, in part, to finance a portion of the Major Improvement Projects allocable to Phases #2 – 5 of the District (as defined in the Indenture).

(c) All Major Improvement Projects are eligible to be financed with proceeds of the Bonds to the extent specified in the Indenture and the Service and Assessment Plan.

Appendix F-3

(d) The proceeds from the issuance and sale of the Bonds shall be deposited in accordance with 6.2(a) of the Indenture.

(e) The Developer will undertake the construction and development of the Major Improvement Projects for acquisition and acceptance by the Town.

Section 2.02. Agreements. In consideration of the mutual promises and covenants set forth herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Town and the Developer agree that the foregoing recitals, as applicable to each, are true and correct and further make the agreements set forth herein.

ARTICLE III FUNDING

Section 3.01. Bonds.

(a) The Town, in connection with this Agreement, is proceeding with the issuance and delivery of the Bonds.

(b) The Town’s obligation with respect to the payment of the Major Improvement Projects shall be limited to the Budgeted Costs, and shall be payable solely from amounts on deposit for the payment of such costs as provided herein and in the Indenture. The Developer agrees and acknowledges that it is responsible for all Cost Overruns, as qualified, however, by the distribution of cost underrun monies, as detailed in Sections 4.06 and 4.07 below.

(c) The Town's obligation with respect to the payment of the Major Improvement Projects shall be conditioned upon the Developer making the required deposit to the Landowner Property Tax Account of the Administrative Fund as required by Section 6.2(b) of the Indenture.

(d) The Town shall have no responsibility whatsoever to the Developer with respect to the investment of any funds held in the Project Fund by the Trustee under the provisions of the Indenture, including any loss of all or a portion of the principal invested or any penalty for liquidation of an investment. Any such loss may diminish the amounts available in the Project Fund to pay the Costs of the Major Improvement Projects in the District, including the Developer to the extent it owns any real property in the District. The obligation of a property owner to pay Assessments is not in any way dependent on the availability of amounts in the Project Fund to pay for all or any portion of the Costs of the Major Improvement Projects hereunder.

(e) The Developer acknowledges that any lack of availability of amounts in the funds or accounts established in the Indenture to pay the Costs of the Major Improvement Projects shall in no way diminish any obligation of the Developer with respect to the construction of or contributions for the Major Improvement Projects required by this Agreement, the Development

Appendix F-4

Agreement, or any other agreement to which the Developer is a party or any governmental approval to which the Developer or any land within the District is subject.

(f) The Town hereby finds and determines that the payments made for the Land and Rights of Way pursuant to Section 3.02(a) herein are reasonable and fair approximations of the fair market value of the Land and Rights of Way acquired by the Town, based upon the independent appraisal of the value of the property received by the Town, the purchase price of surrounding properties and the appreciation of the value of the land.

Section 3.02. Disbursements and Transfers at Bond Closing.

a) The Town and the Developer agree that from the proceeds of the Bonds and upon the presentation of evidence satisfactory to the Administrator, the Town will cause the Trustee to pay at closing of the Bonds: (i) up to $1,435,937.11 from the Costs of Issuance Account of the Project Fund to the persons entitled to the payment for costs of issuance and payment of costs incurred in the establishment, administration, and operation of the District at of the date of delivery of the Bonds, as described in the Service and Assessment Plan, and (ii) a payment in the amount of $2,200,000.00(the "ROW Payment") from the Major Improvement Account of the Project Fund to acquire the Land and Rights of Way subject to the terms and conditions of this Agreement and the Development Agreement, if Bond proceeds for right-of-way acquisition and acquisition of CCNs (as defined in the Development Agreement) equal or exceed $2,200,000.00.

Section 3.03 Accounts. There shall be two accounts administered by the Administrator, at the direction of the Town representative:

a) The Major Improvement Account of the Project Fund. The proceeds from the issuance and sale of the Bonds shall be deposited into the Major Improvement Account of the Project Fund in the amount shown in Section 6.2(a)(iv) of the Indenture; and

b) The Phases #2 - 5 Major Improvement Account of the Tax Increment Fund. This account shall receive the annual tax increment, if collected, generated by properties within Phases #2 – 5 (as defined in the Indenture), and the Administrator shall distribute such amounts in accordance with the Project and Finance Plan for the Town of Little Elm Tax Increment Reinvestment Zone No. 4 (the “Zone”) on a pro-rata basis per equivalent units, as detailed in the Service and Assessment Plan.

Section 3.04. Security for Major Improvement Projects. Prior to completion and conveyance to the Town of a Major Improvement Project, the Developer shall provide to the Town a Maintenance Bond in the amount of 10% of each Major Improvement Project, which Maintenance Bond shall be for a term of two years from the date of final acceptance of the Major Improvement Project. Any surety company through which a bond is written shall be a surety company duly authorized to do business in the State of Texas, provided that the Town, through the Town Attorney, shall retain the right to reject any surety company as a surety for any work

Appendix F-5

hereunder regardless of such company’s authorization to do business in Texas. Approvals by the Town shall not be unreasonably withheld or delayed. The Developer shall construct the Major Improvement Projects in accordance with the Town’s established ordinances, regulations, specifications, and the Development Agreement. The Developer shall, however, provide an “all bills paid” affidavit, in the standard form for Town construction projects and shall also provide such supporting documentation as required by the Town, that affirms that all invoices and bills were paid for the Major Improvement Project.

ARTICLE IV

DEDICATION OF LAND AND RIGHTS-OF-WAY; CONSTRUCTION OF MAJOR IMPROVEMENT PROJECTS

Section 4.01. Sale of Right-Of-Way. The Developer hereby agrees to obtain and sell to

the Town in fee the Land and Rights of Way, as shown in the attached Exhibit B.

Section 4.02. Duty of Developer to Construct.

(a) All Major Improvement Projects shall be constructed by or at the direction of the Developer in accordance with the Plans and in accordance with this Agreement and the Development Agreement. The Developer shall perform all of its obligations and shall conduct all operations with respect to the construction of Major Improvement Projects in a good, workmanlike and commercially reasonable manner, with the standard of diligence and care normally employed by duly qualified persons utilizing their commercially reasonable efforts in the performance of comparable work and in accordance with generally accepted practices appropriate to the activities undertaken. The Developer shall employ at all times adequate staff or consultants with the requisite experience necessary to administer and coordinate all work related to the design, engineering, acquisition, construction and installation of the Major Improvement Projects to be acquired and accepted by the Town from the Developer as provided in this Agreement.

(b) The Developer shall not be relieved of its obligation to construct each Major Improvement Project and, upon completion, inspection, and acceptance, convey each such Major Improvement Project to the Town in accordance with the terms hereof, even if there are insufficient funds in the Major Improvement Account of the Project Fund to pay the Actual Costs thereof. In any event, this Agreement shall not affect any obligation of the Developer under any other agreement to which the Developer is a party or any governmental approval to which the Developer or any land within the District is subject, with respect to the Major Improvement Projects required in connection with the development of the land within the District.

Appendix F-6

Section 4.04. No Competitive Bidding. Major Improvement Projects shall not require competitive bidding pursuant to Section 252.022 of the Texas Local Government Code, as amended. The Town shall have the right to examine and approve the contractor selected by the Developer, which approval shall not be unreasonably delayed or withheld by the Town.

Section 4.05. Independent Contractor. In performing this Agreement, the Developer is an independent contractor and not the agent or employee of the Town with respect to the Major Improvement Projects.

Section 4.06. Remaining Funds After Completion of a Major Improvement Project. Upon the Final Completion of a Major Improvement Project and payment of all outstanding invoices for such Major Improvement Project, if the Actual Cost of such Major Improvement Project is less than the Budgeted Cost (a “Cost Underrun”), any remaining Budgeted Cost will be available to pay Cost Overruns on any other Major Improvement Project. The Town shall promptly confirm to the Administrator that such remaining amounts are available to pay such Cost Overruns, and the Developer, the Administrator and the Town Representative will agree how to use such moneys to secure the payment and performance of the work for other Major Improvement Projects. Any Cost Underrun for any Major Improvement Project is available to pay Cost Overruns on any other Major Improvement Project.

Section 4.07. Contracts and Change Orders. The Developer shall be responsible for entering into all contracts and any supplemental agreements (herein referred to as “change orders”) required for the construction of the Major Improvement Projects. Developer may approve and implement any change orders, even if such change order would increase the Cost of a Major Improvement Project, but the Developer shall be solely responsible for payment of any Cost Overruns resulting from such change orders except to the extent amounts are available pursuant to Section 4.06.

ARTICLE V ACQUISITION, CONSTRUCTION, AND PAYMENT

Section 5.01. Closing Disbursement Request. In order to receive the disbursement described in Section 3.02, the Developer shall cause to be delivered to the Trustee a Closing Disbursement Request, substantially in the form of Exhibit A hereto or otherwise agreed to by the Developer, Administrator, and the Town Representative for the disbursements described in Section 3.02

Section 5.02. Certification for Payment for the Major Improvement Projects.

(a) Except as provided in Section 3.02, no payment hereunder shall be made from the Project Fund to the Developer for work on a Major Improvement Project until the work with respect to such Major Improvement Project, until a monthly Certificate of Payment is received from the Developer. Upon receipt of a Certification for Payment substantially in the form of

Appendix F-7

Exhibit C hereto (and all accompanying documentation executed by the Town) from the Developer, the Inspector shall conduct a review in order to confirm that such request is complete, that the work with respect to such Major Improvement Project identified therein for which payment is requested was completed in accordance with all applicable governmental laws, rules and regulations and applicable Plans therefor and with the terms of this Agreement, the Development Agreement, and to verify and approve the Actual Cost of such work specified in such Certification for Payment (collectively, the “Developer Compliance Requirements”). The approval of the Certification for Payment by the Inspector shall constitute a representation by the Inspector to the Town and the Trustee that the Developer Compliance Requirements have been satisfied with respect to the Major Improvement Project identified therein. The Inspector shall also conduct such review as is required in his discretion to confirm the matters certified in the Certification for Payment. The Developer agrees to cooperate with the Inspector in conducting each such review and to provide the Inspector with such additional information and documentation as is reasonably necessary for the Inspector to conclude each such review.

Within ten (10) business days of receipt of any Certification for Payment, the Inspector shall (i) approve and execute the Certification for Payment and forward the same to the Administrator for approval and delivery to the Trustee for payment to the Developer in accordance with Section 5.03(a) hereof or (ii) in the event the Inspector disapproves the Certification for Payment, give written notification to the Developer of the Inspector’s disapproval, in whole or in part, of such Certification for Payment, specifying the reasons for such disapproval and the additional requirements to be satisfied for approval of such Certification for Payment. If a Certification for Payment seeking reimbursement is approved only in part, the Inspector shall specify the extent to which the Certification for Payment is approved and shall deliver such partially approved Certification for Payment to the Administrator for approval and delivery to the Developer in accordance with Section 5.02(c) hereof, and any such work shall be processed for payment under Section 5.04 notwithstanding such partial denial.

(b) If the Inspector fails to act with respect to a Certification for Payment within the time period therein provided, the Developer shall submit the Certification for Payment directly to the Town Representative for approval. Within ten business days of receipt of any Certification for Payment, the Town Representative shall approve or deny the Certification for Payment, and provide notice to the Administrator and Developer. Upon approval of a Certification for Payment, the approval shall be forwarded to the Trustee for payment, and delivery to the Developer in accordance with Section 5.03 hereof. The approval of the Certification for Payment by the Town Representative shall constitute a representation by the Town Representative to the Trustee of the Developer’s compliance therein. Pursuant to the terms of Section 5.03 and the Indenture, the Trustee shall make a payment to the Developer, or pursuant to the Developer’s directions, of an approved Certification for Payment.

Appendix F-8

(c) If the Town Representative fails to act within the ten (10) business days, the request is deemed approved, and shall be forwarded to the Trustee for payment. If the Town Representative denies the Certification for Payment, the denial must be in writing, stating the reason(s) for denial. The denial may be appealed to the Town Council within 30 days of being denied.

(d) The Developer shall deliver the approved or partially approved Certification for Payment to the Trustee for payment and the Trustee shall make such payment from the Project Fund in accordance with Section 5.03 below.

Section 5.03. Payment for Major Improvement Project.

(a) Upon receipt of a reviewed and approved Certification for Payment, the Trustee shall make payment from the Major Improvement Account of the Project Fund of such approved Certification for Payment pursuant to the terms of the Certification for Payment and the Indenture in an amount not to exceed the Budgeted Cost for the particular Major Improvement Project (or its completed segment), unless a cost overrun amount has been approved for a particular Major Improvement Project. If a cost overrun amount has been approved, then the amount reimbursed shall not exceed the Budgeted Amount plus the approved cost overrun amount.

(b) Notwithstanding any other provisions of this Agreement, the Trustee shall make payment directly to the general contractor or supplier of materials or services or jointly to Developer (or any permitted assignee of such Developer) and the general contractor or supplier of materials or services, as indicated in an approved Certification for Payment. If an unconditional lien release related to the items referenced in the Certification for Payment is attached to such Certification for Payment, the Trustee shall make such payment to the Developer or any permitted assignee of the Developer. In the event the Developer provides a general contractor’s or supplier of materials unconditional lien release for a portion of the work covered by a Certification for Payment, the Trustee will make such payment directly to the Developer or any permitted assignee of the Developer to the extent of such lien release.

(c) Withholding Payments.

Nothing in this Agreement shall be deemed to prohibit the Developer or the Town from contesting in good faith the validity or amount of any mechanics or materialman’s lien and/or judgment nor limit the remedies available to the Developer or the Town with respect thereto so long as such delay in performance shall not subject the Major Improvement Project to foreclosure, forfeiture, or sale. In the event that any such lien and/or judgment with respect to a Major Improvement Project is contested, the Developer shall be required to post or cause the delivery of a surety bond in an amount determined by the Town.

Appendix F-9

ARTICLE VI OWNERSHIP AND TRANSFER OF MAJOR IMPROVEMENT PROJECT

Section 6.01. Major Improvement Project to be Owned by the Town – Title Evidence. The Developer shall furnish to the Town a preliminary title report for land with respect to the Rights-Of-Way and Major Improvement Projects to be acquired and accepted by the Town from the Developer and not previously dedicated or otherwise conveyed to the Town, for review and approval at least 30 calendar days prior to the transfer of title of a Major Improvement Project to the Town. The Town shall approve the preliminary title report unless it reveals a matter which, in the reasonable judgment of the Town, could materially affect the Town’s use and enjoyment of any part of the property or easement covered by the preliminary title report. In the event the Town does not approve the preliminary title report, the Town shall not be obligated to accept title to the Major Improvement Project until the Developer has cured such objections to title to the satisfaction of the Town.

Section 6.02. Major Improvement Project Constructed on Town Land or Developer Land. If the Major Improvement Project is on land owned by the Town, the Town hereby grants to the Developer a license to enter upon such land for purposes related to construction (and maintenance pending acquisition and acceptance) of the Major Improvement Project. The provisions for inspection and acceptance of such Major Improvement Project otherwise provided herein shall apply.

ARTICLE VII REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 7.01. Representations, Covenants and Warranties of the Developer. The Developer represents and warrants for the benefit of the Town as follows:

(a) Organization. The Developer consists of one limited partnership duly formed, organized and validly existing under the laws of the State of Texas, is in compliance with the laws of the State of Texas, and has the power and authority to own its properties and assets and to carry on its business in the State of Texas as now being conducted as hereby contemplated.

(b) Authority. The Developer has the power and authority to enter into this Agreement, and has taken all action necessary to cause this Agreement to be executed and delivered, and this Agreement has been duly and validly executed and delivered by the Developer.

(c) Binding Obligation. This Agreement is a legal, valid and binding obligation of the Developer, enforceable against the Developer in accordance with its terms, subject to bankruptcy and other equitable principles.

Appendix F-10

(d) Compliance with Law. The Developer shall not commit, suffer or permit any act to be done in, upon or to the lands of the Developer in the District or the Major Improvement Projects in violation of any law, ordinance, rule, regulation or order of any governmental authority or any covenant, condition or restriction now or hereafter affecting the lands in the District or the Major Improvement Projects.

(e) Requests for Payment. The Developer represents and warrants that (i) it will not request payment from the Major Improvement Account of the Project Fund for the acquisition or construction of any improvements that are not part of the Major Improvement Projects, and (ii) it will diligently follow all procedures set forth in this Agreement with respect to the Certification for Payments.

(f) Financial Records. For a period of two years after completion of the Major Improvement Projects, the Developer covenants to maintain proper books of record and account for the construction of the Major Improvement Projects and all Costs related thereto. Such accounting books shall be maintained in accordance with generally accepted accounting principles, and shall be available for inspection by the Town or its agent at any reasonable time during regular business hours on reasonable notice.

(g) Plans. The Developer represents that it has obtained or will obtain approval of the Plans from all appropriate departments of the Town and from any other public entity or public utility from which such approval must be obtained. The Developer further agrees that, subject to the terms hereof, the Major Improvement Projects have been or will be constructed in full compliance with such Plans and any change orders thereto consistent with the Act, and the Development Agreement.

(h) Additional Information. The Developer agrees to cooperate with all reasonable written requests for nonproprietary information by the Purchaser of the Bonds or the Town Representative related to the status of construction of improvements within the District, the anticipated completion dates for future improvements and any other matter that the Purchaser of the Bonds or Town Representative deems material to the investment quality of the Bonds.

(i) Continuing Disclosure Agreement. The Developer agrees to provide the information required pursuant to the Continuing Disclosure Agreement executed by the Developer in connection with the Bonds.

(j) Tax Certificate. The Town will deliver a certificate relating to the Bonds (such certificate, as it may be amended and supplemented from time to time, being referred to herein as the “Tax Certificate”) containing covenants and agreements designed to satisfy the requirements of Sections 103 and 141 through 150, inclusive, of the Code and the income tax regulations issued thereunder relating to the use of the proceeds of the Bonds or of any monies, securities or other obligations on deposit to the credit of any of the funds and accounts created by the

Appendix F-11

Indenture or this Agreement or otherwise that may be deemed to be proceeds of the Bonds within the meaning of Section 148 of the Code (collectively, “Bond Proceeds”).

The Developer covenants to provide, or cause to be provided, such facts and estimates as the Town reasonably considers necessary to enable it to execute and deliver its Tax Certificate. The Developer further covenants that (i) such facts and estimates will be based on its reasonable expectations on the date of issuance of the Bonds and will be, to the best of the knowledge of the officers of the Developer providing such facts and estimates, true, correct and complete as of that date, and (ii) the Developer will make reasonable inquires to ensure such truth, correctness and completeness. The Developer covenants that it will not make, or (to the extent that it exercises control or direction) permit to be made, any use or investment of the Bond Proceeds (including, but not limited to, the use of the Major Improvement Projects) that would cause any of the covenants or agreements of the Town contained in the Tax Certificate to be violated or that would otherwise have an adverse effect on the tax-exempt status of the interest payable on the Bonds for federal income tax purposes.

(k) Financial Resources. The Developer represents and warrants that it has the financial resources, or the ability to obtain sufficient financial resources, to meet its obligations under this Agreement, and the Development Agreement.

Section 7.02. Indemnification and Hold Harmless. The Developer shall assume the defense of, and indemnify by reason of, or resulting from the breach of any provision of this Agreement save harmless the Inspector, the Town, officers, employees and agents of the Town, and each of them (each an “Indemnified Party”), from and against all actions, damages, claims, loses or expense of every type and description to which they may be subjected or put, by reason of, or resulting from the breach of any provision of this Agreement by the Developer, the negligent design, engineering and/or construction by the Developer or any architect, engineer or contractor hired by the Developer of any of the Major Improvement Projects acquired from the Developer hereunder, the Developer’s nonpayment under contracts between the Developer and its consultants, engineers, advisors, contractors, subcontractors and suppliers in the provision of the Major Improvement Projects, or any claims of Persons employed by the Developer or its agents to construct the Major Improvement Projects. Notwithstanding the foregoing, no indemnification is given hereunder for any action, damage, claim, loss or expense directly attributable to the willful misconduct of any Indemnified Party.

Section 7.03. Use of Monies by Town; Changes to Indenture. The Town agrees not to take any action or direct the Trustee to take any action to expend, disburse or encumber the monies held in the Project Fund and any monies to be transferred thereto for any purpose other than the purposes permitted by the Indenture. Prior to the acceptance of all the Major Improvement Projects, the Town agrees not to modify or supplement the Indenture without the approval of the Developer if as a result or as a consequence of such modification or supplement (a) the amount of monies that would otherwise have been available under the Indenture for

Appendix F-12

disbursement for the Costs of the Major Improvement Projects is reduced, delayed or deferred, (b) the obligations or liabilities of the Developer is or may be increased or otherwise adversely affected in any manner, or (c) the rights of the Developer is or may be modified, limited, restricted or otherwise adversely affected in any manner.

Section 7.04. No Reduction of Assessments. The Developer agrees not to take any action or actions to reduce the total amount of such Assessments to be levied as of the effective date of this Agreement.

ARTICLE VIII TERMINATION

Section 8.01. Mutual Consent. This Agreement may be terminated by the mutual, written consent of the Town and the Developer, in which event the Town may either execute contracts for or perform any remaining work related to the Major Improvement Projects not accepted by the Town or other appropriate entity and use all or any portion of funds on deposit in the Project Fund or other amounts transferred to the Project Fund under the terms of the Indenture to pay for same, and the Developer shall have no claim or right to any further payments for the Costs of a Major Improvement Project hereunder, except as otherwise may be provided in such written consent.

Section 8.02. Town’s Election for Cause.

(a) The Town, upon notice to Developer and the passage of the cure period identified in subsection (b) below, may terminate this Agreement, without the consent of the Developer if the Developer shall breach any material covenant or default in the performance of any material obligation hereunder.

(b) If any such event occurs, the Town shall give written notice of its knowledge of a breach of any material covenant thereof to the Developer, and the Developer agrees to meet and confer with the Inspector and other appropriate Town staff and consultants as to options available to assure timely completion, subject to the terms of this Agreement, of the Major Improvement Project. Such options may include, but not be limited to, the termination of this Agreement by the Town. If the Town elects to terminate this Agreement, the Town shall first notify the Developer (and any mortgagee or trust deed beneficiary specified in writing by the Developer to the Town to receive such notice) of the grounds for such termination and allow the Developer a minimum of 45 days to eliminate or mitigate to the satisfaction of the Town the grounds for such termination. Such period may be extended, at the reasonable discretion of the Town, if the Developer, to the reasonable satisfaction of the Town, is proceeding with diligence to eliminate or mitigate such grounds for termination. If at the end of such period (and any extension thereof), as determined reasonably by the Town, the Developer has not eliminated or

Appendix F-13

completely mitigated such grounds to the satisfaction of the Town, the Town may then terminate this Agreement. In the event of the termination of this Agreement, the Developer is entitled to payment for work accepted by the Town related to the Major Improvement Project undertaken prior to the termination date of this Agreement solely from the Major Improvement Account of the Project Fund and from the Phase #1 Major Improvement Account of the Project Fund created and established under the Phase #1 Indenture according to the terms and conditions set forth in this Agreement. Notwithstanding the foregoing, so long as the Developer has breached any material covenant or defaulted in the performance of any material obligation hereunder, notice of which has been given by the Town to the Developer, and such event has not been cured or otherwise eliminated by the Developer, the Town may in its discretion cause the Trustee to cease making payments for the Actual Costs of Major Improvement Projects, provided that the Developer shall receive payment of the Actual Costs of any Major Improvement Project that was accepted by the Town at the time of the occurrence of such breach or default by the Developer upon submission of the documents and compliance with the other applicable requirements of this Agreement.

(c) If this Agreement is terminated by the Town for cause, the Town may either execute contracts for or perform any remaining work related to the Major Improvement Project not accepted by the Town and use all or any portion of the funds on deposit in the Project Fund or other amounts transferred to the Project Fund and the Developer shall have no claim or right to any further payments for the Major Improvement Project hereunder, except as otherwise may be provided upon the mutual written consent of the Town and the Developer.

Section 8.03. Termination Upon Redemption or Defeasance of Bonds. This Agreement will terminate automatically and with no further action by the Town or the Developer upon the redemption or defeasance of all Outstanding Bonds issued under the Indenture.

Section 8.04. Construction of Major Improvement Projects Upon Termination of this Agreement. Notwithstanding anything to the contrary contained herein, upon the termination of this Agreement pursuant to this Article VIII, the Developer shall perform its obligations with respect to the Major Improvement Projects in accordance with the terms of this Agreement and the Development Agreement.

Section 8.05. Force Majeure. Whenever performance is required of a party hereunder, that party shall use all due diligence and take all necessary measures in good faith to perform, but if completion of performance is delayed by reasons of floods, earthquakes or other acts of God, war, civil commotion, riots, strikes, picketing or other labor disputes, damage to work in progress by casualty or by other cause beyond the reasonable control of the party (financial inability excepted), then the specified time for performance shall be extended by the amount of the delay actually so caused.

Appendix F-14

ARTICLE IX MISCELLANEOUS

Section 9.01. Limited Liability of Town. The Developer agrees that any and all obligations of the Town arising out of or related to this Agreement are special obligations of the Town, and the Town’s obligations to make any payments hereunder are restricted entirely to the moneys, if any, in the Project Fund and from no other source. Neither the Town, the Inspector nor any other Town employee or agent shall incur any liability hereunder to the Developer or any other party in their individual capacities by reason of their actions hereunder or execution hereof.

Section 9.02. Audit. The Inspector or a finance officer of the Town shall have the right, during normal business hours and upon the giving of three business days’ prior written notice to a Developer, to review all books and records of the Developer pertaining to costs and expenses incurred by the Developer with respect to any of the Major Improvement Projects and any bids taken or received for the construction thereof or materials therefor.

Section 9.03. Notices. Any notice, payment or instrument required or permitted by this Agreement to be given or delivered to any party shall be deemed to have been received when personally delivered or transmitted by telecopy or facsimile transmission (which shall be immediately confirmed by telephone and shall be followed by mailing an original of the same within 24 hours after such transmission) or 72 hours following deposit of the same in any United States Post Office, registered or certified mail, postage prepaid, addressed as follows:

To the Town: Attn: Matt Mueller Town Manager 100 West Eldorado Parkway Little Elm, Texas 75068 FAX: 214.540.2340 With a copy to: Attn: Robert F. Brown Town Attorney 100 W. Eldorado Parkway Little Elm, Texas 75068 FAX: 214.540.2340

To the Developer: Attn: Mehrdad Moayedi 1221 N. I-35E, Suite 200 Carrollton, Texas 75006 FAX: 817.391.2501 With a copy to: Milby, PLLC Attn: Robert Miklos 1909 Woodall Rodgers, Suite 500 Dallas, Texas 75201

Appendix F-15

E-mail: [email protected] FAX: 214.220-1218

Any party may change its address or addresses for delivery of notice by delivering written notice of such change of address to the other party.

The Town shall advise the Developer of the name and address of any Inspector who is to receive any notice or other communication pursuant to this Agreement.

Section 9.04. Severability. If any part of this Agreement is held to be illegal or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall be given effect to the fullest extent possible.

Section 9.05. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. This Agreement shall not be assigned by the Developer without the prior written consent of the Town, which consent shall not be unreasonably withheld or delayed, except pursuant to a collateral assignment to any Person providing construction financing to the Developer for the Developer for the Major Improvement Projects, provided such Person expressly agrees to assume all obligations of the Developer hereunder if there is a default under such financing and such Person elects to complete the Major Improvement Projects. In connection with any consent of the Town, the Town may condition its consent upon the acceptability of the financial condition of the proposed assignee, upon the assignee’s express assumption of all obligations of the Developer hereunder and/or upon any other reasonable factor which the Town deems relevant in the circumstances. In any event, any such assignment shall be in writing, shall clearly identify the scope of the rights and/or obligations assigned and shall not be effective until approved by the Town. The Town may assign by a separate writing its rights hereunder to the Trustee and the Developer hereby consents to such assignment.

Section 9.06. Other Agreements. The obligations of the Developer hereunder shall be those of a party hereto and not as an owner of property in the District. Nothing herein shall be construed as affecting the Town’s or the Developer’s rights or duties to perform their respective obligations under other agreements, use regulations or subdivision requirements relating to the development of the lands in the District, including the applicable Construction Contracts and the Development Agreement. To the extent there is a conflict between this Agreement and the Development Agreement, this Agreement shall control.

Section 9.07. Waiver. Failure by a party to insist upon the strict performance of any of the provisions of this Agreement by any other party, or the failure by a party to exercise its rights upon the default of any other party, shall not constitute a waiver of such party’s right to insist and demand strict compliance by such other party with the terms of this Agreement thereafter.

Section 9.08. Merger. No other agreement, statement or promise made by any party or any employee, officer or agent of any party with respect to any matters covered hereby that is not in writing and signed by all the parties to this Agreement shall be binding.

Section 9.09. Parties in Interest. Nothing in this Agreement, expressed or implied, is intended to or shall be construed to confer upon or to give to any person or entity other than the

Appendix F-16

Town and the Developer any rights, remedies or claims under or by reason of this Agreement or any covenants, conditions or stipulations hereof, and all covenants, conditions, promises and agreements in this Agreement contained by or on behalf of the Town or the Developer shall be for the sole and exclusive benefit of the Town and the Developer.

Section 9.10. Amendment. Except as otherwise provided in Section 9.02, this Agreement may be amended, from time to time in a manner consistent with the Act and the Ordinance, by written supplement hereto and executed in counterparts, each of which shall be deemed an original.

Section 9.11. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original.

Section 9.12. Effective Date. This Agreement has been dated as of the date first above written solely for the purpose of convenience of reference and shall become effective upon its execution and delivery, on the Closing Date, by the parties hereto. All representations and warranties set forth therein shall be deemed to have been made on the Closing Date.

IN WITNESS WHEREOF, the parties have executed this Agreement as of this the

______ day of _____________, 201__.

Appendix F-17

ATTEST: TOWN OF LITTLE ELM

________________________ By: ____________________

Name: Kathy Phillips Name: David Hillock Title: Town Secretary Title: Mayor Date: ___________ APPROVED AS TO FORM _______________________

Name: Robert F. Brown Title: Town Attorney

Appendix F-18

DEVELOPER

Valencia on the Lake, L.P. a Texas limited partnership, By: Valencia on the Lake G.P., L.L.C. a Texas limited liability company, its General Partner By: __________________________ Mehrdad Moayedi, its manager

Appendix F-19

Exhibit A

CLOSING DISBURSEMENT REQUEST

The undersigned is an agent for Valencia on the Lake, L.P., (the “Developer”) and requests payment from the [Cost of Issuance Account] [Major Improvement Account] of the Project Fund (as defined in the Phases #2 – 5 Major Improvement Construction, Funding, and Acquisition Agreement) from The Bank of New York Mellon Trust Company, National Association, Dallas, Texas (the “Trustee”) in the amount of _________________DOLLARS ($__________) for the acquisition of the Rights-of-Way related to the Valencia Public Improvement District (the “Rights of Way” as depicted in Exhibit B) and other costs incurred in the establishment, administration, and operation of the Valencia Public Improvement District (the “District”).

In connection to the above referenced payment, the Developer represents and warrants to the Town as follows:

1. The undersigned is a duly authorized officer of the Developer, is qualified to execute this Closing Disbursement Request on behalf of the Developer, and is knowledgeable as to the matters set forth herein.

2. The payment requested for the below referenced Rights-of-Way have not been the subject of any prior payment request submitted to the Town or, if previously requested, no disbursement was made with respect thereto.

3. The amount listed for the Rights-of-Way below is a true and accurate representation of the costs associated with the acquisition of the Rights-of-Way, and such costs are in compliance with the Service and Assessment Plan.

Rights-of-Way Acres (Approx.) PID Allocated Cost $ TOTAL

4. The payment requested for the below referenced establishment, administration, and operation of the District at the time of the delivery of the Bonds have not been the subject of any prior payment request submitted to the Town or, if previously requested, no disbursement was made with respect thereto.

5. The amount listed for the below costs is a true and accurate representation of the costs associated with the establishment, administration and operation of the District at the time of the delivery of the Bonds, and such costs are in compliance with the Service and Assessment Plan.

Appendix F-20

Closing Costs Description Cost PID Allocated Cost TOTAL

6. The Developer is in compliance with the terms and provisions of the Phases #2 – 5 Major Improvement Construction, Funding, and Acquisition Agreement, the Indenture, and the Service and Assessment Plan.

7. All conditions set forth in the Indenture (as defined in the Phases #2 – 5 Major Improvement Construction, Funding, and Acquisition Agreement) for the payment hereby requested have been satisfied.

8. The Developer agrees to cooperate with the Town in conducting its review of the requested payment, and agrees to provide additional information and documentation as is reasonably necessary for the Town to complete said review.

Payments requested hereunder shall be made as directed below:

a. X amount to Person or Account Y for Z goods or services.

b. Etc.

I hereby declare that the above representations and warranties are true and correct.

VALENCIA ON THE LAKE, L.P.

By:_____________________________

Name: __________________________

Title: ___________________________

Date: ___________________________

Appendix F-21

Exhibit B

ROCKHILL PARKWAY AT VALENCIA R.O.W. 22.65 ACRES

Being a tract of land situated in the A. Cooper Survey, Abstract No. 250, the S. Guarrara Survey, Abstract no. 456, and the T. Rodriguez Survey, Abstract no. 1068 in Denton County, Texas, and being the same property described in a deed to Valencia on the lake, L.P., recorded as County Clerk's Document Number 2007-8103 of the Real Property Records of Denton County, Texas, and being more particularly described as follows: COMMENCING at a United States Army Corps of Engineers monument (hereinafter referred to as "U.S.A.C.O.E.") marked J-818-1/1 found on the "Take Line" of Lake Lewisville for the northeast corner of said Valencia on the lake tract; THENCE South 00 degrees 46 minutes 26 seconds West, along the east line of said property described in deed to Valencia on the lake, a distance of 479.97 feet to the POINT OF BEGINNING; THENCE South 00 degrees 46 minutes 26 seconds West, along the east line of said property described in deed to Valencia on the lake, a distance of 162.17 feet to a point for corner; THENCE over and across said property described in a deed to Valencia on the lake, the following courses and distances:

South 34 degrees 29 minutes 01 seconds West, a distance of 98.81 feet to a point for corner, said point being the beginning of a tangent curve to the right; Southwesterly, along said curve to the right which has a chord that bears South 37 degrees 25 minutes 54 seconds West for 107.49 feet, a central angle of 05 degrees 53 minutes 47 seconds and a radius of 1045.00 feet for an arc distance of 107.54 feet to a point for corner and the end of said curve;

South 40 degrees 22 minutes 48 seconds West, a distance of 193.60 feet to a point for corner, said point being the beginning of a tangent curve to the left; Southwesterly, along said curve to the left which has a chord that bears South 37 degrees 07 minutes 39 seconds West for 108.37 feet, a central angle of 06 degrees 30 minutes 19 seconds and a radius of 955.00 feet for an arc distance of 108.37 feet to a point for corner and the end of said curve;

South 33 degrees 52 minutes 30 seconds West, a distance of 344.64 feet to a point for corner, said point being the beginning of a tangent curve to the right;

Appendix F-22

Southwesterly, along said curve to the right which has a chord that bears South 50 degrees 52 minutes 51 seconds West for 1482.80 feet, a central angle of 34 degrees 00 minutes 41 seconds and a radius of 2535.00 feet for an arc distance of 1504.80 feet to a point for corner and the end of said curve; South 67 degrees 53 minutes 11 seconds West, a distance of 1221.50 feet to a point for corner, said point being the beginning of a tangent curve to the left;

Southwesterly, along said curve to the left which has a chord that bears South 58 degrees 07 minutes 28 seconds West for 459.49 feet, a central angle of 19 degrees 31 minutes 25 seconds and a radius of 1355.00 feet for an arc distance of 461.72 feet to a point for corner and the end of said curve; South 48 degrees 21 minutes 46 seconds West, a distance of 502.40 feet to a point for corner, said point being the beginning of a tangent curve to the right; Southwesterly, along said curve to the right which has a chord that bears South 53 degrees 12 minutes 26 seconds West for 176.51 feet, a central angle of 09 degrees 41 minutes 21 seconds and a radius of 1045.00 feet for an arc distance of 176.72 feet to a point for corner and the end of said curve;

South 58 degrees 03 minutes 06 seconds West, a distance of 457.24 feet to a point for corner, said point being the beginning of a tangent curve to the right; Southwesterly, along said curve to the right which has a chord that bears South 61 degrees 21 minutes 07 seconds West for 212.42 feet, a central angle of 06 degrees 36 minutes 01 seconds and a radius of 1845.00 feet for an arc distance of 212.54 feet to a point for corner and the end of said curve;


Southwesterly, along said curve to the right which has a chord that bears South 74 degrees 19 minutes 47 seconds West for 334.53 feet, a central angle of 19 degrees 21 minutes 19 seconds and a radius of 995.00 feet for an arc distance of 336.12 feet to a point for corner and the end of said curve;

South 84 degrees 00 minutes 26 seconds West, a distance of 302.69 feet to a point for corner, said point being the beginning of a tangent curve to the left; Southwesterly, along said curve to the left which has a chord that bears South 52 degrees 22 minutes 35 seconds West for 1746.40 feet, a central angle of 63 degrees 15 minutes 42 seconds and a radius of 1665.00 feet for an arc distance of 1838.37 feet to a point for corner and the end of said curve;

Appendix F-23


Southwesterly, along said curve to the right which has a chord that bears South 55 degrees 36 minutes 37 seconds West for 1126.13 feet, a central angle of 69 degrees 43 minutes 46 seconds and a radius of 985.00 feet for an arc distance of 1198.75 feet to a point for corner and the end of said curve; North 89 degrees 31 minutes 30 seconds West, a distance of 355.59 feet to a point for corner, said point being the beginning of a tangent curve to the right; Northeasterly, along said curve to the right which has a chord that bears North 45 degrees 28 minutes 30 seconds East for 127.28 feet, a central angle of 270 degrees 00 minutes 00 seconds and a radius of 90.00 feet for an arc distance of 424.12 feet to a point for corner and the end of said curve; South 89 degrees 31 minutes 30 seconds East, a distance of 265.59 feet to a point for corner, said point being the beginning of a tangent curve to the left; Northeasterly, along said curve to the left which has a chord that bears North 55 degrees 36 minutes 37 seconds East for 1023.23 feet, a central angle of 69 degrees 43 minutes 46 seconds and a radius of 895.00 feet for an arc distance of 1089.22 feet to a point for corner and the end of said curve;

North 20 degrees 44 minutes 44 seconds East, a distance of 616.39 feet to a point for corner, said point being the beginning of a tangent curve to the right;

Northeasterly, along said curve to the right which has a chord that bears North 52 degrees 22 minutes 35 seconds East for 1840.80 feet, a central angle of 63 degrees 15 minutes 42 seconds and a radius of 1755.00 feet for an arc distance of 1937.74 feet to a point for corner and the end of said curve;

North 84 degrees 00 minutes 26 seconds East, a distance of 302.69 feet to a point for corner, said point being the beginning of a tangent curve to the left;

Northeasterly, along said curve to the left which has a chord that bears North 74 degrees 19 minutes 47 seconds East for 304.27 feet, a central angle of 19 degrees 21 minutes 19 seconds and a radius of 905.00 feet for an arc distance of 305.72 feet to a point for corner and the end of said curve;


Northeasterly, along said curve to the left which has a chord that bears North 61 degrees 21 minutes 07 seconds East for 202.06 feet, a central angle of 06 degrees 36 minutes 01

Appendix F-24

seconds and a radius of 1755.00 feet for an arc distance of 202.17 feet to a point for corner and the end of said curve; North 58 degrees 03 minutes 06 seconds East, a distance of 457.24 feet to a point for corner, said point being the beginning of a tangent curve to the left;

Northeasterly, along said curve to the left which has a chord that bears North 53 degrees 12 minutes 26 seconds East for 161.31 feet, a central angle of 09 degrees 41 minutes 21 seconds and a radius of 955.00 feet for an arc distance of 161.50 feet to a point for corner and the end of said curve; North 48 degrees 21 minutes 46 seconds East, a distance of 502.40 feet to a point for corner, said point being the beginning of a tangent curve to the right; Northeasterly, along said curve to the right which has a chord that bears North 58 degrees 07 minutes 28 seconds East for 490.01 feet, a central angle of 19 degrees 31 minutes 25 seconds and a radius of 1445.00 feet for an arc distance of 492.39 feet to a point for corner and the end of said curve;


Northeasterly, along said curve to the left which has a chord that bears North 50 degrees 52 minutes 51 seconds East for 1430.16 feet, a central angle of 34 degrees 00 minutes 41 seconds and a radius of 2445.00 feet for an arc distance of 1451.38 feet to a point for corner and the end of said curve; North 33 degrees 52 minutes 30 seconds East, a distance of 344.64 feet to a point for corner, said point being the beginning of a tangent curve to the right; Northeasterly, along said curve to the right which has a chord that bears North 37 degrees 07 minutes 39 seconds East for 118.58 feet, a central angle of 06 degrees 30 minutes 19 seconds and a radius of 1045.00 feet for an arc distance of 118.65 feet to a point for corner and the end of said curve; North 40 degrees 22 minutes 48 seconds East, a distance of 193.60 feet to a point for corner, said point being the beginning of a tangent curve to the left; Northeasterly, along said curve to the left which has a chord that bears North 37 degrees 25 minutes 54 seconds East for 98.24 feet, a central angle of 05 degrees 53 minutes 47 seconds and a radius of 955.00 feet for an arc distance of 98.28 feet to a point for corner and the end of said curve; And North 34 degrees 29 minutes 01 seconds East, a distance of 233.71 feet to the POINT OF BEGINNING and containing 22.65 acres of land, more or less.

Appendix F-25

Exhibit C

CERTIFICATION FOR PAYMENT FORM – MAJOR IMPROVEMENT PROJECTS

The undersigned is an agent for Valencia on the Lake, L.P., (the “Developer”) and requests payment from the Major Improvement Account of the Project Fund (as defined in the Phases #2 – 5 Major Improvement Construction, Funding, and Acquisition Agreement) from the Town of Little Elm, Texas (the “Town”) in the amount of __________________ for labor, materials, fees, and/or other general costs related to the creation, acquisition, or construction of certain public improvements related to the Valencia Public Improvement District (the “Major Improvement Project”). Unless otherwise defined, any capitalized terms used herein shall have the meanings ascribed to them in the Phases #2 – 5 Major Improvement Construction, Funding, and Acquisition Agreement (the “CFA Agreement”).

In connection to the above referenced payment, the Developer represents and warrants to the Town as follows:

1. The undersigned is a duly authorized officer of the Developer, is qualified to execute this Payment Request Form on behalf of the Developer, and is knowledgeable as to the matters set forth herein.

2. The payment requested for the below referenced Major Improvement Project has not been the subject of any prior payment request for the same work submitted to the Town or, if previously requested, no disbursement was made with respect thereto.

3. The amount listed for the Major Improvement Project below is a true and accurate representation of the costs associated with the creation, acquisition, or construction of said Major Improvement Project; and such costs (i) are in compliance with the CFA Agreement; and (ii) are consistent with the Service and Assessment Plan.

4. The Developer is in compliance with the terms and provisions of the CFA Agreement, the Indenture, and the Service and Assessment Plan.

5. All conditions set forth in the Indenture for the payment hereby requested have been satisfied.

6. The work with respect to the Major Improvement Project referenced below (or its completed segment) has been completed and the Town may begin inspection of the Major Improvement Project.

Appendix F-26

7. The Developer agrees to cooperate with the Town in conducting its review of the requested payment, and agrees to provide additional information and documentation as is reasonably necessary for the Town to complete said review.

Payments requested are as follows:

a. X amount to Person or Account Y for Z goods or services.

b. Etc.

As required by Section 6.5(d) of the Indenture, the costs for the Major Improvement Project shall be paid as follows:

Major Improvement:

Amount to be paid from the Phases #2 -5 Major Improvement Account of the Phases #2 -5 Major Improvement Project Fund

Amount to be paid from the Phase #1 Major Improvement Account of the Phase #1 Project Fund

Total Cost of Improvement

Attached hereto, are receipts, purchase orders, change orders, and similar instruments which support and validate the above requested payments.

Pursuant to the CFA Agreement and the Phase #1 Project Construction, Funding, and Acquisition Agreement, after receiving this Payment Request, the Town is authorized to inspect the Major Improvement Project (or completed segment) and confirm that said work has been completed in accordance with all applicable governmental laws, rules, and Plans.

I hereby declare that the above representations and warranties are true and correct.

VALENCIA ON THE LAKE, L.P.

By:_____________________________

Name: __________________________

Title: ___________________________

Date: ___________________________

Appendix F-27

HOU:3384108.15


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a municipal corporation of the State of Texas located in Denton County

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Transcript of a municipal corporation of the State of Texas located in Denton County