Neither the Faith and Credit Nor the Taxing Power of The

NEW ISSUE — BOOK-ENTRY-ONLY NO RATING In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, subject, however, to certain qualifications described in this Official Statement, under existing law, interest on the 2010 Bonds (i) is excludable from gross income of the owners thereof for federal income tax purposes, (ii) is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, and (iii) is not taken into account in computing adjusted current earnings, which is used as an adjustment in determining the federal alternative minimum tax for certain corporations. In addition, in the opinion of Bond Counsel, interest on the 2010 Bonds is exempt from personal income taxation imposed by the State of California. See “TAX MATTERS” herein. $12,670,000 TEJON RANCH PUBLIC FACILITIES FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 2008-1 (TEJON INDUSTRIAL COMPLEX PUBLIC IMPROVEMENTS — EAST) SPECIAL TAX BONDS, SERIES 2010-A

Dated: Date of Delivery Due: September 1, as shown on inside cover page The $12,670,000 Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements — East) Special Tax Bonds, Series 2010-A (the “2010 Bonds”) are being issued by the Tejon Ranch Public Facilities Financing Authority (the “Authority”) on behalf of the Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements — East) (the “District”). The Authority is a joint powers authority formed by the County of Kern (the “County”) and the Tejon-Castac Water District (the “Water District”). The District is located in an unincorporated area of the County, approximately 83 miles north of downtown Los Angeles and is adjacent to Interstate 5. The 2010 Bonds are being issued to provide financing for various public improvements in connection with the development of property located within the District, to fund a deposit to the Reserve Fund established under the Fiscal Agent Agreement described below, to fund capitalized interest on the 2010 Bonds to September 1, 2010 and to pay costs of issuance of and administrative expenses related to the 2010 Bonds. The 2010 Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections 53311 et seq. of the Government Code of the State of California), and are being issued pursuant to a Fiscal Agent Agreement, dated as of August 1, 2010 (the “Fiscal Agent Agreement”), by and between the Authority for and on behalf of the District and The Bank of New York Mellon Trust Company, N.A., as fiscal agent (the “Fiscal Agent”). The 2010 Bonds are limited obligations of the Authority and are payable solely from a pledge and lien upon certain Special Taxes Revenues (as defined herein) and from certain other funds pledged under the Fiscal Agent Agreement, all as further described herein. See “SOURCES OF PAYMENT FOR THE 2010 BONDS” herein. The 2010 Bonds are issuable in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Individual purchases may be made in principal amounts of $5,000 and integral multiples thereof and will be in book-entry form only. Purchasers of 2010 Bonds will not receive certificates representing their beneficial ownership of the 2010 Bonds but will receive credit balances on the books of their respective nominees. Interest on the 2010 Bonds will be payable on September 1, 2010 and semiannually thereafter on each March 1 and September 1. Principal of, premium, if any, and interest on the 2010 Bonds will be paid by the Fiscal Agent to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the 2010 Bonds. See “THE 2010 BONDS — Description of the 2010 Bonds” and APPENDIX H — “BOOK-ENTRY SYSTEM.” Neither the faith and credit nor the taxing power of the Authority, the County, the Water District, the State of California or any political subdivision thereof is pledged to the payment of the 2010 Bonds. Except for the Special Taxes, no other taxes are pledged to the payment of the 2010 Bonds. The 2010 Bonds are not obligations of the County or the Water District or general obligations of the Authority, but are limited obligations of the Authority issued by the Authority for the District payable solely from Special Taxes and certain amounts held under the Fiscal Agent Agreement as more fully described herein. The 2010 Bonds are subject to optional redemption, mandatory sinking fund redemption and special mandatory redemption from Special Tax prepayments prior to maturity as set forth herein. See “THE 2010 BONDS — Redemption” herein. THE PURCHASE OF THE 2010 BONDS INVOLVES CERTAIN RISKS AND THE 2010 BONDS ARE NOT SUITABLE INVESTMENTS FOR ALLTYPES OF INVESTORS. SEE THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED “SPECIAL RISK FACTORS” FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED, IN ADDITION TO THE OTHER MATTERS SET FORTH HEREIN, IN EVALUATING THE INVESTMENT QUALITY OF THE 2010 BONDS. THE 2010 BONDS ARE NOT RATED BY ANY RATING AGENCY. This cover page contains certain information for general reference only. It is not a summary of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision with respect to the 2010 Bonds. MATURITY SCHEDULE (See Inside Cover Page) The 2010 Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Quint & Thimmig LLP, San Francisco, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the Authority by its counsel, the Law Offices of Young Wooldridge, LLP, Bakersfield, California. Certain legal matters will be passed on by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel to the Authority, by Goodwin Procter LLP, Los Angeles, California, as counsel to Tejon Ranchcorp and its related entities owning land in the District, and by Nossaman LLP, Irvine, California, as counsel to the Underwriter. It is anticipated that the 2010 Bonds in book- entry form will be available for delivery to DTC in New York, New York, on or about August 10, 2010.

STONE &YOUNGBERG Dated: July 22, 2010 TEJON RANCH PUBLIC FACILITIES FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 2008-1 (TEJON INDUSTRIAL COMPLEX PUBLIC IMPROVEMENTS — EAST) SPECIAL TAX BONDS, SERIES 2010-A

MATURITY SCHEDULE

Maturity Date Principal (September 1) Amount Rate Price CUSIP† 2014 $ 5,000 4.375% 100 879083 BV4 2015 25,000 4.750 100 879083 BW2 2016 45,000 5.125 100 879083 BX0 2017 65,000 5.375 100 879083 BY8 2018 90,000 5.625 100 879083 BZ5 2019 115,000 5.875 100 879083 CA9 2020 140,000 6.000 100 879083 CB7

$1,195,000 6.625% Term Bonds due September 1, 2025 Price: 100 CUSIP No.† 879083 CG6 $2,310,000 7.125% Term Bonds due September 1, 2030 Price: 100 CUSIP No.† 879083 CH4 $8,680,000 7.375% Term Bonds due September 1, 2040 Price: 100 CUSIP No.† 879083 CJ0

† Copyright 2010, American Bankers Association. CUSIP data herein is provided by Standard and Poor’s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. Neither the Authority, the District nor the Underwriter make any representations as to the accuracy of CUSIP data herein.

TEJON RANCH PUBLIC FACILITIES FINANCING AUTHORITY COUNTY OF KERN STATE OF CALIFORNIA

BOARD OF DIRECTORS OF THE AUTHORITY Jeff Frapwell, Chairman Brent Dezember Charles Lackey Don Maben Joe Drew

AUTHORITY OFFICERS Brent Dezember, Executive Director Allen E. Lyda, Treasurer Ernest Conant, Secretary

BOND COUNSEL

Quint & Thimmig LLP San Francisco, California

SPECIAL TAX ADMINISTRATOR DISCLOSURE COUNSEL

David Taussig & Associates, Inc. Stradling Yocca Carlson & Rauth Newport Beach, California a Professional Corporation Newport Beach, California

AUTHORITY COUNSEL REAL ESTATE APPRAISER

Law Offices of Young Wooldridge, LLP Bruce W. Hull & Associates, Inc. Bakersfield, California Ventura, California

FISCAL AGENT

The Bank of New York Mellon Trust Company, N.A. Los Angeles, California

No dealer, broker, salesperson or other person has been authorized by the Authority, the District, the Fiscal Agent or the Underwriter to give any information or to make any representations in connection with the offer or sale of the 2010 Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the Authority, the District, the Fiscal Agent or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the 2010 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers or Owners of the 2010 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with a nationally recognized municipal securities depository.

The Underwriter has provided the following sentence for inclusion in this Official Statement:

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

The information set forth herein which has been obtained by the Authority from third party sources is believed to be reliable but is not guaranteed as to accuracy or completeness by the Authority, the District or the Fiscal Agent. In accordance with its responsibilities under the federal securities laws, the Underwriter has reviewed the information in this Official Statement but does not guarantee its accuracy or completeness. 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 Authority or the District, the landowners within the District or any other parties described herein since the date hereof. All summaries of the Fiscal Agent Agreement or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Authority for further information in connection therewith.

Certain of the taxpayers within the District maintain internet websites that contain certain information regarding such taxpayers. Information contained therein is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2010 Bonds.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget” or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption “THE COMMUNITY FACILITIES DISTRICT,” “THE DEVELOPMENT AND PROPERTY OWNERSHIP” and APPENDIX B.

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENT SET FORTH IN THIS OFFICIAL STATEMENT.

IN CONNECTION WITH THE OFFERING OF THE 2010 BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH 2010 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

THE 2010 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE 2010 BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

Table of Contents

Page INTRODUCTION ...... 1 Changes to Preliminary Official Statement ...... 1 Forward Looking Statements ...... 2 The District ...... 2 Sources ofPay1nent for the Bonds ...... 3 Description of the 2010 Bonds ...... 4 Tax Matters ...... 5 Professionals Involved in the Offering ...... 5 Relationship of Certain District Board Members to Landowners ...... 5 Continuing Disclosure ...... 5 Bond Owners' Risks ...... 6 Other Infonnation ...... 6 THE FINANCING PLAN ...... 6 ESTIMATED SOURCES AND USES OF FUNDS ...... 7 THE 2010 BONDS ...... 7 Authority for Issuance ...... 7 Description of the 2010 Bonds ...... 7 Rede1nption ...... 8 Selection of 2010 Bonds for Redemption ...... 10 Notice ofRede1nption ...... 10 Effect ofRedemption ...... 11 Transfer and Exchange of 2010 Bonds ...... 11 Debt Service Schedule for the 2010 Bonds ...... 12 Estilnated Debt Service Coverage ...... 12 SOURCES OF PAYMENT FOR THE 2010 BONDS ...... 14 Limited Obligations ...... 14 Special Taxes ...... 14 Reserve Fund and Letter of Credit ...... 18 Issuance of Parity Bonds ...... 20 THE COMMUNITY FACILITIES DISTRICT ...... 22 General Description of the District ...... 22 Description of Authorized Facilities ...... 22 Principal Taxpayers ...... 24 Direct and Overlapping Debt ...... 25 Estimated Value-to-Lien Ratios Based on Appraised Values ...... 26 Assessed Value-to-Lien Ratios ...... 26 THE DEVELOPMENT AND PROPERTY OWNERSHIP ...... 30 Tejon Industrial Cotnplex ...... 30 Tejon Industrial Complex- Market Overview ...... 31 The Landowners ...... 3 2 General Description of TIC-East Development ...... 34 Land Use Approvals ...... 34 Amended Mitigation Measure Monitoring Program ...... 36 The Development Agreetnent ...... 37 Future Approvals and Challenges; No Assurances ...... 38 Estimated Sources and Uses of Funds and Projected Cash Flow ...... 38 Appraisal ...... 41 SPECIAL RISK FACTORS ...... 42 Concentration of Ownership ...... 42 Table of Contents (continued) Page

Competition ...... 43 Limited Obligations ...... 43 Insufficiency of Special Taxes; Release of Zone 2 Property ...... 43 Failure to Develop Properties ...... 44 Possible Release or Reduction of Letter of Credit ...... 46 Endangered Species ...... 46 Natural and Manmade Disasters ...... 46 Hazardous Substances ...... 47 Parity Taxes, Special Assessments and Land Development Costs ...... 47 Disclosures to Future Purchasers ...... 48 Special Tax Delinquencies ...... 48 Non-Cash Payments of Special Taxes ...... 49 Payment of the Special Tax is not a Personal Obligation of the Owners ...... 49 Property Values ...... 49 FDIC/Federal Government Interests in Properties ...... 50 Bankruptcy and Foreclosure ...... 51 No Acceleration Provision ...... 51 Loss of Tax Exemption ...... 52 Limitations on Remedies ...... 52 Limited Secondary Market ...... 52 Proceedings to Reduce or Terminate the Special Tax ...... 52 Ballot Initiatives ...... 53 CONTINUING DISCLOSURE ...... 54 TAX MATTERS...... 55 LEGAL MATTERS ...... 56 ABSENCE OF LITIGATION ...... 57 NO RATING ...... 57 UNDERWRITING ...... 57 FINANCIAL INTERESTS ...... 57 PENDING LEGISLATION ...... 57 ADDITIONAL INFORMATION ...... 58

APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES ...... A-1 APPENDIX B APPRAISAL REPORT ...... B-1 APPENDIX C GENERAL INFORMATION CONCERNING THE COUNTY OF KERN ...... C-1 APPENDIX D SUMMARY OF FISCAL AGENT AGREEMENT ...... D-1 APPENDIX E CONTINUING DISCLOSURE AGREEMENT OF THE AUTHORITY ...... E-1 APPENDIX F CONTINUING DISCLOSURE AGREEMENT OF TEJON RANCHCORP...... F-1 APPENDIX G FORM OF OPINION OF BOND COUNSEL ...... G-1 APPENDIX H BOOK-ENTRY SYSTEM ...... H-1

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LOCATION MAP

$12,670,000 TEJON RANCH PUBLIC FACILITIES FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 2008-1 (TEJON INDUSTRIAL COMPLEX PUBLIC IMPROVEMENTS — EAST) SPECIAL TAX BONDS, SERIES 2010-A

INTRODUCTION

The purpose of this Official Statement, which includes the cover page, the table of contents and the attached appendices (collectively, the “Official Statement”), is to provide certain information concerning the issuance by the Tejon Ranch Public Facilities Financing Authority (the “Authority”) of the $12,670,000 Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements — East) Special Tax Bonds, Series 2010-A (the “2010 Bonds”). All capitalized terms used in this Official Statement and not defined herein shall have the meanings set forth in APPENDIX D—“SUMMARY OF FISCAL AGENT AGREEMENT.”

This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in this entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The sale and delivery of 2010 Bonds to potential investors is made only by means of the entire Official Statement.

The Authority is a joint powers authority formed by the County of Kern (the “County”) and the Tejon- Castac Water District (the “Water District”). The proceeds of the 2010 Bonds will be used to provide financing for various public improvements which have been installed with respect to the proposed development within Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements — East) (the “District”), to fund a deposit to the Reserve Fund securing the Bonds (as defined below), to fund capitalized interest on the 2010 Bonds to September 1, 2010 and to pay costs of issuance of and administrative expenses related to the 2010 Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS.”

The 2010 Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections 53311 et seq. of the Government Code of the State of California) (the “Act”), and are being issued pursuant to a Fiscal Agent Agreement, dated as of August 1, 2010 (the “Fiscal Agent Agreement”), by and between the Authority for and on behalf of the District and The Bank of New York Mellon Trust Company, N.A., as fiscal agent (the “Fiscal Agent”). The 2010 Bonds and any Parity Bonds (as defined herein) issued in the future (together with the 2010 Bonds, the “Bonds”) will be secured on a parity under the Fiscal Agent Agreement by a pledge of and lien upon Special Tax Revenues (as defined therein) and all moneys on deposit in the Bond Fund and the Reserve Fund as and to the extent described herein. See “SOURCES OF PAYMENT FOR THE 2010 BONDS.”

Changes to Preliminary Official Statement

Certain of the information herein has been changed since the date of the Preliminary Official Statement to include:

(a) the addition of pricing information for the 2010 Bonds and the Fiscal Year 2010-11 assessed property values for the District which has resulted in changes to the Debt Service Coverage Table on Page 12 and Tables 2, 4, 5 and 6;

(b) changes to reflect that proceeds of a draw on the Letter of Credit (defined herein) will be used only to pay debt service on the 2010 Bonds and not any Parity Bonds, and that no Letter of Credit will be

required as a condition to issuing Parity Bonds. See “SOURCES OF PAYMENT FOR THE 2010 BONDS— Reserve Fund and Letter of Credit” and “APPENDIX D—“SUMMARY OF FISCAL AGENT AGREEMENT;”

(c) additional information discussing existing conditions affecting the marketing of property in the District and additional discussion regarding a hypothetical condition in the Appraisal. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP—Tejon Industrial Complex—Market Overview” and “— The Appraisal;” and

(d) a revision to the Continuing Disclosure Agreement of Tejon Ranchcorp to require additional information in the Landowner’s Annual Report regarding leasing activity in buildings owned by the Landowner and its affiliates. See APPENDIX F—“CONTINUING DISCLOSURE AGREEMENT OF TEJON RANCHCORP.”

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 United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as a “plan,” “expect,” “estimate,” “project,” “budget” or similar words. Such forward- looking statements include, but are not limited to certain statements contained in the information under the caption “THE COMMUNITY FACILITIES DISTRICT,” “THE DEVELOPMENT AND PROPERTY OWNERSHIP” and APPENDIX B—“APPRAISAL REPORT.”

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. NEITHER THE DISTRICT NOR THE AUTHORITY PLANS TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.

The District

Development Status. The District is located in the southern end of the San Joaquin Valley in an unincorporated area of the County. The District is located near the intersection of Interstate 5 and State Highway 99 approximately 25 miles south of the City of Bakersfield and 83 miles north of downtown Los Angeles. Interstate 5 borders the western part of the District. The District consists of approximately 1,931 total acres of which approximately 65 acres are developed and approximately 962 acres are planned for future development into commercial, retail and industrial uses. Approximately 904 of the acres are zoned for agricultural uses and as described herein are expected to be released from any obligation to pay Special Taxes pledged to repay the Bonds. See “—Special Taxes” below.

Formation Process. The District was formed on April 30, 2008 pursuant to the Act and the 2010 Bonds are being issued pursuant to the Act. The Act was enacted by the California legislature to provide an alternative method of financing certain public capital facilities and services, especially in developing areas of the State. Any local agency (as defined in the Act) may establish a community facilities district to provide for and finance the cost of eligible public facilities and services. Generally, the legislative body of the local agency which forms a community facilities district acts on behalf of such district as its legislative body. Subject to approval by two-thirds of the votes cast at an election and compliance with the other provisions of

the Act, a legislative body of a local agency may issue bonds for a community facilities district and may levy and collect a special tax within such district to repay such indebtedness.

Pursuant to the Act, on March 28, 2008, the Board of Directors adopted the necessary resolutions stating its intent to establish the District, to authorize the levy of Special Taxes on taxable property within the boundaries of the District, and to have the District incur bonded indebtedness. On April 30, 2008, following a public hearing conducted pursuant to the provisions of the Act, the Board of Directors adopted resolutions establishing the District and calling a special election to submit the levy of the Special Taxes and the incurring of bonded indebtedness to the qualified voters of the District. Also, on April 30, 2008, at an election held pursuant to the Act, the two landowners who comprised the qualified voters of the District authorized the District to incur bonded indebtedness in the aggregate principal amount of $120,000,000 and approved a rate and method of apportionment of the Special Taxes for the District. The rate and method of apportionment of the Special Taxes for the District is set forth in Appendix A hereto (the “Rate and Method”).

Special Taxes. The Rate and Method classifies property into Zone 1 and Zone 2. Zone 1 includes approximately 1,027 acres, consisting of the approximately 65 acres of property within the District that is currently developed and approximately 962 acres planned for development. Up to 175 acres of Zone 1 categorized as Public Property, Open Space Property, and a Property Owner Association Property will be exempt from the Special Tax. Zone 2 includes approximately 904 acres of undeveloped land, which is used primarily for agricultural purposes. So long as Zone 2 property remains undeveloped, it will be taxed only if additional monies are needed after the Special Tax has been levied at the maximum rates on the Zone 1 property. Although Zone 2 property is subject to the Special Tax, the District does not expect to levy any Special Tax on Zone 2 property for the repayment of the Bonds. The District expects that Zone 2 property will be released from its obligation to pay Special Taxes in the future upon satisfaction of the release conditions set forth in the Rate and Method. The District does not give any assurance as to whether or when Zone 2 property will be released from its obligation to pay Special Taxes. See “SOURCES OF PAYMENT FOR THE 2010 BONDS—Special Taxes—Rate and Method of Apportionment of Special Taxes” and Section I of APPENDIX A—“RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES.”

Appraisal. An appraisal (the “Appraisal”) of certain land and improvements within the District (the “Appraised Property”) was prepared by Bruce W. Hull and Associates (the “Appraiser”), with a date of value of June 14, 2010. The Appraisal provides an estimate of the market value of the fee simple interest of the Appraised Property subject to the lien of the Special Tax and based on certain assumptions and limiting conditions contained in the Appraisal. Based upon the assumptions and limiting conditions set forth in the Appraisal and the current development plan being undertaken by District landowners, the Appraiser is of the opinion that the market value of the Appraised Property in the District as of June 14, 2010 was $50,680,000. The $50,680,000 total value reported in the Appraisal results in an estimated appraised value-to-lien ratio of 4.00 to 1 for the District as a whole. Of the total value reported in the Appraisal, $43,794,000 is for the Zone 1 property and $6,886,000 for the Zone 2 property (which Zone 2 property is subject to release from the Special Tax lien, as noted under the subheading “Special Taxes” above). The Zone 1 property has an estimated appraised value-to-lien ratio of 3.46 to 1. Some of the parcels in the District have appraised value-to-lien ratios of less than 3 to 1. See “THE COMMUNITY FACILITIES DISTRICT—Estimated Value-to-Lien Ratios Based on Appraised Values” herein. There is no assurance that the property within the District can be sold for the appraised value or for a price sufficient to pay delinquent Special Taxes in the event of a default in payment of Special Taxes by the current or future landowners within the District. See “SPECIAL RISK FACTORS—Property Values” herein and APPENDIX B—“APPRAISAL REPORT.”

Sources of Payment for the Bonds

As used in this Official Statement, the term “Special Tax” is that tax which has been authorized pursuant to the Act to be levied against certain land within the District pursuant to the Act and in accordance with the Rate and Method. See APPENDIX A—“RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES.” Under the Fiscal Agent Agreement, the Authority has pledged to repay the Bonds from

the Special Tax Revenues and amounts on deposit in the Bond Fund and the Reserve Fund established under the Fiscal Agent Agreement; provided, however, that any Letter of Credit and any amounts in the Letter of Credit Account within the Reserve Fund shall be pledged and held by the Fiscal Agent solely for the benefit of the 2010 Bonds. Special Tax Revenues are defined in the Fiscal Agent Agreement to include the proceeds of the Special Taxes received by the Authority, including any scheduled payments and prepayments thereof, interest thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon; provided that amounts collected in respect to delinquent Special Taxes shall not be Special Tax Revenues to the extent, and only to the extent, of any proceeds of a draw on a Letter of Credit under the Fiscal Agent Agreement (which amounts shall be repaid to the Letter of Credit provider). “Special Tax Revenues” does not include, in any event, any penalties collected in connection with delinquent Special Taxes.

The Special Taxes are the primary security for the repayment of the Bonds. In the event that the Special Taxes are not paid when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in certain funds under the Fiscal Agent Agreement, including amounts held in the Reserve Fund. The Authority has covenanted for the benefit of the owners of the Bonds that it will commence, or cause to be commenced, within 60 days after the Treasurer of the Authority becomes aware of a delinquency, and diligently prosecute to judgment (unless the delinquency is brought current), judicial foreclosure proceedings against Assessor’s parcels with delinquent Special Taxes. See “SOURCES OF PAYMENT FOR THE BONDS—Proceeds of Foreclosure Sales” herein.

NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE WATER DISTRICT, THE COUNTY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2010 BONDS. EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE 2010 BONDS. THE BONDS ARE NOT OBLIGATIONS OF THE COUNTY OR THE WATER DISTRICT OR GENERAL OBLIGATIONS OF THE AUTHORITY, BUT ARE LIMITED OBLIGATIONS OF THE AUTHORITY FOR THE DISTRICT PAYABLE SOLELY FROM SPECIAL TAXES AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN.

Description of the 2010 Bonds

The 2010 Bonds will be issued and delivered as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to actual purchasers of the 2010 Bonds (the “Beneficial Owners”) in the denominations of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the 2010 Bonds. See “BOOK-ENTRY-ONLY SYSTEM” herein.

Principal of, premium, if any, and interest on the 2010 Bonds is payable by the Fiscal Agent to DTC. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants. In the event that the book-entry- only system is no longer used with respect to the 2010 Bonds, the Beneficial Owners will become the registered owners of the 2010 Bonds and will be paid principal and interest by the Fiscal Agent, all as described herein. See “BOOK-ENTRY-ONLY SYSTEM” herein.

The 2010 Bonds are subject to optional redemption, mandatory sinking fund redemption and special mandatory redemption from Special Tax prepayments as described herein. For more complete descriptions of the 2010 Bonds and the basic documentation pursuant to which they are being sold and delivered, see “THE 2010 BONDS” herein and APPENDIX D—“SUMMARY OF FISCAL AGENT AGREEMENT.”

Tax Matters

In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, subject, however, to certain qualifications described in this Official Statement, under existing law, interest on the 2010 Bonds (i) is excludable from gross income of the owners thereof for federal income tax purposes, (ii) is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, and (iii) is not taken into account in computing adjusted current earnings, which is used as an adjustment in determining the federal alternative minimum tax for certain corporations. In addition, in the opinion of Bond Counsel, interest on the 2010 Bonds is exempt from personal income taxation imposed by the State of California. See “TAX MATTERS” herein.

Professionals Involved in the Offering

The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, is acting as Fiscal Agent under the Fiscal Agent Agreement and will act as the initial Dissemination Agent under the Continuing Disclosure Agreement of the Authority and the Continuing Disclosure Agreement of Tejon Ranchcorp (herein defined). Stone & Youngberg LLC is the underwriter of the 2010 Bonds (the “Underwriter”). The legal proceedings in connection with the issuance and delivery of the 2010 Bonds are subject to the approval of Quint & Thimmig LLP, San Francisco, California, Bond Counsel. Certain legal matters will be passed on for the Authority by its counsel, the Law Offices of Young Wooldridge, LLP, Bakersfield, California. Certain legal matters will be passed on by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel to the Authority (“Disclosure Counsel”), by Goodwin Procter LLP, Los Angeles, California, as counsel to Tejon Ranchcorp and its related entities, as landowners within the District, and by Nossaman LLP, Irvine, California, as counsel to the Underwriter. Other professional services have been performed by David Taussig & Associates, Inc., Newport Beach, California as the Special Tax Administrator for the District, and Bruce W. Hull & Associates, Inc., Ventura, California, as Appraiser.

For information concerning respects in which certain of the above-mentioned professionals, advisors, counsel and agents may have a financial or other interest in the offering of the 2010 Bonds, see “FINANCIAL INTERESTS” herein.

Relationship of Certain District Board Members to Landowners

Two members of the Board of Directors of the Authority (the “Board of Directors”) are appointed by the Water District. The election of the members of the Board of the Water District is controlled by Tejon Ranch Co. and its affiliates as landowners within the Water District. Tejon Ranch Co., which owns property within the District, also owns a controlling interest, either directly or indirectly, in the other landowners within the District. One member of the Board of Directors appointed by the Water District is an officer of Tejon Ranch Co., as is the Treasurer of the Authority. See “FINANCIAL INTERESTS” herein.

Continuing Disclosure

Each of the Authority and the Tejon Ranchcorp, one of the landowners within the District, has agreed to provide, or cause to be provided, pursuant to Rule 15c2-12 adopted by the Securities and Exchange Commission (the “Rule”) certain financial information and operating data on an annual basis and in the case of the landowner on a semiannual basis during the development period (the “Reports”). The Authority has further agreed to provide, in a timely manner, notice of certain material events (the “Listed Events”). These covenants have been made in order to assist the Underwriter in complying with the Rule. The Reports will be filed with the Electronic Municipal Market Access System (“EMMA”) of the Municipal Securities Rulemaking Board (the “MSRB”) available on the Internet at http://emma.msrb.org. Notices of Listed Events will also be filed with the MSRB. See “CONTINUING DISCLOSURE” herein and Appendix E and Appendix F hereto for a description of the specific nature of the annual reports to be filed by the Authority and Tejon Ranchcorp and notices of Listed Events and a copy of the continuing disclosure agreements pursuant to

which such Reports are to be made. During the last five years, neither the Authority nor Tejon Ranchcorp has ever failed to comply in all material respects with its filing requirements under the Rule.

Bond Owners’ Risks

Certain events could affect the timely repayment of the principal of and interest on the 2010 Bonds when due. See the section of this Official Statement entitled “SPECIAL RISK FACTORS” for a discussion of certain factors which should be considered, in addition to other matters set forth herein, in evaluating an investment in the 2010 Bonds. The 2010 Bonds are not rated by any nationally recognized rating agency. The purchase of the 2010 Bonds involves risks, and the 2010 Bonds are not suitable investments for some types of investors. See “SPECIAL RISK FACTORS” herein.

Other Information

This Official Statement speaks only as of its date, and the information contained herein is subject to change.

Brief descriptions of the 2010 Bonds and the Fiscal Agent Agreement are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Fiscal Agent Agreement, the 2010 Bonds and the constitution and laws of the State as well as the proceedings of the Board of Directors of the Authority, acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the 2010 Bonds, by reference to the Fiscal Agent Agreement. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Fiscal Agent Agreement.

Copies of the Fiscal Agent Agreement, the Continuing Disclosure Agreement of the Authority and the Continuing Disclosure Agreement of Tejon Ranchcorp and other documents and information referred to herein are available for inspection and (upon request and payment to the Authority of a charge for copying, mailing and handling) for delivery from the Authority c/o Tejon Ranch Co., 4436 Lebec Road, Lebec, California 93243, Attention: Secretary.

THE FINANCING PLAN

The proceeds of the 2010 Bonds will be used to provide financing for various public improvements which have been installed with respect to the existing and proposed development within the District, to fund a deposit to the Reserve Fund in an amount equal to the Reserve Requirement, to fund capitalized interest on the 2010 Bonds to September 1, 2010 and to pay costs of issuance of and administrative expenses related to the 2010 Bonds.

ESTIMATED SOURCES AND USES OF FUNDS

The following table sets forth the expected uses of 2010 Bond proceeds:

Sources of Funds Principal Amount of 2010 Bonds $ 12,670,000 TOTAL SOURCES $ 12,670,000

Uses of Funds Improvement Fund 10,860,101 Reserve Fund $ 1,260,150 Capitalized Interest Account 53,161 Cost of Issuance Fund(1) 270,500 Administrative Expense Fund 20,000 Underwriter’s Discount 206,088 TOTAL USES $ 12,670,000

(1) To be used to pay legal fees, printing costs, Fiscal Agent fees and other costs of issuance of the 2010 Bonds.

THE 2010 BONDS

Authority for Issuance

The 2010 Bonds are being issued by the Authority for the District in the aggregate principal amount of $12,670,000 under and subject to the terms of the Fiscal Agent Agreement, the Act and other applicable laws of the State of California. The District is authorized to issue up to an additional $107,330,000 of Parity Bonds to finance additional public improvements upon satisfaction of the terms set forth in the Fiscal Agent Agreement. See “SOURCES OF PAYMENT FOR THE 2010 BONDS.”

Description of the 2010 Bonds

The 2010 Bonds are being issued as fully registered bonds without coupons in denominations of $5,000 and any integral multiple thereof (not exceeding the principal amount maturing at any one time), and shall be dated the date of delivery thereof. The 2010 Bonds will be issued in book-entry only form and DTC will act as securities depository for the 2010 Bonds. So long as the 2010 Bonds are held in book-entry only form, (i) principal of, premium, if any, and interest on the 2010 Bonds will be paid directly to DTC for distribution to the beneficial owners of the 2010 Bonds in accordance with the procedures adopted by DTC and (ii) all references in this Official Statement to the Bondowners, the Bondholders or the Owners or Holders of the 2010 Bonds shall mean DTC and not the beneficial owners of the 2010 Bonds. See “BOOK-ENTRY SYSTEM” herein. The 2010 Bonds will mature on September 1, in the principal amounts and years, and bear interest, as shown on the inside cover of this Official Statement.

Interest on the 2010 Bonds will be payable semiannually on March 1 and September 1 of each year, commencing September 1, 2010 (each, an “Interest Payment Date”) and will be computed on the basis of a 360-day year comprised of twelve 30-day months. Each 2010 Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless (i) it is authenticated on an Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is authenticated prior to an Interest Payment Date and after the close of business on the Record Date preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (iii) it is authenticated prior to the Record Date preceding the first Interest Payment Date in which event it shall bear interest from its dated date; provided, that if at the time of authentication of a 2010 Bond, interest is then in default thereon, such 2010 Bond shall bear interest from the Interest Payment Date to which interest has previously been paid

or made available for payment thereon, or from its dated date, if no interest has previously been paid or made available for payment thereon.

In the event that the book-entry system described in Appendix H is no longer used with respect to the 2010 Bonds, the principal of the 2010 Bonds will be payable upon surrender thereof at the Principal Corporate Trust Office of the Fiscal Agent. Interest on the 2010 Bonds will be payable on each Interest Payment Date to the registered owner thereof as of the close of business on the Record Date immediately preceding each Interest Payment Date, such interest to be paid by check of the Fiscal Agent, mailed by first-class mail to the registered owner at his address as it appears on the Register (or at such other address as is furnished to the Fiscal Agent in writing by the registered owner). A registered owner of $1,000,000 or more in principal amount of 2010 Bonds may be paid interest by wire transfer in immediately available funds to an account in the United States if the registered owner makes a written request of the Fiscal Agent no later than the applicable Record Date.

Redemption

Optional Redemption. The 2010 Bonds are subject to optional redemption prior to their stated maturity on any Interest Payment Date as a whole, or in part among maturities so as to maintain substantially the same debt service profile for the Bonds as in effect prior to such redemption, and by lot within a maturity, at a redemption price (expressed as a percentage of the principal amount of the 2010 Bonds to be redeemed), as set forth below, together with accrued interest to the date of redemption as follows:

Redemption Dates Redemption Price Any Interest Payment Date from March 1, 2011 to and including March 1, 2018 103% September 1, 2018 and March 1, 2019 102 September 1, 2019 and March 1, 2020 101 September 1, 2020 and any Interest Payment Date thereafter 100

Mandatory Sinking Payment Redemption. The 2010 Bonds maturing on September 1, 2025 are subject to mandatory sinking payment redemption, in part, on September 1, 2021, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, from sinking payments as follows:

Redemption Date (September 1) Sinking Payment 2021 $170,000 2022 200,000 2023 235,000 2024 275,000 2025 (maturity) 315,000

The 2010 Bonds maturing on September 1, 2030 are subject to mandatory sinking payment redemption, in part, on September 1, 2026, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, from sinking payments as follows:

Redemption Date (September 1) Sinking Payment 2026 $355,000 2027 405,000 2028 460,000 2029 515,000 2030 (maturity) 575,000

The 2010 Bonds maturing on September 1, 2040 are subject to mandatory sinking payment redemption, in part, on September 1, 2031, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, from sinking payments as follows:

Redemption Date (September 1) Sinking Payment 2031 $ 620,000 2032 665,000 2033 710,000 2034 765,000 2035 820,000 2036 880,000 2037 945,000 2038 1,015,000 2039 1,090,000 2040 (maturity) 1,170,000

The amount of 2010 Bonds to be redeemed pursuant to the foregoing tables shall be reduced to the extent practicable so as to maintain the same debt service profile as in effect on the Closing Date on the 2010 Bonds as a result of any prior partial redemption of the 2010 Bonds, as specified in writing by the Treasurer of the Authority to the Fiscal Agent.

Special Mandatory Redemption from Special Tax Prepayments. The 2010 Bonds are subject to special mandatory redemption from prepaid Special Taxes and corresponding amounts transferred from the Reserve Fund in connection with any such prepayments, on any Interest Payment Date, in whole or in part among maturities so as to maintain the same debt service profile for the Bonds as in effect prior to such redemption, and by lot within a maturity, at a redemption price (expressed as a percentage of the principal amount of the 2010 Bonds to be redeemed), as set forth below, together with accrued interest to the date fixed for redemption:

Purchase of 2010 Bonds. In lieu of payment at maturity or redemption, moneys in the Bond Fund may be used and withdrawn by the Fiscal Agent for purchase of Outstanding 2010 Bonds, upon the filing with the Fiscal Agent of an Officer’s Certificate requesting such purchase, at a public or private sale as and when, and at such prices (including brokerage and other charges) as such Officer’s Certificate may provide, but in no event will 2010 Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued to the date of purchase and any premium which would otherwise be due if the 2010 Bonds were to be redeemed in accordance with the Fiscal Agent Agreement.

Selection of 2010 Bonds for Redemption

Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the 2010 Bonds or any given portion thereof, the Fiscal Agent shall select the 2010 Bonds to be redeemed, from all 2010 Bonds or such given portion thereof not previously called for redemption among maturities as directed in writing by the Treasurer (who shall specify 2010 Bonds to be redeemed so as to maintain, as much as practicable, the same debt service profile for the Bonds as in effect prior to such redemption, unless otherwise specified herein), and by lot within a maturity in any manner which the Fiscal Agent in its sole discretion shall deem appropriate.

Notice of Redemption

So long as the 2010 Bonds are held in book-entry form, redemption notices will be sent only to Cede & Co. as the registered owner of the 2010 Bonds and not to the owner of any beneficial interest in the 2010 Bonds. See APPENDIX H—“THE BOOK-ENTRY SYSTEM.”

The Fiscal Agent Agreement requires the Fiscal Agent to cause notice of any redemption to be mailed by first class mail, postage prepaid, at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption, to the Underwriter, the Securities Depositories, one or more Information Services, and to the respective registered Owners of any 2010 Bonds designated for redemption, at their addresses appearing on the 2010 Bond registration books maintained by the Fiscal Agent at its Principal Office. Such mailing will not be a condition precedent to such redemption and failure to mail or to receive any such notice, or any defect therein, will not affect the validity of the proceedings for the redemption of such 2010 Bonds.

Such notice will state the redemption date, the redemption price and, if less than all of the then Outstanding 2010 Bonds are to be called for redemption, will designate the CUSIP numbers and the bond numbers of the 2010 Bonds to be redeemed, or will state that all 2010 Bonds between two stated 2010 Bond numbers, both inclusive, are to be redeemed or that all of the 2010 Bonds of one or more maturities have been called for redemption, will state as to any 2010 Bond called for redemption in part the portion of the principal of the 2010 Bond to be redeemed, will require that such 2010 Bonds be then surrendered at the Principal

Office of the Fiscal Agent for redemption at the said redemption price, and will state that further interest on such 2010 Bonds will not accrue from and after the redemption date.

Notwithstanding the foregoing, in the case of any optional redemption of the 2010 Bonds, the notice of redemption shall state that the redemption is conditioned upon receipt by the Fiscal Agent of sufficient moneys to redeem the 2010 Bonds on the anticipated redemption date, and that the optional redemption shall not occur if by no later than the scheduled redemption date sufficient moneys to redeem the 2010 Bonds have not been deposited with the Fiscal Agent. In the event that the Fiscal Agent does not receive sufficient funds by the scheduled optional redemption date to so redeem the 2010 Bonds to be optionally redeemed, the Fiscal Agent shall send written notice to the owners of the 2010 Bonds called for redemption, to the Securities Depositories and to one or more of the Information Services to the effect that the redemption did not occur as anticipated, and the 2010 Bonds for which notice of optional redemption was given shall remain Outstanding for all purposes of the Fiscal Agent Agreement.

Upon the payment of the redemption price of 2010 Bonds being redeemed, each check or other transfer of funds issued for such purpose shall, to the extent practicable, bear the CUSIP number identifying, by issue and maturity, of the 2010 Bonds being redeemed with the proceeds of such check or other transfer.

Upon surrender of 2010 Bonds redeemed in part only, the Authority will execute and the Fiscal Agent will authenticate and deliver to the Owner, at the expense of the District, a new 2010 Bond or 2010 Bonds, of the same maturity, of authorized denominations in an aggregate principal amount equal to the unredeemed portion of the 2010 Bond or 2010 Bonds.

Effect of Redemption

From and after the date fixed for redemption, if funds available for the payment of the redemption price of the 2010 Bonds called for redemption have been deposited in the Bond Fund, such 2010 Bonds will cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and interest will cease to accrue on the 2010 Bonds to be redeemed on the redemption date specified in the notice of redemption. All 2010 Bonds redeemed and purchased by the Fiscal Agent pursuant to the foregoing will be canceled by the Fiscal Agent. The Fiscal Agent will destroy the canceled 2010 Bonds and issue a certificate of destruction thereof to the Authority.

Transfer and Exchange of 2010 Bonds

Any 2010 Bond may, in accordance with its terms, be transferred upon the books required to be kept pursuant to the provisions of the Fiscal Agent Agreement, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such 2010 Bond for cancellation at the Principal Office of the Fiscal Agent, accompanied by delivery of a duly executed written instrument of transfer in a form acceptable to the Fiscal Agent. The cost for any services rendered or any expenses incurred by the Fiscal Agent in connection with any such transfer shall be paid by the District. The Fiscal Agent will collect from the Owner requesting transfer of a 2010 Bond any tax or other governmental charge required to be paid with respect to such transfer.

Whenever any 2010 Bond or 2010 Bonds are surrendered for transfer, the Authority will execute and the Fiscal Agent will authenticate and deliver a new 2010 Bond or 2010 Bonds of like aggregate principal amount.

2010 Bonds may be exchanged at the Principal Office of the Fiscal Agent only for a like aggregate principal amount of 2010 Bonds of authorized denominations and of the same maturity and interest rate. The cost for any services rendered or any expense incurred by the Fiscal Agent in connection with any such exchange will be paid by the District. The Fiscal Agent will collect from the Owner requesting exchange of a 2010 Bond any tax or other governmental charge required to be paid with respect to such exchange.

No transfers or exchanges of 2010 Bonds will be required to be made (i) during the fifteen (15) days preceding the date established by the Fiscal Agent for selection of 2010 Bonds for redemption, (ii) with respect to 2010 Bonds which have been selected for redemption, or (iii) between a Record Date and the succeeding Interest Payment Date.

Debt Service Schedule for the 2010 Bonds

The following is the debt service schedule for the 2010 Bonds, assuming that there is no optional or special mandatory redemption of 2010 Bonds:

Period Ending 2010 Bonds 2010 Bonds Total Principal Interest Debt Service 2010 $ 53,160.99 $ 53,160.99 2011 911,331.26 911,331.26 2012 911,331.26 911,331.26 2013 911,331.26 911,331.26 2014 $ 5,000 911,331.26 916,331.26 2015 25,000 911,112.50 936,112.50 2016 45,000 909,925.00 954,925.00 2017 65,000 907,618.76 972,618.76 2018 90,000 904,125.00 994,125.00 2019 115,000 899,062.50 1,014,062.50 2020 140,000 892,306.26 1,032,306.26 2021 170,000 883,906.26 1,053,906.26 2022 200,000 872,643.76 1,072,643.76 2023 235,000 859,393.76 1,094,393.76 2024 275,000 843,825.00 1,118,825.00 2025 315,000 825,606.26 1,140,606.26 2026 355,000 804,737.50 1,159,737.50 2027 405,000 779,443.76 1,184,443.76 2028 460,000 750,587.50 1,210,587.50 2029 515,000 717,812.50 1,232,812.50 2030 575,000 681,118.76 1,256,118.76 2031 620,000 640,150.00 1,260,150.00 2032 665,000 594,425.00 1,259,425.00 2033 710,000 545,381.26 1,255,381.26 2034 765,000 493,018.76 1,258,018.76 2035 820,000 436,600.00 1,256,600.00 2036 880,000 376,125.00 1,256,125.00 2037 945,000 311,225.00 1,256,225.00 2038 1,015,000 241,531.26 1,256,531.26 2039 1,090,000 166,675.00 1,256,675.00 2040 1,170,000 86,287.50 1,256,287.50 TOTAL $ 12,670,000 $ 21,033,129.89 $ 33,703,129.89

Source: Stone & Youngberg LLC.

Estimated Debt Service Coverage

The table below sets forth the current debt service coverage on the 2010 Bonds in each bond year that the 2010 Bonds will be outstanding (other than the first bond year ending on September 1, 2010, where interest is being paid from capitalized interest). Debt service coverage has been computed using the Assigned Special Taxes that may be levied on Developed Property (as defined in the Rate and Method) and the actual levy on

Undeveloped Property (as defined in the Rate and Method) for Fiscal Year 2010-11 and, thereafter, the Maximum Special Taxes that may be levied on Undeveloped Property in Zone 1, based on the development status of the land within the District as of June 14, 2010. As further development occurs in the District, and as Parity Bonds are issued, the debt service coverage from all taxable property will decline from the levels set forth in this table and no assurance can be given as to the exact level of coverage in the future. It is expected, however, that the coverage from Maximum Special Taxes in Zone 1 will not be less than 110% of debt service in each future bond year. For the bond years ending September 1, 2012 and thereafter, this table shows what the coverage would be assuming that Special Taxes are levied on Undeveloped Property in Zone 1 at the maximum rate. These amounts will not actually be levied and collected. The Special Tax levy on Undeveloped Property will be only that amount which when added to the Special Taxes levied on Developed Property will be sufficient to pay the principal of and interest on the Bonds and administrative expenses of the District.

DEBT SERVICE COVERAGE BASED ON EXISTING DEVELOPMENT STATUS

Developed Undeveloped Property Property Coverage Special Tax Special Tax Gross Special Annual 2010 from Coverage Period Ending Revenues in Revenues in Tax Revenues Administrative Bonds Debt Developed from all (September 1) Zone 1(1) Zone 1(2) in Zone 1 Expenses(3) Service(4) Property(5) Property(6)(7) 2011 $165,189 $ 771,148 $ 936,337 $25,006 $ 911,331 15.38% 100.00% 2012 168,493 6,990,837 7,159,330 25,506 911,331 15.69 782.79 2013 171,863 7,130,654 7,302,516 26,016 911,331 16.00 798.45 2014 175,300 7,273,267 7,448,567 26,536 916,331 16.23 809.97 2015 178,806 7,418,732 7,597,538 27,067 936,113 16.21 808.71 2016 182,382 7,567,107 7,749,489 27,608 954,925 16.21 808.64 2017 186,030 7,718,449 7,904,479 28,161 972,619 16.23 809.81 2018 189,750 7,872,818 8,062,568 28,724 994,125 16.20 808.13 2019 193,545 8,030,274 8,223,820 29,298 1,014,063 16.20 808.09 2020 197,416 8,190,880 8,388,296 29,884 1,032,306 16.23 809.68 2021 201,365 8,354,697 8,556,062 30,482 1,053,906 16.21 808.95 2022 205,392 8,521,791 8,727,183 31,092 1,072,644 16.25 810.72 2023 209,500 8,692,227 8,901,727 31,713 1,094,394 16.25 810.50 2024 213,690 8,866,072 9,079,761 32,348 1,118,825 16.21 808.65 2025 217,963 9,043,393 9,261,357 32,995 1,140,606 16.22 809.08 2026 222,323 9,224,261 9,446,584 33,655 1,159,738 16.27 811.64 2027 226,769 9,408,746 9,635,515 34,328 1,184,444 16.25 810.61 2028 231,305 9,596,921 9,828,226 35,014 1,210,588 16.21 808.96 2029 235,931 9,788,860 10,024,790 35,714 1,232,813 16.24 810.27 2030 240,649 9,984,637 10,225,286 36,429 1,256,119 16.26 811.14 2031 245,462 10,184,329 10,429,792 37,157 1,260,150 16.53 824.71 2032 250,371 10,388,016 10,638,388 37,900 1,259,425 16.87 841.69 2033 255,379 10,595,776 10,851,155 38,658 1,255,381 17.26 861.29 2034 260,486 10,807,692 11,068,178 39,432 1,258,019 17.57 876.68 2035 265,696 11,023,846 11,289,542 40,220 1,256,600 17.94 895.22 2036 271,010 11,244,323 11,515,333 41,025 1,256,125 18.31 913.47 2037 276,430 11,469,209 11,745,639 41,845 1,256,225 18.67 931.66 2038 281,959 11,698,593 11,980,552 42,682 1,256,531 19.04 950.07 2039 287,598 11,932,565 12,220,163 43,536 1,256,675 19.42 968.96 2040 293,350 12,171,216 12,464,567 44,406 1,256,288 19.82 988.64

(1) Special Tax revenues from Developed Property for bond year ending September 1, 2011 based on the Fiscal Year 2010-11 Special Tax levy and thereafter are based on the Assigned Special Tax revenues from property classified as Developed Property as of June 14, 2010. Special Taxes for all subsequent years are escalated annually at 2% and assume no further development within the District. (2) Special Tax revenues from Undeveloped Property for bond year ending September 1, 2011 based on the Fiscal Year 2010-11 Special Tax levy and thereafter are based on the Maximum Special Tax revenues from 962.68 acres of property classified as Undeveloped Property as of June 14, 2010. Special Taxes for all subsequent years are escalated annually at 2%, and assume no further development within the District. (3) Based on the administrative expenses of $25,006 for Fiscal Year 2010-11 and escalated annually by 2% for each subsequent Fiscal Year thereafter. (4) Based on debt service for the 2010 Bonds, taking into account capitalized interest on the 2010 Bonds through September 1, 2010, as provided by the Underwriter. (5) Based on Special Taxes on Developed Property less annual administrative expenses divided by the 2010 Bonds Debt Service column. (6) Based on Special Taxes on Developed Property and on Undeveloped Property less annual administrative expenses divided by the 2010 Bonds Debt Service column. (7) Capitalized interest will be available to pay interest due on the 2010 Bonds for the bond year ending September 1, 2010. Source: David Taussig & Associates, Inc.

In addition to the Special Taxes that may be levied on parcels within Zone 1, unless and until released from the levy of the Special Tax as described in the Rate and Method, additional Special Taxes may be levied on parcels within Zone 2 if needed to pay debt service on the Bonds. See “SOURCES OF PAYMENT FOR THE BONDS—Special Taxes.”

SOURCES OF PAYMENT FOR THE 2010 BONDS

Limited Obligations

The 2010 Bonds are special, limited obligations of the District payable only from amounts pledged under the Fiscal Agent Agreement.

The Special Tax Revenues are the primary security for the repayment of the Bonds. Under the Fiscal Agent Agreement, the Authority has pledged to repay the 2010 Bonds and any Parity Bonds issued in the future from the Special Tax Revenues and amounts held in the Bond Fund and the Reserve Fund; provided, however, that any Letter of Credit and any amounts in the Letter of Credit Account within the Reserve Fund shall be pledged and held by the Fiscal Agent solely for the benefit of the 2010 Bonds. Special Tax Revenues are defined in the Fiscal Agent Agreement to include the proceeds of the Special Taxes received by the Authority, including any scheduled payments and prepayments thereof, interest thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon; provided that amounts collected in respect of delinquent Special Taxes shall not be Special Tax Revenues to the extent, and only to the extent, of any proceeds of a draw on a Letter of Credit under the Fiscal Agent Agreement (which amounts shall be repaid to the Letter of Credit provider). Special Tax Revenues do not include, in any event, any penalties collected in connection with delinquent Special Taxes.

In the event that the Special Tax Revenues are not paid when due, the only sources of funds available to pay the debt service on the 2010 Bonds and any other Parity Bonds issued in the future are amounts held by the Fiscal Agent, including amounts held in the Reserve Fund, for the exclusive benefit of the Owners of the 2010 Bonds and any other Parity Bonds, under the Fiscal Agent Agreement.

NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE WATER DISTRICT, THE COUNTY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2010 BONDS. EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE 2010 BONDS. THE 2010 BONDS ARE NOT OBLIGATIONS OF THE COUNTY OR THE WATER DISTRICT OR GENERAL OBLIGATIONS OF THE AUTHORITY BUT ARE LIMITED OBLIGATIONS OF THE AUTHORITY FOR THE DISTRICT PAYABLE SOLELY FROM THE SPECIAL TAXES AND OTHER AMOUNTS PLEDGED UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN.

Special Taxes

General. In accordance with the provisions of the Act, the Board of Directors established the District on April 30, 2008 for the purpose of financing the acquisition, construction and installation of various public improvements. At a special election held on April 30, 2008, the then owners of the property within the District authorized the District to incur indebtedness in an amount not to exceed $120,000,000, and approved the rate and method of apportionment of the Special Taxes to pay the principal of and interest on the bonds of the District, pay the annual Administrative Expenses of the District and pay directly for public facilities eligible to be financed by the District. The rate and method of apportionment is referred to herein as the “Rate and Method,” a copy of which is attached hereto as Appendix A. All capitalized terms used in this section shall have the meanings set forth in the Rate and Method.

There is no assurance that the Special Tax proceeds will, in all circumstances, be adequate to pay the principal of and interest on the 2010 Bonds and any other Parity Bonds when due. See “SPECIAL RISK FACTORS” herein for a discussion of various factors that could affect the timely receipt of Special Taxes.

The Authority has covenanted in the Fiscal Agent Agreement that by July 15 of each year (or such later date as the County Auditor will accept the transmission of the Special Tax amounts for inclusion on the next real property tax roll) it will levy Special Taxes up to the maximum rates permitted under the Rate and Method in the amount required for the payment of principal of and interest on any Outstanding 2010 Bonds and any Parity Bonds becoming due and payable during the ensuing calendar year, including any necessary replenishment or expenditure of the Reserve Fund and the amount estimated to be sufficient to pay the Administrative Expenses during such calendar year, taking into account the balances in the Reserve Fund, the Administrative Expense Fund and the Special Tax Fund. The Special Taxes levied in any Fiscal Year may not exceed the maximum rates authorized pursuant to the Rate and Method. See APPENDIX A—“RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES.”

Rate and Method of Apportionment of Special Taxes. The Rate and Method classifies the land within the District into Zone 1 and Zone 2. Zone 1, consisting of approximately 1,027 acres, includes the existing development within the District and the property planned for development. Zone 2 includes approximately 904 acres of undeveloped land zoned for agricultural uses.

The Rate and Method provides that for each Fiscal Year all parcels in the District not otherwise exempt are to be classified as either Developed Property, Taxable Property Owner Association Property, Taxable Public Property, Taxable Open Space Property or Undeveloped Property. The Rate and Method exempts from the levy of the Special Tax up to 175 acres of property within Zone 1 which is owned by or irrevocably dedicated to a governmental agency or a property owner association or are dedicated for open space purposes. All other property within Zone 1 of the District is Taxable Property. Developed Property is all Taxable Property for which a foundation building permit for new construction was issued after January 1, 2007 and prior to May 1 of the prior fiscal year. Undeveloped Property is all Taxable Property not classified as Developed Property, Taxable Property Owner Association Property, Taxable Public Property or Taxable Open Space Property.

It is expected that the Zone 2 property will be relieved of the Special Tax levy once the Developed Property within Zone 1 is capable of generating revenues equal to or greater than 60% of the sum of the discounted maximum annual gross debt service for all Applicable Bonds, provided that certain other tests set forth in Section I of the Rate and Method are satisfied. Once released, the Zone 2 property will no longer be subject to a Special Tax levy. The release of the Zone 2 property will reduce the total amount of Special Taxes that may be collected within the District. Although Zone 2 property is subject to the Special Tax, the District does not expect to levy any Special Tax on Zone 2 property for the repayment of the Bonds. The District expects that Zone 2 property will be released from its obligation to pay Special Taxes in the future upon satisfaction of the release conditions set forth in Section I of the Rate and Method. The District does not give any assurance as to whether or when Zone 2 property will be released from its obligation to pay Special Taxes.

Under the Rate and Method, Developed Property within Zone 1 will be taxed up to the greater of the Assigned Special Tax or the Backup Special Tax and within Zone 2 at the Assigned Special Tax. The Backup Special Tax for Developed Property in Zone 1 is $6,814.62 per Acre for Fiscal Year 2010-11. The Assigned Special Tax varies by Land Use Class and for Fiscal Year 2010-11 is $5.1604 per Building Square Foot for Travel Plaza Property, $3.6414 per Building Square Foot for Commercial Property, $3.6414 per Ground Floor building Square Foot for Hotel/Motel Property and $4,985.60 per Acre for Industrial Property. On each July 1, beginning July 1, 2012, these Assigned Special Tax and the Backup Special Tax rates will increase by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year.

The Fiscal Year 2010-11 Maximum Special Tax for Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property and Taxable Open Space Property will be $7,119.46 per acre in

Zone 1 and Zone 2. On each July 1, the Maximum Special Tax on Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property and Taxable Open Space Property will increase by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year.

The Rate and Method provides that commencing with Fiscal Year 2008-09 and for each following Fiscal Year, the Board or its designee shall levy the Special Tax until the amount of Special Taxes equals the Special Tax Requirement.

The Special Tax is to be levied in each Fiscal Year as follows:

First: The Special Tax shall be levied Proportionately on each Assessor’s Parcel of Developed Property in Zone 1 and Zone 2 at up to 100% of the applicable Assigned Special Tax as needed to satisfy the Special Tax Requirement.

Second: If additional monies are needed to satisfy the Special Tax Requirement after the first step has been completed, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property in Zone 1 at up to 100% of the Maximum Special Tax for Undeveloped Property.

Third: If additional monies are needed to satisfy the Special Tax Requirement after the second step has been completed, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property in Zone 2 at up to 100% of the Maximum Special Tax for Undeveloped Property.

Fourth: If additional monies are needed to satisfy the Special Tax Requirement after the first three steps have been completed, then the levy of the Special Tax on each Assessor’s Parcel of Developed Property in either Zone 1 whose Maximum Special Tax is determined through the application of the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to the Maximum Special Tax for each such Assessor’s Parcel.

Fifth: If additional monies are needed to satisfy the Special Tax Requirement after the first four steps have been completed, then the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Taxable Property Owner Association Property or Taxable Open Space Property in Zone 1 or Zone 2 at up to the Maximum Special Tax for Taxable Property Owner Association Property and Taxable Open Space Property.

Sixth: If additional monies are needed to satisfy the Special Tax Requirement after the first five steps have been completed, then the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Taxable Public Property in Zone 1 and Zone 2 at up to the Maximum Special Tax for Taxable Public Property.

Prepayment of Special Taxes. The Rate and Method provides that a property owner of Taxable Property, except for Assessor’s Parcels of Undeveloped Property for which a building permit has not been issued, may prepay and satisfy the Special Tax obligation of an Assessor’s Parcel in whole or in part upon satisfaction of the conditions in Section H of the Rate and Method. A prepayment may be made only if there are no delinquent Special Taxes on the parcel at the time of prepayment. In addition, no prepayment shall be allowed unless the amount of Assigned Special Taxes that may be levied on Taxable Property both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Bonds.

In the event that a prepayment of Special Taxes occurs, a portion of the net proceeds of such prepayment will be applied to effect a special mandatory redemption of the 2010 Bonds. See “THE 2010 BONDS—Redemption” herein.

Collection and Application of Special Taxes. The Rate and Method provides that Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, become delinquent at the same time and in the

same proportionate amounts and bear the same proportionate penalties and interest after delinquency as to the ad valorem taxes on real property; provided that, pursuant to and in accordance with the Ordinance, the Special Taxes may be collected by means of direct billing of the property owners within the District, in which event the Special Taxes shall become delinquent if not paid when due pursuant to said billing.

The Authority will make certain covenants in the Fiscal Agent Agreement for the purpose of ensuring that the current maximum Special Tax rates and method of collection of the Special Taxes are not altered in a manner that would impair the Authority’s ability to collect sufficient Special Taxes to pay debt service on the Bonds and any future Parity Bonds and Administrative Expenses when due. First, the Authority will covenant not to consent or conduct proceedings with respect to a reduction in the Maximum Special Taxes that may be levied on parcels in Zone 1 of the District below an amount for any Fiscal Year, equal to 110% of the aggregate of the debt service on the 2010 Bonds and any other Parity Bonds in such Fiscal Year, plus a reasonable estimate of Administrative Expenses for such Fiscal Year. See “SPECIAL RISK FACTORS— Proposition 218.” Second, the Authority will covenant not to exercise its rights under the Act to waive delinquency and redemption penalties related to the Special Taxes or to declare a special tax penalties amnesty program if to do so would materially and adversely affect the interests of the owners of the 2010 Bonds or any other Parity Bonds or to permit the tender of 2010 Bonds or any other Parity Bonds in payment of any Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such tender will not result in the District having insufficient Special Tax revenues to pay the principal of and interest on the 2010 Bonds and any other Parity Bonds remaining Outstanding following such tender. See “SPECIAL RISK FACTORS—Non-Cash Payment of Special Taxes.”

Although the Special Taxes constitute liens on taxed parcels within the District, they do not constitute a personal indebtedness of the owners of property within the District. Moreover, other liens for taxes and assessments already exist on the property located within the District and others could come into existence in the future in certain situations without the consent or knowledge of the Authority or the landowners in the District. See “SPECIAL RISK FACTORS—Parity Taxes, Special Assessments and Land Development Costs” herein. There is no assurance that property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so, all as more fully described in the section of this Official Statement entitled “SPECIAL RISK FACTORS.”

Under the terms of the Fiscal Agent Agreement, all Special Tax Revenues received by the Authority, other than the portion levied for Administrative Expenses and Special Tax Prepayments, are to be remitted to the Fiscal Agent for deposit in the Special Tax Fund. Special Tax Revenues levied for Administrative Expenses are to be deposited in the Administrative Expense Fund, Special Tax Prepayments constituting a prepayment of construction costs will be deposited by the Fiscal Agent to the Improvement Fund, and any remaining portion of any Special Tax Prepayment will be deposited by the Fiscal Agent directly in the Special Tax Prepayments Account established pursuant to the Fiscal Agent Agreement.

Moneys in the Special Tax Fund will be held in trust by the Fiscal Agent for the benefit of the Authority and the Owners of the 2010 Bonds and any Parity Bonds, will be disbursed as provided below and, pending disbursement, will be subject to a lien in favor of the Owners of the Bonds and any other Parity Bonds and the Authority.

On the Business Day prior to each Interest Payment Date, the Fiscal Agent shall withdraw from the Special Tax Fund and transfer the following amounts in the following order of priority (i) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund and any expected transfers from the Improvement Fund, the Reserve Fund, the Capitalized Interest Account, the Special Tax Prepayments Account and the Letter of Credit Account to the Bond Fund, such that the amount in the Bond Fund equals the principal (including any sinking payment), premium, if any, and interest due on the Bonds on such Interest Payment Date; provided, however, that any amounts transferred from the Letter of Credit Account are solely for the benefit of the 2010 Bonds, and (ii) to the Reserve Fund an amount, taking into account amounts then on

deposit in the Reserve Fund, such that the amount in the Reserve Fund (exclusive of any amount in the Letter of Credit Account) is equal to the Reserve Requirement.

Proceeds of Foreclosure Sales. The net proceeds received following a judicial foreclosure sale of land within the District resulting from a landowner’s failure to pay the Special Tax when due, exclusive of any penalties paid with respect to a delinquency, are pledged to the payment of principal of and interest on the 2010 Bonds and any Parity Bonds issued in the future.

Pursuant to Section 53356.1 of the Act, in the event of any delinquency in the payment of any Special Tax or receipt by the Authority of Special Taxes in an amount which is less than the Special Tax levied, the Board of Directors, as the legislative body of the District, may order that Special Taxes be collected by a superior court action to foreclose the lien within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at a judicial foreclosure sale. Under the Act, the commencement of judicial foreclosure following the nonpayment of a Special Tax is not mandatory. However, the Authority will covenant in the Fiscal Agent Agreement for the benefit of the owners of the Bonds that it will commence within 60 days of the date the Treasurer of the Authority becomes aware of any delinquency and diligently prosecute to judgment (unless the delinquency is brought current), judicial foreclosure proceedings against Assessor’s parcels with delinquent Special Taxes. The Fiscal Agent Agreement provides that the Treasurer shall, on or about each March 1 and July 1, compare the amount of Special Taxes levied to the amount received to determine whether or not any delinquencies in the payment of Special Taxes exist. See APPENDIX D—“SUMMARY OF FISCAL AGENT AGREEMENT.”

If foreclosure is necessary and other funds (including amounts in the Reserve Fund) have been exhausted, debt service payments on the 2010 Bonds could be delayed until the foreclosure proceedings have ended with the receipt of any foreclosure sale proceeds. Judicial foreclosure actions are subject to the normal delays associated with court cases and may be further slowed by bankruptcy actions, involvement by agencies of the federal government and other factors beyond the control of the Authority. See “SPECIAL RISK FACTORS—Bankruptcy and Foreclosure” herein. Moreover, no assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Tax installment. See “SPECIAL RISK FACTORS—Property Values” herein. Although the Act authorizes the Authority to cause such an action to be commenced and diligently pursued to completion, the Act does not impose on the District or the Authority any obligation to purchase or acquire any lot or parcel of property sold at a foreclosure sale if there is no other purchaser at such sale. The Act provides that, in the case of a delinquency, the Special Tax will have the same lien priority as is provided for ad valorem taxes.

Reserve Fund and Letter of Credit

In order to secure further the payment of principal of and interest on the Bonds, the Authority is required, upon delivery of the 2010 Bonds, to deposit in the Reserve Fund an amount sufficient to cause the balance therein to equal the Reserve Requirement and thereafter to maintain the Reserve Fund an amount equal to the Reserve Requirement. Under the terms of the Fiscal Agent Agreement, the Authority may elect to deliver a Qualified Reserve Fund Credit Investment in lieu of cash. See APPENDIX D—“SUMMARY OF FISCAL AGENT AGREEMENT—Reserve Fund.”

Subject to the limits on the maximum annual Special Tax which may be levied within the District, as described in Appendix A, the Authority has covenanted to levy Special Taxes in an amount that is anticipated to be sufficient to replenish the balance in the Reserve Fund each year to the Reserve Requirement. Amounts, if any, in the Letter of Credit Account shall not be taken into account with respect to any determination of the Reserve Requirement. Amounts in the Reserve Fund are to be applied to (i) pay debt service on the Bonds, to the extent other monies are not available therefor, (ii) redeem the Bonds in whole or in part, (iii) pay the principal and interest due in the final year of maturity of the Bonds, and (iv) to pay any rebate due to the federal government; provided, however, that amounts in the Letter of Credit Account shall be applied only to

pay debt service on the 2010 Bonds and not any Parity Bonds. See APPENDIX D—“SUMMARY OF FISCAL AGENT AGREEMENT—Parity Bonds.”

The Letter of Credit (described below) is not intended to be a Qualified Reserve Fund Credit Instrument and is provided in addition to the required amount of funds necessary to satisfy the Reserve Fund Requirement.

Provisions Relating to Letter of Credit. The Fiscal Agent Agreement requires the deposit of a letter of credit (the “Letter of Credit”) with the Fiscal Agent for the benefit of the Letter of Credit Account in a stated amount equal to the maximum principal and interest payable on the 2010 Bonds for any two-year period, excluding for such purpose an amount equal to two times that portion of the debt service due on the 2010 Bonds which is payable from Special Taxes levied in the most recent year on Developed Property and Update Property. As a condition to the issuance of the 2010 Bonds, Tejon Ranchcorp will deposit a Letter of Credit provided by Wells Fargo Bank, N.A., in the amount of $2,189,197 with the Fiscal Agent which satisfies the requirement under the Fiscal Agent Agreement for a Letter of Credit. Proceeds of any draw on the Letter of Credit delivered upon the issuance of the 2010 Bonds will be used only to pay the principal of and interest on the 2010 Bonds and not any Parity Bonds The delivery of a Letter of Credit is not a condition to the issuance of any Parity Bonds. Any Letter of Credit provided for the 2010 Bonds may be released or reduced as described below. See “SPECIAL RISK FACTORS—Possible Release or Reduction of Letter of Credit.”

Holding of Letters of Credit. The Fiscal Agent shall hold any Letter of Credit delivered to it for the benefit of the Letter of Credit Account of the Reserve Fund. The Fiscal Agent shall advise the Treasurer in writing promptly following the actual knowledge of the Fiscal Agent that the credit rating of the provider of any Letter of Credit then in effect has been reduced to A- (or its equivalent) or lower by S&P or Moody’s, or has been reduced to BBB (or its equivalent) or lower by S&P or Moody’s.

Draws on Letters of Credit.

(a) The Fiscal Agent shall draw upon a Letter of Credit promptly following receipt by the Fiscal Agent of a written direction of the Treasurer instructing the Fiscal Agent to draw on a Letter of Credit, identifying the Letter of Credit and the amount to be so drawn, and to the effect that Special Taxes levied in the District on parcels in the District (other than Developed Property and Update Property (as defined in the Rate and Method)) are then delinquent. Each draw on a Letter of Credit shall be in an amount equal to that portion of the delinquent Special Taxes that represent the allocable portion of the debt service on the 2010 Bonds (and not any portion of Administrative Expenses or debt service on any Parity Bonds) included in the levy on the applicable parcel or parcels. The amount received pursuant to any draw on a Letter of Credit under the Fiscal Agent Agreement shall not act as a credit in respect of the amount of any Special Taxes that have been levied in the District on the parcels with delinquencies. Upon collection of any delinquent Special Taxes with respect to which a draw on a Letter of Credit has been made, the Authority shall send to the provider of the Letter of Credit a portion of the amount so collected up to the amount of the proceeds of the draw on the Letter of Credit received by the Fiscal Agent in respect of the applicable parcel or parcels.

(b) In addition to the foregoing, the Fiscal Agent shall draw upon the full amount available under a Letter of Credit (i) five (5) days prior to the expiration of the Letter of Credit, unless the Fiscal Agent receives a replacement thereof, in such amount, prior to such date, which satisfies the requirements set forth in the definition “Letter of Credit” in the Fiscal Agent Agreement; (ii) forty-five (45) days after the Fiscal Agent receives actual knowledge that the then rating of the Letter of Credit provider’s unsecured debt obligations has been reduced to BBB+ (or its equivalent) by Moody’s or S&P, unless the Fiscal Agent receives a replacement thereof, in such amount, prior to such date, which satisfies the requirements set forth in the definition “Letter of Credit” in the Fiscal Agent Agreement; or (iii) as soon as practicable following receipt by the Fiscal Agent of actual knowledge that the then rating of the Letter of Credit provider’s unsecured debt obligations has been reduced to BBB (or its equivalent) or lower by Moody’s or S&P. The amount received pursuant to any draw

on a Letter of Credit under the Fiscal Agent Agreement shall in no way reduce or act as a credit in respect of the amount of any Special Taxes that have been levied in the District.

(c) The proceeds of any draw on a Letter of Credit pursuant to the Fiscal Agent Agreement as described in (a) above shall be deposited by the Fiscal Agent in the Bond Fund.

(d) The proceeds of any draw on a Letter of Credit pursuant to the Fiscal Agent Agreement as described in (b) above shall be held by the Fiscal Agent in the Letter of Credit Account, to be (a) drawn upon at the written direction of the Treasurer prior to any Interest Payment Date to the effect that the amount specified in such written direction to be drawn is in the amount of that portion of any delinquent Special Taxes levied on the parcels in the District (other than Developed Property or Update Property) that represents the delinquent parcels’ proportionate share of the debt service on the 2010 Bonds (and not any portion of Administrative Expenses or debt service on any Parity Bonds), or (b) released or reduced at the written direction of the Treasurer when the Letter of Credit to which such proceeds pertain would otherwise be released or reduced under the provisions for release and reduction stated below (with a written acknowledgment of any amount so reduced or released to be sent by the Fiscal Agent to the provider of the Letter of Credit).

Release of Letters of Credit. The Fiscal Agent shall release a Letter of Credit only upon (a) receipt of written direction from the Treasurer to the effect that, of the Special Tax levy in the District in the most recent Fiscal Year on Developed Property and on Update Property, the portion of such levy to pay the scheduled debt service on the 2010 Bonds is sufficient to pay all of the scheduled debt service on the 2010 Bonds coming due in the calendar year that commences in such Fiscal Year, and (b) upon the payment in full (or provision for such payment as provided in the defeasance provisions of the Fiscal Agent Agreement) of the 2010 Bonds. In such event, any Letter of Credit shall be returned to the provider thereof, and, in the case of the preceding clause (b), any amounts then held in the Letter of Credit Account that represent the proceeds of a draw on the Letter of Credit to be released (and any investment earnings thereon) shall be remitted by the Fiscal Agent to the account party with respect to the Letter of Credit to be released.

Reduction of Letters of Credit. The Fiscal Agent may reduce or acknowledge reduction of the amount of any Letter of Credit held by it upon receipt by the Fiscal Agent of:

(a) a Letter of Credit which satisfies the requirements set forth in the definition of “Letter of Credit” in the Fiscal Agent Agreement in substitution or replacement for all or a portion of the amount available to be drawn under any Letter of Credit then held by the Fiscal Agent, accompanied by a written statement of the provider of or account party under such new Letter of Credit as to the parcels and the outstanding Letter of Credit to which the new Letter of Credit pertains, and then the amount under the then applicable outstanding Letter of Credit may be reduced by the amount available to be drawn under the new Letter of Credit; or

(b) an Officer’s Certificate to the effect that the Special Taxes levied in the District in the most recent Fiscal Year on Developed Property and on Update Property have increased since the Letter of Credit was issued, that the then stated amount of the Letter of Credit may be reduced to an amount described in clause (viii) of the definition “Letter of Credit” in the Fiscal Agent Agreement, and specifying the amount of the permitted reduction.

Issuance of Parity Bonds

Subject to the limitations set forth in the Fiscal Agent Agreement, the Authority may, at any time after the issuance and delivery of the 2010 Bonds, and without the consent of any Bondowners, issue up to $107,330,000 of additional bonds as Parity Bonds for the purpose of financing additional public improvements. The Parity Bonds will be equally secured with the 2010 Bonds by a pledge of and lien upon the Special Tax Revenues and amounts in the funds and accounts established under the Fiscal Agent

Agreement with respect to the 2010 Bonds; provided, however, that any Letter of Credit and any amounts in the Letter of Credit Account are solely for the benefit of the 2010 Bonds. Additionally, the Authority may at any time issue Parity Bonds without limitation as to dollar amount for the purpose of refunding the 2010 Bonds or other Parity Bonds outstanding, but only if the refunding results in no increase in the total principal and interest payments on the Outstanding 2010 Bonds and Parity Bonds of the District. For a description of the specific conditions that must be satisfied under the Fiscal Agent Agreement before Parity Bonds may be issued, see APPENDIX D-"SUMMARY OF FISCAL AGENT AGREEMENT-Parity Bonds."

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21 THE COMMUNITY FACILITIES DISTRICT

General Description of the District

The District is located along the east side of Interstate 5, due south of the point where Interstate 5 splits from Highway 99, approximately 83 miles nmih of downtown Los Angeles and approximately 25 miles south of the City of Bakersfield. The District is comprised of approximately 1,931 acres, of which approximately 65 acres are developed and approximately 962 acres are planned for future development into commercial, retail, and industrial uses. The remaining approximately 904 acres in the District are zoned for agricultural uses and are expected to be released from any obligation to pay Special Taxes pledged to repay the Bonds.

The project currently being developed in and around the District is called the Tejon Industrial Complex- East ("TIC-East") and is composed of a larger development called the Tejon Industrial Complex (the "Tejon Industrial Complex"). TIC-East is an approximately 1,093-acre master-planned development (approximately 1,031 acres of which are included in the District), which includes a planned industrial complex and highway-oriented commercial and retail uses that are intended to serve existing and future commerce along the Interstate 5 transportation corridor. TIC-East offers a variety of commercial and industrial lot sizes available for such uses as gas stations, convenience stores, restaurants, fast food facilities, hotels/motels, destination retail, warehouse distribution, light industrial, and travel industry facilities. Approximately 62 acres within the TIC-East development are not included in the District, which acres are currently undeveloped. The District is immediately adjacent to Interstate 5, making the proposed TIC-East development well situated to service the more than 72,000 vehicles that travel Interstate 5 daily. See "THE DEVELOPMENT AND PROPERTY OWNERSHIP."

TIC-East is the second major phase of the Tejon Industrial Complex. The first phase, the Tejon Industrial Complex- West ("TIC-West"), located directly opposite TIC-East on the west side oflnterstate 5, is an approximately 376-acre master-planned area including an industrial complex and highway-oriented commercial uses. This first phase began developing in 1999 and is substantially built out. See "THE DEVELOPMENT AND PROPERTY OWNERSHIP-Tejon Industrial Complex" and "SPECIAL RISK FACTORS-Competition."

Description of Authorized Facilities

The facilities authorized to be funded by the District with the proceeds of the Bonds consist of various public improvements, or portions thereof, including: (1) roadway facilities, including traffic signals, (2) improvements to the Interstate 5/Laval Road interchange, (3) water, sewer, and storm drain facilities, (4) a wastewater treatment facility, and (5) incidental expenses related to the planning and design of such facilities, environmental evaluations, formation of the District, sale of Bonds, and certain other costs associated with the construction, completion, and inspection of such facilities (collectively, the "Facilities"). Tejon Industrial Corp., a California corporation ("Tejon Industrial Corp."), will construct (or oversee the construction of) all of the Facilities.

The expected cost of the Facilities to be financed with the proceeds of the 2010 Bonds and future Parity Bonds are described in the following table. As identified in the following table, approximately $19.0 million of improvements eligible for financing with the 2010 Bonds are complete as of the date of this Official Statement. Proceeds from the sale of the 2010 Bonds will be applied to reimburse Tejon Industrial Corp. for expenditures made prior to the date of issuance of the 2010 Bonds to construct the completed Facilities.

22 TABLE1

TEJON RANCH PUBLIC FACILITIES FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 2008-1 (TEJON INDUSTRIAL COMPLEX PUBLIC IMPROVEMENTS) CONSTRUCTION COST ESTIMATE AS OF MARCH 31,2010

Approximate Estimated Estimated Completed Future Total Construction Construction Construction Description ofFacilities Costs Cost Cost Design Services $ 2,930,165 $ 7,104,169 $10,034,334 Roadway Facilities 7,402,879 48,709,116 56,111,995 I-S/Laval Road Interchange 2,964,505 0 2,964,505 Water, Sewer, and Stonn Drain Facilities 1,951,545 7,234,948 9,186,493 Wastewater Treatment Facility 3,790,152 4,255,298 8,045,450 Totals $19,039,247 $67,303,530 $86,342,777

Source: Tejon Industrial Corp.

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Principal Taxpayers

There are currently four owners of the property within the District subject to a Special Tax levy, including Tejon Ranch Co. and two other owners which are directly or indirectly 100% owned by Tejon Ranch Co., and one other owner which is sixty percent (60%) indirectly owned by Tejon Ranch Co. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP.”

Table 2 below sets forth the projected Special Taxes that would be levied on each of the property owners in Fiscal Year 2010-11 based on the development status as of June 14, 2010 and assuming no change of ownership. Based on the current ownership within the District, and assuming no ownership changes, it is projected that all of the Fiscal Year 2010-11 Special Tax levy would be levied on property in which Tejon Ranch Co. has a direct or indirect ownership interest.

TABLE 2

PRINCIPAL TAXPAYERS FOR FISCAL YEAR 2010-11 SPECIAL TAX LEVY

Percentage of Special Tax Owner(1) Special Tax Levy(2) Levy Tejon Industrial Corp.(3) $ 771,148.01 82.36% East Travel Plaza LLC(4) 165,189.05 17.64 Tejon Ranch Co. 0.00 0.00 Tejon Ranchcorp(5) 0.00 0.00 Total $ 936,337.06 100.00%

(1) Based on the Appraisal. (2) Based on development status as of June 14, 2010. (3) Tejon Industrial Corp. is a wholly owned subsidiary of Tejon Ranchcorp, which is a wholly owned subsidiary of Tejon Ranch Co. (4) The majority interest (60%) in East Travel Plaza LLC is owned by the Tejon Development Corporation. The Tejon Development Corporation is a wholly owned subsidiary of Tejon Ranchcorp, which is a wholly owned subsidiary of Tejon Ranch Co. (5) Tejon Ranch Co. owns, directly, a 100% interest in Tejon Ranchcorp and, indirectly, a 100% interest in Tejon Industrial Corp. and, indirectly, a 60% interest in East Travel Plaza LLC. Source: David Taussig & Associates, Inc.

Direct and Overlapping Debt

Table 3 below summarizes the existing direct and overlapping debt payable from taxes and assessments levied on property within the District. Other than the 2010 Bonds, approximately $39,782 of debt is currently payable from taxes and assessments on the property within the District. Other indebtedness could be issued in the future which is payable from taxes and assessments on the property within the District which are on a parity with the Special Taxes. See “SPECIAL RISK FACTORS—Parity Taxes, Special Assessments and Land Development Costs.”

TABLE 3

DIRECT AND OVERLAPPING DEBT SUMMARY FOR THE DISTRICT

Amount of Percent of Levy on Levy on District Share of FY 2009-10 Parcels in Parcels in Total Debt Total Debt Overlapping Debt Total Levy(1) District(2) District Outstanding(3) Outstanding KHS Refunding 1996A $ 6,956,253 $ 923 0.0133% $ 44,060,000 $ 5,846 Kern High 1990E 1,286,404 171 0.0133 20,515,000 2,722 Kern High 2004A 3,105,600 412 0.0133 45,165,000 5,993 Kern High 2004B 4,538,361 602 0.0133 64,860,000 8,606 Kern High 2004C 2,563,821 340 0.0133 48,445,000 6,428 KCCD SRID 2002A 1,481,700 135 0.0091 10,956,548 999 KCCD SRID 2002A REFUND 3,584,980 327 0.0091 51,165,132 4,665 KCCD SRID 2002B 788,496 72 0.0091 49,599,533 4,522

Estimated Share of Overlapping Debt Allocable to the District $ 39,782 Plus CFD No. 08-1 Bonds 12,670,000 Estimated Share of Direct and Overlapping Debt Allocable to the District $ 12,709,782

(1) Based on 2009-10 tax rates and assessed values, provided by the County of Kern. (2) Based on actual Fiscal Year 2009-10 tax bills for the County of Kern. (3) Based on figures as of May 2, 2010. Source: David Taussig & Associates, Inc.

Estimated Value-to-Lien Ratios Based on Appraised Values

Table 4 below sets forth the estimated appraised value-to-lien ratios for the parcels owned by each landowner within Zone 1 of the District based upon the values and ownerships set forth in the Appraisal and the projected Fiscal Year 2010-11 Special Tax levy. These estimated value-to-lien ratios range from a low of 1.30 to 1 for the Tejon Industrial Corp. property categorized in Group III in the Appraisal to a high of 10.47 to 1 for the Developed Property in the District with a combined value-to-lien ratio of 3.46 to 1 for all Zone 1 property. The overlapping debt described in Table 3 has not been included in the calculation of the value-to-lien ratios, which would be somewhat lower than those set forth in Table 4 below if such amounts had been included. No Special Tax is projected to be levied on Zone 2 property in Fiscal Year 2010-11. In the event that delinquencies occur on the payment of the Special Taxes levied on parcels within Zone 1, the Special Taxes may be levied on the taxable acres within Zone 2, until such time as the Zone 2 property is released from the obligation to pay Special Taxes. The appraised value of the property in Zone 2 is $6,886,000.

TABLE 4

ESTIMATED VALUE-TO-LIEN RATIOS OF ZONE 1 PROPERTY IN THE DISTRICT BASED ON APPRAISAL VALUES

Percentage Share of Projected Projected Estimated FY 2010-11 FY 2010-11 Allocated Share Value-to- Special Special of Bonded Values in Lien Property Owner(1) Acreage(2) Tax(3) Tax(4) Indebtedness(5) Appraisal(6) Ratios(7) Zone 1 Developed(8) East Travel Plaza LLC (Group II) 64.60 $ 165,189 17.64% $ 2,235,248 $ 23,400,000 10.47 to 1 Undeveloped Property Tejon Industrial Corp. (Group I) 239.45 235,042 25.10 3,180,460 10,994,000 3.46 to 1 Tejon Industrial Corp. (Group III) 723.23 536,106 57.26 7,254,292 9,400,000 1.30 to 1 Subtotal Undeveloped Property 962.68 771,148 82.36 10,434,752 20,394,000 1.95 to 1 Zone 1 Subtotal 1,027.28 936,337 100.00 12,670,000 43,794,000 3.46 to 1

Zone 2 Undeveloped Property Tejon Ranch Company (Group IV) 484.85 0 0.00 0 3,693,840 NA Tejon Ranchcorp (Group IV) 321.92 0 0.00 0 2,452,554 NA Tejon Industrial Corp. (Group IV) 97.08 0 0.00 0 739,606 NA Zone 2 Subtotal 903.85 0 0.00 0 6,886,000 NA Grand Total 1,931.13 $ 936,337 100.00% $ 12,670,000 $ 50,680,000 4.00 to 1

(1) Based on the Appraisal. (2) Based on acreages in Appraisal. (3) Based on development status provided in the Appraisal and debt service on the 2010 Bonds provided by the Underwriter. (4) Figures represent percentage of projected Fiscal Year 2010-11 Special Tax based on the ownership status in the Appraisal. (5) Calculated by multiplying principal amount of 2010 Bonds by Percentage Share of Projected FY 2010-11 Special Tax column. (6) Values from Appraisal. (7) Calculated by dividing Values in Appraisal column by Allocated Share of Bonded Indebtedness column. (8) Based on property categorized as Developed Property using the development status in the Appraisal as of June 14, 2010. Source: David Taussig & Associates, Inc.

Assessed Value-to-Lien Ratios

Table 5 below sets forth the assessed value-to-lien ratios for property ownerships within Zone 1 of the District based upon the fiscal year 2010-11 County Assessor’s roll and the projected Special Tax levy for Fiscal Year 2010-11 based on development status as of June 14, 2010 and assuming no further change in

ownership. Pursuant to the Authority’s Continuing Disclosure Agreement, Table 5 will be updated annually based on the most recently available assessed values. Table 4 above, which is based on values in the Appraisal, will not be updated. The assessed values are lower than the appraised values and do not reflect a current market value, but rather the value on the County Assessor’s records. Given that the property within the District has been owned by Tejon Ranch Co. or its affiliates for many years, the County Assessor has not reassessed the property to reflect current market values and will not do so for any parcel until there is a change in ownership for such parcel or until improvements are constructed on such parcel. The assessed value of the land within Zone 1 of the District for Fiscal Year 2010-11 is $2,668,020. This assessed value does not yet include an updated improvement value for the improvements constructed on the East Travel Plaza LLC parcel. The estimated assessed value-to-lien ratio of the property within Zone 1 of the District calculated as described in Table 4 below is 0.21 to 1. The overlapping debt described in Table 3 has not been included in the calculation of the assessed value-to-lien ratios, which would be somewhat lower than those set forth in Table 5 below if such amounts had been included. No Special Tax is projected to be levied on Zone 2 property in Fiscal Year 2010-11. In the event that delinquencies occur on the payment of the Special Taxes levied on parcels within Zone 1, the Special Taxes may be levied on the taxable acres within Zone 2, until such time as the Zone 2 property is released from the obligation to pay Special Taxes. The assessed value of the land within Zone 2 of the District for Fiscal Year 2009-10 is $5,657,525.

TABLE 5

ESTIMATED ASSESSED VALUE-TO-LIEN RATIOS OF ZONE 1 PROPERTY IN THE DISTRICT

Projected Percentage Projected Share of Assessed FY 2010-11 Projected FY Allocated Share FY 2010-11 Value-to- Special 2010-11 of Bonded Assessed Lien Property Owner(1) Acreage(2) Tax(3) Special Tax(4) Indebtedness(5) Values(6) Ratios(7) Zone 1 Developed(8) East Travel Plaza LLC (Group II) 64.60 $165,189 17.64% $ 2,235,248 $ 91,128 0.04 to 1 Undeveloped Property Tejon Industrial Corp. (Group I) 239.45 235,042 25.10 3,180,460 1,263,416 0.40 to 1 Tejon Industrial Corp. (Group III) 723.23 536,106 57.26 7,254,292 1,313,476 0.18 to 1 Subtotal Undeveloped Property 962.68 771,148 82.36 10,434,752 2,576,892 0.25 to 1 Zone 1 Subtotal 1,027.28 936,337 100.00 12,670,000 2,668,020 0.21 to 1

Zone 2 Undeveloped Property Tejon Ranch Company (Group IV) 484.85 0 0.00 0 1,096,002 NA Tejon Ranchcorp (Group IV) 321.92 0 0.00 0 1,189,952 NA Tejon Industrial Corp. (Group IV) 97.08 0 0.00 0 703,551 NA Zone 2 Subtotal 903.85 0 0.00 0 2,989,505 NA Grand Total 1,931.13 $ 936,337 100.00% $ 12,670,000 $ 5,657,525 0.45 to 1

(1) Based on the Appraisal. (2) Based on Assessor Maps and data provided by the County of Kern. (3) Based on development status provided in the Appraisal and debt service on the 2010 Bonds provided by the Underwriter. (4) Figures represent percentage of Special Tax levy for Fiscal Year 2010-11 based on current ownership status. (5) Calculated by multiplying principal amount of 2010 Bonds by Percentage Share of Projected FY 2010-11 Special Tax column. (6) Figures are based on Assessed Value provided by the County of Kern Assessor’s Office as of January 1, 2010. (7) Calculated by dividing FY 2010-11 Assessed Values column by Allocated Share of Bonded Indebtedness column. (8) Based on property categorized as Developed Property using the development status in the Appraisal. Source: David Taussig & Associates, Inc.

AERIAL MAP

THE DEVELOPMENT AND PROPERTY OWNERSHIP

Tejon Industrial Corp. has provided the following information. No assurance can be given that the proposed development will occur as described herein or that it will be completed in a timely manner. Neither the Bonds nor the Special Taxes securing the Bonds are personal obligations of the landowners within the District and, in the event that a landowner defaults in the payment of the Special Taxes, the Authority may proceed with judicial foreclosure but has no direct recourse to the assets of any landowner. See “SPECIAL RISK FACTORS” herein.

Tejon Industrial Complex

The property within the District is part of a larger development being undertaken by Tejon Industrial Corp. and certain affiliated entities called the “Tejon Industrial Complex.”

Development of the Tejon Industrial Complex, which borders Interstate 5 and encompasses both the Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2000-1 (Tejon Industrial Complex Public Improvements) (“CFD No. 2000-1”) and the District, began in 1999 with TIC-West on 350 acres in CFD No. 2000-1. TIC-West began with the construction of the Petro Travel Center on approximately 50 acres. The Petro Travel Center provides diesel fuel and amenities for professional drivers as well as gasoline and amenities for travelers on Interstate 5.

By the end of 2009, the TIC-West project consisted of 3.3 million square feet of industrial buildings located on approximately 164 acres, including distribution centers for two multinational retailers, IKEA and Brown Shoe Company. The 1.74 million square foot IKEA facility was constructed in the year 2000 on approximately 78 acres. The facility serves IKEA’s retail network from San Diego, California north to Vancouver, British Columbia and inland as far as Dallas, Texas. In 2001, Tejon-Dermody LLC constructed a 651,909 square foot distribution center on a 32.62 acre parcel. The facility now serves as a distribution facility for IKEA. This facility was purchased by ProLogis in 2007. In 2008, a 606,000 square foot distribution center was developed by Five West Parcel LLC on 29.06 acres and a 350,000 square foot distribution facility was constructed by CRG CA Blue LLC on 23.75 acres. This distribution facility is now operated by the Famous Footwear shoe company and serves over 350 retail stores located west of the Rocky Mountains as well as fulfillment for their e-commerce operations.

TIC-West also includes retail development which has been steady from inception, driven initially by the increase in traffic from Interstate 5 created by the Travel Center. In 2002, three retail facilities were developed in TIC-West, including a 3,500 square foot McDonalds’ restaurant on 1.08 acres, a 1,500 square foot Starbucks store on 1.21 acres (later expanded to 2,095 square feet), and a 30,745 square foot, 62 room, Best Western hotel on 2.05 acres. Retail development continued in TIC-West through 2003, including the construction of a 5,099 square foot Petro gas station and convenience store on 1.84 acres and a 2,400 square foot Panda Express restaurant on 0.75 acres. Development resumed in TIC-West in 2007 with the opening of a 3,865 square foot In-N-Out Burger restaurant on 1.80 acres and continued into 2008 with another 5,650 square foot Petro gas station and convenience store on 4.75 acres.

The land within the District is being developed as TIC-East, which is the second major phase of the Tejon Industrial Complex development and is located east of Interstate 5 directly across from TIC-West. TIC- East includes facilities outside of the District that were constructed on the east side of Interstate 5 on the Laval Road interchange in the 1980’s. Such facilities included a TA Travel Center, similar in concept to the Petro Travel Center, including a gas station and convenience store, and a Blue Beacon Truck Wash. The TA Travel Center facilities were demolished in 2010 after having been replaced by a new facility within TIC-East. The Blue Beacon Truck Wash is expected to relocate to this new facility during the fourth quarter of 2010. These parcels are now being marketed for new retail offerings.

In 2009, construction began on a new TA Travel Center on 64.6 acres within the District. This facility is identical in concept of the Petro Travel Center located in TIC-West, but is larger in scale, more modern and includes a food court rather than a sit-down restaurant. The food court features Burger King, Taco Bell, Pizza Hut, Subway and Popeye’s food offerings.

Tejon Industrial Complex – Market Overview

The primary market served by industrial development at TIC-East is the market for large centralized distribution centers designed to receive, compile, and ship goods to retail outlets throughout the western United States. The majority of these goods are imports entering the country through the ports of Los Angeles and Long Beach. The marketing efforts at TIC-East focus on educating potential industrial users as to the operational cost benefits of the site and the success that TIC-West tenants and owners have experienced.

In marketing the TIC-East development, Tejon Industrial Corp. emphasizes that the advantages enjoyed by industrial users at the Tejon Industrial Complex are numerous. Tejon Industrial Corp. estimates that the Tejon Industrial Complex’s strategic location on Interstate 5 provides the ability for distribution centers to serve 97% of California’s 36 million consumers within a single day truck turn. Outbound distribution throughout the western United States is highly efficient via Interstate 5 when transporting north and south and via Highway 58 to Interstates 40 and 15 when transporting east. The Tejon Industrial Complex is located between two major port facilities. The port complex of Los Angeles/Long Beach is approximately two hours to the south and the port of Oakland is approximately four hours to the north, which provides users the opportunity for redundant port service. The labor pool in the County is attractive for distribution-related businesses. Wages are consistently lower in the County than in southern California and turnover at TIC-West has been consistently low, while the qualified applicant to job ratio has been high at approximately 10:1. The Tejon Industrial Complex also has a 177-acre Foreign Trade Zone, designated FTZ # 276, which is administered by the County. The Foreign Trade Zone allows for deferral, reduction, and, in some cases, elimination of customs duties on imported goods. Further, the Tejon Industrial Complex does not have adjacent residential development and can therefore operate twenty-four hours a day seven days a week without concern for limitations being imposed due to the proximity of residential uses.

Given the foregoing attributes, Tejon Industrial Corp. believes that the Tejon Industrial Complex best serves organizations that favor the efficiencies of large centralized distribution facilities rather than a network of smaller decentralized facilities. Distribution centers of one million square feet or larger are difficult to develop in the greater Los Angeles region due to the limited availability of parcels of sufficient size. Tejon Industrial Corp. believes that the ability to provide land parcels large enough to support larger facilities in conjunction with the Tejon Industrial Complex’s central location in California on Interstate 5 and an abundant and relatively affordable labor pool provides a competitive advantage for the Tejon Industrial Complex. Tejon Industrial Corp. recognizes that a potential disadvantage to its development strategy is the distance from traditional warehouse/distribution centers east of Los Angeles, and that existing warehouse space has increased significantly in the areas east of Los Angeles since mid-2008 as a result of the contraction in the economy. This excess capacity has adversely impacted Tejon Industrial Corp.’s marketing efforts and put pressure on lease rates, which Tejon Industrial Corp. believes could continue for another two years. The Tejon Industrial Complex secondarily concentrates on providing sites to smaller business owners in North Los Angeles County who require additional space to grow their businesses and prefer to locate expanded operations within a more efficient single facility rather than multiple smaller facilities as is often the case in North Los Angeles County. Tejon Industrial Corp. believes that California’s projected long-term population growth, as well as that of the other western states, will drive increases in industrial activity at the Tejon Industrial Complex as the economic environment improves.

The commercial/retail marketing of the Tejon Industrial Complex is focused on providing quality food, fuel, and lodging services to the professional driver and the traveling public on Interstate 5, which is the primary transportation artery connecting southern California to northern California and ultimately Canada. Tejon Industrial Corp.’s goal is to provide a welcoming and aesthetically pleasing experience for the customers

of its tenants that is unique on the Interstate. The Tejon Industrial Complex site currently has access to 72,000 +/- vehicles per day on Interstate 5 and the Tejon Industrial Complex fuel sites currently average in excess of 70,000 gasoline transactions per month. At TIC-East, services are provided currently by TravelCenters of America, Chevron, Burger King, Pizza Hut, Popeye’s Chicken, Taco Bell and Subway. TIC-East also plans to market to the next price tier of quick serve restaurants as was done at TIC-West, which currently offers Starbucks, Panda Express, and will soon include a Chipotle Mexican Grill restaurant. Given the Tejon Industrial Complex’s location, which is approximately 25 minutes south of central Bakersfield and 40 minutes north of Santa Clarita, the high average daily traffic counts on Interstate 5, and sufficient land designated for commercial and retail use, Tejon Industrial Corp. also intends to market sites for potential destination retail offerings such as an outlet mall.

The Landowners

Currently, the following four entities constitute all of the owners of land within the District: Tejon Ranch Co., Tejon Industrial Corp., Tejon Ranchcorp, a California corporation (“Tejon Ranchcorp”), and East Travel Plaza LLC, a California limited liability company (“East Travel Plaza LLC”). As described below, Tejon Ranch Co. owns, directly or indirectly, a controlling interest in each of the other three landowners.

Tejon Ranch Co. owns approximately 485 acres of land within the District, all of which are undeveloped and located in Zone 2. Tejon Ranchcorp (which is 100% owned by Tejon Ranch Co.) owns approximately 322 acres of land within the District, all of which are undeveloped and also located in Zone 2. Tejon Industrial Corp. (which is 100% owned by Tejon Ranchcorp) owns approximately 1,060 acres of land within the District, all of which are undeveloped; approximately 962 acres are located in Zone 1 and approximately 97 are acres located in Zone 2. The remaining 65 acres of land within the District, which acres have been improved with a travel plaza for truckers and other motorists (the “Travel Plaza”), is owned by East Travel Plaza LLC. East Travel Plaza Holdings LLC, a California limited liability company (“East Travel Plaza Holdings LLC”), is the sole member of East Travel Plaza LLC. Tejon Development Corporation, a California corporation (“Tejon Development Corporation”), which is 100% owned by Tejon Ranchcorp, holds a 60% membership of East Travel Plaza Holdings LLC.

The approximately 485 acres, 322 acres, and 97 acres of land located in Zone 2 of the District owned by Tejon Ranch Co., Tejon Ranchcorp, and Tejon Industrial Corp., respectively, are currently not expected to be developed and will be subject to the Special Tax only until the conditions to releasing such acres from the Special Tax lien contained in the Rate and Method have been satisfied. Although Zone 2 property is subject to the Special Tax, the District does not expect to levy any Special Tax on Zone 2 property for the repayment of the Bonds. The District expects that Zone 2 property will be released from its obligation to pay Special Taxes in the future upon satisfaction of the release tests in the Rate and Method. The District does not give any assurance as to whether or when Zone 2 property will be released from its obligation to pay Special Taxes. See “SOURCES OF PAYMENT FOR THE 2010 BONDS – Special Taxes” and “APPENDIX A – RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES.”

The ownership structure for Tejon Ranch Co. and its affiliates with ownership interests in property in the District is depicted below.

Tejon Ranch Co., a Delaware Corporation NYSE Traded Holding Company (Ticker TRC)

Tejon Ranchcorp, a California Corporation (100% owned by Tejon Ranch Co.)

Tejon Industrial Corp., Tejon Development Corporation,

a California Corporation a California Corporation

(100% owned by Tejon Ranchcorp) (100% owned by Tejon Ranchcorp)

Petro Travel Plaza Holdings LLC, a California limited liability company (60% owned by Tejon Development Corporation)

East Travel Plaza LLC, a California limited liability company (100% owned by Petro Travel Plaza Holdings LLC)

A description of each of the four landowners in the District is set forth below.

Tejon Ranch Co.

Tejon Ranch Co. is a publicly traded holding company listed on the New York Stock Exchange under the symbol “TRC.” Tejon Ranch Co. is a diversified land development and agribusiness company whose major asset is its 270,000-acre land holdings. Tejon Ranch Co. currently operates in three business segments: commercial/industrial real estate development, resort/residential real estate development, and farming. Tejon Ranch Co.’s real estate activities include land entitlement and development, commercial leases and sales, marketing of real estate projects, utility easements, oil and mineral leases, and grazing leases. Its farming operations focus on almond, pistachio, and wine grape production.

Copies of Tejon Ranch Co.’s most recent filings with the Securities and Exchange Commission (the “SEC”) are available at the SEC’s website at www.sec.gov and from Tejon Ranch Co.’s website at www.tejonranch.com, or upon request mailed to Tejon Ranch Co., Attention: Chief Financial Officer, at Post Office Box 1000, Lebec, California 93243. Such websites are not in any way incorporated into this Official Statement, and none of Tejon Industrial Corp., Tejon Industrial Corp.’s affiliates, or the Authority make any representation whatsoever as to the accuracy or completeness of any of the information on such websites. The

most recent reports available on the websites for Tejon Ranch Co. are the Form 10-K annual report for the fiscal year ended December 31, 2009, and the Form 10-Q for the quarter ending March 31, 2010.

Tejon Ranchcorp

Tejon Ranchcorp was formed on February 14, 1936, and is a wholly-owned subsidiary of Tejon Ranch Co.

Tejon Industrial Corp.

Tejon Industrial Corp. was formed on November 13, 1998, for the purpose of owning and developing land within the Tejon Ranch area. Tejon Industrial Corp. is a wholly-owned subsidiary of Tejon Ranchcorp.

East Travel Plaza LLC

East Travel Plaza LLC was formed on October 8, 2008, for the purpose of: (1) permitting, developing and improving the land for constructing the Travel Plaza and related on-site improvements; and (2) operating the Travel Plaza and related improvements. Petro Travel Plaza Holdings LLC is the sole member of East Travel Plaza LLC. Petro Travel Plaza Holdings LLC has two members: Tejon Development Corporation, which holds a 60% ownership interest in Petro Travel Plaza Holdings LLC, and TA Operating LLC, a Delaware limited liability company (“TA Operating LLC”), which holds a 40% ownership interest in Petro Travel Plaza Holdings LLC. TA Operating LLC is not affiliated with Tejon Ranch Co. or any of its affiliates. Tejon Development Corporation was formed on April 3, 1972, for the specific business purposes of investing in real estate for resale or development with additional general business functions, and is a wholly-owned subsidiary of Tejon Ranchcorp. TA Operating LLC is a publicly traded company listed on the American Stock Exchange under the symbol “TA.”

General Description of TIC-East Development

The landowners in the District currently plan to develop approximately 1,028 of the approximately 1,931 acres that they own in, and which comprise, the District. At present, approximately 65 acres within the District have been developed with the Travel Plaza, which includes a Chevron gas station, a truck repair and maintenance facility, five fast food establishments, and a large convenience store. Upon completion, TIC-East development is expected to include approximately 272 acres of commercial/hotel/motel facilities and approximately 755 acres of light industrial facilities. The existing and planned uses of the land within the District include gas stations, convenience stores, restaurants, fast food facilities, hotels/motels, destination retail, warehouse distribution, light industrial, agricultural and travel industry uses. Tejon Industrial Corp. expects that the TIC-East development will be completed within approximately 15 years. See “ – Appraisal” below and “SPECIAL RISK FACTORS.”

Land Use Approvals

January 2003 Approvals. On January 21, 2003, the County Board of Supervisors (the “Board”) approved general plan amendments, zone changes, the adoption of TIC-East Specific Plan (the “TIC-East Specific Plan”), a related development agreement and an amendment to the development agreement for the TIC-West development, the alteration of the boundaries of Agricultural Preserve No. 19 to exclude approximately 959 acres, the cancellation of Williamson Act land use restrictions on 130 acres owned by Tejon Ranchcorp located in Agricultural Preserve No. 19 east of Interstate 5, and an environmental impact report for the TIC-East development (the “First EIR”). Such actions by the Board were taken, in part, pursuant to the recommendations of the County Planning Department, which held a noticed public hearing on the proposed TIC-East development on December 12, 2002.

February 2003 Lawsuit. On February 20, 2003, a lawsuit was filed (the “February 2003 Lawsuit”) in the Kern County Superior Court (the “Court”) by the Center for Biological Diversity, the Center on Race, Poverty and the Environment, the Sierra Club, and the Kern Audubon Society challenging the Board’s January 21, 2003, approvals under the California Environmental Quality Act (“CEQA”). On October 24, 2003, the Court issued a tentative decision in which it determined that the First EIR approved by the Board failed to comply with CEQA and ordered certain portions of the First EIR to be revised and reconsidered by the Board in accordance with CEQA. The Court voided the First EIR on two grounds. First, the Court found that there was not sufficient evidence that the First EIR adequately described the impacts the TIC-East Specific Plan would have on the air quality of the San Joaquin Valley air basin. Second, two “species of concern” (i.e. species not listed under the state and federal endangered species acts but which are required to be discussed in environmental impact reports if they could be affected by a development) found on or near the project site were not specifically discussed in the First EIR, due to a mistake by the consulting biologists.

Based on the findings of the Court in the February 2003 Lawsuit, an amended environmental impact report (the “Amended EIR”) was prepared for the TIC-East development, which was approved by the Board on November 8, 2005, and submitted to the Court. (See “Amended Environmental Impact Report” below.) On March 24, 2006, Tejon Ranchcorp received a favorable ruling from the Court that cleared the way for expansion of the Tejon Industrial Complex pursuant to the TIC-East Specific Plan by dismissing the legal challenges to the project. On June 28, 2006, plaintiffs filed an appeal of the ruling. On April 16, 2007, the Fifth District Court of Appeal, in Fresno, California, ruled that the Court’s decision was correct and affirmed the ruling that expansion of the Tejon Industrial Complex could proceed.

2005 Approvals. On November 8, 2005, in addition to the approval of the Amended EIR, the Board approved several discretionary land use entitlements for the development of TIC-East, as well as a Development Agreement (as defined herein), as further described below. The actions taken by the Board on November 8, 2005 described below, and certain additional approvals granted by the Director of Planning in October 2005, July 2008, and November 2008, described under the caption “—Controls Governing Development” below, are hereafter collectively referred to as the “TIC-East Development Approvals.”

In particular, the Board adopted the following resolutions and ordinances on November 8, 2005:

(a) Resolution No. 2005-466 and Ordinance No. G-7308 accepting General Plan Amendment Case No. 4, Map No. 202, accepting General Plan Amendment Case No. 6, Map No. 219, adopting the TIC-East Specific Plan, which established the zoning for the property within the TIC-East Specific Plan area and amended the Land Use, Open Space, and Conservation Element of the Kern County General Plan from Map Codes 7.1 (Light Industrial) and 8.4 (Mineral and Petroleum) to Map Code 4.1 (Accepted County Plan Area), and adopting a Specific Plan Line, which amended the Circulation Element to delete section line (arterial) alignments and midsection line (collector) alignments, and changing Laval Road from a collector to an arterial road within the TIC-East Specific Plan area;

(b) Resolution No. 2005-467, Ordinance No. G-7309, and Ordinance No. G-7310 approving a change in zone classification from M-1 PD (Light Industrial-Precise Development Combining), C-2 PD (General Commercial – Precise Development Combining), and A (Exclusive Agriculture), to TIC-East Specific Plan Designation GI (General Industrial);

(c) Resolution No. 2005-468 and Ordinance No. G-7311 approving a statutory development agreement for the District pursuant to California Government Code Section 65864 et seq. (the “Development Agreement”), which Development Agreement had been negotiated by Tejon Industrial Corp. and the County;

(d) Resolution No. 2005-469 excluding 959 acres of the property from Agricultural Preserve No. 19; and

(e) Resolution No. 2005-470 canceling the contractual land use restrictions enacted by the Williamson Act contract on 130 acres located in Agricultural Preserve No. 19.

Controls Governing Development. Pursuant to CEQA, a Notice of Determination regarding the adopted resolutions and ordinances referred to above was filed on November 10, 2005. The actions taken by the Board on November 8, 2005, establish the various types of permitted uses that can be developed within the TIC-East area.

The development of TIC-East is principally governed by the Development Agreement, the TIC-East Specific Plan, and the conditions of approval associated with (i) Vesting Tentative Parcel Map 10915, which was conditionally approved in October 2005 (the “Vesting Tentative Parcel Map”), and (ii) Parcel Map 10915- A, which was recorded for Phase A in July 2008, and Parcel Map 10915-B, which was recorded for Phase B in November 2008 (collectively, the “Parcel Maps”), which Vesting Tentative Parcel Map and Parcel Maps cover all developable property within the TIC-East boundaries.

Development within TIC-East is also governed by any and all applicable requirements of any other governmental agency having jurisdiction in the District. Receiving entitlements (and related permits) for improvement of individual parcels in the TIC-East development generally requires a complete submittal of a precise development plan, compliance with the applicable comprehensive plan and all applicable zoning and subdivision codes, compliance with all applicable conditions imposed by the Parcel Maps and the Vesting Tentative Parcel Map, and compliance with applicable requirements of any other governmental agency having jurisdiction in the District.

Amended Mitigation Measure Monitoring Program

On November 8, 2005, pursuant to the provisions of CEQA, the Board (i) certified the Amended EIR, (ii) pursuant to CEQA Guidelines Section 15091, adopted Findings and Facts in Support of Findings Relating to Significant Environmental Impacts of the Tejon Industrial Complex, and (iii) pursuant to Section 15093 of the CEQA Guidelines, adopted a Statement of Overriding Considerations. The Board also adopted an Amended Mitigation Measure Monitoring Program, which relates to conditions of approval on the various land use entitlements approved by the Board on November 8, 2005. The Amended Mitigation Measure Monitoring Program, which must be complied with as a condition of future development of the land within the District, includes the following mitigation measures and requirements:

(a) Provision of a cultural resources monitor during excavation activities on the site to help insure the protection of any buried cultural resources;

(b) Provisions relating to a conservation plan to mitigate for loss of endangered species or habitat;

(d) Shielded lighting on the perimeter of the project site to prevent spillage into the remaining natural and open space areas;

(e) The requirement that any multiple occupancy dwellings must meet State noise insulation standards if they are along a noise impact source, and construction activities must adhere to the County’s noise element standards;

(f) County road and state highway improvements for access to and circulation within the site, which improvements will be developed in phases;

(g) Dust control plans approved by the San Joaquin Valley Air Pollution Control District;

(h) Energy efficiency plans;

(i) Water conservation measures, which must be incorporated into construction;

(j) The requirement that the construction and operation of the wastewater treatment plan shall be in accordance with State and Federal laws;

(k) Erosion control measures with regard to stormwater runoff and flooding, which must be included in plans;

(l) The requirement that an on-site recycling area must be created and coordinated for processing and disposal;

(m) Schedule agreements with the Kern Regional Transit Authority;

(n) Performance of health risk assessments with regard to toxic air contaminants emitted by owners and operators of stationary equipment and the need for emission control equipment;

(o) Site and parking circulation review for reduction of queuing, idling time, and alternative fuel uses;

(p) Traffic and pedestrian flow measures;

(q) Proper oil well abandonment, notifications, and remediation;

(r) Development setbacks from the Mobil Oil pump station;

(s) The requirement that water distribution lines for fire protection shall be above minimum standards and all site structures must be built to or exceed County requirements; and

(t) A fire protection mitigation program with the Kern County Fire Department and County law enforcement, including the dedication of a fire station site and the contribution of funds towards the construction of a fire station.

Certain provisions of the Amended Mitigation Measure Monitoring Program and the Amended EIR contemplate conditions and mitigation measures with regard to potential impacts to endangered or threatened species. Mitigation measures have been imposed that include monitoring during grading and construction activities to protect against the taking of endangered species. Biological surveys of the Tejon Industrial Complex have not identified the presence of threatened or endangered species on the land within the District.

The Development Agreement

The Development Agreement was recorded November 17, 2005, and became effective on December 8, 2005 (the “Effective Date”). The Development Agreement provides a contractual vested right to Tejon Industrial Corp. to proceed with development of the TIC-East development in accordance with the TIC- East Development Approvals and all rules, regulations, and official policies of the County in effect on the effective date of the Development Agreement for a period of ten years thereafter, subject to certain exceptions stated therein. To the extent that development has not been completed by December 2015, the remaining development will no longer be covered by the Development Agreement and will need to comply with the applicable land use and building requirements in effect when development occurs. Tejon Industrial Corp. is not aware of any changes in the County's rules, regulations or official policies that have occurred since the Effective Date of the Development Agreement that, upon the expiration of the Development Agreement in December 2015, would adversely affect Tejon Industrial Corp.’s ability to develop TIC-East as presently

contemplated. There can be no assurance, however, that such development will not be adversely affected by future County, State or federal rules, regulations, laws, or policies. See “SPECIAL RISK FACTORS – Failure to Develop Properties.”

Future Approvals and Challenges; No Assurances.

The Authority and Tejon Industrial Corp. each believes that all necessary environmental action has been taken with respect to the formation of the District and the commencement and completion of development within the Tejon Industrial Complex, including TIC-East. With regard to the TIC-East Development Approvals and approvals of the Vesting Tentative Parcel Map and the Parcel Maps referenced above, the applicable statute of limitations to bring a legal action challenging such approvals has expired.

Estimated Sources and Uses of Funds and Projected Cash Flow

Table 6 below summarizes the actual expenditures through March 31, 2010, for development of the public infrastructure related to TIC-East and the projected sources and uses of funds to complete the infrastructure and site development work for the remaining development as currently proposed. The table does not include the cost of any building improvements that are expected to be financed by the owners or lessees of individual parcels, but does include those development costs that, at a minimum, are necessary in order to sell commercial and industrial lots within TIC-East.

No assurance can be given that any of the projected revenues, costs, or other amounts shown in Table 6 will be achieved. Actual cash flow will depend on future events, such as the rate of land sales and actual costs of infrastructure development. Any available cash that is received by Tejon Industrial Corp. is periodically transferred to Tejon Ranchcorp and is not retained by Tejon Industrial Corp. for any significant time. To the extent Tejon Industrial Corp. needs cash to fund its operations, it is expected that Tejon Ranchcorp will advance amounts for that purpose. Tejon Ranchcorp has no legal obligation to fund any internal loans or to make any cash contributions to Tejon Industrial Corp. While it is currently expected that Tejon Ranchcorp will loan or contribute funds to Tejon Industrial Corp. to the extent needed to complete Tejon Industrial Corp.’s planned development within TIC-East, there is no guarantee that Tejon Ranchcorp will choose to do so under all circumstances.

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TABLE 6(1) PROJECTED CASH FLOW ANALYSIS FOR TEJON INDUSTRIAL COMPLEX- EAST

2009 and Description Prior Years 2010 2011 2012 2013 2014 2015 2016 2017 Revenues Land Sales $0 $ 0 $ 0 $3,794,947 $ 0 $4,591,886 $ 0 $ 9,260,304 $10,186,334 Leases and Joint Ventures 0 395,125 545,183 1,250,000 1,350,000 1,737,608 5,487,498 2,425,863 3,382,556 Terminal Value of Leases and Joint Ventures(2) 0 0 0 0 0 0 0 0 0 Total Revenues $0 $395,125 $545,183 $5,044,947 $1,350,000 $6,329,494 $5,487,498 $11,686,167 $13,568,890

Costs Development Costs ($23,794,913) ($3,512,101) ($243,100) ($3,264,308) ($454,850) ($951,030) ($2,310,816) ($10,827,154) ($9,730,417) Marketing, General and Administrative Expenses, and Property Taxes (2,253,166) (594,467) (849,439) (1,111,061) (869,168) (1,200,739) (983,026) (1,720,719) (2,451,905) Total Costs ($26,048,079) ($4,106,569) ($1,092,539) ($4,375,369) ($1,324,018) ($2,151,769) ($3,293,842) ($12,547,873) ($12,182,322)

Cash Flow Before Financing and Income Taxes ($26,048,079) ($3,711,444) ($547,356) $669,578 $25,982 $4,177,725 $2,193,656 ($861,706) $ 1,386,568

Mello Roos Funding 0 10,860,000 0 5,698,600 0 0 4,958,390 10,623,878 14,121,303 Total Financing Cash Flow $ 0 $10,860,000 $ 0 $5,698,600 $ 0 $ 0 $4,958,390 $10,623,878 $14,121,303

Total Projected Cash Flow Before Income Taxes(3)(4) ($26,048,079) $ 7,148,556 ($547,356) $6,368,177 $25,982 $4,177,725 $7,152,046 $9,762,172 $15,507,871

(1) Certain columns may not total due to rounding. (2) All unsold industrial sites are expected to be sold to end users who construct on the buildable parcels delivered by Tejon Industrial Corp. All unsold commercial sites are assumed to be leased with a terminal value calculated using an 8.0% capitalization rate. The terminal value calculated does not represent current cash flow available in 2026. (3) Tejon Ranchcorp contributed funds to Tejon Industrial Corp. to fund all expenditures through 2009. (4) Available cash is transferred upon receipt to Tejon Ranchcorp. It is expected that Tejon Ranchcorp will contribute to Tejon Industrial Corp. amounts needed to fund the expenditures described above; however, Tejon Ranchcorp has no legal obligation to fund such amounts. Source: Tejon Industrial Corp.

TABLE 6 PROJECTED CASH FLOW ANALYSIS(1) FOR TEJON INDUSTRIAL COMPLEX- EAST (CONTINUED)

Description 2018 2019 2020 2021 2022 2023 2024 2025 2026 Total Revenues Land Sales $11,204,967 $12,325,464 $13,558,011 $13,546,712 $ 8,202,596 $ 9,022,856 $ 9,925,142 $ 4,185,101 $ 0 $109,804,320 Leases and Joint Ventures 4,349,922 5,590,313 7,118,023 8,859,738 11,392,320 13,456,514 14,481,034 15,348,822 15,887,651 113,058,170 Terminal Value of Leases and Joint Ventures(2) 0 0 0 0 0 0 0 0 208,508,517 208,508,516 Total Revenues $15,554,889 $17,915,777 $20,676,034 $22,406,450 $19,594,916 $22,479,370 $24,406,176 $19,533,923 $224,396,168 $431,371,006

Costs Development Costs ($10,882,731) ($13,195,360) ($3,134,719) ($4,494,226) $ 0 ($3,406,736) ($3,240,348) $ 0 $ 0 ($93,442,809) Marketing, General and Administrative Expenses, and Property Taxes (1,882,124) (2,198,312) (2,302,375) (2,402,996) (2,634,305) (1,701,299) (1,816,631) (1,247,284) (13,628,908) (41,847,924) Total Costs ($12,764,855) ($15,393,672) ($5,437,094) ($6,897,222) ($2,634,305) ($5,108,034) ($5,056,979) ($1,247,284) ($13,628,908) ($135,290,733)

Cash Flow Before Financing and Income Taxes $2,790,034 $2,522,105 $15,238,940 $15,509,228 $16,960,611 $17,371,336 $19,349,197 $18,286,639 $210,767,260 $296,080,273

Mello Roos Funding $14,121,303 $ 8,099,361 0 $ 0 $ 7,000,000 $ 0 $ 6,000,000 $ 0 $ 0 $ 81,482,835 Total Financing Cash Flow $14,121,303 $ 8,099,361 $ 0 $ 0 $ 7,000,000 $ 0 $ 6,000,000 $ 0 $ 0 $ 81,482,835

Total Projected Cash Flow Before Income Taxes(3)(4) $16,911,337 $10,621,466 $15,238,940 $15,509,228 $23,960,611 $17,371,336 $25,349,197 $18,286,639 $210,767,260 $377,563,108

Appraisal

The following information regarding ownership of property in the District included in the Appraisal has been included because it is considered relevant to an informed evaluation of the 2010 Bonds. The inclusion in this Official Statement of information related to existing owners of property should not be construed to suggest that the 2010 Bonds, or the Special Taxes that will be used to pay the 2010 Bonds, are recourse obligations of the property owners. A property owner may sell or otherwise dispose of land within the District or a development or any interest therein at any time. Development may also be abandoned at any time.

The Appraisal was prepared to provide the Appraiser’s best estimate of market value of the fee simple interest of the Appraised Property subject to the Special Tax lien as of June 14, 2010. A copy of the Appraisal is set forth in APPENDIX B—“APPRAISAL REPORT” and should be read in its entirety.

A summary of the appraised values reported in the Appraisal are as follows:

Category Owners Appraised Value Zone Group I Tejon Industrial Corp. $ 10,994,000 Zone 1 Group II East Travel Plaza LLC 23,400,000 Zone 1 Group III Tejon Industrial Corp. 9,400,000 Zone 1 Group IV Multiple(1) 6,886,000 Zone 2 TOTAL $ 50,680,000

(1) Owners include Tejon Ranch Co., Tejon Ranchcorp and Tejon Industrial Corp. Source: Bruce Hull and Associates, Inc.

The property in Group I in the Appraisal includes land parcels that benefit from newly constructed off-site infrastructure, including widened roadways, sidewalks, streetlights, curbs, gutters, drainage and other backbone infrastructure. These Group I parcels are served by water and sewer treatment facilities. The sellable land in Group I constitutes approximately 236 acres, and is all owned by Tejon Industrial Corp. In valuing the land in Group I, the Appraiser has created a hypothetical assumption that portions of two larger parcels have been parcelized into four smaller parcels totaling approximately 6 gross acres. The Appraiser believes that the subdivision of these parcels, which are adjacent to an existing cul-de-sac, is consistent with how development occurred at TIC-West and will likely occur on these parcels. Should this subdivision not occur, the value of this land could be reduced from what is concluded in the Appraisal. The land within Group I was valued using the developer’s method, a derivation of the income approach, in conjunction with the sales comparison approach. The valuation within Group I was based on a $90,000 retail price per industrial acre and an approximately $610,000 per acre retail price for small-pad commercial sites. In the discounted cash flow, the Appraiser assumed a 1.6% annual Consumer Price Index inflation rate and 1.5% in sales costs. In the discounted cash flow analysis, the Appraiser used a 20% discount rate for industrial land and a 25% discount rate for commercial land. Of the approximately 236 acres valued in Group I, 227 are planned for industrial use and approximately 9 for commercial use.

The property in Group II is the East Travel Plaza property, which is developed with a travel center and truck stop. The Group II property, comprising approximately 65 acres, was valued using a sales comparison approach and a cost approach. The Group II property consists of two single-story buildings totaling approximately 34,000 gross square feet constructed in 2009. One building, the travel center, includes a convenience store, food courts and various amenities for travelers. The second building, a truck stop building, contains three truck service bays, a small convenience store, a quick-service restaurant, storage and office space. The Appraiser valued the structures in Group II at a depreciated cost of $17,500,000 and the 39 acres constituting the primary site on which these buildings are located at $5,945,940. The Appraiser considered 7.49 acres of the Group II land as surplus available for sale to another user, which was valued at $1,141,925, bringing the total value for Group II based on the cost approach to $24,587,865. The sales comparison

approach resulted in a value of $23,228,000. The Appraiser concluded on a value of $23,400,000 for the property in Group II.

The Group III property comprises approximately 723 acres, all of which is owned by Tejon Industrial Corp., and is currently undeveloped and primarily in use for agriculture. The Appraiser assumes that it will take at least ten years to absorb the Group I property before any Group III property will develop. The Appraiser believes that the highest and best use of the Group III property is an interim agricultural use with a speculative industrial/commercial use. Given the long development timeline for Group III property, the Appraisal valued the property at $13,000 per acre, for a total valuation of $9,400,000.

The Group IV property is all located in Zone 2 of the District and totals approximately 904 acres, with sellable lot acreage totaling approximately 861 acres. The property is in agricultural use or lying fallow. Based on a sales comparison approach, the Appraiser valued the Group IV property at $8,000 per acre, for a total of $6,886,000.

In arriving at the estimated value of the Appraised Property, the Appraiser also has relied on several assumptions and limiting conditions all of which are set forth in Appendix B. Certain key assumptions are that there are no hidden or unapparent conditions of the property, subsoil or structures that render it more or less valuable, that all required licenses, certificates of occupancy or other legislative or administrative authority can be obtained, that the costs of development of the Tejon Industrial Complex provided by Tejon Industrial Corp. are accurate and that no hazardous and/or toxic waste exists on the property. See “SPECIAL RISK FACTORS-Hazardous Substances” herein. To the extent that the assumptions and limiting conditions are not realized with respect to the Appraised Property, the value of the these parcels could be significantly less than that estimated by the Appraiser.

SPECIAL RISK FACTORS

The purchase of the 2010 Bonds involves a high degree of investment risk and, therefore, the 2010 Bonds are not suitable investments for many types of investors. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the 2010 Bonds. This discussion does not purport to be comprehensive or definitive. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in the District to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the Authority to make full and punctual payments of debt service on the 2010 Bonds. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in the District. See “—Property Values” and “—Limited Secondary Market” below.

Concentration of Ownership

The concentration of property ownership in the District presents a risk to the owners of the 2010 Bonds in that the delinquency of one or more major taxpayers could result in a rapid depletion of the Reserve Fund and a default in the payment of the 2010 Bonds.

All of the property owners currently subject to the Special Tax are under the common control, directly or indirectly, of Tejon Ranch Co. and, unless and until property is sold to unrelated owners, Tejon Ranch Co. will be responsible, directly or indirectly, for paying 100% of the Special Tax levy. See “THE COMMUNITY FACILITIES DISTRICT—Principal Taxpayers” and “THE DEVELOPMENT AND PROPERTY OWNERSHIP—The Landowners.” Until the sale of additional parcels, the receipt of the Special Taxes is dependent on the willingness and the ability of the current landowners to pay the Special Taxes when due. Failure of the current landowners, or any successor, to pay the annual Special Taxes when due could result in a default in payments of the principal of, and interest on, the 2010 Bonds, when due. See “—Failure to Develop Properties” below.

No assurance can be given that Tejon Industrial Corp. and Tejon Ranchcorp, or their successors, will complete the intended construction and development in the District. See “—Failure to Develop Properties” below. As a result, no assurance can be given that Tejon Industrial Corp. and the other landowners within the District will continue to pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See “—Bankruptcy and Foreclosure” below, for a discussion of certain limitations on the District’s ability to pursue judicial proceedings with respect to delinquent parcels.

A concentration of ownership could exist even upon completion of the proposed development. It is possible that the present landowners will choose to lease rather than sell the developable parcels in TIC-East, in which case the existing concentration of ownership could continue indefinitely.

Competition

TIC-East is in direct competition for customers with other industrial sites in Northern, Central, and Southern California and is also in competition with other highway interchange locations using Interstate 5 and State Route 99 for commercial leasing opportunities. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP—Tejon Industrial Complex—Market Overview.”

TIC-East could face direct competition from TIC-West, located immediately across Interstate 5 to the west. It is possible that potential owners or lessees will purchase or lease space in TIC-West rather than space in the portion of TIC-East located within the District. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP—Tejon Industrial Complex.”

The competition with other locations could result in a slower buildout in the District than is currently projected, resulting in a continuing concentration of ownership and reliance on Special Taxes being paid from undeveloped property. See “—Concentration of Ownership” and “—Failure to Develop Properties.”

Limited Obligations

The 2010 Bonds and interest thereon are not payable from the general funds of the Authority. Except with respect to the Special Taxes, neither the credit nor the taxing power of the County, the Water District, the District or the Authority is pledged for the payment of the 2010 Bonds or the interest thereon, and, except as provided in the Fiscal Agent Agreement, no Owner of the 2010 Bonds may compel the exercise of any taxing power by the District or the Authority or force the forfeiture of any Authority or District property. The principal of, premium, if any, and interest on the 2010 Bonds are not a legal or equitable pledge, charge, lien or encumbrance upon any of the Authority’s property or upon any of the Authority’s income, receipts or revenues, except the Special Tax Revenues and other amounts pledged under the Fiscal Agent Agreement. Special Tax Revenues could be insufficient to pay debt service on the 2010 Bonds as a result of delinquencies in the payment of Special Taxes or the insufficiency of proceeds derived from the sale of land within the District following a delinquency in the payment of the applicable Special Tax. The Authority has no obligation to pay debt service on the 2010 Bonds in the event of insufficient Special Tax Revenues except to the extent that money is available for such purpose in the Reserve Fund. The Authority’s only obligation with respect to delinquent Special Taxes is to pursue judicial foreclosure proceedings under the circumstances described in the Fiscal Agent Agreement. See “SOURCES OF PAYMENT FOR THE 2010 BONDS— Special Taxes—Proceeds of Foreclosure Sales.”

Insufficiency of Special Taxes; Release of Zone 2 Property

Under the Rate and Method, the annual amount of Special Tax to be levied on each taxable parcel in the District will generally be based on whether such parcel is categorized as Undeveloped Property or as Developed Property and on the land use class to which a parcel of Developed Property is assigned. See APPENDIX A—“RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES” and “SOURCES OF PAYMENT FOR THE 2010 BONDS—Special Taxes—Method of Apportionment of Special Tax.”

The Rate and Method governing the levy of the Special Tax expressly exempts up to 175 acres of property within Zone 1 of the District, which is publicly owned, owned by a property owner association or reserved as open space. If for any reason property within the District becomes exempt from taxation by reason of ownership by a non-taxable entity such as the federal government or another public agency, subject to the limitations of the maximum authorized rates, the Special Tax will be reallocated to the remaining taxable properties within the District. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the ability and willingness of the owners of such property to pay the Special Tax when due.

Moreover, if a substantial portion of land within the District became exempt from the Special Tax because of public ownership, or otherwise, the maximum Special Tax which could be levied upon the remaining property within the District might not be sufficient to pay principal of and interest on the 2010 Bonds when due and a default could occur with respect to the payment of such principal and interest.

Although Zone 2 property is subject to the Special Tax, the District does not expect to levy any Special Tax on Zone 2 property for the repayment of the Bonds. The District expects that Zone 2 property will be released from its obligation to pay Special Taxes in the future in accordance with the provisions of Section I of the Rate and Method. The District does not give any assurance as to whether or when Zone 2 property will be released from its obligation to pay Special Taxes.

Failure to Develop Properties

Undeveloped or partially developed land is inherently less valuable than developed land and provides less security to the Bondowners should it be necessary for the Authority to foreclose on the property due to the nonpayment of Special Taxes. The failure to complete development of the required infrastructure in the District as planned, or substantial delays in the development of the remaining undeveloped property in the District due to litigation or other causes may reduce the value of the property within the District and increase the length of time during which Special Taxes will be payable from undeveloped property, and may affect the willingness and ability of the owners of property within the District to pay the Special Taxes when due.

Land development is subject to comprehensive federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health requirements, as well as numerous other matters. There is always the possibility that such approvals will not be obtained or, if obtained, will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such governmental requirements would adversely affect planned land development. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP—Status of Land Use Approvals for Future Development.”

The installation of the necessary infrastructure improvements and the construction of the proposed development are subject to the receipt of ministerial and discretionary approvals from a number of public agencies concerning the layout and design of the proposed development, the nature and extent of the improvements, land use, health and safety requirements and other matters. The failure to obtain any such approval could adversely affect the planned land development within the District. Tejon Industrial Corp. believes that it has obtained all discretionary approvals required to complete the development of TIC-East. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP—Land Use Approvals.” Moreover, there can be no assurance that land development operations within the District will not be adversely affected by future governmental policies, including, but not limited to, governmental policies to restrict or control development.

Under current California law, it is generally accepted that proposed development is not exempt from future land use regulations until a vested right to proceed has been perfected by obtaining a permit, generally a building permit, and performing substantial work and incurring substantial liabilities in good faith reliance on such permit. To date, building permits have been issued and improvements constructed on approximately 65 acres of developed property within the District. No building permits have been issued with respect to the

remaining 962 acres currently proposed for development in the District. However, Tejon Industrial Corp. does have a contractual vested right to proceed with the development of TIC-East in accordance with the TIC-East Development Approvals by virtue of having entered into a statutory Development Agreement with the County pursuant to Government Code Section 65864 et seq. The Development Agreement was adopted by County Ordinance G-7311 on November 8, 2005, was recorded on November 17, 2005 and became effective on December 8, 2005 (the “Effective Date”).

The Development Agreement provides that any subsequent discretionary land use approvals needed for the development of TIC-East are only subject to those rules, regulations and official policies of the County in effect on the Effective Date of the Development Agreement, and only subsequently enacted rules, regulations and official policies not in conflict with the TIC-East Development Approvals or reasonably necessary to protect the public health, safety and welfare can be applied. The Development Agreement is for a term of 10 years commencing on the its Effective Date, and may only be modified or cancelled by mutual consent of Tejon Industrial Corp. and the County, or the Development Agreement may only be modified or cancelled by the County unilaterally if, after a noticed public hearing, and following an annual periodic review, the Board of Supervisors finds, on the basis of substantial evidence, that Tejon Industrial Corp. has not proceeded in substantial good faith compliance with the terms of the Development Agreement. There can be no assurance that Tejon Industrial Corp. will comply with the terms of the Development Agreement or that the County will not terminate such agreement if Tejon Industrial Corp. fails to comply with its terms. The Development Agreement will expire by its terms on December 8, 2015 and the contracted vested right under the Development Agreement will not extend to any remaining development to be completed after that date. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP—The Development Agreement.”

In the past, a number of communities in California have placed on the ballot initiative measures intended to control the rate of future development. It is possible that future initiatives could be enacted, could become applicable to the proposed development and could negatively impact the ability of the current landowners, and their successors, to complete the proposed development. The application of future land use regulations to the proposed development could cause significant delays and cost increases in the completion of the development and could cause the property values within the District to decrease substantially from those estimated by the Appraiser.

Notwithstanding the Development Agreement, there can be no assurance that land development operations within the District will not be adversely affected by a future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies and laws relating to real estate development, the income tax treatment of real property ownership, or the national economy. A slowdown of the development process and the absorption rate could adversely affect property values and reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the 2010 Bonds when due.

Bondowners should assume that any event that significantly impacts the ability to develop the remaining acres in the District planned for development would cause the property values within the District to decrease substantially from those estimated by the Appraiser and could affect the willingness and ability of the owners of such land to pay the Special Taxes when due.

Undeveloped property is less valuable per unit of area than developed land, especially if there are no plans to develop such land or if there are severe restrictions on the development of such land. Undeveloped property also provides less security to the Bondowners should it be necessary for the District to foreclose on undeveloped property due to the nonpayment of the Special Taxes. Furthermore, an inability to develop the land within the District as currently proposed will make the Bondowners dependent upon timely payment of the Special Taxes levied on undeveloped property for a longer period of time than projected. Because all of the land within the District is currently owned by four owners with common ownership, the timely payment of the 2010 Bonds depends upon the willingness and ability of this limited group of owners to pay the Special Taxes levied on the taxable property when due. See “—Concentration of Ownership” above. A slowdown or

stoppage in the continued development of the District could reduce the willingness and ability of the owners of the remaining undeveloped land to make Special Tax payments and could greatly reduce the value of such property in the event it has to be foreclosed upon. See “—Property Values” below.

Possible Release or Reduction of Letter of Credit

The Fiscal Agent Agreement requires that a Letter of Credit in a stated amount equal to the maximum debt service payable on the 2010 Bonds for any two-year period that the 2010 Bonds will be outstanding, excluding for such purpose an amount equal to two times the debt service due on the 2010 Bonds which is payable from Special Taxes levied in the most recent Fiscal Year on Developed Property and Update Property. As a condition to the issuance of the 2010 Bonds, Tejon Ranchcorp will provide to the Fiscal Agent a Letter of Credit of Wells Fargo Bank, N.A. in the amount of $2,189,197 in satisfaction of this requirement. Proceeds of a draw on the Letter of Credit may only be used to pay the principal of and interest on the 2010 Bonds when due in the event of a failure to pay Special Taxes on parcels in the District (other than Developed Property and Update Property), and will be reduced or released in accordance with the terms of the Fiscal Agent Agreement. The initial Letter of Credit will pertain to all of the parcels owned by Tejon Ranchcorp and Tejon Industrial Corp. in Zone 1. See “SOURCES OF PAYMENT FOR THE 2010 BONDS—Reserve Fund and Letter of Credit” and APPENDIX D—“SUMMARY OF FISCAL AGENT AGREEMENT.”

Purchasers of the 2010 Bonds should not expect a Letter of Credit to be in effect throughout the term of the 2010 Bonds.

Endangered Species

During the last several years, there has been an increase in activity at the State and federal level related to the possible listing of certain plant and animal species found in the Central Valley area as endangered species. An increase in the number of endangered species is expected to curtail development in a number of areas. New species are proposed to be added to the State and federal protected lists on a regular basis by the California Fish and Game Commission or the United States Fish and Wildlife Service. As described below, Tejon Industrial Corp. has received approval of mitigation measures that address existing issues regarding endangered species and the development of TIC-East. Any action by the State or federal governments to protect species located on or adjacent to the property within the District which are not included within the existing mitigation measures could negatively impact the ability of an owner of the undeveloped land within the District to complete the remaining development planned within the District or could increase the cost of development. This, in turn, could reduce the likelihood of timely payment of the Special Taxes and would likely reduce the value of the land estimated by the Appraiser and the potential revenues available at a foreclosure sale for delinquent Special Taxes. See “Failure to Develop Properties” and “Property Values.”

Certain endangered and protected species, including the San Joaquin kit fox, migratory birds and the blunt nosed leopard lizard, inhabit land in the southern San Joaquin Valley, although they have not been found to be present in the District. Mitigation measures related to the protection of endangered species have, nonetheless, been imposed on the development of land within the District. These measures include monitoring during grading and construction activities to ensure that endangered species will not be taken. According to Tejon Industrial Corp., such mitigation measures are not expected to adversely affect the scope, location, size, or type of development planned within the District. See “THE DEVELOPMENT AND PROPERTY OWNERSHIP—Status of Land Use Approvals—Habitat Conservation Mitigation Measures.”

Natural and Manmade Disasters

The District, like all California communities, may be subject to unpredictable seismic activity, fires, floods or other natural disasters. Southern Kern County is a seismically active area. The Pleito Thrust Fault has been mapped just southwest of the District and the White Wolf Fault to the north. At least 7 active faults have been recognized within or very near the southern San Joaquin Valley. The property within the District

has the potential to experience moderate to high ground shaking during a seismic event. Seismic activity from these or other faults represents potential risk for damage to buildings, roads, bridges and property within the District in the event of an earthquake. There is significant potential for destructive ground-shaking during the occurrence of a major seismic event. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such an event.

In the event of a severe earthquake, fire, flood or other natural or manmade disaster, there may be significant damage to both property and infrastructure in the District. As a result, a substantial portion of the property owners may be unable or unwilling to pay the Special Taxes when due. In addition, the value of land in the District could be diminished in the aftermath of such a natural or manmade disaster, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Taxes.

Hazardous Substances

The presence of hazardous substances on a parcel may result in a reduction in the value of the parcel. In general, the owners and operators of a parcel may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property, whether or not the owner or operator had anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the taxed parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the estimated costs of remedying the condition to the level required by government agencies, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.

Further, it is possible that liabilities may arise in the future with respect to any of the parcels resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. 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.

Neither the Authority nor Tejon Industrial Corp. has knowledge of any hazardous substances being located on the property within the District. Diesel, gasoline, lubricants, and solvents are being used at the East Travel Plaza. East Travel Plaza LLC has purchased environmental contamination insurance to provide funds to pay for any cleanup of fuels and other contaminants that may be released from underground storage tanks. The underground storage tanks at the East Travel Plaza are new tanks meeting all current requirements. Tejon Industrial Corp, which owns the property on which the former Truckstops of America and Chevron facilities are located, benefits from the cleanup and indemnity obligations included in lease documents. The former Truckstops of America and Chevron facilities have been razed, and these sites are in final stages of remediation activities. These activities are expected to be completed by September 2010.

Parity Taxes, Special Assessments and Land Development Costs

The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special taxes and special assessments levied by other agencies and is co-equal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. The Special Taxes have priority over all existing and future private liens imposed on the property except, possibly, for liens or security interests held by the Federal Deposit Insurance Corporation (“FDIC”) or other federal agencies. See “—FDIC/Federal Government Interests in Properties” below.

Development of land within the District is contingent upon construction or acquisition of major public improvements such as arterial streets, water distribution facilities, sewage collection and transmission facilities, drainage and flood protection facilities, gas, telephone and electrical facilities, as well as local in- tract improvements and on-site grading and related improvements. Certain of these improvements have been acquired and/or completed; however, there can be no assurance that the remaining improvements will be constructed or will be constructed in time for development to proceed as currently expected. The cost of these additional improvements plus the public and private in-tract, on-site and off-site improvements could increase the public and private debt for which the land within the District is security. This increased debt could reduce the ability or desire of the property owners to pay the annual Special Taxes levied against the property. In that event there could be a default in the payment of principal of, and interest on, the 2010 Bonds when due.

Neither the Authority nor the District has control over the ability of other entities and districts to issue indebtedness secured by ad valorem taxes, special taxes or assessments payable from all or a portion of the property within the District. In addition, the landowners within the District may, without the consent or knowledge of the Authority, petition other public agencies to issue public indebtedness secured by special taxes or assessments. Any such ad valorem taxes, special taxes or assessments may have a lien on such property on a parity with the Special Taxes and could reduce the estimated value-to-lien ratios for property within the District described herein.

Disclosures to Future Purchasers

The willingness or ability of an owner of a parcel to pay the Special Tax even if the value of the parcel is sufficient may be affected by whether or not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel, was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum tax rate and the risk of such a levy and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. The Authority has caused a notice of the Special Tax lien to be recorded in the Office of the Recorder for the County against each parcel. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a property within the District or lending of money thereon.

The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit subject to a Mello-Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section 1102.6(b) requires that in the case of transfers of residential property, other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.

Special Tax Delinquencies

Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of principal of, and interest on, the 2010 Bonds are derived, are customarily billed to the properties within the District on the ad valorem property tax bills sent to owners of such properties. The Act currently provides that such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do ad valorem property tax installments.

See “SOURCES OF PAYMENT FOR THE 2010 BONDS—Special Tax—Proceeds of Foreclosure Sales,” for a discussion of the provisions which apply, and procedures which the Authority is obligated to follow under the Fiscal Agent Agreement, in the event of delinquencies in the payment of Special Taxes. See “—Bankruptcy and Foreclosure” below, for a discussion of the policy of FDIC regarding the payment of

special taxes and assessment and limitations on the Authority’s ability to foreclosure on the lien of the Special Taxes in certain circumstances.

Non-Cash Payments of Special Taxes

Under the Act, the Board of Directors may reserve to itself the right and authority to allow the owner of any taxable parcel to tender a Bond in full or partial payment of any installment of the Special Taxes or the interest or penalties thereon. A Bond so tendered is to be accepted at par and credit is to be given for any interest accrued thereon to the date of the tender. Thus, if Bonds can be purchased in the secondary market at a discount, it may be to the advantage of an owner of a taxable parcel to pay the Special Taxes applicable thereto by tendering a Bond. Such a practice would decrease the cash flow available to the Authority to make payments with respect to other Bonds then outstanding; and, unless the practice was limited by the Authority, the Special Taxes paid in cash could be insufficient to pay the debt service due with respect to such other Bonds. In order to provide some protection against the potential adverse impact on cash flows which might be caused by the tender of Bonds in payment of Special Taxes, the Fiscal Agent Agreement includes a covenant pursuant to which the Authority will not authorize owners of taxable parcels to satisfy Special Tax obligations by the tender of Bonds unless the Authority shall have first obtained a report of an Independent Financial Consultant certifying that doing so would not result in the Authority having insufficient Special Tax Revenues to pay the principal of and interest on all Outstanding 2010 Bonds and any Parity Bonds when due.

Payment of the Special Tax is not a Personal Obligation of the Owners

An owner of a taxable parcel is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation which is secured only by a lien against the taxable parcel. If the value of a taxable parcel is not sufficient, taking into account other liens imposed by public agencies, to secure fully the Special Tax, the Authority has no recourse against the owner.

Property Values

The value of the property within the District is a critical factor in determining the investment quality of the 2010 Bonds. If a property owner is delinquent in the payment of Special Taxes, the Authority’s only remedy is to commence foreclosure proceedings in an attempt to obtain funds to pay the Special Taxes. Reductions in property values due to a downturn in the economy, physical events such as earthquakes, fires or floods, stricter land use regulations, delays in development or other events will adversely impact the security underlying the Special Taxes. See “THE COMMUNITY FACILITIES DISTRICT—Estimated Assessed Value-to-Lien Ratios” and “—Estimated Value-to-Lien Ratios Based on Appraisal” herein.

The assessed values set forth in this Official Statement do not represent market values arrived at through an appraisal process and generally reflect only the sales price of a parcel when acquired by its current owner, adjusted annually by an amount determined by the Kern County Assessor, generally not to exceed an increase of more than 2% per fiscal year. No assurance can be given that a parcel could actually be sold for its assessed value.

The Appraisal report indicates a total land and improvement value as of June 14, 2010 of $50,680,000 for the Appraised Property. The Appraiser has valued the Appraised Property on the basis of certain definitions, assumptions and limiting conditions contained in the Appraisal. The estimated value-to-lien ratios for various categories of parcels within Zone 1 of the District based upon property values and property ownership in the District as set forth in the Appraisal and, assuming no change in ownership and no changes in property values, ranges from a low of 1.30 to 1 to a high of 10.47 to 1 based on the projected Fiscal Year 2010- 11 Special Tax levy. Using these same assumptions, the estimated value-to-lien ratios for the Zone 1 property as a whole is 3.46 to 1.

The Appraisal is based on the assumptions as stated in APPENDIX B—“APPRAISAL REPORT.” The Appraisal does not reflect any possible negative impact which could occur by reason of future slow or no growth voter initiatives, any potential limitations on development occurring due to time delays, an inability of Tejon Industrial Corp. or any other landowner to obtain any needed development approval or permit, the presence of hazardous substances within the District, the presence of endangered species or the determination that habitat for endangered or threatened species exists within the District. The presence of any of these factors could reduce the value of the land within the District from that estimated by the Appraiser. See “— Failure to Develop Properties” and “—Endangered Species” above.

Prospective purchasers of the 2010 Bonds should not assume that the Appraised Property within the District could be sold for the appraised amount described in the Appraisal at a foreclosure sale for delinquent Special Taxes. In arriving at the estimates of value, the Appraiser assumes that any sale will be unaffected by undue stimulus and will occur following a reasonable marketing period, which is not always present in a foreclosure sale. See Appendix B for a description of other assumptions made by the Appraiser and for the definitions and limiting conditions used by the Appraiser.

No assurance can be given that, should a parcel with delinquent Special Taxes be foreclosed upon and sold for the amount of the delinquency, any bid will be received for such property or, if a bid is received, that such bid will be sufficient to pay all delinquent Special Taxes. See “SOURCES OF PAYMENT FOR THE 2010 BONDS—Proceeds of Foreclosure Sales.”

FDIC/Federal Government Interests in Properties

The ability of the Authority to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which FDIC, the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest. In the event that any financial institution making any loan which is secured by real property within the District is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, then the ability of the Authority to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be limited.

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

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

information available from the Kern County assessment roll, the FDIC does not currently own any of the property in the District.

The FDIC has taken a position similar to that expressed in the Policy Statement in legal proceedings brought against Orange County in United States Bankruptcy Court and in Federal District Court. The Bankruptcy Court issued a ruling in favor of the FDIC on certain of such claims. Orange County appealed that ruling, and the FDIC cross-appealed. On August 28, 2001, the Ninth Circuit Court of Appeals issued a ruling favorable to the FDIC except with respect to the payment of pre-receivership liens based upon delinquent property tax.

The Authority is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of Special Taxes on a parcel within the District in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, if enough property were to become owned by the FDIC, a default in payment on the 2010 Bonds.

Bankruptcy and Foreclosure

Bankruptcy, insolvency and other laws generally affecting creditors rights could adversely impact the interests of owners of the 2010 Bonds in at least two ways. First, the payment of property owners’ taxes and the ability of the Authority to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State relating to judicial foreclosure. See “SOURCES OF PAYMENT FOR THE 2010 BONDS—Special Taxes—Proceeds of Foreclosure Sales.” In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays.

Secondly, the Bankruptcy Code might prevent moneys on deposit in the Improvement Fund from being applied to pay interest on the 2010 Bonds and/or to redeem 2010 Bonds if bankruptcy proceedings were brought by or against Tejon Industrial Corp., Tejon Ranchcorp or Tejon Ranch Co. and if the court found that any of such entities had an interest in such moneys within the meaning of Section 541(a)(1) of the Bankruptcy Code.

Although a bankruptcy proceeding would not cause the Special Taxes to become extinguished, the amount of any Special Tax lien could be modified if the value of the property falls below the value of the lien. If the value of the property is less than the lien, such excess amount could be treated as an unsecured claim by the bankruptcy court. In addition, bankruptcy of a property owner could result in a delay in prosecuting Superior Court foreclosure proceedings. Such delay would increase the likelihood of a delay or default in payment of delinquent Special Tax installments and the possibility of delinquent Special Tax installments not being paid in full.

The various legal opinions to be delivered concurrently with the delivery of the 2010 Bonds (including Bond Counsel’s approving legal opinion) will be qualified, as to the enforceability of the various legal instruments, by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally.

No Acceleration Provision

The 2010 Bonds do not contain a provision allowing for the acceleration of the 2010 Bonds in the event of a payment default or other default under the 2010 Bonds or the Fiscal Agent Agreement.

Loss of Tax Exemption

As discussed under the caption “TAX MATTERS,” the interest on the 2010 Bonds could become includable in gross income for federal income tax purposes retroactive to the date of issuance of the 2010 Bonds as a result of a failure of the Authority to comply with certain provisions of the Internal Revenue Code of 1986, as amended. Should such an event of taxability occur, the 2010 Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under the redemption provisions of the Fiscal Agent Agreement.

The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax- exempt bond issues, including both random and targeted audits. It is possible that the 2010 Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2010 Bonds might be affected as a result of such an audit of the 2010 Bonds (or by an audit of similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the 2010 Bonds to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the 2010 Bonds or their market value.

It is possible that subsequent to the issuance of the 2010 Bonds there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the 2010 Bonds or the market value of the 2010 Bonds. No assurance can be given that subsequent to the issuance of the 2010 Bonds such changes or interpretations will not occur.

Limitations on Remedies

Remedies available to the owners of the 2010 Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the 2010 Bonds or to preserve the tax-exempt status of the 2010 Bonds.

Bond Counsel has limited its opinion as to the enforceability of the 2010 Bonds and of the Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditors’ rights, by equitable principles and by the exercise of judicial discretion. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the owners of the 2010 Bonds.

Limited Secondary Market

There can be no guarantee that there will be a secondary market for the 2010 Bonds or, if a secondary market exists, that such 2010 Bonds can be sold for any particular price. Although the Authority and Tejon Ranchcorp each has committed to provide certain required financial and operating information through the MSRB’s EMMA program, there can be no assurance that such information will be available to Bondowners on a timely basis. See “CONTINUING DISCLOSURE.” The failure to provide the required annual financial information does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price.

Proceedings to Reduce or Terminate the Special Tax

An initiative measure commonly referred to as the “Right to Vote on Taxes Act” (the “Initiative”) was approved by the voters of the State of California at the November 5, 1996 general election. The Initiative

added Article XIIIC and Article XIIID to the California Constitution. According to the “Title and Summary” of the Initiative prepared by the California Attorney General, the Initiative limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.” The Initiative could potentially impact the Special Taxes available to the Authority to pay the principal of and interest on the 2010 Bonds as described below.

Among other things, Section 3 of Article XIIIC states that “. . . the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.” The Act provides for a procedure which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On July 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code Section 5854, which states that:

“Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protected by Section 10 of Article I of the United States Constitution.”

Accordingly, although the matter is not free from doubt, it is likely that the Initiative has not conferred on the voters the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the 2010 Bonds.

It may be possible, however, for voters or the Board of Directors acting as the legislative body of the District to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the 2010 Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the 2010 Bonds. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. Nevertheless, to the maximum extent that the law permits it to do so, the Authority has covenanted that it will not initiate proceedings under the Act to reduce the maximum Special Tax rates that may be levied on parcels in Zone 1 of the District to less than an amount equal to 110% of annual debt service on the Outstanding Bonds and Parity Bonds plus the amount reasonably necessary to pay the annual Administrative Expenses. In connection with the foregoing covenant, the Authority has made a legislative finding that this covenant is necessary to assure the timely payment of the Bonds. No assurance can be given as to the enforceability of the foregoing covenant.

The interpretation and application of the Initiative will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination or the timeliness of any remedy afforded by the courts. See “SPECIAL RISK FACTORS—Limitations on Remedies.”

Ballot Initiatives

Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID were adopted pursuant to measures qualified for the ballot pursuant to California’s constitutional initiative process. From time to time, other initiative measures could be adopted by California voters. The adoption of any such initiative might place limitations on the ability of the State, the Authority or local districts to increase revenues or to increase appropriations or on the ability of the landowners within the District to complete the remaining proposed development. See “SPECIAL RISK FACTORS—Failure to Develop Properties” herein.

CONTINUING DISCLOSURE

Pursuant to the Continuing Disclosure Agreement of the Authority (the “Continuing Disclosure Agreement of the Authority”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as dissemination agent (the “Dissemination Agent”), the Authority, for and on behalf of the District, has agreed to provide, or cause to be provided, certain financial information and operating data concerning the District on an annual basis. The Annual Report to be filed by the Authority for and on behalf of the District is to be filed not later than December 1 of each year, beginning December 1, 2010, and is to include audited financial statements of the Authority. The requirement that the Authority file its audited financial statements as a part of the Annual Report has been included in the Continuing Disclosure Agreement of the Authority solely to satisfy the provisions of the Rule. The inclusion of this information does not mean that the 2010 Bonds are secured by any resources or property of the Authority other than as described herein. See “SOURCES OF PAYMENT FOR THE 2010 BONDS” and “SPECIAL RISK FACTORS—Limited Obligations.” During the last five years, the Authority has not failed to comply with its previous undertakings with regard to the Rule. The full text of the Continuing Disclosure Agreement of the Authority is set forth in Appendix E.

To assist the Underwriter in complying with the Rule, Tejon Ranchcorp will enter into a certain Continuing Disclosure Agreement of Tejon Ranchcorp, by and between Tejon Ranchcorp and the Dissemination Agent (the “Continuing Disclosure Agreement of Tejon Ranchcorp”) covenanting to provide an Annual Report not later than June 15 of each year beginning June 15, 2011, and a Semiannual Report on each December 15, beginning December 15, 2010, until such time as the infrastructure to be constructed within the District with the proceeds of the 2010 Bonds and any Parity Bonds is complete. The Annual Report provided by Tejon Ranchcorp is to contain the audited financial statements of Tejon Ranch Co., and the Annual Report and the Semiannual Report will contain additional financial and operating data outlined in Section 4 of the Continuing Disclosure Agreement of Tejon Ranchcorp attached in Appendix F. Tejon Ranchcorp has never failed to comply with its previous undertaking with regard to the Rule to provide annual reports or notices of material events.

Tejon Ranchcorp’s obligations under the Continuing Disclosure Agreement of Tejon Ranchcorp will terminate upon the earliest to occur of: (a) the legal defeasance, prior redemption or payment in full of all the 2010 Bonds; (b) the date on which the property owned by Tejon Ranchcorp and all affiliates of Tejon Ranchcorp is no longer responsible for the payment of more than 20 percent of the annual Special Tax levy; provided, however, if Tejon Industrial Corp. has not yet completed the installation of the infrastructure necessary for development of the lots to a finished condition, the termination will not occur until such infrastructure is complete; (c) the date upon which all development planned within the District has been completed and occupied; or (d) the date on which Tejon Ranchcorp delivers to the Authority an opinion of nationally-recognized bond counsel to the effect that the continuing disclosure required under the Continuing Disclosure Agreement of Tejon Ranchcorp is no longer required. Tejon Ranchcorp has also agreed that if it, or any of its affiliates, sells or transfers an ownership interest in any property in the District which will result in the transferee becoming responsible for the payment of 20 percent of the annual Special Tax levy in the fiscal year following such transfer, Tejon Ranchcorp, or one of its affiliates, as applicable, will cause any such transferee to enter into a disclosure agreement described in Section 12 of the Continuing Disclosure Agreement of Tejon Ranchcorp attached hereto in Appendix F.

The Continuing Disclosure Agreement of Tejon Ranchcorp will inure solely to the benefit of Tejon Ranchcorp, the Authority, any Dissemination Agent, the Underwriter and owners or beneficial owners from time to time of the 2010 Bonds. The failure of the Authority or Tejon Ranchcorp to comply with any continuing disclosure obligation is not a default under the Fiscal Agent Agreement, and the only remedies available in the event of any such failure are as provided in the Continuing Disclosure Agreement of the Authority and the Continuing Disclosure Agreement of Tejon Ranchcorp. See Appendix E and Appendix F.

TAX MATTERS

Federal tax law contains a number of requirements and restrictions which apply to the 2010 Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The Authority has covenanted to comply with all requirements that must be satisfied in order for the interest on the 2010 Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the 2010 Bonds to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the 2010 Bonds.

Subject to the Authority’s compliance with the above-referenced covenants, under existing law, in the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, (i) interest on the 2010 Bonds is excludable from the gross income of the owners thereof for federal income tax purposes, (ii) is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations and (iii) is not taken into account in computing “adjusted current earnings” as described below. The Internal Revenue Code of 1986, as amended (the “Code”), includes provisions for an alternative minimum tax (“AMT”) for corporations in addition to the corporate regular tax in certain cases. The AMT for a corporation, if any, depends upon the corporations’ alternative minimum taxable income (“AMTI”), which is the corporations’ taxable income with certain adjustments. One of the adjustment items used in computing the AMTI of a corporation (with certain exceptions) is an amount equal to 75% of the excess of such corporation’s “adjusted current earnings” over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction). “Adjusted current earnings” would generally include certain tax-exempt interest, but not interest on the Bonds.

In rendering its opinion, Bond Counsel will rely upon certifications of the Authority with respect to certain material facts within its knowledge. Bond Counsel’s opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result.

Ownership of the 2010 Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the 2010 Bonds should consult their tax advisors as to applicability of any such collateral consequences.

The issue price (the “Issue Price”) for each maturity of the 2010 Bonds is the price at which a substantial amount of such maturity of the 2010 Bonds is first sold to the public. The Issue Price of a maturity of the 2010 Bonds may be different from the price set forth, or the price corresponding to the yield set forth, on the inside cover page hereof.

Owners of 2010 Bonds who dispose of 2010 Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase 2010 Bonds in the initial public offering, but at a price different from the Issue Price or purchase 2010 Bonds subsequent to the initial public offering should consult their own tax advisors.

If a 2010 Bond is purchased at any time for a price that is less than the 2010 Bond’s stated redemption price at maturity (the “Reduced Issue Price”), the purchaser will be treated as having purchased a 2010 Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser’s election, as it accrues. Such treatment would apply to any purchaser who purchases a 2010 Bond for a price that is less than its Revised Issue Price. The applicability of the market discount rules may adversely affect the liquidity

or secondary market price of such 2010 Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the 2010 Bonds.

An investor may purchase a 2010 Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as “bond premium” and must be amortized by an investor on a constant yield basis over the remaining term of the 2010 Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax-exempt bond. The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor’s basis in the 2010 Bond. Investors who purchase a 2010 Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the 2010 Bond’s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the 2010 Bond.

There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the 2010 Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the 2010 Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation.

The Internal Revenue Service (the “Service”) has an ongoing program of auditing tax exempt obligations to determine whether, in the view of the Service, interest on such tax exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the 2010 Bonds. If an audit is commenced, under current procedures the Service may treat the Authority as a taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome.

Payments of interest on, and proceeds of the sale, redemption or maturity of, tax exempt obligations, including the 2010 Bonds, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any 2010 Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any 2010 Bond owner who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes.

In the further opinion of Bond Counsel, interest on the 2010 Bonds is exempt from California personal income taxes.

Ownership of the 2010 Bonds may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the 2010 Bonds. Prospective purchasers of the 2010 Bonds should consult their tax advisors regarding the applicability of any such state and local taxes.

The complete text of the final opinion that Bond Counsel expects to deliver upon issuance of the 2010 Bonds is set forth in Appendix G.

LEGAL MATTERS

The legal opinion of Bond Counsel approving the validity of the 2010 Bonds in the form set forth as Appendix G hereto, will be made available to purchasers of the 2010 Bonds at the time of initial delivery of the 2010 Bonds. Certain legal matters will be passed upon for the Authority by its counsel. Certain legal matters

will be passed on for the Authority by Disclosure Counsel, for Tejon Ranchcorp and its related entities by Goodwin Procter LLP and for the Underwriter by Nossaman LLP. Such counsel express no opinion to the owners of the 2010 Bonds as to the accuracy, completeness or fairness of this Official Statement or other offering materials relating to the 2010 Bonds, and, in certain cases, expressly disclaim any duty to advise the owners of the 2010 Bonds as to matters related to the Official Statement.

ABSENCE OF LITIGATION

No litigation is known to the Authority to be pending or threatened concerning the validity of the 2010 Bonds or the pledge of Special Taxes to repay the 2010 Bonds and a certificate of the Authority to that effect will be furnished to the Underwriter at the time of the original delivery of the 2010 Bonds. The Authority is not aware of any litigation pending or threatened which questions the existence of the District or the Authority or contests the authority of the Authority to levy and collect the Special Taxes or to issue and retire the 2010 Bonds.

NO RATING

The Authority has not made and does not contemplate making application to any rating agency for the assignment of a rating for the 2010 Bonds.

UNDERWRITING

The 2010 Bonds are being purchased by the Underwriter. The Underwriter has agreed to purchase the 2010 Bonds at a price of $12,463,911.80 (being the aggregate principal amount thereof in the amount of $12,670,000, less an Underwriter’s discount in the amount of $206,088.20). The purchase agreement relating to the 2010 Bonds provides that the Underwriter will purchase all of the 2010 Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in such purchase agreement, the approval of certain legal matters by counsel and certain other conditions.

The Underwriter may offer and sell the 2010 Bonds to certain dealers and others at prices lower than the offering price stated on the cover page hereof. The offering price may be changed from time to time by the Underwriter.

FINANCIAL INTERESTS

The fees being paid to the Underwriter, Disclosure Counsel and Bond Counsel are contingent upon the issuance and delivery of the 2010 Bonds. From time to time, Bond Counsel and Disclosure Counsel represent the Underwriter on matters unrelated to the 2010 Bonds.

When the District was initially formed, two members of the Board of Directors and the Executive Director, Treasurer and Secretary of the Authority were officers and employees of Tejon Ranchcorp. Other than the Treasurer, those individuals no longer serve in that capacity. One member of the Board of Directors of the Authority is an officer of Tejon Ranch Co. and its affiliates. Two members of the Board of Directors of the Authority are appointed by the Water District, the Board of which is controlled by Tejon Ranch Co. and its affiliates, as the majority landowners within the Water District.

PENDING LEGISLATION

The Authority is not aware of any significant pending legislation which would have material adverse consequences on the 2010 Bonds or the ability of the Authority to pay the principal of and interest on the 2010 Bonds when due.

ADDITIONAL INFORMATION

The purpose of this Official Statement is to supply information to prospective buyers of the 2010 Bonds. Quotations and summaries and explanations of the 2010 Bonds and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents for full and complete statements and their provisions.

The execution and delivery of this Official Statement by the Executive Director of the Authority has been duly authorized by the Board of Directors acting in its capacity as the legislative body of the District.

TEJON RANCH PUBLIC FACILITIES FINANCING AUTHORITY for and on behalf of COMMUNITY FACILITIES DISTRICT NO. 2008-1 (TEJON INDUSTRIAL COMPLEX PUBLIC IMPROVEMENTS — EAST)

By: /s/ Brent Dezember Executive Director

APPENDIX A

RATE AND METHOD OF APPORTIONMENT FOR TEJON RANCH PUBLIC FACILITIES FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 2008-1 (TEJON INDUSTRIAL COMPLEX PUBLIC IMPROVEMENTS - EAST)

A Special Tax as hereinafter defined shall be levied on all Assessor’s Parcels in Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements - East) (“CFD No. 2008-1”) and collected each Fiscal Year commencing in Fiscal Year 2008- 2009, in an amount determined by the Treasurer through the application of this Rate and Method of Apportionment as described below. All of the real property in CFD No. 2008-1, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent and in the manner herein provided.

A. DEFINITIONS

The terms hereinafter set forth have the following meanings:

“Acre” or “Acreage” means the land area of an Assessor’s Parcel as shown on an Assessor’s Parcel Map, or if the land area is not shown on an Assessor’s Parcel Map, the land area shown on the applicable final map, parcel map, condominium plan, or other recorded County parcel map.

“Act” means the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California.

“Administrative Expenses” means the following actual or reasonably estimated costs directly related to the administration of CFD No. 2008-1, as determined by the Treasurer: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the Financing Authority or designee thereof or both); the costs of collecting the Special Taxes (whether by the County or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agent Agreement; the costs to the Financing Authority, CFD No. 2008-1 or any designee thereof of complying with arbitrage rebate requirements; the costs to the Financing Authority, CFD No. 2008-1 or any designee thereof of complying with Financing Authority, CFD No. 2008-1 or obligated persons disclosure requirements associated with applicable federal and state securities laws and of the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the Financing Authority, CFD No. 2008-1 or any designee thereof related to an appeal of the Special Tax; the costs associated with the release of funds from an escrow account; and the Financing Authority’s annual administration fees and third party expenses. Administrative Expenses shall also include amounts estimated or advanced by the Financing Authority or CFD No. 2008-1 for any other administrative purposes of CFD No. 2008-1, including attorney’s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes.

“Affiliate” means with respect to any person or entity, (i) each person or entity that, directly or indirectly, owns or controls, whether beneficially or as a trustee, guardian, or other fiduciary, fifty percent (50%) or more of any class of equity securities of such person or entity, (ii) each person or entity that controls, is controlled by or is under common control with such person or entity or any Affiliate of such person or entity, or (iii) each of such person’s or entity’s joint venturers and general partners; provided, however, that in no case shall the Financing Authority be deemed to be an Affiliate.

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“Assessor’s Parcel” means a lot or parcel shown in an Assessor’s Parcel Map with an assigned Assessor’s Parcel number.

“Assessor’s Parcel Map” means an official map of the Assessor of the County designating parcels by Assessor’s Parcel number.

“Assigned Special Tax” means the Special Tax for each Land Use Class of Developed Property, as determined in accordance with Section C below.

“Backup Special Tax” means the Special Tax applicable to each Assessor’s Parcel of Developed Property in Zone 1 as determined in accordance with Section C below.

“Board” means the Board of Directors of the Tejon Ranch Public Facilities Financing Authority, acting as the legislative body of CFD No. 2008-1.

“Bonds” means any bonds or other debt (as defined in Section 53317(d) of the Act), whether in one or more series, issued by CFD No. 2008-1 under the Act.

“Building Square Footage” or “Building Square Foot” means the total square footage of the building(s) located on an Assessor’s Parcel, measured from outside wall to outside wall, exclusive of overhangs, porches, patios, carports, or similar spaces attached to the building but generally open on at least two sides, as determined by reference to the building permit(s) issued for that Assessor’s Parcel, or if these are not available, as otherwise determined by the Treasurer.

“CFD No. 2008-1” means Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements - East).

“Commercial Property” means, for each Fiscal Year, all Assessor’s Parcels of Non-Residential Property, excluding Travel Plaza Property, Hotel/Motel Property, and Industrial Property.

“County” means the County of Kern.

“Developed Property” means, for each Fiscal Year, all Taxable Property, exclusive of Taxable Property Owner Association Property, Taxable Public Property or Taxable Open Space Property, for which a foundation building permit for new construction was issued after January 1, 2007 and prior to May 1 of the prior Fiscal Year.

“Escrow Fund” means the escrow fund or other fund or account by whatever name into which proceeds of the Bonds have been deposited, which proceeds (or a portion thereof) are to be made available to pay for authorized facilities upon the satisfaction of certain conditions set forth in the Fiscal Agent Agreement.

“Financing Authority” means the Tejon Ranch Public Facilities Financing Authority.

“Fiscal Year” means the period starting July 1 and ending on the following June 30.

“Fiscal Agent” means the fiscal agent or trustee under the Fiscal Agent Agreement.

“Fiscal Agent Agreement” means the indenture, fiscal agent agreement, resolution or other instrument .pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing or supplementing the same.

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“Ground Floor Building Square Footage” or “Ground Floor Building Square Foot” means, for an Assessor’s Parcel of Hotel/Motel Property, the total square footage located on the ground floor of the building(s) located on such Assessor’s Parcel, measured from outside wall to outside wall, exclusive of overhangs, porches, patios, carports, or similar spaces attached to the building but generally open on at least two sides, as determined by reference to the building permit(s) issued for that Assessor’s Parcel, or if these are not available, as otherwise determined by the Treasurer.

“Hotel/Motel Property” means, for each Fiscal Year, all Assessor’s Parcels of Developed Property for which a building permit has been issued for building a non-residential structure that constitutes a place of lodging providing sleeping accommodations and related facilities for travelers.

“Independent Financial Consultant” means any financial consultant or firm of such consultants appointed and paid by CFD No. 2008-1 and who, or each of whom, (i) is in fact independent and not under domination of CFD No. 2008-1, the Financing Authority, or property owners in CFD No. 2008- 1, and (ii) is not an officer or employee of CFD No. 2008-1, the Financing Authority, or property owners in CFD No. 2008-1, but who may be regularly retained to prepare financial or other reports to CFD No. 2008-1, the Financing Authority or property owners in CFD No. 2008-1.

“Industrial Property” means, for each Fiscal Year, all Assessor’s Parcels of Developed Property for which a building permit(s) was issued for construction of a non-residential structure(s) which is primarily used for: manufacturing, procession, fabricating, assembly, refining, repairing, packaging, or treatment of goods, material or produce; research and development; and/or warehousing and wholesale distribution of goods, material, or produce, excluding Travel Plaza Property.

“Land Use Class” means any of the classes listed in Table 1 below.

“MAI” means an appraiser who has achieved an MAI designation, otherwise known as Member, Appraisal Institute.

“Maximum Special Tax” means the maximum Special Tax, determined in accordance with Section C below, that can be levied in any Fiscal Year on any Assessor’s Parcel.

“Non-Residential Property” means, for each Fiscal Year, all Assessor’s Parcels of Developed Property for which a building permit(s) was issued for a non-residential use.

“Open Space Property” means, for each Fiscal Year, any property within CFD No. 2008-1 that is owned in fee by, granted by easement to, or dedicated to a non-profit entity for purposes of preserving open space or for preserving land for wildlife or habitat purposes, as determined by the Treasurer, as of January 1 of the prior Fiscal Year.

“Outstanding Bonds” means, as of any date of determination, all Bonds which are then outstanding under the Fiscal Agent Agreement.

“Property Owner Association Property” means, for each Fiscal Year, any property within CFD No. 2008-1 that was owned by or irrevocably dedicated to a property owner association, including any master or sub-association, as of January 1 of the prior Fiscal Year.

“Proportionately” means for Developed Property that the ratio of the actual Special Tax levy to the Assigned Special Tax is equal for all Assessor’s Parcels of Developed Property within CFD No. 2008- 1. For Undeveloped Property, “Proportionately” means that the ratio of the actual Special Tax levy per Acre to the Maximum Special Tax per Acre is equal for all Assessor’s Parcels of Undeveloped Property in CFD No. 2008-1. For Taxable Property Owner Association Property, Taxable Public Property and Taxable Open Space Property, “Proportionately” means that the ratio of the actual

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Special Tax levy per Acre to the Maximum Special Tax per Acre is equal for all Assessor’s Parcels of Taxable Property Owner Association Property, Taxable Public Property and Taxable Open Space Property in CFD No. 2008-1.

“Public Property” means, for each Fiscal Year, any property within CFD No. 2008-1 that is owned by, irrevocably offered for dedication to, or dedicated to the federal government, the State, the County or any other public agency as of January 1 of the prior Fiscal Year; provided however that any property leased by a public agency to a private entity and subject to taxation under Section 53340.1 of the Act shall be taxed and classified in accordance with its use.

“Special Tax” means the special tax to be levied in each Fiscal Year on each Assessor’s Parcel of Taxable Property to fund the Special Tax Requirement.

“Special Tax Requirement” means that amount required in any Fiscal Year to: (i) pay debt service on all Outstanding Bonds; (ii) pay periodic costs on the Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds; (iii) pay Administrative Expenses; (iv) pay any amounts required to establish or replenish any reserve funds for all Outstanding Bonds; (v) pay directly for the acquisition or construction of facilities authorized to be financed by CFD No. 2008-1 to the extent that inclusion of such amount does not increase the Special Tax levy on Undeveloped Property; and (vi) pay for reasonably anticipated delinquent Special Taxes based on the historical delinquency rate for CFD No. 2008-1 as determined by the Treasurer; less (vii) a credit for funds available to reduce the annual Special Tax levy, as determined by the Treasurer pursuant to the Fiscal Agent Agreement.

“State” means the State of California.

“Taxable Open Space Property” means, for each Fiscal Year, all Assessor’s Parcels of Open Space Property that are not exempt pursuant to Section E below.

“Taxable Property” means, for each Fiscal Year, all of the Assessor’s Parcels within CFD No. 2008-1 which are not exempt from the Special Tax pursuant to law or Section E below.

“Taxable Property Owner Association Property” means, for each Fiscal Year, all Assessor’s Parcels of Property Owner Association Property that are not exempt pursuant to Section E below.

“Taxable Public Property” means, for each Fiscal Year, all Assessor’s Parcels of Public Property that are not exempt pursuant to Section E below.

“Travel Plaza Property” means Parcel 1 of Parcel Map 10915-A.

“Treasurer” means an official of the Financing Authority, or designee thereof, responsible for determining the Special Tax Requirement and providing for the levy and collection of the Special Taxes.

“Undeveloped Property” means, for each Fiscal Year, all Taxable Property not classified as Developed Property, Taxable Property Owner Association Property, Taxable Public Property, or Taxable Open Space Property.

“Update Property” means, for each Fiscal Year, an Assessor’s Parcel of Undeveloped Property for which a building permit has been issued after January 1, 2007, but which has not yet been classified as Developed Property.

“Zone” means Zone 1 or Zone 2, as applicable.

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“Zone 1” means all property within Zone 1, as identified on the boundary map included as Exhibit A.

“Zone 2” means all property within Zone 2, as identified on the boundary map included as Exhibit A.

B. ASSIGNMENT TO LAND USE CATEGORIES

Each Fiscal Year, all Taxable Property within CFD No. 2008-1 shall be assigned to a Zone and further classified as Developed Property (which shall be further classified as Travel Plaza Property, Commercial Property, Hotel/Motel Property, and Industrial Property), Taxable Property Owner Association Property, Taxable Public Property, Taxable Open Space Property, or Undeveloped Property, and shall be subject to Special Taxes in accordance with the rate and method of apportionment determined pursuant to Sections C and D below.

C. MAXIMUM SPECIAL TAX RATE

1. Developed Property

a. Maximum Special Tax in Zones 1 and 2

The Maximum Special Tax for each Assessor’s Parcel classified as Developed Property in Zone 1 and Zone 2 shall be the greater of (i) the amount derived by application of the Assigned Special Tax or (ii) the amount derived by application of the Backup Special Tax.

b. Assigned Special Tax in Zones 1 and 2

The Assigned Special Tax for Fiscal Year 2008-2009 for each Land Use Class in Zone 1 and Zone 2 is shown below in Table 1.

TABLE 1

Assigned Special Taxes for Developed Property in Zone 1 and Zone 2 For Fiscal Year 2008-2009 Community Facilities District No. 2008-1

Land Use Description Assigned Special Tax Class 1 Travel Plaza Property $4.96 per Building Square Foot 2 Commercial Property $3.50 per Building Square Foot 3 Hotel/Motel Property $3.50 per Ground Floor Building Square Foot 4 Industrial Property $4,792 per Acre

c. Backup Special Tax

The Fiscal Year 2008-2009 Backup Special Tax for an Assessor’s Parcel of Developed Property in Zone 1 shall equal $6,550 per Acre.

d. Increase in the Assigned Special Tax and Backup Special Tax

On each July 1, commencing on July 1, 2009, the Assigned Special Tax and the Backup Special Tax for an Assessor’s Parcel in Zone 1 shall be increased by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year.

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e. Elimination of the Backup Special Tax

The Backup Special Tax obligation of all Assessor’s Parcels in Zone 1 shall be permanently eliminated when the Treasurer determines that all of the following have occurred: (i) all of the Assessor’s Parcels in Zone 2 have been released from their obligation to pay the Special Tax as determined in Section I herein; (ii) no funds are being held in an Escrow Fund for the Bonds; (iii) all authorized Bonds have already been issued or the Financing Authority has covenanted that it will not issue any additional Bonds (except refunding bonds); (iv) the balance in the reserve fund established by the Fiscal Agent Agreement is at or above the Reserve Requirement; (v) CFD No. 2008-1 is current in the payment of interest on and principal of all Outstanding Bonds; and (vi) the Assigned Special Tax on all Assessor’s Parcels of Developed Property in CFD No. 2008-1, excluding the Assigned Special Taxes for Assessor’s Parcels which are currently delinquent in paying their Special Taxes, generates at least 110% of the annual debt service on all Outstanding Bonds in each Fiscal Year through the final maturity of the Bonds. In addition, the Backup Special Tax applicable to any Assessor’s Parcel shall be permanently eliminated upon a full, or permanently reduced upon a partial, prepayment of the Special Tax obligation in accordance with Section H, below.

2. Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property and Taxable Open Space Property

a. Maximum Special Tax

The Fiscal Year 2008-2009 Maximum Special Tax for Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Open Space Property in Zone 1 and Zone 2 shall equal $6,843 per Acre.

b. Increase in the Maximum Special Tax

On each July 1, commencing on July 1, 2009, the Maximum Special Tax for Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property and Taxable Open Space Property shall be increased by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year.

D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX

Commencing with Fiscal Year 2008-2009 and for each following Fiscal Year, the Treasurer shall determine the Special Tax Requirement and shall levy the Special Tax as follows:

Third: If additional monies are needed to satisfy the Special Tax Requirement after the first two steps have been completed, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of

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Undeveloped Property in Zone 2 at up to 100% of the Maximum Special Tax for Undeveloped Property;

Fourth: If additional monies are needed to satisfy the Special Tax Requirement after the first three steps have been completed, then the levy of the Special Tax on each Assessor’s Parcel of Developed Property in Zone 1 whose Maximum Special Tax is determined through the application of the Backup Special Tax shall be increased: in equal percentages from the Assigned Special Tax up to the Maximum Special Tax for each such Assessor’s Parcel;

Fifth: If additional monies are needed to satisfy the Special Tax Requirement after the first four steps have been completed, then the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Taxable Property Owner Association Property or Taxable Open Space Property in Zone 1 and Zone 2 at up to the Maximum Special Tax for Taxable Property Owner Association Property and Taxable Open Space Property;

E. EXEMPTIONS

No Special Tax shall be levied on up to 175 Acres of Property Owner Association Property, Public Property and/or Open Space Property in Zone 1. Tax-exempt status will be assigned by the Treasurer in the chronological order in which property becomes Property Owner Association Property, Public Property and/or Open Space Property. However, should an Assessor’s Parcel no longer be classified as Property Owner Association Property, Public Property or Open Space Property, its tax-exempt status will be revoked.

Property Owner Association Property, Public Property and/or Open Space Property that is not exempt from Special Taxes under this section shall be subject to the levy of the Special Tax and shall be taxed Proportionately as part of the fifth and sixth steps in Section D, above, at up to 100% of the applicable Maximum Special Tax for Taxable Property Owner Association Property, Taxable Public Property or Taxable Open Space Property.

F. MANNER OF COLLECTION

The Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes; provided, however, that CFD No. 2008-1 may directly bill the Special Tax, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on delinquent Assessor’s Parcels as permitted by the Act.

G. PROPERTY OWNER APPEALS OF SPECIAL TAX LEVIES

Any property owner claiming that the amount or application of the Special Tax is not correct and requesting a refund may file a written notice of appeal and refund to that effect with the Treasurer not later than one calendar year after having paid the Special Tax that is disputed. The Treasurer shall promptly review the appeal, and if necessary, meet with the property owner, consider written and oral evidence regarding the amount of the Special Tax, and decide the appeal. If the Treasurer’s decision requires that the Special Tax be modified or changed in favor of the property owner, a cash refund, shall not be made (except for the last year of levy), but an adjustment shall be made to the next Special Tax levy. Any dispute over the decision of the Treasurer shall be referred to the Board and the

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decision of the Board shall be final. This procedure shall be exclusive and its exhaustion by any property owner shall be a condition precedent to any legal action by such owner.

H. PREPAYMENT OF SPECIAL TAX

The following definitions apply to this Section H:

“CFD Public Facilities” means either $72.89 million in 2008 dollars, which shall increase by the Construction Inflation Index on July 1, 2009, and on each July 1 thereafter, or such lower number as (i) shall be determined by the Treasurer as sufficient to provide the public facilities to be provided by CFD No. 2008-1 under the authorized financing program for CFD No. 2008-1, or (ii) shall be determined by the Board concurrently with a covenant that it will not issue any more Bonds to be supported by Special Taxes levied under this Rate and Method of Apportionment.

“Construction Inflation Index” means the annual percentage change in the Engineering News-Record Building Cost Index for the City of Los Angeles, measured as of the calendar year which ends in the previous Fiscal Year. In the event this index ceases to be published, the Construction Inflation Index shall be another index as determined by the Treasurer that is reasonably comparable to the Engineering News-Record Building Cost Index for the City of Los Angeles.

“Future Facilities Costs” means the CFD Public Facilities minus (i) public facility costs previously paid from the Improvement Fund, (ii) moneys currently on deposit in the Improvement Fund, and (iii) moneys currently on deposit in an Escrow Fund that are expected to be available to finance facilities costs.

“Improvement Fund” means an account specifically identified in the Fiscal Agent Agreement to hold funds which are currently available for expenditure to acquire or construct public facilities eligible under the Act.

“Outstanding Bonds for Prepayment” means, as of any date of determination, all Previously Issued Bonds which are deemed to be outstanding under the Fiscal Agent Agreement after the first interest and/or principal payment date following the current Fiscal Year.

“Previously Issued Bonds” means all Bonds that have been issued by CFD No. 2008-1 prior to the date of prepayment.

1. Prepayment in Full

Any Assessor’s Parcel of Taxable Property, except for Assessor’s Parcels of Undeveloped Property for which a building permit has not been issued, may be prepaid. The Special Tax obligation applicable to such Assessor’s Parcel in CFD No. 2008-1 may be fully prepaid and the obligation of the Assessor’s Parcel to pay the Special Tax permanently satisfied as described herein; provided that a prepayment may be made only if there are no delinquent Special Taxes with respect to such Assessor’s Parcel at the time of prepayment. An owner of an Assessor’s Parcel intending to prepay the Special Tax obligation shall provide the Treasurer with written notice of intent to prepay. Within 30 days of receipt of such written notice, the Treasurer shall notify such owner of the prepayment amount of such Assessor’s Parcel. The Treasurer may charge a reasonable fee for providing this figure.

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The Prepayment Amount (defined below) shall be calculated as summarized below (capitalized terms as defined below):

Bond Redemption Amount plus Redemption Premium plus Future Facilities Amount plus Defeasance Amount plus Administrative Fees and Expenses less Reserve Fund Credit less Capitalized Interest Credit Total: equals Prepayment Amount

As of the proposed date of prepayment, the Prepayment Amount (defined below) shall be calculated as follows:

Paragraph No.:

1. Confirm that no Special Tax delinquencies apply to such Assessor’s Parcel.

2. For Assessor’s Parcels of Developed Property, compute the Assigned Special Tax and the Backup Special Tax for the Assessor’s Parcel to be prepaid. For Assessor’s Parcels of Update Property, compute the Assigned Special Tax and Backup Special Tax for that Assessor’s Parcel as though it was already designated as Developed Property, based upon the building permit which has already been issued for that Assessor’s Parcel. For all other Taxable Property, compute the Maximum Special Tax for that Assessor’s Parcel.

3. (a) Divide the Assigned Special Tax (for Assessor’s Parcels of Developed Property or Update Property) or the Maximum Special Tax (for all other Taxable Property), as applicable, computed pursuant to paragraph 2 by the total estimated Assigned Special Taxes for all of Zone 1 based on the Developed Property Special Taxes which could be charged in the current Fiscal Year on all expected development through buildout of Zone 1, excluding any Assessor’s Parcels which have been prepaid, and .

(b) Divide the Backup Special Tax (for Assessor’s Parcels of Developed Property or Update Property) or the Maximum Special Tax (for all other Taxable Property), as applicable, computed pursuant to paragraph 2 by the total estimated Backup Special Taxes at buildout for all of Zone 1, excluding any Assessor’s Parcels which have been prepaid.

4. Multiply the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the Outstanding Bonds for Prepayment to compute the amount of Outstanding Bonds for Prepayment to be retired and prepaid (the “Bond Redemption Amount”).

5. Multiply the Bond Redemption Amount computed pursuant to paragraph 4 by the applicable redemption premium, if any, on the Outstanding Bonds for Prepayment to be redeemed (the “Redemption Premium”).

6. Compute the current Future Facilities Costs.

7. Multiply the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the amount determined pursuant to paragraph 6 to compute the amount of Future Facilities Costs to be prepaid (the “Future Facilities Amount”).

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8. Compute the amount needed to pay interest on the Bond Redemption Amount from the first bond interest and/or principal payment date following the current Fiscal Year until the earliest redemption date for the Outstanding Bonds for Prepayment.

9. Determine the Special Taxes levied on the Assessor’s Parcel in the current Fiscal Year which have not yet been paid.

10. Compute the minimum amount the Treasurer reasonably expects to derive from the reinvestment of the Prepayment Amount less the Future Facilities Amount and the Administrative Fees and Expenses from the date of prepayment until the redemption date for the Outstanding Bonds for Prepayment to be redeemed with the prepayment.

11. Add the amounts computed pursuant to paragraphs 8 and 9 and subtract the amount computed pursuant to paragraph 10 (the “Defeasance Amount”).

12. Verify the administrative fees and expenses of CFD No. 2008-1, including the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming Bonds, and the costs of recording any notices to evidence the prepayment and the’ redemption (the “Administrative Fees and Expenses”).

13. The reserve fund credit (the “Reserve Fund Credit”) shall equal the lesser of (a) the expected reduction in the reserve requirement (as defined in the Fiscal Agent Agreement), if any, associated with the redemption of Outstanding Bonds for Prepayment as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement (as defined in the Fiscal Agent Agreement) in effect after the redemption of Outstanding Bonds for Prepayment as a result of the prepayment from the balance in the reserve fund on the prepayment date, but in no event shall such amount be less than zero.

14. If any capitalized interest for the Outstanding Bonds for Prepayment will not have been expended at the time of the first interest and/or principal payment following the current Fiscal Year, a capitalized interest credit shall be calculated by multiplying the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the expected balance in the capitalized interest fund after such first interest and/or principal payment (the “Capitalized Interest Credit”).

15. The Special Tax prepayment is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 7, 11 and 12, less the amounts computed pursuant to paragraphs 13 and 14 (the “Prepayment Amount”).

16. From the Prepayment Amount, the amounts computed pursuant to paragraphs 4, 5, 11, 13 and 14 shall be deposited into the appropriate fund as established under the Fiscal Agent Agreement and be used to retire Outstanding Bonds for Prepayment or make debt service payments. The amount computed pursuant to paragraph 7 shall be deposited into the Improvement Fund. The amount computed pursuant to paragraph 12 shall be retained by CFD No. 2008-1.

The Prepayment Amount may be sufficient to redeem other than a $5,000 increment of Bonds. In such cases, the increment above $5,000 or integral multiple thereof will be retained in the appropriate fund established under the Fiscal Agent Agreement to be used with the next prepayment of bonds or to make debt service payments.

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As a result of the payment of the current Fiscal Year’s Special Tax levy as determined under paragraph 9 (above), the Treasurer shall remove the current Fiscal Year’s Special Tax levy for such Assessor’s Parcel from the County tax rolls. With respect to any Assessor’s Parcel that is prepaid, the Board shall cause a suitable notice to be recorded in compliance with the Act, to indicate the prepayment of Special Taxes and the release of the Special Tax lien on such Assessor’s Parcel, and the obligation of such Assessor’s Parcel to pay the Special Tax shall cease.

Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Assigned Special Taxes that may be levied on Taxable Property within CFD No. 2008-1 both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds for Prepayment.

2. Prepayment in Part

The Maximum Special Tax on any Assessor’s Parcel of Developed Property and Update Property may be partially prepaid. The amount of the prepayment shall be calculated as in Section H.1; except that a partial prepayment shall be calculated according to the following formula:

PP = (PE — A) x F + A

These terms have the following meaning:

PP = the partial prepayment PE = the Prepayment Amount calculated according to Section H.1 F = the percent by which the owner of the Assessor’s Parcel(s) is partially prepaying the Maximum Annual Special Tax. A = the Administrative Fees and Expenses from Section H.1

The owner of an Assessor’s-Parcel who desires to partially prepay the Maximum Special Tax shall notify the Treasurer of (i) such owner’s intent to partially prepay the Maximum Special Tax, (ii) the percentage by which the Maximum Special Tax shall be prepaid, and (iii) the company or agency that will be acting as the escrow agent, if applicable. The Treasurer shall provide the owner with a statement of the amount required for the partial prepayment of the Maximum Special Tax for an Assessor’s Parcel within 30 days of the request and may charge a reasonable fee for providing this service.

With respect to any Assessor’s Parcel that is partially prepaid, the Financing Authority shall (i) distribute the funds remitted to it according to Paragraph 16 of Section H.1., and (ii) indicate in the records of CFD No. 2008-1 that there has been a partial prepayment of the Maximum Special Tax and that a portion of the Maximum Special Tax equal to the outstanding percentage (1.00 - F) of the remaining Maximum Special Tax shall continue to be authorized to be levied on such Assessor’s Parcel pursuant to Section D.

Notwithstanding the foregoing, no partial prepayment of a Special Tax shall be allowed -unless the amount of Assigned Special Taxes that may be levied on Taxable Property within CFD No. 2008-1 both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds for Prepayment.

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I. RELEASE OF OBLIGATION BY ZONE 2 PROPERTIES TO PAY SPECIAL TAXES TO SUPPORT CFD NO. 2008-1 BONDS

The following definition applies to this Section I:

“Applicable Bonds” means, as of any date of determination, all Bonds which are outstanding under the Fiscal Agent Agreement and any Bonds which are reasonably anticipated to be issued within a four month time period from the date of calculation of the release under this Section I.

All Bonds shall initially be secured through Special Taxes collected from Assessor’s Parcels within Zone 1, as well as Special Taxes collected from Zone 2, as outlined in Section D of this RMA. At the request of a property owner within Zone 2, the Treasurer shall undertake the seven tests listed below for purposes of evaluating the feasibility of relieving all of the Zone 2 properties simultaneously from their obligation to pay the Special Tax.

The Financing Authority may retain one or more Independent Financial Consultant(s) and an independent MAI appraiser to assist with the seven tests set forth below, and the costs of such Independent Financial Consultant(s) and appraiser shall be borne by the property owner requesting that the tests be conducted. For purposes of conducting these tests, all property classifications shall be updated to the date of calculation (i.e., Update Property shall be considered Developed Property) and values provided by an MAI appraisal that is consistent with the Financing Authority’s appraisal guidelines and satisfactory to the Financing Authority may be used.

The Treasurer shall permanently relieve all Assessor’s Parcels within Zone 2 from their obligations to pay the Special Tax, provided that all seven of the tests below are satisfied.

(1) Escrow Test Confirm that no funds are being held in any Escrow Fund;

(2) Full Reserve Fund Test Confirm that the current balance in the reserve fund established by the Fiscal Agent Agreement is at or above the Reserve Requirement;

(3) Development Status Test Confirm that the Assigned Special Taxes from Developed Property and Update Property within Zone 1, excluding the Assigned Special Taxes for any Assessor’s Parcels of Developed Property and Update Property within Zone 1 that are currently delinquent in paying their Special Taxes, are equal to or greater than 60% of the sum of the discounted maximum annual gross debt service for all Applicable Bonds. Maximum annual debt service shall be computed by determining the Fiscal Year in which occurs the maximum aggregate annual gross debt service for all Applicable Bonds and discounting that amount from such Fiscal Year to the current Fiscal Year using a discount rate reflecting the actual rate of increase (if any) of the debt service on the Bonds.

(4) Delinquency Test Confirm that the Special Tax delinquencies in Zone 1 for the current and all prior Fiscal Years are less than 5% of the total CFD No. 2008-1 Special Tax levy for such Fiscal Years, and confirm that there are no current or prior year tax delinquencies for all Assessor’s Parcels owned by the owner(s) or any Affiliate(s) of the owner(s) of any Zone 2 Assessor’s Parcels.

(5) Assigned Special Tax Coverage Test Confirm that based on the current development status of Zone 1, the Assigned Special Taxes for Developed Property in Zone 1, plus the Assigned Special Taxes that would have been

A-12

levied on Update Property in Zone 1 had it been considered Developed Property in the current Fiscal Year, plus the Maximum Special Taxes for all other Undeveloped Property in Zone 1, escalated by 2% per year for future Fiscal Year comparisons, generate revenues sufficient to provide 110% debt coverage as compared to the full amount required under item (i) of the Special Tax Requirement for all Applicable Bonds for the current and all future Fiscal Years.

(6) CFD No. 2008-1 Backup Special Tax Test Confirm that the Backup Tax as computed under Section C.1. for Zone 1 properties will provide 110% debt service coverage at buildout of CFD No. 2008-1 to support all Applicable Bonds.

(7) Value-to-Lien Test (i) Confirm that the sum of the values of all of the Assessor’s Parcels of Taxable Property in Zone 1 is currently equal to or greater than 4.0 times the sum of all Applicable Bonds, plus the aggregate principal amount of other assessment district; Mello-Roos or other land-secured municipal bonds which may be apportioned to these Assessor’s Parcels, based on such Assessor’s Parcels’ proportionate share of the current special assessment, Special Tax levy or other land-secured levy impacting such Assessor’s Parcels as determined by the Independent Financial Consultant(s).

(ii) For purposes of allocating the Applicable Bonds to particular Assessor’s Parcels of Undeveloped Properties in Section I.7.(iii) below, Applicable Bonds shall first be allocated to all Developed Property and Update Property using the following formula:

[(DPUP ÷ 1.1) ÷ DS] x 0B

DPUP = The sum of the Assigned Special Taxes that can be levied on Developed Property in Zone 1 in the current Fiscal Year plus the Assigned Special Taxes that could have been be levied on Update Property in Zone 1 in the current Fiscal Year, had such property been classified as Developed Property

DS = The full amount required under item (i) of the Special Tax Requirement for the current Fiscal Year (without any credit for available funds)

OB = Principal amount of Applicable Bonds

The Applicable Bonds not allocated to Developed Property and Update Property pursuant to the preceding formula shall be assigned proportionately on an Acreage basis to each of the remaining Assessor’s Parcels of Undeveloped Property in Zone 1.

(iii) Confirm that the sum of the current appraised values of the remaining Assessor’s Parcels of Undeveloped Property in Zone 1 for which building permits have not yet been issued, pursuant to the debt allocation methodology described in paragraph (ii) above, is equal to or greater than 3.0 times the sum of the Applicable Bonds allocated to such Assessor’s Parcels plus the aggregate principal amount of other assessment district, Mello-Roos or other land-secured municipal bonds based on such Assessor’s Parcels’ proportionate share of the current special assessment, special tax levy or other land-secured levy impacting such Assessor’s Parcels as determined by the Independent Financial Consultant(s).

All seven tests shall be completed no later than 60 days after the submittal of a request for release from a property owner within Zone 2. To the extent that the calculations for these seven tests are completed by July 1 of a Fiscal Year, and if the proposed release meets all seven of these tests, the Assessor’s Parcels in Zone 2 shall be relieved from any obligation to

A-13

support Bonds in the current Fiscal Year and any future Fiscal Years. With respect to any Assessor’s Parcel so released, the Financing Authority shall cause a suitable notice to be recorded to indicate the release of such Assessor’s Parcel from the obligation to pay the Special Tax.

J. TERM OF SPECIAL TAX

The Special Tax shall be levied for a period not to exceed sixty-five years commencing with Fiscal Year 2008-2009.

A-14

EXHIBIT A

SHEET 2 OF 2 PROPOSED BOUNDARIES OF TEJON RANCH PUBLIC FACILITIES FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 2008-1 (Tejon Industrial Complex Public Improvements - East) COUNTY OF KERN STATE OF CALIFORNIA

A-15

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APPENDIX B

APPRAISAL REPORT

B-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

SUMMARY APPRAISAL REPORT Valuation of Commercial/Industrial Properties

CFD NO. 2008-1 (TEJON INDUSTRIAL COMPLEX – EAST)

Prepared for Allen Lyda, Treasurer Tejon Ranch Public Facilities Financing Authority 4436 Lebec Road Lebec, CA 93243

Bruce W. Hull & Associates, Inc. • 1056 E. Meta Street, Suite 202 Ventura • California• 93001 Tel (805) 641-3275 • Fax (805) 641-3278 BRUCE W. HULL & ASSOCIATES INC. REAL ESTATE APPRAISERS & CONSULTANTS

June 14, 2010

Mr. Allen Lyda Tejon Ranch Public Facilities Financing Authority 4436 Lebec Road Lebec, CA 93243

Reference: Appraisal of lands and real property within CFD 2008-1 (Tejon Industrial Complex Public Improvements – East)

Dear Mr. Lyda:

At your request and authorization, we have prepared the attached appraisal report of the above-referenced properties.

We have valued the fee simple estate for the above-referenced property consistent with the Uniform Standards of Professional Appraisal Practice and the Appraisal Standards for Land-Secured Financings, issued by the California Debt and Investment Advisory Commission, subject to the CFD. The opinion of value is subject to one hypothetical condition.

As a result of this investigation, study and our knowledge and experience, the following market value has been assigned as of the effective date of June 14, 2010.

OPINION OF VALUE

GROUP I $10,994,000

GROUP II $23,400,000

GROUP III $9,400,000

GROUP IV $6,886,000

TOTAL $50,680,000 The preceding values are also stated subject to the limiting conditions and any hypothetical conditions, extraordinary assumptions and appraisers’ certiﬁcation included in the attached report.

This report is deﬁned as a Summary Appraisal Report, which is intended to comply with the reporting requirements set forth under Standards Rule 2-2 of the Uniform Standards of Professional Appraisal Practice, effective January 1, 2010, for a Summary Appraisal Report. It is intended to follow the standards set forth in Appraisal Standards for Land-Secured Financings, issued by the California Debt and Investment Advisory Commission and last updated in July 2004.

The following narrative summary appraisal report sets forth the data and analyses upon which our opinion of value is, in part, predicated.

Respectfully submitted,

BRUCE W. HULL & ASSOCIATES, INC.

Bruce W. Hull, MAI State Certiﬁed General Real Estate Appraiser (AG004964)

Jeremy Bagott State Certiﬁed General Real Estate Appraiser (AG031250)

Table of Contents

Assumptions and Limiting Conditions! 1

Hypothetical Conditions 3

Extraordinary Assumptions 3

Purpose of the Appraisal! 3

Intended Use of the Appraisal! 3

Client/Intended User! 3

Deﬁnitions! 4

Market Value 4

Cost Approach 4

Income Capitalization Approach 4

Sales Comparison Approach 5

Owners of Record within CFD! 5

Three-Year Sales History! 6

Relevant Dates! 6

The Subject Property! 7

Interest Appraised! 11

Scope of Work! 11

Viewing of Site 11

Research 11

Analysis 12

Reporting 12

Discussion of the Economy! 13

Yield Spreads 13

Yield Curves 13

Fed Funds Rate 14

Inﬂation 14

Fuel Prices 15

Gross Domestic Product 16

Unemployment 17

Consumer Sentiment 18

Purchasing, Goods and Retail 19

Retail 20

Housing 21

Commercial Real Estate 24

REIT Acquisitions 26

Consumer Credit 27

Conclusion 27

Area and Region Data! 29

Kern County – Economic Inﬂuences 29

Kern County Physical/Environmental Inﬂuences 34

Kern County Governmental Inﬂuences 34

Kern County Societal Inﬂuences 35

Bakersﬁeld Economic Inﬂuences 35

Bakersﬁeld Physical/Environmental Inﬂuences 37

Bakersﬁeld Governmental Inﬂuences 37

Bakersﬁeld Societal Inﬂuences 39

Summary of Subject Neighborhood and Property! 40

Tejon Ranch 40

Interstate 5 – The CFD’s Market Area 41

Interstate 5 in California 42

2008 AADTs along Interstate 5 in California 44

Subject CFD’s Immediate Area 46

Appraised Properties! 55

Discussion of Assessments and Taxes! 62

Ad Valorem Taxes 62

CFD Special Taxes 62

Property Group I! 64

Further Discussion of Industrial Land Sales 70

Conclusion of Retail Value for Industrial Lands 71

Property Group II! 76

Site Description 80

Improvements 81

Approaches Utilized 84

Service Station Sales 84

Service Station Sales 86

Service Station Listings 87

Sampling of California Service Station Floor-Area Ratios 87

Neighborhood and Convenience Center Sales 88

Shopping Center Comparables 89

Truck Stop Sales 90

Cost Approach 92

Historical Construction Costs 92

Cost Approach Conclusion 99

Property Group III! 100

Valuation 103

Property Group IV! 106

Permanent Crops vs. Row Crops in California 108

Valuation of Group IV 111

Reconciliation and Value Conclusion! 113

Reconciliation 113

Value Conclusion 113

Marketing and Exposure Time! 115

Marketing Time 115

Exposure Time 115

Certiﬁcation! 116

Addendum! 117

Assumptions and Limiting Conditions

1. This is a Summary Appraisal Report, which is intended to comply with the reporting requirements set forth under Standard Rule 2-2 of the Uniform Standards of Professional Appraisal Practice for a Summary Appraisal Report and the Appraisal Standards of the California Debt and Investment Advisory Commission. As such, it might not include full discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraisers’ opinion of value. Supporting documentation concerning the data, reasoning, and analyses is retained in the appraisers’ ﬁles. The information contained in this report is speciﬁc to the needs of the client and for the intended use stated in this report. The appraisers are not responsible for unauthorized use of this report.

2. No responsibility is assumed for legal or title considerations. Title to the property is assumed to be good and mar- ketable unless otherwise stated in this report.

3. The property is appraised free and clear of any or all liens and encumbrances unless otherwise stated in this report.

4. Responsible ownership and competent property management are assumed unless otherwise stated in this report.

5. The information furnished by others is believed to be reliable. However, no warranty is given for its accuracy.

6. All engineering is assumed to be correct. Any plot plans and illustrative material in this report are included only to assist the reader in visualizing the property.

7. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them.

8. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless otherwise stated in this report.

9. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless non- conformity has been stated, deﬁned, and considered in this appraisal report.

10. It is assumed that all required licenses, certiﬁcates of occupancy or other legislative or administrative authority from any local, state, or national governmental or private entity or organization have been or can be obtained or re- newed for any use on which the value estimates contained in this report are based.

11. Any sketch in this report may show approximate dimensions and is included to assist the reader in visualizing the property. Maps and exhibits found in this report are provided for reader reference purposes only. No guarantee as to accuracy is expressed or implied unless otherwise stated in this report. No survey has been made for the purpose of this report.

12. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless otherwise stated in this report.

13. The appraisers are not qualiﬁed to detect hazardous waste and/or toxic materials. Any comment by the appraisers that might suggest the possibility of the presence or absence of such substances should not be taken as conﬁrma-

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

1 tion of the presence or absence of hazardous waste and/or toxic materials. Such determination would require investigation by a qualiﬁed expert relating to asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials, which may affect the value of the property. The appraisers’ value estimate is predicated on the assumption that there is not such material on or in the property that would cause a loss in value unless otherwise stated in this report. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. The appraisers’ descriptions and resulting comments are the result of the routine observations made during the appraisal process.

14. Any proposed improvements are assumed to be completed in a good, workmanlike manner in accordance with the submitted plans and speciﬁcations.

15. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used.

16. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser, and in any event, only with proper qualiﬁcation and only in its entirety.

17. Neither all nor any part of the contents of this report shall be conveyed to any person or entity, other than the appraisers’ client, through advertising, solicitation materials, public relations, news, sales, or other media without the written consent and approval of the author, particularly as to valuation conclusions, the identity of the appraisers or the ﬁrm with which the appraisers are connected, or any reference to the Appraisal Institute or MAI designation. Further, the appraisers or ﬁrm assumes no obligations, liability, or accountability to any third party. If this report is placed in the hands of anyone but the client, client shall make such party aware of all the assumptions and limiting conditions of the assignment.

18. The Americans with Disabilities Act (“ADA”) became effective January 26, 1992. The appraisers have not made a speciﬁc compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. The appraisers are not qualiﬁed experts as to the requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the ADA. If so, this fact could have a negative effect upon the value of the property. Since the appraisers have no direct evidence relating to this issue, possible noncompliance with the requirements of the ADA in estimating the value of the property has not been considered.

19. Where necessary, we have relied on cost estimates that were provided by the developer and/or a civil engineer engaged by the developer. This report is conditioned upon that information being correct and reliable.

20. It is incumbent on the client to read this report in its entirety and bring to the attention of the appraisers in a timely fashion any known inconsistencies, or incorrect data or facts published in this appraisal report. The appraisers have the right to revise this report, including all conclusions thereof, should new data or information come to light.

21. Requesting valuation services by Bruce W. Hull & Associates, Inc., including all associates, subcontractors, employees or assigns of said, constitutes an agreement by the client/intended user that any damage or loss, whatever

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

2 the cause or perceived cause, will only entitle the client/intended user, at most, to replacement of the physical report, provided such replacement is requested in writing and the date of valuation is no more than ﬁve years prior to the date of request. Except for such replacement, Bruce W. Hull & Associates, Inc., including associates, subcontractors, employees or assigns of said, accepts no warranty or liability for any incidental or consequential damages, perceived or otherwise, that may arise from this appraisal assignment or the resulting opinion of value.

Hypothetical Conditions

Consistent with pending Parcel Map 10915 Phase “C,” the appraisers have created a hypothetical condition whereby portions of parcels 238-390-43 and 238-390-55 have been parcelized into a small number of commercial pads that are served by the newly upgraded infrastructure along Del Sol Road and included in parcel Group I. The remainder of the lands in parcels 238-390-43 and 238-390-55 has been relegated to speculation-land status and included in Group III. The appraisers believe this is consistent with development that has occurred on the west side of Interstate 5 where small-retail development has occurred around a travel center. Should this hypothetical condition be removed, the ﬁnal opinion of value could be affected.

Extraordinary Assumptions

The ﬁnal opinion of value is not based on any extraordinary assumptions.

Purpose of the Appraisal

The purpose of this Summary Appraisal Report (“appraisal report”) is to provide the appraisers’ best estimate of market value of the fee simple interest for the properties within CFD No. 2008-1 subject to the special tax lien. Ac- cording to appraisal standards set forth by the California Debt Investment Advisory Committee, appraisals undertaken to establish value-to-lien ratios in CFDs and assessment districts should value the fee simple estate, subject to special tax liens.

Intended Use of the Appraisal

It is the appraisers’ understanding that the appraisal report is to assist the Tejon Ranch Public Facilities Financing Authority in evaluation related to the issuance of bonds for CFD-2008-1.

Client/Intended User

The client/intended user in this appraisal assignment is the Tejon Ranch Public Facilities Financing Authority. Other named users of this appraisal are members of the authority’s bond ﬁnance team.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

3 Deﬁnitions

Market Value Market value, as defined by 12 CFR, Part 34, means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently 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 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 in 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 ﬁ- nancing or sales concessions granted by anyone associated with the sale.

Cost Approach The cost approach is deﬁned as follows:

“A set of procedures in which an appraiser derives a value indication by estimating the current cost to re- produce or replace the existing structure, deducting for all accrued depreciation in the property, and adding the estimated land value.”

Income Capitalization Approach

The income capitalization approach is deﬁned as follows:

“A set of procedures in which an appraiser derives a value indication for income-producing property by converting anticipated benefits into property value. This conversion is accomplished either by 1) capitaliz- ing a single year’s income expectancy or an annual average of several years’ income expectancies at a market-derived capitalization rate or a capitalization rate that reflects a specified income pattern, return on investment, and change in the value of the investment; or 2) discounting the annual cash flows for the holding period and the reversion at a specified yield rate.”

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

4 Sales Comparison Approach The sales comparison approach is deﬁned as follows:

“The process in which a market value estimate is derived by analyzing the market for similar properties and comparing these properties to the subject property.”

Owners of Record within CFD

APN Owner of Record 238-091-18 Tejon Industrial Corp. 238-390-06 Tejon Ranchcorp 238-390-14 Tejon Ranchcorp 238-390-42 East Travel Plaza LLC 238-390-43 Tejon Industrial Corp. 238-390-44 Tejon Industrial Corp. 238-390-45 Tejon Industrial Corp. 238-390-46 Tejon Industrial Corp. 238-390-47 Tejon Industrial Corp. 238-390-48 Tejon Industrial Corp. 238-390-49 Tejon Industrial Corp. 238-390-50 Tejon Industrial Corp. 238-390-51 Tejon Industrial Corp. 238-390-52 Tejon Industrial Corp. 238-390-53 Tejon Industrial Corp. 238-390-55 Tejon Industrial Corp. 241-340-09 Tejon Industrial Corp. 241-340-11 Tejon Industrial Corp. 241-370-04 Tejon Ranch Co. 241-370-05 Tejon Ranch Co. 241-370-06 Tejon Ranch Co. 241-370-07 Tejon Ranch Co. 241-370-08 Tejon Ranch Co. 241-370-09 Tejon Ranch Co. 241-370-14 Tejon Industrial Corp. 241-370-17 Tejon Industrial Corp.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

5 APN Owner of Record 241-370-18 Tejon Industrial Corp. 241-440-01 Tejon Industrial Corp. 241-440-04 Tejon Industrial Corp. 241-440-06 Tejon Industrial Corp. 241-440-07 Tejon Industrial Corp. 241-440-10 Tejon Industrial Corp. 241-440-11 Tejon Industrial Corp. 241-440-12 Tejon Industrial Corp. 241-440-13 Tejon Industrial Corp. 241-440-02 Tejon Industrial Corp. 241-440-03 Tejon Industrial Corp. 241-440-05 Tejon Industrial Corp. 241-440-08 Tejon Industrial Corp. 241-440-09 Tejon Industrial Corp.

East Travel Plaza, LLC, represents a joint venture between the Tejon Development Corp., a subsidiary of the Tejon Ranchcorp and TravelCenters of America, in which Tejon Development Corp. has a 60 percent ownership stake.

Three-Year Sales History

None of the appraised properties were bought or sold during a period beginning three years prior to the date of value. A number of parcels, however, changed ownership on a nominal basis, transferring from the Tejon Ranchcorp to the Tejon Industrial Corp. in transferences that did not represent sales.

Relevant Dates

EVENT DATE

Most recent site surveil- April 7, 2010 lance

Effective date of value June 14, 2010

Date of issuance June 14, 2010

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

6 The appraisal assignment represents a current date. It is not prospective or retrospective in nature.

The Subject Property

Legend

TEJON INDUSTRIAL CORP

Ridge Rd. EAST TRAVEL PLAZA LLC 238-390-06 238-390-53 161.12 ac 138.78 ac TEJON RANCHCORP

TEJON RANCH CO

ZONE 1 238-390-52 136.51 ac ZONE 2

238-390-50 238-390-49 Wheeler 27.9 ac 27.1 ac CFD 2008-1 BOUNDARY

238-390-14 160.8 ac Note: Map not to scale. 238-390-51 238-390-48 26.21 ac 27.1 ac

238-390-47 9.6 ac TA Travel Center 238-390-46 238-390-42 8.92 ac 64.6 ac 238-390-45 8.93 ac

238-390-44 238-390-43 9.62 ac 8.15 ac 241-440-01 7.91 ac

238-390-55 241-440-02 58.38 ac 8.08 ac 238-091-18 0.38 ac 241-440-03 4.6 ac Laval Road

241-340-09 18.3 ac 241-440-04 4.69 ac 241-340-11 241-440-06 119.88 ac 16.7 ac 241-440-05 6.88 ac 241-370-14 G 241-440-07 ra 15.59 ac pev 40.11 ac ine Cre 241-440-08 ek

43.38 ac 241-370-17 INTERSTATE 5 INTERSTATE 62.88 ac

241-370-04 92.18 ac 241-440-10 241-370-05 44.27 ac 103.59 ac 241-440-09 50.72 ac

241-440-11 241-370-06 52.62 ac 71.04 ac Portion Included 241-370-18 241-370-07 241-440-12 18.61 ac 44.68 ac 84.39 ac

241-440-13 241-370-09 12.28 ac 45.1 ac Portion Excluded CA LIF OR 241-370-07 NIA 241-370-08 AQ 43.09 ac UE 45.46 ac DU CT

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

7 Ridge interchange. The Specific Plan establishes the creation of a highway-oriented mixed-use industrial, manufacturing, service and commercial center with direct access to Interstate 5. The industrial park development, according to the Tejon Industrial Complex – East Specific Plan, dated October 2005, is a master planned, mixed-use industrial center focusing on the needs of trucking, warehousing and distribution industries. In addition, it provides highway commercial services and facilities for trucking professionals and the general traveling public. As the appraisers understand it, Zone 1 in the map on the previous page represents properties approved in the Specific Plan; Zone 2 is not included in the specific plan and is zoned for agricultural use only.

Sella- ble Lot Within Significant Size Owner of TIC I-5 Front- Infrastruc- APN (ac) Record Zone East age ture in Place Comments 238-390- 138.78 Tejon In- 1 Yes No No Northern large industrial lot. 53 dustrial Corp. 238-390- 136.51 Tejon In- 1 Yes Yes Yes Northern large industrial lot. Vine- 52 dustrial yard on portion of lot. Corp. 238-390- 27.9 Tejon In- 1 Yes No No One of four approx. square lots 50 dustrial north of Travel Plaza. Vineyard/ Corp. Almonds. 238-390- 26.21 Tejon In- 1 Yes No Yes One of four approx. square lots 51 dustrial north of Travel Plaza. Vineyard/ Corp. Almonds on about one-fifth of lot. 238-390- 27.1 Tejon In- 1 Yes No No One of four approx. square lots 49 dustrial north of Travel Plaza. Vineyard/ Corp. Almonds. 238-390- 27.1 Tejon In- 1 Yes No Yes One of four approx. square lots 48 dustrial north of Travel Plaza. Vineyard/ Corp. Almonds on about one-fifth of lot. 238-390- 8.15 Tejon In- 1 Yes No Yes Immediately south of Travel Plaza; 43 dustrial irregularly shaped lot. Appraisers Corp. have created a small number of hypothetical commercial pads on this property. 238-390- 9.62 Tejon In- 1 Yes No Yes Square lot southeast of Travel Plaza. 44 dustrial Corp. 238-390- 8.93 Tejon In- 1 Yes No Yes Square lot east of Travel Plaza. 45 dustrial Corp. 238-390- 8.92 Tejon In- 1 Yes No Yes Square lot east of Travel Plaza. 46 dustrial Corp.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

8 Sella- ble Lot Within Signiﬁcant Size Owner of TIC I-5 Front- Infrastruc- APN (ac) Record Zone East age ture in Place Comments 238-390- 9.6 Tejon In- 1 Yes No Yes Square lot southeast of Travel Plaza. 47 dustrial Corp. 238-390- 64.6 East Travel 1 Yes No Yes Lot accommodates Travel Plaza. 42 Plaza LLC

241-440- 7.91 Tejon In- 1 Yes No No Rectangular parcel southeast of 01 dustrial Travel Plaza Corp. 241-440- 8.08 Tejon In- 1 Yes No No Irregular-shaped parcel southeast of 02 dustrial Travel Plaza. Corp. 241-440- 4.6 Tejon In- 1 Yes No No Rectangular parcel southeast of 03 dustrial Travel Plaza Corp. 238-091- 0.38 Tejon In- 1 Yes Some- No Triangular island parcel. 18 dustrial what Corp. 238-390- 58.38 Tejon In- 1 Yes Some- Yes Irregular-shaped parcel south of 55 dustrial what Travel Plaza. Parcel has discon- Corp. nected triangular portion to the northwest. Appraisers have created a small number of hypothetical commercial pads on this property. 238-390- 161.12 Tejon 2 No No No Fallow 06 Ranchcorp 238-390- 160.8 Tejon 2 No No No Vineyard/Almonds 14 Ranchcorp 241-340- 18.3 Tejon In- 1 Yes Yes No Irregular-shaped parcel south of 09 dustrial Travel Plaza. Corp. 241-440- 4.69 Tejon In- 1 Yes No No Rectangular parcel south of Travel 04 dustrial Plaza Corp. 241-440- 16.7 Tejon In- 1 Yes No No Irregular-shaped parcel south of 06 dustrial Travel Plaza. Corp. 241-440- 6.88 Tejon In- 1 Yes No No Irregular-shaped parcel southeast of 5 dustrial Travel Plaza. Corp. 241-340- 119.88 Tejon In- 1 Yes No No Oblong Parcel, basically rectangular 11 dustrial Corp.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

9 Sella- ble Lot Within Signiﬁcant Size Owner of TIC I-5 Front- Infrastruc- APN (ac) Record Zone East age ture in Place Comments 241-440- 40.11 Tejon In- 1 Yes Yes No Trapezoid parcel with freeway front- 07 dustrial age. Corp. 241-440- 43.38 Tejon In- 1 Yes No No Trapezoid parcel with freeway front- 08 dustrial age. Vineyard/Almonds on small Corp. portion. 241-440- 50.72 Tejon In- 1 Yes No No Trapezoid parcel with freeway front- 09 dustrial age. Vineyard/Almonds on portion. Corp. 241-440- 44.27 Tejon In- 1 Yes Yes No Trapezoid parcel with freeway front- 10 dustrial age. Corp. 241-440- 52.62 Tejon In- 1 Yes Yes No Trapezoid parcel with freeway front- 11 dustrial age. Corp. 241-440- 44.68 Tejon In- 1 Yes No No Essentially rectangular parcel. 12 dustrial Corp. 241-440- 12.28 Tejon In- 1 Yes No No Triangular parcel. 13 dustrial Corp. 241-370- 15.59 Tejon In- 2 No No No Triangular parcel. 14 dustrial Corp. 241-370- 62.88 Tejon In- 2 No No No Trapezoid parcel. Vineyard/Almonds. 17 dustrial Corp. 241-370- 18.61 Tejon In- 2 No No No Trapezoid parcel. 18 dustrial Corp. 241-370- 92.18 Tejon 2 No No No Trapezoid parcel. Vineyard/Almonds. 04 Ranch Co. 241-370- 103.59 Tejon 2 No No No Irregular-shaped parcel. 05 Ranch Co. 241-370- 71.04 Tejon 2 No No No Irregular-shaped parcel. 06 Ranch Co. 241-370- 127.48 Tejon 2 No No No Irregular-shaped partial parcel (addi- 07 Ranch Co. tional 43.09-acre section located in Grapevine Creek. Included in CFD but not valued). 84.39 acres valued. 241-370- 45.46 Tejon 2 No No No Square lot. 08 Ranch Co.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

10 Sella- ble Lot Within Signiﬁcant Size Owner of TIC I-5 Front- Infrastruc- APN (ac) Record Zone East age ture in Place Comments 241-370- 45.1 Tejon 2 No No No Square lot. 09 Ranch Co.

The appraised property represents parcels earmarked for industrial and commercial/retail use, as well as agricultural use. All parcels are situated on the east side of Interstate 5. The only parcel with an improvement is APN 238-390-42. It contains a travel plaza.

Interest Appraised

The property rights appraised are the fee simple interests subject to easements of record and CFD No. 2008-1 special tax lien.

Scope of Work

Viewing of Site Certiﬁed General Appraisers Jeremy Bagott and Bruce Hull have viewed the appraised properties on numerous occa- sions.

Research The due diligence of the appraisal assignment included having done the following:

• Compiling demographic information and relating that data to the subject property to determine feasibility and demand.

• Gathering and analyzing information on the subject market, including reviewing real estate brokerage pub- lications on historic and projected growth in the subject market, and researching the micro- and mac- roeconomic fundamentals relating to the subject.

• Interviewing representatives of Tejon Ranch Co. and the Tejon Ranch Public Facilities Financing Authority to obtain information relating to the subject property. We also interviewed a number of brokers.

• Searching the area for relevant comparable land transactions, including sales and offerings, and interviewing appropriate market participants to get pertinent information relating to each transaction.

• Reviewing reports pertinent to the subject property.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

11 Analysis

Reporting Based on the assignment elements above, the report is written in a summary format. There is a work ﬁle corresponding to this appraisal assignment. It is either in the custody of the appraisers or the appraisers have made arrangements for the retention, access and retrieval with the party having custody of the work ﬁle.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

12 Discussion of the Economy

What follows is a brief discussion of the economic indicators we believe have the greatest impact on the real estate market. This section is important to any discussion of real estate value as it illustrates the economic fundamentals that underlie the current market as of the date of value.

Yield Spreads Wide but narrowing bond-yield spreads between the 10-year Treasury and non-investment grade instruments signal measured optimism and a greater willingness to take risks. Spreads, however, are still wide relative to the early part of the decade. These wider spreads may very well be the new “normal.” Widening spreads spell trouble for small businesses, which are a driver of the economy and commercial real estate market. At the end of October 2008, credit spreads had widened alarmingly. As of January 2009, however, they had stopped widening. Spreads have since nar- rowed over several months, but are beginning to widen again. The source for the data is the Federal Reserve.

10-Year Treasury to Baa Corporate Bond Spread 10.00

7.50

5.00

2.50

0 Jan-06 Jan-07 May-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10

Ten-Year Treasury Corporate Bonds (Baa)

Yield Curves A steep yield curve signals expectations of an accelerating economy that could spark inflation, pushing up longer- term yields; a flatter curve means few inflation qualms and the expectation of only moderate growth. An inverted curve, where 3-month bills yield more than 10-year notes, signals recession. The September 2009 curve signals investor expectations of high levels of future inflation. The source for the data below is the Federal Reserve.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

13 Yield Curves 6.00 5.00 4.00 3.00 2.00 1.00 0 U.S. 3-Month T-Bill U.S. 6-Month T-Bill U.S. 5-Year Bond U.S. 10-Year Bond U.S. 30-Year Bond

Jun-10 Mar-09 May-08 Jan-06

Fed Funds Rate In a climate of restricted credit markets and banks unwilling to lend to each other, the fed funds rate as an indicator becomes less meaningful. Under normal conditions, raising the federal funds rate will dissuade banks from taking out interbank loans, which in turn will make cash that much harder to procure. Conversely, dropping the interest rates will encourage banks to borrow money and therefore invest more freely. Thus, this interest rate acts as a regulatory tool to control how freely the U.S. and world economies operate. The federal funds rate has been at emergency levels since late 2008 as banks de-leverage and accumulate capital. This low cost of borrowing is being priced into real estate and it may have serious consequences when the Fed attempts to raise the key rate. The source for the data is the Federal Reserve.

Federal Funds Rate 6.00

4.50

3.00

1.50

0 Jun-04 Feb-05 Sep-05 May-06 Jan-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10

Inﬂation Wholesale prices have fallen, according to The Producer Price Index (PPI) for ﬁnished goods. While lower prices seem like a boon for cash-strapped consumers, some economists have begun to grow concerned over the dangers of

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

14 deﬂation in a recession. A drop in prices signals a drop in demand and may inhibit businesses and consumers from ramping up their spending and hurts heavily leveraged segments of the economy.

Consumer Price Index for All Urban Consumers, U.S. Cities, (Unadj. Index, All Items) 220

210

200

190

180

170

160 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

The six-month moving average for the Consumer Price Index, which tends to smooth out erratic monthly changes, shows a steady reduction in inﬂation since the end of 2008 and then a falloff over the six-month period ending in Feb- ruary 2010.

Trend in Six-Month Monthly Moving Averages, Change in CPI 218.0

217.3

216.5

215.8

215.0 Period Ending Dec-09 Period Ending Jan-10 Period Ending Feb-10 Period Ending Mar-10 Period Ending Apr-10

Fuel Prices There is a strong relationship between fuel prices and real estate. The correlation is most apparent in residential real estate. When fuel prices remain low for a prolonged period, suburban living becomes dramatically more affordable and these low fuel prices, if they remain low long enough, are eventually priced into the real estate. Its most extreme

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

15 form is the “exurb,” which is, in effect, a suburb beyond the suburbs. The Antelope Valley, the Victor Valley and Fra- zier Park/Lebec come to mind. Here, life is often framed by many hours spent behind the wheel of an automobile in daily commutes. When fuel prices spike, as they did in the Summer of 2008, shock waves roll through the exurbs and home values adjust to the downside. Suddenly urban living begins to look more appealing and an oversupply devel- ops as a greater percentage of suburban and exurban dwellers relocate closer employment centers.

Fuel prices have remained relatively level since May 2009. We expect them to to slowly edge upward as the economy rebounds.

Avg. Gas Price, Regular Unleaded – California vs. U.S. 5.00

4.30

3.60

2.90

2.20

1.50 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10

CA State Avg. National Avg.

Gross Domestic Product The U.S. economy grew in the third quarter and the fourth quarter 2009 as consumer spending and investment in new home-building rebounded, unofﬁcially ending the worst recession in 70 years. However, the appraisers are hesi- tant to declare an inﬂection point. The economy is not yet on solid footing and an undetermined amount of GDP growth in the private sector’s contribution to GDP is likely due to government stimulus. The source of the data below is the Federal Reserve.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

16 Qtrly. Change in GDP (Seasonally Adjusted and Annualized (%) 30

-10 1947q2 1952q1 1956q4 1961q3 1966q2 1971q1 1975q4 1980q3 1985q2 1990q1 1994q4 1999q3 2004q2 2009q1

GDP % change based on current dollars GDP % change based on chained Year 2000 dollars

The line chart below looks only at chained Year 2000 dollars.

Qtrly. Change in GDP (Seasonally Adjusted, Annualized and Chained 2000 Dollars) 10

-5

-10 1987q3 1992q1 1996q3 2001q1 2005q3 2010q1

Unemployment Just four states recorded a drop in the unemployment rate for December 2009, indicating that though the labor market continues to inch toward stabilization, widespread job growth still hasn’t arrived. In January 2010, the Labor De- partment reported that the unemployment for the nation as a whole held steady at 10 percent in December from a month earlier. Just 16 states, including California, have higher jobless rates than the national average. Most of the country continues to see job losses, but employment increased in 11 states and Washington D.C. The source of the data below is the U.S. Bureau of Labor Statistics.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

17 Unemployment, Non-farm Payroll Jobs 14.00%

12.00%

10.00%

8.00%

6.00%

4.00% Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10

California U.S.

A prerequisite for the unemployment rate to fall is for the average weekly hours of production to rise to and stay at pre-recession levels. This has begun to occur, setting the stage for an increase in temporary employment.

Avg. Weekly Hours of Production, Seasonally Adjusted 34.8

34.5

34.1

33.8

33.5

33.1

32.8 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb_10 Jun-10

Consumer Sentiment "The rebound in sentiment in late summer due to falling oil prices has been almost completely reversed as newer problems, including the credit crunch, deteriorating jobs market and problems in Detroit, have erupted," said T.J. Marta, Economic and Fixed Income strategist for RBC Capital Markets. The index has rebounded somewhat but is still volatile.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

18 RBC Overall Consumer Outlook Index 120

0 Jan-02 Oct-02 Jul-03 Apr-04 Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10

The trend in the six-month moving average for the RBC Cash Index shows a recent drop-off in sentiment and spending.

Consumer Conﬁdence and Spending – Trend in Six-Month Moving Average 15%

13%

11%

0% Period Ending Mar-10 Period Ending Apr-10 Period Ending May-10 Period Ending Jun-10

Purchasing, Goods and Retail Business executives commit to purchases of big-ticket items if they anticipate increased demand. A three-month up- trend in orders – excluding defense, aircraft and other transportation equipment – would presage an expanding economy. This has not yet occurred. Source of the data below is the U.S. Census Bureau.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

19 Advance Durable Goods New Orders (m$), Seasonally Adj. 230,000

216,000

202,000

188,000

174,000

160,000 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10

Quarterly revenue trends for the railroads are a good leading indicator of where the economy is heading. Although revenue climbed slightly, railroad and economic bellwether CSX Corporation reported a 15 percent decline in total volume of cargoes hauled; bellwether coal volumes declined 18 percent. The company noted that coal inventories at domestic utilities have reached record levels, representing more than twice the rate of present consumption, and prompting CEO Michael Ward to concede: "Our coal business will be affected by weak demand well into 2010."

Coal represents about 30 percent of total volumes hauled for both CSX Corporation and Norfolk Southern, so the outlook for coal is a key indicator for these operators in particular. Looking to the automotive segment, where the Cash for Clunkers program provided a short-lived boost, freight volume nonetheless declined from prior-year levels at a 28 percent clip during the third quarter.

Quartely Revenue for Railroad Bellwether CSX 3,000

2,700

2,400

in $millions 2,100

1,800 2004q1 2005q1 2006q1 2007q1 2008q1 2009q1 2010q1

Retail During the just-ended 2009 holiday shopping season, foot trafﬁc fell 2.9 percent while retail sales rose 1.7 percent. Holiday sales dropped 5.6 percent in 2008, according to the International Council of Shopping Centers, making it the worst holiday season in more than 40 years. Nonetheless, with the exception of the most recent data point in the chart below, retail sales have been slowly creeping up over an nine-month period, which is positive.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

20 Seasonally Adjusted Monthly Retail Sales (Excluding Food) in $millions 350,000

340,000

330,000

320,000

310,000

300,000 Jan-06 May-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10

Housing Authorized new housing units have fallen dramatically since 2005 after a run-up beginning in 2000, as the annual chart below indicates. On a monthly basis, there has been a long period of steady decline of both single-family housing starts and new permits. Whether the trend is beginning to level off is inconclusive at this time.

While the number of permits authorized for multifamily units saw a small spike in mid-2008, it, too, has succumbed to the credit restrictiveness and general slump in all residential real estate. In existing multifamily properties nationwide, rents have softened; job losses have made it difﬁcult for landlords to arrest rising vacancy rates and rent increases are out of the question for many. These conditions, along with credit restrictiveness, have resulted in fewer permits being pulled for multifamily construction.

New Privately Owned Housing Units Permitted, Started – (1,000s of Units) 2,000

1,500

1,000

500

0 Jan-04 Jun-04 Nov-04 Apr-05 Sep-05 Feb-06 Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10

New Privately Owned Housing Units Started – Single-Family Residential New Privately Owned Housing Units Authorized – Single-Family Residential Privately Owned Multifamily Permits issued in Permit-Issuing Places (5 Units or More)

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

21 Non-performing 1-4 unit residential mortgages at banks regulated by the FDIC have exploded over the past six quar- ters as the bar chart below illustrates. The same has occurred at Freddie Mac and Fannie Mae. On a more positive note, as the line chart below it illustrates, household-income-to-home-price ratios are now in line with 2001 levels, which indicates housing has become more affordable in many markets relative to incomes. The source of the data below is the FDIC.

Non-Performing Assets – 1-4 Unit Residential 100,000,000

75,000,000

50,000,000 In $1,000s 25,000,000

0 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09

Past Due Assets 30-89 Days (Loans Secured by 1-4 Unit Residential Real Estate) Past Due Assets over 90 Days (Loans Secured by 1-4 Unit Residential Real Estate) Assets in Non-Accrual Status (Loans Secured by 1-4 Unit Residential Real Estate)

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

22 U.S. Median Home Price vs. U.S. Median Household Income 160

140

120

100

60 Jan-00 Nov-00 Sep-01 Jul-02 May-03 Mar-04 Jan-05 Nov-05 Sep-06 Jul-07 May-08

U.S. Median Household Income (Indexed at 100 in Jan. 2003) U.S. Median Home Price, Existing Homes (S&P/Case-Shiller) (index adjusted 2003 = 100)

If soured mortgages are not being unwound at Freddie Mac, Fannie Mae and the FDIC-regulated institutions in an expeditious manner, than the foreclosure-ﬁlings data below would understate the number of non-performing mortgages. We believe this is the case. The source of the data below is Realtytrac.

U.S. Foreclosure Filings (in Housing Units) 425,000

343,750

262,500

181,250

100,000 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10

The chart below, which shows the foreclosure trend in six-month moving averages, indicates no clear trend.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

23 Trend in Six-Month Moving Averages for Foreclosures 1.50% 1.00% 0.50% 0% -0.50% -1.00% -1.50% -2.00% Period Ending Feb-10 Period Ending Mar-10 Period Ending Apr-10 Period Ending May-10

National Association of Home Builders produces the Housing Market Index (HMI), a weighted, seasonally adjusted statistic derived from ratings for present single-family sales, single-family sales in the next six months and buyers trafﬁc. The ﬁrst two components are measured on a scale of "good," "fair" and "poor," and the last one is measured on a scale of "high," "average" and "low."

A rating of 50 indicates that the number of positive or good responses received from the builders is about the same as the number of negative or poor responses. Ratings higher than 50 indicate more positive or good responses. The index paints a dismal picture.

Housing Market Index 80

0 Jan-85 Aug-86 Mar-88 Oct-89 May-91 Dec-92 Jul-94 Feb-96 Sep-97 Apr-99 Nov-00 Jun-02 Jan-04 Aug-05 Mar-07 Oct-08 May-10

Commercial Real Estate There is no better leading indicator for the future of commercial real estate than the Architecture Billings Index. The Architecture Billings Index (ABI) is an index derived from the monthly Work-on-the-Boards survey, conducted by the AIA Economics & Market Research Group. The ABI serves as a leading economic indicator that leads nonresidential construction activity by approximately 9-12 months. The indexes are developed from the monthly Work-on-the- Boards survey panel where participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended. According to the proportion of respondents choosing each option, a score is generated, which represents an index value for each month.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

24 Architecture Billings Index 65.0 60.0 55.0 50.0 45.0 40.0 35.0 30.0 Greater than 50 = Expansion 1996q1 1997q1 1998q1 1999q1 2000q1 2001q1 2002q1 2003q1 2004q1 2005q1 2006q1 2007q1 2008q1 2009q1 2010q1

Because it is not seasonally adjusted and fairly erratic on a quarter-by-quarter basis, more can be discerned by looking at a six-month moving average of the Architecture Billing Index. The bar chart below indicates that the degree of falloff in architecture billing has moderated since the six-month moving average for the period ending the last day of September 2009 with a slight upward trend for the most recent periods.

Architecture Billing Index Trend in Six-Quarter Moving Averages 6.00%

3.25%

0.50%

-2.25%

-5.00% Period Ending Jun-09 Period Ending Sep-09 Period Ending Dec-09 Period Ending Mar-10

Capitalization rates are a proxy for how investors see the future for commercial real estate. If they demand higher capitalization rates on acquisitions, it indicates they are taking a more cautious view of the future. The measure, however, can be self-correcting. Higher capitalization rates can dampen real estate values, which, in turn, allows proper-

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

25 ties to reprice. When properties are purchased at a lower basis, they can rent at lower lease rates, beneﬁting many businesses.

Average U.S. Capitalization Rates by Segment (Korpacz Investor Survey) 9.00%

8.00%

7.00%

6.00%

5.00% 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

Regional Mall CBD Ofﬁce Warehouse Apartment

REIT Acquisitions REIT acquisitions are a bellwether for the overall health of the commercial real estate market. As the chart below illustrates, 2007 and 2008 saw a net fall in REIT acquisitions. The signiﬁcant 2008 falloff notwithstanding, REITS have been taking advantage of opening credit and equity markets this year to reﬁnance debt as maturities loom and raise funds for potential acquisitions from competitors weakened by the recession. The source is the U.S. Department of the Treasury.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

26 REIT Net Acquisitions of Assets (b$) 150.0 120.0 90.0 60.0 30.0 0 -30.0 -60.0 -90.0 2003 2004 2005 2006 2007 2008

Consumer Credit Consumer credit began contracting in August 2008, reversing a trend that began in earnest in the early 1990s. It rebounded in September 2008 before contracting again and fell for three consecutive months to close out 2008. The trend appears to have continued in 2009. The reduced borrowing comes as the economy sheds jobs by the thousands, and mass layoffs and pay cuts have limited consumer spending power. At the same time, banks have tightened lending standards due to growing concerns about default risk. Outstanding consumer credit, nonetheless, remains high.

Conclusion

A real estate boom, fueled by heavily leveraged loans built on low or even no down payments, caused home prices to soar in most of the country — especially in Arizona, California, Florida and Nevada and metro areas of Washington, D.C., and New York — during a brief period of easy lending, especially from 2002 to 2006.

The price plunge has wiped out trillions of dollars in home equity and caused the worst ﬁnancial crisis since the Great Depression. Susan Wachter, professor of real estate at the University of Pennsylvania, fears that foreclosures and tight credit could send home prices falling to the point that millions of families and thousands of banks are thrust into insolvency. Commercial real estate is now in the throes of the same repricing pressure. Impractical workouts and “extend and pretend” practices at commercial banks and the now nationalized Fannie Mae and Freddie Mac will only prolong the inevitable and hide residential inventory that will need to be dealt with sooner or later.

Meanwhile, delinquencies on loans in commercial mortgage-backed securities spiked in January from a month earlier, with late payments in each of the ﬁve main property types increasing for the ﬁfth straight month, according to Fitch Ratings. Commercial-property owners got increasingly behind on their mortgages in 2009 as occupancy rates and rents fell, helping to send property values tumbling from their bubble highs.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

27 Turmoil in the European debt markets in mid-2010 as a result of a crisis in Greece only reinforces the fact that the global economy is still in a state of fragility.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

28 Area and Region Data

Kern County – Economic Inﬂuences Kern County has a signiﬁcant agricultural and petrochemical economic base, including oil and natural gas production. The county is also a producer of hydro-electric power, wind turbine power and geothermal power.

In 2009, Kern County was the state's top oil-producing county, accounting for over 80 percent of the state's 52,144 active oil wells. In fact, the county accounts for one-tenth of all domestic oil production. Three of the five largest oil fields in the United States are in Kern County. In 2010, the Cymric Field was the fastest-growing field in California in barrels produced per year. The Fruitvale Oil Field underlies much of the City of Bakersfield. In 2010, Occidental Pe- troleum leased 1.1 million acres of oil-producing land, much of it in Kern County.

Kern County is also noted for its mineral wealth, including gold, borate, and kernite. The largest open pit mine in the state is at Boron. It mines borax.

In addition to its mineral wealth, Kern County was the fourth-largest agriculture-producing county in the United States as of 2007, the most recent year for which data was available. In that year, it was the third-leading agricultural county in the state according to the Department of Food and Agriculture, California Agricultural Statistics Service.

California’s Leading Agricultural Counties (2007) 6,000,000

4,500,000

3,000,000

1,500,000 Value of Production (in $1,000s)

0 Fresno Tulare Kern Monterey Merced Stanislaus San Joaquin Kings Ventura San Diego Imperial

Military bases in Kern County include Edwards Air Force Base and China Lake Naval Air Weapons Station. The civilian Mojave Spaceport, which is operated by the county, is also in Kern County.

According to the U.S. Census Bureau, during a period from 2006 to 2008, the leading industries in Kern County were educational services, and health care, and social assistance, 19 percent; and agriculture, forestry, ﬁshing and hunting, and mining, 13 percent.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

29 During the same period, among the most common occupations were management, professional, and related occupations, 25 percent; sales and ofﬁce occupations, 23 percent; service occupations, 19 percent; production, transportation, and material moving occupations, 13 percent; and construction, extraction, maintenance and repair occupations, 13 percent. Seventy-four percent of the people employed were private wage and salary workers; 19 percent were federal, state, or local government workers; and 7 percent were self-employed in own not incorporated business workers.

The median income of households in Kern County was $46,442. Eighty-two percent of the households received earnings and 15 percent received retirement income other than Social Security. Twenty-four percent of the households received Social Security.

Median Income vs. % Families below Poverty Line (2000 Census) $43,000 18.0

$36,000 13.5

$29,000 9.0

$22,000 4.5

$15,000 0 Fresno San Bernardino Riverside Kings Kern

% Families below Poverty Line Median Household Income

Among its immediate cohorts in the Central Valley, see chart below, Kern County ranks slightly below Fresno County in per capita personal income. Its trending since the late 1990s has been similar.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

30 Per Capita Personal Income Trend by County $30,000

$27,000

$24,000

$21,000

$18,000

$15,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Tulare Fresno Kings Kern

Per capita income in Kern county, however, is below all Southern California counties and below the California average.

Per Capita Personal Income (2006) by County

Ventura

Santa Barbara

Kern

San Bernardino

Riverside

Orange

California

$0 $12,500 $25,000 $37,500 $50,000

During the period 2006 to 2008, 20 percent of people were in poverty. Twenty-seven percent of related children under 18 were below the poverty level, compared with 11 percent of people 65 years old and over. Seventeen percent of all families and 38 percent of families with a female householder and no husband present had incomes below the poverty level.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

31 Civilian Unemployment (%) by County by Year 16.00

13.00

10.00

7.00

4.00 2001 2002 2003 2004 2005 2006 2007 2008 2009

Kern California Fresno

Unemployment in Kern County has historically been higher than the state average lower than than its Central Valley cohort Fresno County.

During the same period, Kern County had a total of 268,000 housing units. Kern County had 240,000 occupied housing units of which 146,000 (61 percent) were owner-occupied and 94,000 (39 percent) renter-occupied.

Bakersfield is the central hub for retail in the county. As of 2010, Bakersfield's largest and most established regional center was the Valley Plaza Mall. With 140 shops, this enclosed shopping mall is the largest in the San Joaquin Valley. It includes major department stores and a food court. There is also an adjacent 16-screen multiplex. The area has numerous big-box retailers and discounters. There is also a 10-screen multiplex nearby. On the opposite side of town, in the southwest, is The Marketplace, offering eating establishments in the midst of diverse regional retail, serving the Seven Oaks, Stockdale and Laurel Glen areas. There is a 14-screen multiplex. From a commercial appraiser's perspective, there is good equilibrium of generative, supportive and suscipient retail in Bakersfield.

Also in southwest Bakersﬁeld is the Stockdale Fashion Plaza. This outdoor center has 24 retail units. There is also shopping in Bakersﬁeld's downtown area or on "H" Street with many craftsman and Victorian buildings. There is good cumulative attraction for antique stores in the district.

From a retail appraisal perspective, shopping in the county ranges from anchored community shopping centers, neighborhood shopping centers, power and lifestyle centers and regional shopping centers. As mentioned previously, much of the county's retail is centered in Bakersﬁeld. A retail appraisal principle states that shopping centers don't create new retail demand; retail expansion in Kern County is dependent on the health of the county's single-family residential inventory.

From a commercial appraisal standpoint, there is good cumulative attraction for businesses catering to the oil and agricultural industries. In terms of commercial property mix, the city's real estate is well segmented with retail, general commercial, industrial, warehouse and ofﬁce properties.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

32 A commercial real estate appraiser would infer that there is unique pooling of specialized employee skills in the area of systems, missile, materials, mechanical and aeronautical engineering linked to the two military bases in Kern County – China Lake Naval Air Weapons Station and Edwards Air Force Base. Also, in the ﬁeld of mining, a commercial appraiser can infer a pooling of expertise, knowledge, relationships to distribution channels, customer service capabilities and longevity.

The military bases, along with the Mojave Spaceport, have helped stimulate the economies of the towns of California City, Inyokern, Mojave, Ridgecrest and Rosamond. The Mojave Spaceport is the ﬁrst inland spaceport in the United States. There has generally been a multiplier effect related to job creation at these hubs.

Other Transportation Infrastructure

Rail – The San Joaquin Valley Railroad is one of several short-line railroad companies in the county and is part of the Sunset Division of RailAmerica. It operates about 207 miles of track primarily on several lines in the San Joaquin Val- ley outside of Fresno and Bakersfield. It has trackage rights over Union Pacific (formerly Southern Pacific) from Fresno – Goshen Junction – Famoso – Bakersfield – Algoso. The San Joaquin Valley Railroad also operates for the Tu- lare Valley Railroad from Calwa to Corcoran and Famoso. It interchanges with the Burlington Northern at Fresno and Bakersfield and with the Union Pacific at Fresno and Goshen Junction.

Trucking – Dozens of motor freight carriers have locations in and around Kern County and the San Joaquin County.

Ports – The nearest ports at Los Angeles-Long Beach are approximately 90 miles by major highway to the south. The Port of Los Angeles encompasses 7,500 acres, 43 miles of waterfront and features 27 cargo terminals, including dry and liquid bulk, container, breakbulk and automobile. Combined, these terminals handle almost 190 million metric revenue tons of cargo annually. The Port is also home to a cruise passenger complex.

The Port of Long Beach, which occupies 200 acres of land and contains 10 piers, 80 berths and 71 post-panamax gan- try cranes, saw more than 6.7 million TEUs (twenty-foot-equivalent units) in 2005, with cargo valued at more than $100 billion, representing more than 80 million metric tons. On average, the equivalent of 18,400 TEUs are processed each day.

Port facilities in Port Hueneme in Ventura County are approximately 80 miles by highway to the southwest. This port emphasizes handling of breakbulk cargo and automobiles.

The Port of Oakland, about 250 miles to the north, occupies 19 miles of waterfront on the eastern shore of San Fran- cisco Bay, with about 900 acres devoted to maritime activities. Ten container terminals and two intermodal rail facilities serve the Oakland waterfront. The Union Pacific and Burlington Northern railroad facilities are located adjacent to the heart of the marine terminal area to provide a reliable and efficient movement of cargo between the marine terminals or transload facilities and the intermodal rail facilities. The Port of Oakland loads and discharges more than 99 percent of the containerized goods moving through Northern California The seaport ranks among the top 4 in the nation and 20 in the world in terms of annual container traffic.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

33 Kern County Physical/Environmental Inﬂuences Kern County is located primarily in the southern portion of California's Central Valley. The county covers an area further eastward beyond the southern slope of the eastern Sierra Nevada range into the Mojave Desert. It includes parts of the Indian Wells Valley and the Antelope Valley. Kern is the third-largest county in California. The county has a total area of 8,161 square miles.

It is larger than either Massachusetts, New Jersey or Hawaii; it is also larger than the states of Delaware, Rhode Island and Connecticut combined. From the Sierras, the county extends across the ﬂoor of the San Joaquin Valley to the eastern edge of the Temblor Range, part of the Coastal Ranges. To the south, the county extends over the ridge of the Te- hachapi Mountains.

The Kern River Valley is also the gateway to the Giant Sequoia National Monument and its desert portion is home to Red Rock Canyon State Park and the living ghost town of Randsburg, where, as of the census of 2000, there were 77 people, 49 households, and 22 families residing in Randsburg.

The White Wolf Fault runs north of the intersection of the San Andreas Fault and the Garlock Fault, and north of the Tehachapi Mountains. The fault was the source of the 1952 Kern County earthquake, the second-largest earthquake in California during the 20th century.

Kern County Governmental Influences Kern County was established in 1866. The county seat is the City of Bakersfield (since 1874) with the original seat being the former mining town of Havilah, located in the mountains between Bakersfield and Tehachapi.

The Kern County Board of Supervisors serves as the governing body of the county and various special districts. The Board consists of ﬁve members, each elected for a four-year term from ﬁve separate geographical districts of the County. Board members are non-partisan.

Hospitals and clinics of note are located in Bakersfield, Delano, Kern River Valley, Ridgecrest, Taft and Tehachapi. They are Bakersfield Family Medical Center, Bakersfield Heart Hospital, Bakersfield Memorial Hospital, Good Sa- maritan Hospital, Healthsouth Bakersfield Rehabilitation Hospital, Kern Medical Center, Mercy Hospital, Mercy Southwest Hospital, San Joaquin Community Hospital, Delano Regional Medical Center, Kern River Valley, Kern Valley Hospital, Drummond Medical Group, Ridgecrest Regional Hospital, Southern Sierra Medical Clinic, and Te- hachapi Valley Hospital and Healthcare District.

California State University Bakersfield, known as “CSUB,” is the largest university in the county. It opened in 1970 as the 19th campus of the 23-campus California State University system. It is located on a 375-acre site in Bakersfield. In 2009, some 7,800 undergraduate and graduate students attended CSUB, either at the main campus in Bakersfield or the off-campus center in Antelope Valley. More than 90 percent of CSUB's tenured/tenure-track faculty hold PhDs.

The university operates on a quarter system from September to June with two summer sessions. CSUB has majors in 31 undergraduate degree programs, seven credential programs in education, and 17 graduate degree programs.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

34 As mentioned previously, Kern County is home to Edwards Air Force Base, the Air Force's main flight test facility. It is also home to China Lake Naval Air Weapons Station. No discourse on commercial real estate appraisal in Kern County should exclude mention of the aeronautical firsts that have been achieved in the skies above the Mojave De- sert in Kern County. This includes the first supersonic flight in 1947 and the first landing of the Space Shuttle in 1981.

Kern County Societal Inﬂuences According to the U.S. Census Bureau, from 2006 to 2008, there were 240,000 households in Kern County. The average household size was 3.1 people. In 2006-2008, Kern County had a total population of 786,000. The median age was 29.9 years.

During that same period, 71 percent of people 25 years and over had at least graduated from high school and 14 percent had a bachelor's degree or higher. Twenty-nine percent were dropouts; they were not enrolled in school and had not graduated from high school.

The chart below, sourced to the California Department of Finance, shows Kern County’s population growth from 1970 to 2007. During that period, the county experienced a population growth of 2.44 percent annually on a compounded basis.

Kern County Population Trending 900,000

700,000

500,000

300,000 1970 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007

Bakersfield Economic Influences No discourse on commercial real estate appraisal in the City of Bakersfield should exclude a discussion of the city's historical agricultural and petrochemical economic base. Much of Kern County's wealth in these two areas has bene-

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

35 fited the City of Bakersfield and been intertwined with its fate. The subject CFD is located within the economic sphere of influence of the City of Bakersfield.

A certiﬁed general appraiser will identify a multiplier effect related to job creation (or job elimination during times of contraction) at this hub for oil and agricultural production.

Between 2006 and 2008, according to the U.S. Census Bureau, the leading industries in Bakersﬁeld were Educational services, and health care, and social assistance, 23 percent, and Retail trade, 11 percent.

Among the most common occupations were management, professional, and related occupations, 30 percent; Sales and ofﬁce occupations, 25 percent; Service occupations, 18 percent; Production, transportation, and material moving occupations, 12 percent; and Construction, extraction, maintenance and repair occupations, 11 percent. Seventy-ﬁve percent of the people employed were Private wage and salary workers; 18 percent was Federal, state, or local government workers; and 7 percent were self-employed in own not incorporated business workers.

The median income of households in Bakersfield was $52,160. Eighty-five percent of the households received earnings and 13 percent received retirement income other than Social Security. Twenty-one percent of the households received Social Security. Between 2006 and 2008, 17 percent of people in Bakersfield were in poverty.

Between 2006 and 2008, Bakersﬁeld had a total of 111,000 housing units, 7 percent of which were vacant. Of the total housing units, 72 percent was in single-unit structures, 26 percent was in multi-unit structures, and 2 percent was mobile homes. Thirty-eight percent of the housing units were built since 1990. Bakersﬁeld had 103,000 occupied housing units - 60,000 (59 percent) owner occupied and 42,000 (41 percent) renter occupied.

Retail centers in Bakersﬁeld include Sagebrush Shopping Center, White Lane Plaza Shopping Center, Benton Park Shopping Center, Best Plaza Shopping Center, Valley Village Shopping Center, Valley Plaza Shopping Center, Brund- age Square Shopping Center, Builders Square Shopping Center, California Oak Shopping Center.

From a commercial appraiser's perspective, there is an excellent equilibrium of generative, supportive and suscipient retail in Bakersﬁeld.

From a retail appraisal perspective, shopping in Bakersfield ranges from anchored community centers, neighborhood centers, power and lifestyle centers and regional centers. In 2008, according to a national commercial real estate brokerage, Bakersfield had approximately 11,643,000 square feet of retail space. This excluded the Valley Plaza Mall, Downtown Bakersfield and centers under 10,000 square feet.

As of 2010, Bakersfield's movie theaters and multiplexes in Bakersfield included Edwards Cinemas Bakersfield Sta- dium 14, United Artist East Hills Mall 10, Reading Cinemas Valley Plaza 16, Maya Cinemas Bakersfield 16, and Bak- ersfield Movies 6.

In 2009, the city had 5,200 hotel rooms of all types.

In 2008, Bakersﬁeld ranked as the 125th-largest television market and the 77th-largest radio market in the nation. The city rated ninth on Inc. magazine’s "Top Medium-Sized Cities for Business."

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

36 The California real estate boom that began in the late 1990s has significantly changed the San Joaquin Valley. Once distinctly and fiercely independent of Los Angeles and San Francisco, the area has seen increasing urban development as the cost of living forces young families and small businesses further and further away from the coastal urban cores. Bakersfield, traditionally a boom-bust oil town once described by urban scholar Joel Kotkin as an “American Abu Dhabi,” has seen a massive influx of former Los Angeles business owners and commuters, to the extent that gated communities containing million-dollar homes are being developed on the city's outskirts. Wal-Mart, IKEA, Target and various large shipping firms have built huge distribution centers at the far southern end of the valley, lured by the convenience of statewide highway accessibility and low land costs and the region's low wages. Further integration with the rest of the state is likely to continue for the foreseeable future.

From a commercial appraisal standpoint, there is no particular cumulative attraction for any specific property type in Bakersfield with the exception of agricultural and energy related properties. In terms of commercial property mix, the city's real estate is generally well segmented with retail, hospitality, general commercial, industrial, warehouse and office. Somewhat underrepresented might be R&D and Class A office properties.

A commercial real estate appraiser would infer that there is unique pooling of employee skills, agricultural and petrochemical expertise, institutional knowledge, relationships to distribution channels, customer service capabilities and longevity in Bakersﬁeld.

Bakersfield Physical/Environmental Influences Bakersfield is situated in the southern end of the San Joaquin Valley. It is west of the southern tip of the Sierra Nevada mountain range. It is bounded on the east by the Sequoia National Forest, to the south by the Tehachapi Mountains and to the west by the Temblor Range. It is approximately equidistant between Fresno and Los Angeles. It lies about 300 miles southeast of Sacramento. The city has a total area of 114.4 square miles.

Bakersﬁeld is considered to have a semi-arid dry steppe climate. January is the coolest month of the year with average temperatures of 57 degrees Fahrenheit. July is the hottest month with an average daily temperature of 99 degrees Fahrenheit.

The city sees long and mild fall seasons and early springs, creating a climate suited for cultivating many types of crops. Bakersﬁeld receives an average of just under six inches of rain annually.

Neighborhoods and districts include Downtown Bakersﬁeld, Westchester, Stockdale, Southwest, Kern City, North- west, Old Town Kern, East Bakersﬁeld, Northeast and Rio Bravo.

Bakersfield Governmental Influences The city maintains 49 city parks (471 acres), 1,213 miles of city streets, more than 100 miles of bike lanes and paths. Parks in Bakersfield include Planz Park, Pin Oak Park, Kern County Fairgrounds, Father Garces Monument, Wilson Park, Patriots Park, Lowell Park, Beach Park and Beale Park.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

37 Airports in Bakersﬁeld are Meadows Field Airport, Bakersﬁeld Municipal Airport, Joe Gottlieb Field Airport, Majors Airport and Paradise Lakes Airport.

Hospitals and medical centers in Bakersfield include Bakersfield Heart Hospital, Bakersfield Memorial Hospital, Good Samaritan Hospital, Healthsouth Bakersfield Rehab Hospital, Kern Medical Center, Mercy Hospital and San Joaquin Community Hospital.

Colleges and universities within Bakersfield’s sphere of influence include Bakersfield College, California State University-Bakersfield, San Joaquin Valley College, Taft College, Porterville College, Antelope Valley College and College Of The Sequoias. Bakersfield College was founded in 1913 and is one of the nation's oldest continually operating community colleges. It serves 15,000 students on the 153-acre main campus in northeast Bakersfield, at the Weill Institute in downtown Bakersfield, and at the Delano Center 35 miles north of Bakersfield. California State University Bakersfield has been discussed previously.

The Bakersfield Police Department is responsible for law enforcement within the City of Bakersfield. As of early 2010, it had over 400 officers and staff.

Meadows Field is Kern County's gateway commercial airport, offering nonstop flights to Denver, Los Angeles, Phoe- nix, and San Francisco and one-stop flights to domestic and international destinations. Carriers serving Bakersfield as of early 2010 were United Express and US Airways.

Three freeways serve Bakersﬁeld. They are:

State Route 99. This high-speed carriageway bisects Bakersﬁeld from north to south. It extends nearly the entire length of the Central Valley. From its southern terminus at Interstate 5 near Wheeler Ridge (just north of the subject CFD) to its northern terminus at State Route 36 near Red Bluff. It is considered something of an alternate to I-5 through the more populated eastern portions of the valley. Cities passed through or near include Bakersﬁeld, Visalia, Fresno, Madera, Merced, Modesto, Stockton, Sacramento, Yuba City, and Chico.

State Route 58. This is an east-west highway across the southern San Joaquin Valley, the Tehachapi Mountains, which border the southern Sierra Nevada, and the Mojave Desert. It intersects State Route 99 in Bakersﬁeld. It runs between its western terminus near Santa Margarita at the junction with U.S. Route 101 and its eastern terminus at Barstow at the junction with Interstate 15. It has junctions with Interstate 5 near Buttonwillow. State Route 58 provides linkage to Edwards Air Force Base.

State Route 178. This route represents a short segment of freeway that runs from a point near downtown Bakersfield to the northeastern part of the city. There is currently no freeway junction between the 99 Freeway and SR 178. It links Downtown Bakersfield with East Bakersfield and Lake Isabella. State Route 178 is the only seasonal crossing and one of just two crossings over the Sierra Nevada Mountains south of Yosemite, linking the Southern San Joaquin Valley with the upper Mojave Desert. An unconnected segment east of Ridgecrest provides access to Death Valley National Park.

The Bakersﬁeld Amtrak Station provides passengers and Amtrak Express freight rail service. Bakersﬁeld is slated as a station for the proposed California High Speed Rail system. In the area of bus transit, the city is served by the Golden

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

38 Empire transit District. As of this writing in 2010, 18 routes are operated, the majority of which cater to the denser population centers in the county.

Bakersfield Societal Influences The estimated population for the City of Bakersfield was 333,719 in 2009. The estimated population for the Bakers- field Metropolitan Area in 2009 was 496,300. In that year, Bakersfield was the 11th most populous city in California and the 57th most populous city in the United States. The population increased approximately 35 percent between 2000 and 2009.

Between 2006 and 2008, according to the U.S. Census Bureau, there were 103,000 households in Bakersﬁeld. The average household size was 3.1 people.

Between 2006 and 2008, 77 percent of people 25 years and over had at least graduated from high school and 20 percent had a bachelor's degree or higher. Twenty-three percent were dropouts; they were not enrolled in school and had not graduated from high school.

In 2008, Bakersﬁeld had 7.7 murders per 100,000 residents. Its population growth trending is provided in the chart below. It is sourced to the U.S. Census Bureau.

Population Growth Trend for Bakersfield 400,000

300,000

200,000

100,000

0 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Est. 2009

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

39 Summary of Subject Neighborhood and Property

Tejon Ranch The subject CFD is situated on lands of the Tejon Ranch. This might be considered its greater “neighborhood.” Its owner is the Tejon Ranch Co. Incorporated in 1936, the Tejon Ranch Co. is a publicly traded company whose shares trade on the New York Stock Exchange under ticker symbol TRC. It is one of the largest landowners in California, controlling more than 270,000 acres in the Central Valley, the Tehachapi Mountains and the Antelope Valley. At 422 square miles, its principal asset, the Tejon Ranch, represents the largest contiguous swath of private land in California as of this writing in 2010.

Founded by U.S. Army General Edward Beale in 1843, its land area is larger than the combined land area of all of the Channel Islands, including Santa Catalina. It is about half the land area of Orange County. Tejon Ranch's elevation ranges from 600 to 7,000 feet above sea level.

The ranch straddles the Tehachapi Range of the southern Sierra Mountains and has linkages to the cities/ communities of Santa Clarita, Bakersﬁeld, Mojave, Tehacahapi and Arvin, and fully envelopes the communities of Gorman, Lebec and Frazier Park. The land is considered to be at the heart of four important ecosystems in the state.

The ranch grows tree nuts, wine grapes, and row crops. Cattle leases covering about 250,000 acres allow seasonal grazing of as many as 14,000 head of cattle. The ranch's lands support prodigious wildlife, including deer, elk, antelope, wild pigs, wild turkey, black bear, mountain lions, bobcats, coyotes, squirrels, pigeons, doves and quail. The ranch maintains an active wildlife management program working with the California Department of Fish and Game.

In addition, the ranch is habitat for the once nearly extinct California Condor. Other threatened species known or believed to inhabit its lands include the burrowing owl, the California red-legged frog, the blunt-nosed leopard lizard and the San Joaquin Valley kit fox. In total, there are believed to be more than 80 rare or endangered species of ﬂora and fauna on the ranch.

Moreover, the ranch is considered one of the largest and most pristine oak woodland habitats in the state. Nine species of oak are found on the ranch including the scrub oak, canyon live oak, blue oak, brewer oak, tucker’s oak, Cali- fornia black oak, valley oak, shrubby live oak and interior live oak.

The Garlock Fault, the second-longest fault in the state, runs for much of its length along the southern base of the Tehachapi Mountains within the ranch. It intersects the San Andreas Fault just west of the ranch.

In mid-2008, Tejon Ranch Co. reached a landmark agreement with ﬁve of the nation’s largest environmental resource organizations on a sweeping conservation and land-use plan.

The agreement with the Sierra Club, Natural Resources Defense Council, Audubon California, the Planning and Con- servation League and the Endangered Habitats League called for the permanent conservation of up to 240,000 acres of the Ranch. It was thought to be the largest conservation and land-use pact in California history. California Gover- nor Arnold Schwarzenegger traveled to the ranch to take part in the announcement. One conservationist called it the “ecological equivalent of the Louisiana Purchase.”

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

40 In return for the ranch creating the single-largest wilderness preservation project in the state, the groups would drop their opposition to three large development projects. The projects would still have to be approved by county, state, and federal authorities. All the projects are located in the western portion of the Ranch along Interstate 5, California’s primary north–south artery. The three master-planned developments are as follows:

Tejon Mountain Village – The most extensive of the three projects is the Tejon Mountain Village, a proposed residential, commercial, and recreational development. In partnership with DMB Associates, Inc., of Scottsdale, Ariz., the development would include homes, commercial buildings, hotels, and golf courses. The entitlements, according to representatives of the Tejon Ranch Co., were approved in 2009.

Centennial – Centennial is a proposed master-planned community about 60 miles north of Los Angeles in Los Ange- les County. Tejon Ranch is partnering with three major homebuilders in its development. As of this writing in 2010, the project was undergoing an internal review by the County of Los Angeles Department of Regional Planning. The planned community would feature 23,000 homes, along with schools, medical facilities, police and ﬁre stations, recreational facilities and commercial and industrial space.

Tejon Industrial Complex – Tejon Industrial Complex is a business park situated near the junction of Highway 99 and Interstate 5. The subject CFD lies within this project zone. Approximately 3.3 million square feet of high-cube distribution space has been built as the ﬁrst elements of what will be an industrial complex designed to compete with distribution centers in the Inland Empire. One hundred and seventy-seven acres in the west portion of the community is in Foreign Trade Zone 276, which is administered by the Kern County Department of Airports. The Foreign Trade Zone status allows importers to defer payment of U.S. customs duties. Due diligence is currently being done for the establishment of a Foreign Trade Zone within the CFD (in the east portion of the industrial complex).

The site also includes commercial uses like quick-service restaurants, automobile service stations and truck stops. Its 1,400 acres include both commercial and industrial space. The Tejon Ranch Co. believes the project, at buildout, will create more than 6,000 jobs and generate annual local taxes in excess of $5.5 million.

Interstate 5 – The CFD’s Market Area I-5 Along Western Seabord

In many ways, the Interstate 5 Corridor is the subject CFD’s market area. It is a key multi-lane, grade-separated motorway that links all major population centers along the West Coast of the United States, with the exception of San Francisco (which links to the I-5 via the I-580 and I-505), along a generally north-south axis. It is an integral part of the highway transportation system in the Western United States. It is the main interstate highway on the Western Sea- bord. It is the CFD’s market area, as properties within the CFD will draw their trade almost exclusively from truck and automobile trafﬁc along that motorway.

In California, portions of Interstate 5 are variously called; the "Golden State Freeway," the "Santa Ana Freeway" the "Westside Freeway," and, south of the El Toro "Y" in Orange County, the "San Diego Freeway." Beyond its southern terminus, I-5 becomes Mexico's Federal Highway 1. Beyond its northern terminus, the I-5 continues into Canada as British Columbia Highway 99.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

41 From a commercial appraisal standpoint, Interstate 5 is an economic artery that allows the movement of people and goods locally, regionally and along the Western United States.

The southern terminus of Interstate 5, in the City of San Diego, is the border crossing at San Ysidro, the country's busiest international border crossing. The northern terminus of Interstate 5 is at Blaine, Washington, as mentioned previously. Interstate 5 connects all of the major population centers of the Western Seaboard, including San Diego, Los Angeles, Sacramento, Portland, and Seattle. Via Interstates 580 and 505, Interstate 5 provides linkage to the San Francisco Bay Area. Most of the I-5 was constructed in the 1960s and 1970s.

The highway links to control cities in California (San Diego, Santa Ana, Los Angeles, Oakland, San Francisco, Sacra- mento, Redding, Mount Shasta, Weed, and Yreka), Oregon (Ashland, Medford, Grants Pass, Roseburg, Eugene, Sa- lem, and Portland), and Washington (Tacoma, Seattle, Everett, Mount Vernon, Bellingham). Vancouver, British Co- lumbia (signed as "Vancouver B.C." to avoid confusion with Vancouver, Washington) is also a control city on Inter- state 5 from the Seattle-Tacoma area to the northern terminus at the Canadian border.

A commercial appraiser will note that there is a distinct investment market for freeway-visible properties in Califor- nia – both among owner-users, who depend on this freeway visibility to promote their businesses, and among investors.

In terms of commercial property mix, real estate along the I-5 Corridor is well segmented with free-standing retail buildings, shopping center properties, general commercial buildings, industrial buildings, R&D facilities, warehouses and ofﬁce buildings variously situated along its expanse as it runs along the Western Seabord.

Interstate 5 is intersected by several other major interstate highways, most of which travel generally in a west-east direction from the west coast. In Washington state the I-5 is intersected by Interstate 90, in Oregon State the it is intersected by Interstate 84; and in California, the I-5 is most notably intersected by Interstate 80, Interstate 10, Interstate 15, and Interstate 8.

A commercial real estate appraiser would assign tremendous economic beneﬁt to this vital piece of infrastructure.

From a retail appraisal perspective, shopping along the I-5 Corridor ranges from anchored community centers, neighborhood centers, power and lifestyle centers and regional centers. There are also many truck scales, truck stops, roadside convenience centers, gas stations, minimarts, automotive dealerships that have visibility from Interstate 5.

Interstate 5 in California One source calculates the entire length of the Interstate 5 at approximately 1,382 miles long, with an estimated continuous driving time of approximately 20 hours, 13 minutes. Many consider the the I-5 corridor the "backbone" of the California Highway System. Interstate 5 is a vital transportation corridor between Northern and Southern California.

Interstate 5 begins at the San Ysidro Port of Entry in the City of San Diego. Less than a mile from the I-5's point of beginning, the I-805 splits off to serve as an alternate bypass route, transiting the cities of Chula Vista and National City before re-entering the City of San Diego.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

42 The I-5 runs northwest to the junction with State Route 905, which links to the Otay Mesa border crossing. It continues north and intersects with the southern terminus of State Route 75, which links to Coronado. It then transits Chula Vista. The I-5 then ﬂanks the San Diego Bay as it intersects with State Route 54 and enters National City.

The I-5 then skirts the San Diego Naval Base and once again enters the City of San Diego. It enters an interchange with four state routes: State Route 15, State Route 75, State Route 94 and State Route 163. The I-5 links to Balboa Park nearby.

I-5 continues northwest until it reaches its junction with I-8, which extends eastward to Arizona. The I-5 then jogs to the north while ﬂanking Mission Bay. Laster, the I-5 enters an interchange with State Route 52 before passing through the University of California, San Diego, campus near La Jolla.

Shortly thereafter, the I-5 enters an interchange with the northern terminus of I-805 before continuing north and entering an interchange with the western end of State Route 56.

North of the City of San Diego, Interstate 5 enters the City of Solana Beach, and then the three North County San Di- ego cities of Encinitas, Carlsbad, and Oceanside. In Oceanside, Interstate 5 meets State Route 78 and State Route 76 expressway before proceeding through Camp Pendleton Marine Base and ﬂanking the Paciﬁc Ocean. It then passes the San Onofre Nuclear Power Plant.

The I-5 then enters Orange County at San Clemente. It turns inland south of Dana Point and runs north through San Juan Capistrano and Mission Viejo to the El Toro "Y" in Irvine, where the I-405 splits off from I-5. It then runs through the North Orange County cities of Tustin, Santa Ana, Orange and Anaheim and Buena Park. It enters into an exchange with the I-605 near Downey.

The I-5 reaches the East Los Angeles Interchange east of Downtown Los Angeles. Intersecting the I-5 in Downtown Los Angeles are the I-10 and State Route 60, as well as State Route 110 and State Route 134. The I-5 parallels the Los Angeles River in this area. The I-5 ﬂanks the Glendale Narrows and winds through the City of Burbank and past the Bob Hope Airport. It then proceeds through the San Fernando Valley communities of Arleta, Pacoima and Sylmar.

It crosses the Newhall Pass and emerges into the Santa Clarita Valley at Valencia. Some 357,000 commuters each day use the I-5/State Route 14 interchange at the mouth of the pass. From there, the I-5 rises dramatically in elevation to the north to cross the Tejon Pass. It passes Castaic, Gorman, Frazier Park and Lebec, whereupon it sharply descends for 12 miles from over 4,100 feet at Tejon Pass to around 1,600 feet above sea level at Grapevine near the southernmost point of the San Joaquin Valley. At Wheeler Ridge, about 30 miles south of Bakersﬁeld and 4 miles north of the base of pass and near the subject CFD, State Route 99 splits away from the I-5.

From the junction with the State Route 99, the I-5 parallels Highway 33 and hugs the western rim of the Central Val- ley. While its clone, the 99, links Bakersﬁeld, Fresno and Modesto, the I-5 serves as something of a bypass route for much of the Central Valley. It provides access to Los Banos and the San Luis Reservoir State Recreation Area, and Tracy. It then runs through Manteca, Lathrop and Stockton in San Joaquin County.

The I-5 enters Sacramento. After leaving the state capital, it turns due west to Woodland in Yolo County. Passing Woodland, the I-5 proceeds northwest through Dunnigan, whereafter it passes through Arbuckle, Williams and Wil- lows.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

43 Mimicking its role in the south and mid-Central Valley, the I-5 avoids many of the population centers in this portion of the state as it hugs the western edge of the Sacramento Valley, bypassing Yuba City, Oroville, and Chico. The I-5 enters Red Bluff in Tehama County.

After leaving Red Bluff, the I-5 enters the Shasta Cascade region, in the north-central section of the state, passing through Redding and skirting Shasta Lake before ascending to the foot of Mount Shasta. The I-5 then proceeds through Weed and Yreka in Siskiyou County before leaving the state at the Oregon border.

Control Cities along the I-5 in California

A control city is a destination city posted on a trafﬁc sign along a certain route. These destination cities aid motorists in reaching destinations along the various routes. Such cities appear on signs at highway junctions to show where the intersecting road goes, or on mileage signs on longer routes.

An I-5 control city not directly linked by this highway is San Francisco, which is about 80 miles west of the I-5. As mentioned previously Interstate 580 splits from I-5 towards San Francisco, while, to the north, Interstate 505 cuts south to Interstate 80, which serves that city. That routing, via I-580, I-80 and I-505, was planned originally as Inter- state 5W.

2008 AADTs along Interstate 5 in California Annual average daily traffic (“AADT”) is the total volume for the year divided by 365 days. The traffic count year is from October 1st through September 30th. Very few locations in California are actually counted continuously. Traffic counting is generally performed by electronic counting instruments moved from location throughout the State in a program of continuous traffic count sampling. Back AADT usually represents traffic South or West of the count location.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

44 The bar chart below illustrates the trend in traffic growth along Interstate 5 at Wheeler Ridge Road. Traffic increased about 5.2 percent annually on a compounded basis from 1998 to 2006. Since the 2006 peak, traffic counts have waned and by the end of 2008, the most recent year available from CalTrans, they had fallen about 9 percent.

Annual Avg. Daily Traffic Counts (Back Position) on I-5 at Wheeler Ridge 80,000

70,000

60,000

50,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Not coincidentally, container trafﬁc at the Port of Long Beach, illustrated below, shows similar trending.

Yearly TEUs, Port of Long Beach 8,000

6,500

5,000 in 1,000s

3,500

2,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

45 The cost of drayage to and from distribution space in the subject ZIP Code appears to be signiﬁcantly higher than drayage costs to/from points in the Inland Empire. However, there are clearly offsetting factors that may make distribution centers in the southern Central Valley advantageous for some companies.

An article in the April 21-27, 2003 Journal of Commerce, entitled Wide Open Spaces: Import Distribution Centers Are Being Built Farther from Ports, details the pros of being farther from port complexes (cheaper warehouse labor, less turnover in work force, lower real estate costs, lower taxes, job-creation tax incentives from local communities, less community opposition to dust and noise, ability to build larger warehouses and the possibility of shorter truck hauls from distribution centers to retail outlets) and the cons (long truck hauls, in most cases, higher freight charges, difﬁculty in per- suading truckers to make all-day round trips to/from harbor, shipping lines’ all-inclusive rates don’t cover truckers’ extra costs of pre-staging containers for early morning delivery).

It should be noted that the subject CFD’s location, 2 to 3 hours north of the Ports of Los Angeles and Long Beach and 4 hours south of Oakland, gives warehouse operators efﬁcient access to the state’s two major port complexes and the ability to serve retail outlets from San Francisco to San Diego and east to Las Vegas in a one-day truck turn.

The article cited above quotes Mike Velton, General Manager of Sears Logistics, which, shortly before the article’s publication, had opened a 1-million-square-foot distribution center in Delano, north of Bakersﬁeld. Sears chose the location, according to the article, to avoid the rising cost and congestion of places like Ontario and San Bernardino, where it had also looked for property.

Further evidence of interest in the Central Valley as a distribution hub includes the 1.7 million square foot Ikea distribution center in Tejon Industrial Complex – West, which serves Western States and parts of Canada. In addition to the Ikea facility, which came on line in 2000, there is the recently constructed 350,000-square foot distribution facility for Famous Footwear, also in the Tejon Industrial Complex – West. A Wal-Mart distribution center has been located in Porterville since 1991; and a Frito-Lay distribution facility has been in Shafter since 1986. According to a spokesman for Brown Shoe, Famous Footwear’s parent company, the location provides round-the-clock, efﬁcient outbound, roundtrip delivery service to 96 percent of California’s population and parts of Nevada within the current federal driver hours of service limitations. The Famous Footwear facility provides distribution to all U.S. States west of the Rockies.

Subject CFD’s Immediate Area The Tejon Industrial Complex – East property sits on the broad alluvial fan just north of the Grapevine. The property is uniformly ﬂat, sloping gently downward at a consistent rate of approximately 2 percent to 3 percent, from south to north. According to speciﬁc plan, site elevations range from 1,245 feet in the south near the California Aqueduct to 900 feet at the north end of the plan area.

The boundary for this development site is controlled by natural and manmade features on two of its four sides. To the south and west are the California Aqueduct and Interstate 5, respectively. The property has approximately two miles of frontage along I-5 at the west side of the plan area. The northern boundary and portions of the easterly project limits are the limits of the Tejon Ranch Co. ownership.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

46 Development of land in the Speciﬁc Plan area for trucking-related uses began over 20 years ago with construction of a Truck Stops of America (TA) Truck Stop facility and related trucking and highway commercial uses on approximately 30 acres. This facility was located on Wheeler Ridge Road on the east side of I-5 within the proposed Speciﬁc Plan. These facilities were remodeled and expanded over the years and, along with other adjoining highway commercial uses, include diesel and gasoline fueling, truck parking, truck service and supply, shower and laundry facilities for drivers, truck wash, commercial scales, convenience store, and both sit-down and fast food restaurants.

Development of an industrial complex on the west side of I-5 began in 1998 with the development of a Petro Stop- ping Center travel plaza on 60 acres. Subsequent County approvals expanded this development area to approximately 350 acres, designated for industrial development. Several large industrial parcels are currently being developed with warehouse/distribution facilities including an IKEA distribution center.

Zoning and the Specific Plan: With the exception of the agricultural land located outside Zone 1, the zoning is Commercial/Industrial per the Tejon Industrial Complex East Specific Plan. The site is part of a larger 1,100-acre site that that has been approved as a Specific Plan. The TIC-East Specific Plan responds to the greater San Joaquin Valley market demand for large capacity warehouse/distribution facilities and their support uses by providing for land uses and infrastructure which serve this demand. In order to achieve this intent, the Specific Plan provides for the orderly and efficient development of the Specific Plan area in accordance with the provisions of the Kern County General Plan. As such, this Specific Plan implements the goals and policies of the General Plan, as they may be amended concurrently with the Specific Plan, through the establishment of land use designations, circulation patterns, development standards and design guidelines which apply only to this property, and definition of required infrastructure to support the planned land uses.

The maps below are from the October 2005 Speciﬁc Plan.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

47 INTRODUCTION ! !

! Tejon Industrial Complex – East Specific Plan October 2005 ""#$!

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

48 INTRODUCTION ! !

Soils/Environmental: This property is a portion of Tejon Industrial Complex-East, a 1,027-acre development in which an Environmental Impact Report has been prepared. While there are a number of mitigation requirements for the entire project. An assumption of this report is that there are no environmental or toxic issues that would impair development of the site. We are not aware of any soils reports that have been prepared on this site. An assumption of ! this report is that soils are adequate to support the highest and best use of the property. Tejon Industrial Complex – East Specific Plan October 2005 Utilities: Water, gas and electric are available""#$! for development. According to representatives of the Tejon Ranch Co., the non-agricultural lands in the CFD have been annexed into the Tejon-Castac Water District. The company is said to have a will-serve letter from the water district to provision the lands within the CFD. Tejon Ranch has a long-

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

49 standing relationship with the Tejon-Castac Water District and the Kern County Water Agency that it believes will ensure a secure water supply.

Flood Zone Information: The subject is located within the San Joaquin Valley drainage basin, which collects water runoff from the western two thirds of lands within Kern County. There are several natural drainage courses in the area. These include Salt Creek, Tecuya Creek, Grapevine Creek, and Pastoria Creek. While all of these drainage courses are subject to flash-type flows during heavy rains, the proposed development is outside of the FEMA 100 year flood line, therefore, the subject is not subject to flooding during a 100-year event.

Project site water runoff ﬂows from south to north and, according to the EIR document, will eventually discharge into either an existing Caltrans drainage facility on the east side of Interstate 5 or into Tecuya Creek.

Earthquake/Fault Information: While the site is in an area of faults (Wheeler Ridge, White Wolf, Plieto, Garlock and San Andreas), the subject is not within an Alquist-Priolo zone. (See previous description of fault locations.)

The appraiser observed drainage catch basins within the Tejon Ranch Industrial Complex East. They are located on the TA Travel Center parcel. There was no indication of any detrimental conditions and the property within the CFD appears to be adequately protected against detrimental conditions.

The appraiser noted no linkage to public transportation. However, one would not expect this type of development to be linked to a public bus grid.

Police and Fire: Formed in 1866, the Kern County Sheriff's Ofﬁce is the oldest law enforcement agency in the county. The Sheriff is the county's chief law enforcement ofﬁcer. In addition to providing police services to the unincorporated portions of the county, the Sheriff has the responsibility for the jail system, providing bailiff and prisoner transportation service to the courts, search and rescue, coroner services, and civil process (serving lawsuit papers).

Also as of 2010, Sheriff's Ofﬁce had 1,330 sworn and civilian employees. There were 572 authorized deputy sheriff positions deployed in patrol, substations, detectives, courts services, and special investigations units. There were 412 detention deputy positions deployed in the detention facilities, and 346 Sheriff's professional support staff assigned throughout Kern County. The Sheriff, who also serves as the Coroner, is an elected ofﬁcial. All other ranks are county employees and fall under civil service regulations.

As of 2010, the Kern County Fire Department, which provides ﬁre and emergency services to the lands within the CFD, employed over 625 permanent employees and protected an area of over 8,000 square miles and a population of 500,000 citizens living in the unincorporated areas of Kern County and the cities of Arvin, Delano, Maricopa, McFar- land, Ridgecrest, Shafter, Taft, Tehachapi and Wasco.

In 2010, the department had over 546 uniformed firefighters stationed in 46 fire stations throughout Kern County. Added to this, the Kern County Fire Department had 14 Mutual Aid Agreements with neighboring fire suppression organizations to further strengthen its emergency services.

Fire Station No. 55, located in the Tejon Ranch Industrial Complex – West, has a 308 square-mile response area.

The properties within the entire Tejon Industrial Complex are very compatible with its space along the Interstate 5 Corridor. The general appearance of the developed portion of the Tejon Industrial Center is good. The commercial/

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

50 retail properties would likely be seen as new and desirable as, or superior to, any along the I-5 Corridor. We believe the overall appeal to the market is good.

The setting is generally rural, although the properties within the subject CFD constitute their own economic node. Therefore, it would not be reasonable to classify the properties as rural. The parcels of the CFD are considered to be within the economic sphere of influence of the City of Bakersfield. Property values in nearly all real estate segments in Bakersfield have been declining as capitalization rates have been rising in similar fashion to trend characteristics in places like the Inland Empire and elsewhere in the Central Valley.

Present developed land use within the CFD and on the outskirts can be characterized as industrial, retail and agricultural. Once the parcels of Tejon Industrial Complex East are fully built out, land use is not likely to change. No in- compatible land uses were noted.

Construction completions in the West Inland Empire, a submarket the subject CFD may well be competing with, point to oversupply. The bar chart below illustrates this.

Industrial Construction Completions (in SF) in West Inland Empire 2,500,000

1,875,000

1,250,000

625,000

0 3Q08 4Q08 1Q09 2Q09 3Q09

Since the third quarter of 2007, as the chart below shows, vacancy rates have been rising and rents falling in the West Inland Empire through the third quarter of 2009.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

51 Industrial Vacancy Rate $ PSF per Month (NNN) Industrial

West Inland Empire Industrial Vacancy vs. Rents 11.00% $0.47

8.25% $0.44

5.50% $0.40

2.75% $0.37

0% $0.33 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09

The chart below shows a trend of falling industrial vacancy rates from the third quarter of 2005 through the fourth quarter of 2008, along with rising or stabilizing rents. Since the fourth quarter 2008, the vacancy rate in the San Fer- nando Valley and Ventura County has been rising and rents have been falling.

Industrial Vacancy Rate $ PSF per Month (NNN) Industrial

SFV and Ventura County Industrial Vacancy vs. Rents 4.00% $0.70

3.50% $0.67

3.00% $0.64

2.50% $0.61

2.00% $0.58 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

52 The weighted average industrial asking lease rates are highest in the East San Fernando Valley and lowest in the West Ventura and the Santa Clarita Valley.

Weighted Avg. Asking Industrial Lease Rates, Q3 2009

West Ventura County $0.52

Santa Clarita Valley $0.52

Simi Valley $0.57

Central SF Valley $0.58

West SF Valley $0.60

Conejo Valley $0.64

East Valley $0.67

$0 $0.18 $0.35 $0.53 $0.70 $ PSF/Mo. (NNN)

Considering land availability, zoning and utilities in the neighborhood, it is unlikely there will be any more potential parcels created outside the subject CFD that would compete with parcels within the CFD within the foreseeable future. Other than the changes brought about by the general economic downturn, the economic base is for CFD, i.e., Interstate 5, is stable.

Distances from Subject Property

DISTANCE MILES

Bakersﬁeld (Downtown) 40

Los Angeles (Downtown) 75

Santa Ana 96

Port of Oakland 280

Ports of Long Beach/Los Angeles 85

Sacramento 295

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

53 Raw land, especially land at the edge of urban development, is volatile. It is perhaps the most volatile of all real estate. How long will it take to secure entitlements? How much cut and ﬁll will be required at grading? Will there be community protests against development? Will an arroyo toad, a burrowing owl or some other endangered species be found on the site? Who will pay for off-site infrastructure? What is the mood toward growth at City Hall? Is it likely elections would bring a slate of anti-growth council members into ofﬁce? Will the city need to annex unincorporated land?

Inﬁll land, although less volatile, still can be held hostage to the whims of local government and the constituents who put them in ofﬁce. If a conditional use permit is required, who can say with any certainty that it will be granted? The risks are priced into the real estate and every investor has his own perception of, and appetite for, this risk. Differing opinions and projections create "noise" and manifest themselves in wide price swings in what investors are willing to buy (and sellers willing to sell) raw land at.

In a depressed or contracting economy, there is signiﬁcantly less interest in developing most property types. Devel- opment land is hit from many sides: Municipal bond investors may require higher returns for the ﬁnancing of off-site infrastructure. Lenders on commercial real estate become more restrictive regarding construction loans, vacancies in the built environment increase and rents soften, making projects that were once feasible, unfeasible.

Finally, in an expanding economy, land development on the edge of urban growth can become wildly lucrative for developers. Ag land that was purchased a year or two before for a pittance can be mapped, permitted and sold off to developers for multiples of the acquisition price.

All of these things combine to make land more speculative and more volatile than the built environment.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

54 Appraised Properties

Signiﬁcant Sellable Infrastruc- Lot Size Owner of Within I-5 Front- ture in APN (ac) Record Zone TIC East age Place Comments 238-390- 138.78 Tejon Indus- 1 Yes No No Northern large industrial lot. 53 trial Corp.

238-390- 136.51 Tejon Indus- 1 Yes Yes Yes Northern large industrial lot. Vineyard on 52 trial Corp. portion of lot. 238-390- 27.9 Tejon Indus- 1 Yes No No One of four approx. square lots north of 50 trial Corp. Travel Plaza. Vineyard/Almonds.

238-390- 26.21 Tejon Indus- 1 Yes No Yes One of four approx. square lots north of 51 trial Corp. Travel Plaza. Vineyard/Almonds on about one-ﬁfth of lot. 238-390- 27.1 Tejon Indus- 1 Yes No No One of four approx. square lots north of 49 trial Corp. Travel Plaza. Vineyard/Almonds. 238-390- 27.1 Tejon Indus- 1 Yes No Yes One of four approx. square lots north of 48 trial Corp. Travel Plaza. Vineyard/Almonds on about one-ﬁfth of lot. 238-390- 8.15 Tejon Indus- 1 Yes No Yes Immediately south of Travel Plaza; irregu- 43 trial Corp. larly shaped lot. Appraisers have created a small number of hypothetical commercial pads on this property. 238-390- 9.62 Tejon Indus- 1 Yes No Yes Square lot southeast of Travel Plaza. 44 trial Corp. 238-390- 8.93 Tejon Indus- 1 Yes No Yes Square lot east of Travel Plaza. 45 trial Corp. 238-390- 8.92 Tejon Indus- 1 Yes No Yes Square lot east of Travel Plaza. 46 trial Corp. 238-390- 9.6 Tejon Indus- 1 Yes No Yes Square lot southeast of Travel Plaza. 47 trial Corp. 238-390- 64.6 East Travel 1 Yes No No Lot accommodates Travel Plaza. 42 Plaza LLC

241-440- 7.91 Tejon Indus- 1 Yes No No Rectangular parcel southeast of Travel 01 trial Corp. Plaza 241-440- 8.08 Tejon Indus- 1 Yes No No Irregular-shaped parcel southeast of Travel 02 trial Corp. Plaza. 241-440- 4.6 Tejon Indus- 1 Yes No No Rectangular parcel southeast of Travel 03 trial Corp. Plaza 238-091- 0.38 Tejon Indus- 1 Yes Somewhat No Triangular island parcel. 18 trial Corp. 238-390- 58.38 Tejon Indus- 1 Yes Somewhat Yes Irregular-shaped parcel south of Travel 55 trial Corp. Plaza. Parcel has a disconnected triangular portion to the northwest. Appraisers have created a small number of hypothetical commercial pads on this property.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

55 Signiﬁcant Sellable Infrastruc- Lot Size Owner of Within I-5 Front- ture in APN (ac) Record Zone TIC East age Place Comments 238-390- 161.12 Tejon 2 No No No Fallow 06 Ranchcorp 238-390- 160.8 Tejon 2 No No No Vineyard/Almonds 14 Ranchcorp 241-340- 18.3 Tejon Indus- 1 Yes Yes No Irregular-shaped parcel south of Travel 09 trial Corp. Plaza. 241-440- 4.69 Tejon Indus- 1 Yes No No Rectangular parcel south of Travel Plaza 04 trial Corp.

241-440- 16.7 Tejon Indus- 1 Yes No No Irregular-shaped parcel south of Travel 06 trial Corp. Plaza. 241-440-5 6.88 Tejon Indus- 1 Yes No No Irregular-shaped parcel southeast of Travel trial Corp. Plaza.

241-340- 119.88 Tejon Indus- 1 Yes No No Oblong Parcel, basically rectangular 11 trial Corp.

241-440- 40.11 Tejon Indus- 1 Yes Yes No Trapezoid parcel with freeway frontage. 07 trial Corp. 241-440- 43.38 Tejon Indus- 1 Yes No No Trapezoid parcel with freeway frontage. 08 trial Corp. Vineyard/Almonds on small portion. 241-440- 50.72 Tejon Indus- 1 Yes No No Trapezoid parcel with freeway frontage. 09 trial Corp. Vineyard/Almonds on portion. 241-440- 44.27 Tejon Indus- 1 Yes Yes No Trapezoid parcel with freeway frontage. 10 trial Corp. 241-440- 52.62 Tejon Indus- 1 Yes Yes No Trapezoid parcel with freeway frontage. 11 trial Corp. 241-440- 44.68 Tejon Indus- 1 Yes No No Essentially rectangular parcel. 12 trial Corp. 241-440- 12.28 Tejon Indus- 1 Yes No No Triangular parcel. 13 trial Corp. 241-370- 15.59 Tejon Indus- 2 No No No Triangular parcel. 14 trial Corp. 241-370- 62.88 Tejon Indus- 2 No No No Trapezoid parcel. Vineyard/Almonds. 17 trial Corp. 241-370- 18.61 Tejon Indus- 2 No No No Trapezoid parcel. 18 trial Corp. 241-370- 92.18 Tejon Ranch 2 No No No Trapezoid parcel. Vineyard/Almonds. 04 Co. 241-370- 103.59 Tejon Ranch 2 No No No Irregular-shaped parcel. 05 Co. 241-370- 71.04 Tejon Ranch 2 No No No Irregular-shaped parcel. 06 Co.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

56 Signiﬁcant Sellable Infrastruc- Lot Size Owner of Within I-5 Front- ture in APN (ac) Record Zone TIC East age Place Comments 241-370- 127.48 Tejon Ranch 2 No No No Irregular-shaped partial parcel (addi- 07 Co. tional 43.09-acre section located in Grapevine Creek. Included in CFD but not valued). 84.39 acres valued. 241-370- 45.46 Tejon Ranch 2 No No No Square lot. 08 Co. 241-370- 45.10 Tejon Ranch 2 No No No Square lot. 09 Co.

The subject CFD lies within the Tejon Industrial Complex, a master-planned business-park and commercial development situated near the junction of Highway 99 and Interstate 5. It is comprised of the Tejon Industrial Complex – West and the Tejon Industrial Complex – East. Interstate 5 serves to divide the portions of the business park. The subject CFD lies within the eastern portion, which is undeveloped with the exception of the TA Travel Plaza.

Several high-cube distribution centers have been built in the Tejon Industrial Complex – West as the ﬁrst elements of what will be an industrial node designed to compete with distribution centers in places like the Inland Empire. The site also includes commercial uses like quick-service restaurants, automobile service stations and truck stops. Its 1,400 acres include both commercial and industrial space. IKEA operates a 1.7 million square-foot North American Western Regional Distribution Center in the western portion of the Tejon Industrial Complex.

The properties appraised are in the Tejon Industrial Complex (TIC)-East Specific Plan. At buildout, they will include the development of approximately 1,027 acres located on the east side of Interstate 5 at the Laval Road/Wheeler Ridge interchange. The Specific Plan establishes the creation of a highway-oriented mixed-use industrial, manufacturing, service and commercial center with direct access to Interstate 5. The industrial park development, according to the Tejon Industrial Complex – East Specific Plan, dated October 2005, is a master planned, mixed-use industrial center focusing on the needs of trucking, warehousing and distribution industries. In addition, it provides highway commercial services and facilities for trucking professionals and the general traveling public. The pie charts below illustrate the proportion of industrial to commercial gross building area at buildout. The source is the Tejon Industrial Complex (TIC)-East Specific Plan.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

57 Breakdown of TIC-East Gross Building Area at Buildout

98%

Industrial Uses (15,153,200 SF) Commercial/Ofﬁce Support (275,000 SF)

The source of the data in the pie chart above is the Speciﬁc Plan, dated October 2005.

Breakdown of TIC-East Uses in Acres

7% 9%

84%

Industrial (931.9 Acres) Commercial (97.6) Streets (79.5)

The source of data in the pie chart above is the Speciﬁc Plan, dated October 2005.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

58 Ownership Breakdown within CFD

3% 17%

56% 23%

Tejon Industrial Corp. Tejon Ranch Co. Tejon Ranchcorp East Side Travel Plaza LLC

The source of the data in the pie chart above is the Tejon Ranch Co. The map on the following page shows the land included in the CFD.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

59 Bruce W. Hull & Associates, Inc.Summary Appraisal Report

60 Legend

TEJON INDUSTRIAL CORP

Ridge Rd. EAST TRAVEL PLAZA LLC 238-390-06 238-390-53 161.12 ac 138.78 ac TEJON RANCHCORP

TEJON RANCH CO

ZONE 1 238-390-52 136.51 ac ZONE 2

238-390-50 238-390-49 Wheeler 27.9 ac 27.1 ac CFD 2008-1 BOUNDARY

238-390-14 160.8 ac Note: Map not to scale. 238-390-51 238-390-48 26.21 ac 27.1 ac

238-390-47 9.6 ac TA Travel Center 238-390-46 238-390-42 8.92 ac 64.6 ac 238-390-45 8.93 ac

238-390-44 238-390-43 9.62 ac 8.15 ac 241-440-01 7.91 ac

238-390-55 241-440-02 58.38 ac 8.08 ac 238-091-18 0.38 ac 241-440-03 4.6 ac Laval Road

241-340-09 18.3 ac 241-440-04 4.69 ac 241-340-11 241-440-06 119.88 ac 16.7 ac 241-440-05 6.88 ac 241-370-14 G 241-440-07 ra 15.59 ac pev 40.11 ac ine Cre 241-440-08 ek

43.38 ac 241-370-17 INTERSTATE 5 INTERSTATE 62.88 ac

241-370-04 92.18 ac 241-440-10 241-370-05 44.27 ac 103.59 ac 241-440-09 50.72 ac

241-440-11 241-370-06 52.62 ac 71.04 ac Portion Included 241-370-18 241-370-07 241-440-12 18.61 ac 44.68 ac 84.39 ac

241-440-13 241-370-09 12.28 ac 45.1 ac Portion Excluded CA LIF OR 241-370-07 NIA 241-370-08 AQ 43.09 ac UE 45.46 ac DU CT

The newer infrastructure includes Santa Elena Drive, the road directly to the north of the TA Travel Center. A portion of Wheeler Ridge Road has also been widened and upgraded, as well as Del Sol, which is a Phase I full-width portion of an arterial road built to county standards directly south of the TA Travel Center. These are public streets that contain curbs, gutters, drainage inlets, streetlights, underground electricity and telephone, public sewer and sidewalks. No environmental problems were observed or are known to the appraisers.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

61 Discussion of Assessments and Taxes

Ad Valorem Taxes Proposition 13, officially titled the "People's Initiative to Limit Property Taxation," was a ballot initiative to amend the constitution of the state of California. The initiative was enacted by the voters of California on June 6, 1978. It was upheld as constitutional by the United States Supreme Court in the case of Nordlinger v. Hahn, 505 U.S. 1 (1992). Proposition 13 is embodied in Article 13A of the California Constitution. The most significant portion of the act is the first paragraph, which capped real estate taxes:

Section 1. (a) The maximum amount of any ad valorem tax on real property shall not exceed One percent (1 percent) of the full cash value of such property. The one percent (1 percent) tax to be collected by the counties and apportioned according to law to the districts within the counties.

The "assessed value" may only be increased by a maximum of 2 percent per year, until and unless the property un- dergoes a change in ownership. At the time of the change in ownership the low assessed value may be reassessed to full current market value which will produce a new base year value for the property, but future assessments are like- wise restricted to the 2 percent annual maximum increase of the new base year value.

Since lands used for farming are included in the CFD, the Williamson Act should be discussed. Also known as the California Land Conservation Act of 1965, the Williamson Act was designed as an incentive to retain prime agricultural land and open space in agricultural use, thereby slowing its conversion to urban and suburban development. The program entails a ten-year contract between the County and an owner of land, whereby the land is taxed on the basis of its agricultural use rather than its market value. The land becomes subject to certain enforceable restrictions, and certain conditions need to be met prior to approval of an agreement.

CFD Special Taxes

RATES

ASSUMED BOND AMOUNT $12,600,000

ASSUMED AVERAGE COUPON 7.6%

ASSUMED TERM (YEARS) FOR LONG BOND 30

INDICATED SPECIAL TAX $1,077,261

ASSUMED ANNUAL SPECIAL TAX FOR TRAVEL $165,190 CENTER

TOTAL INDICATED ANNUAL SPECIAL TAX FOR $912,071 GROUPS I AND III

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

62 RATES

TOTAL INDICATED ANNUAL SPECIAL TAX FOR $947.43 GROUPS I AND III PER ACRE

TOTAL INDICATED ANNUAL SPECIAL TAX FOR $950.00 GROUPS I AND III PER ACRE (ROUNDED)

It should be noted that the project is authorized for $120 million in bonded indebtedness.

There has been a signiﬁcant amount of public infrastructure already put in place. We believe the cost of the infrastructure is approximately $18 million. It has been funded thus far by the developer with no reimbursement from the proposed bond. In this appraisal assignment, we assume that no bond funds will be used to fund future infrastructure. Based on our understanding, bonds will be issued on newly constructed public improvements.

For this reason, we have made certain assumptions relative to the bond size, coupon and other factors pertinent to the anticipated special taxes for the properties in groups I and III.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

63 Property Group I

Legend ZONE 1 Land Parcels with Best Infrastructure Ridge Rd. CFD 2008-1 BOUNDARY

238-390-52

136.51 ac Wheeler

238-390-51 238-390-48 Close-Up (Not to scale) 26.21 ac 27.1 ac

238-390-47 9.6 ac

238-390-46 8.92 ac 238-390-43 8.15 ac 238-390-45 8.93 ac

238-390-44 9.62 ac

238-390-55 58.38 ac Laval Road

Gra pev ine Cr

eek INTERSTATE 5 INTERSTATE

CA LIF OR NIA AQ UE DU CT

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

64 The properties in Group I are land parcels that beneﬁt from newly constructed off-site infrastructure, which includes widened roadways, sidewalks, streetlights, curbs, gutters, drainage inlets and similar backbone infrastructure. The parcels are currently served by sewer and water treatment facilities. Please note that the term “Sellable Lot Size” used as a heading the table below denotes the acreage indicated by the Tejon Ranch Co. as sellable.

They are as follows:

Sellable Lot Size APN (ac) Owner Comments 238-390-52 136.51 Tejon Industrial Corp. Northern large industrial lot. Vineyard on portion of lot. 238-390-51 26.21 Tejon Industrial Corp. One of four approx. square lots north of Travel Plaza. Vineyard/ Almonds on about one-ﬁfth of lot. 238-390-48 27.1 Tejon Industrial Corp. One of four approx. square lots north of Travel Plaza. Vineyard/ Almonds on about one-ﬁfth of lot. 238-390-44 9.62 Tejon Industrial Corp. Square lot southeast of Travel Plaza. 238-390-45 8.93 Tejon Industrial Corp. Square lot east of Travel Plaza. 238-390-46 8.92 Tejon Industrial Corp. Square lot east of Travel Plaza. 238-390-47 9.6 Tejon Industrial Corp. Square lot southeast of Travel Plaza. 238-390-55, 8.66 Tejon Industrial Corp. Irregular-shaped parcel south of Travel Plaza. Parcel appears to have 238-390-43 disconnected triangular portion to the northwest. Earmarked for retail/ commercial. Appraisers have created a small number of hypothetical commercial pads on this property. Together, these two parcels amount to 66.53 acres of which only 8.66 acres are considered served by the current infrastructure and hence included in Group I. 235.547

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

65 Hypothetical commercial parcels (see Hypothetical Condition earlier in report). Note that in this map below, the “net” represents the sellable lot size. There is a parcel map pending on six parcels, Map No. 10915 Phase “C.”

Parcel A Gross (est.) 0.35 Ac. Net (est.) 0.25 Ac

Parcel 2 Gross 0.865 Ac. Net 0.667 Ac

Parcel 3 Gross 1.22 Ac. Net 0.940 Ac

Parcel 4 Gross 1.07 Ac. Net 0.837 Ac Calculations 12.56 (est.) Acres Gross Parcel 5 8.657 (est.) Acres Net Gross 1.06 Ac. No. of lots: 10 Net 0.829 Ac 0.867 (est.) net acres/lot Parcel 6 Gross 1.590 Ac. Net 0.984 Ac Parcel 7 Gross (est.) 1.70 Ac. Net (est.) 1.0 Ac

Parcel 10 Gross (est.) 1.20 Ac. Net (est. ) 0.95 Ac

Parcel 9 Gross (est.) 1.80 Ac. Net (est. ) 1.20 Ac Parcel 8 Gross (est.) 1.70 Ac. Net (est.) 1.0 Ac

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

66 New infrastructure looking north from Del Sol cul-de-sac south of TA Travel Plaza.

New infrastructure along Santa Elena Drive, northeast of Travel Plaza (looking east)

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

67 New infrastructure along Santa Elena Drive, northeast of Travel Plaza

Valuation Method

The cost and income approaches were not used, since they are normally not appropriate in the valuation of unimproved land. However, the developer’s method, a derivation of the income approach, was utilized in conjunction with the sales comparison approach.

It should be noted that there has been a general paucity of commercial and industrial real estate sales across the state. Nowhere is this more evident than in the sale of commercial and industrial development land. Under the best of circumstances, development land, especially land at the edge of urban development, is volatile. In fact, it is the most volatile of all real estate. In a poor economy, this characteristic is ampliﬁed.

In a depressed or contracting economy, there is signiﬁcantly less interest in developing most property types. Devel- opment land is hit from many sides: Municipal bond investors may require higher returns for the ﬁnancing of off-site infrastructure. Lenders on commercial real estate become more restrictive regarding construction loans, vacancies in the built environment increase, and rents soften, making projects that were once feasible, unfeasible.

Due to a lack of sales of entitled and mapped (but unimproved) industrial lands in the 20- to 400-acre range, we have ﬁrst developed a composite opinion of retail value for each lot and then, using the developer’s method, developed an opinion of value of the bulk.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

68 It should be noted that much of the land closest to the Wheeler Ridge Road East offramp is not in the subject CFD. This land formerly contained a Chevron service station and an adjacent travel center. The lion’s share of the land within Group I is industrial (as opposed to retail/commercial). Of the 235.55 acres in this group, a very small amount is commercial.

Industrial Land Sales

LOT SALE SALE SIZE LOCATION DATE ZONE PRICE (AC) $/AC COMMENTS

Dennis McCarthy Dr., May 2008 M-2, PD $2,430,791 23.74 $102,392 Land sale on site in Tejon Industrial Laval Road, Wheeler Center – West. Rough-graded with visi- Ridge bility to I-5. Somewhat dated sale. CFD special tax.

Enos Lane, Bakersﬁeld 3/5/10 M-2 $795,000 26.69 $29,786 Well-water only. Minimal utilities and infrastructure, though property has railroad access.

SEC Jaye Street and 12/23/09 M-1 $511,500 13.31 $38,430 Improved vacant industrial site. Good Montgomery Avenue, access and visibility to main arterial. Porterville Adjacent to Wal-Mart Distribution.

5221 Raley Blvd., Sac- 6/25/09 M-1 $350,000 10.64 $70,000 All utilities to property. Only half of land ramento [1] is usable. Usable portion would need considerable ﬁll, says broker. Adjusts to about $70,000 per acre for usable land, net of unusable land.

Denio Ave., Gilroy 7/18/2008 A-20 $1,785,000 26.14 $68,286 Flat lot with 1,500 feet frontage to U.S. Route 101. Little infrastructure.

1] Adjusted for usable land (land with district water rights and adequate well water).

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

69 Industrial Land Listings

LOT LISTING SIZE LOCATION DATE ZONE LIST PRICE (AC) $/AC

Highway 166, Bakersﬁeld 3/29/10 Ind. $2,250,000 40.00 $56,250

Highway 99 and Ave. 18 1/2, 4/15/10 Ind. $690,000 12.45 $55,422 Madera

Further Discussion of Industrial Land Sales Sale 1: West Side of Dennis McCarthy Drive north of Laval Road; APN: 238-460-01-00; This 23.74-acre property is within the Tejon Industrial Complex but on the west side of Interstate 5. It sold in May 2008. The seller was the Tejon Industrial Corporation and the buyer, CRG-CA Blue, LLC. The transaction was arm's-length. It was in rough-graded condition at the time of sale and encumbered by a Mello-Roos District special tax. We have compared the special tax rates for improved industrial properties in both the subject CFD and the CFD covering the Tejon Industrial Complex – West, where the sale is located. There is a higher special tax on the west side. Recognizing that a knowledgeable buyer and seller would identify the differential, we have adjusted this sale upward for that factor. However, more than offsetting this upward adjustment are market conditions. We have reviewed market conditions in three competing submarkets – the San Fernando Valley/Ventura County industrial submarket, the Los Angeles County industrial submarket and the West Inland Empire Submarket. Based on this data, market conditions (as interpreted from lease rates) has deteriorated 25 percent to 30 percent, which more than offsets the upward adjustment for the special tax differential. The sale price was reported to be $2,430,791 or $102,392 per acre. We believe the sale should be adjusted to something less than $100,000 per acre.

Sale 2: Enos Lane, Bakersfield; APN: 104-292-29-00 and 30-00; This 26.69-acre property sold on March 5, 2010. The seller was Stock Building Supply West and the buyer was Paul E. Blackmer. The transaction was cash and arm's- length, according to the broker. The property sold for $795,000 or $29,786 per acre. It represented the first industrial land sale in the greater Bakersfield area since the NWC Pacheco and South Union Avenue land sale in October 2008, said the broker. On- and off-site infrastructure for the property was primitive. The biggest drawback, according to the broker, was the property’s well-water and sceptic-tank dependency. The offsite infrastructure is far inferior to that of the Group I subject sites and its proximity to either Interstate 5 or State Route 99 is significantly inferior.

Sale 3: SEC Jaye Street and Montgomery Avenue, Porterville; APN: 269-050-03-4000; This 13.31-acre property was ﬁrst listed in July 2009 and then about six months later in February 2010. The seller was the pharmaceutical company GlaxoSmithKline; The buyer was the City of Porterville; We believe the transaction was essentially arm’s-length, although numerous calls to the broker and a representative of the city were unanswered at the time of this writing. It should be noted that a public agency has the implied threat of eminent domain, so by nature a sale transaction involving a city cannot be purely arm’s length. The listing price was $1,200,000 or about $90,157 per acre; the sale price was $511,500 or $38,430 per acre. The land is said to be fully improved vacant land and adjacent to a Wal-Mart distribution center. It is approximately 15 miles east of State Route 99.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

70 Sale 4: 5221 Raley Blvd., Sacramento, APN: 215-0250-045-0000; This 10.64-acre property was listed in March 2008 and then sold about 16 months later in July 2009. The seller was Mesman Family Trust; The buyer, Nagin, Veni et al.; The transaction was said to be typical and arm’s-length in nature. The sale price was $350,000 or $32,895 per acre. According to the broker, only about four or five acres of the site were buildable. Of the buildable portion, the broker believes the site would require significant fill to bring it to rough-graded condition – perhaps a couple of feet. The broker knows of no cost study performed by either party to estimate this cost. The broker said he believes Raley Blvd. would require significant widening, curbs, gutters and other infrastructure.

Commercial Land Sales

Sale 1: Two parcels in Tejon Industrial Complex – West for hotel pad. This property represents the sale of two parcels of 2 acres each, or a total of 4 acres. The parcels sold in an arm’s-length agreement for approximately $13.00 per square foot. The property, which was encumbered by a CFD, sold but has not been developed due to current market conditions. These two parcels, sold together, represent small, premium parcels with excellent freeway visibility on the west side Interstate 5, which is more mature and has superior synergies with other retail use.

Sale 2: A ground lease for a pad to accommodate a Chipotle quick-service restaurant was executed in March 2010 for an imputed land value of $16 per square foot. The leased parcel was 2,252 square feet.

There have been numerous other small-pads and ground leases in Tejon Industrial Complex – West. These would include such users as Starbucks, In-N-Out Burger, Denny’s, Panda Express and McDonalds. These sales have consistently been in the $14 to $16 per square foot range, either as outright sales or as imputed sales resulting from ground leases.

Conclusion of Retail Value for Industrial Lands After examining the industrial sales above, along with several others, and speaking with market participants, we believe the 2008 sale on the West Side of Dennis McCarthy Drive north of Laval Road is most relevant. While it is a 2008 sale and therefore dated, we believe it is an excellent proxy for the parcels within Tejon Industrial Complex – East, for the most part. In fact, there could hardly be a better proxy in terms of location, setting, exposure to Interstate 5, commonality of developer and level of infrastructure. The Enos Lane sale is of interest as it is the most recent industrial sale in Bakersﬁeld, but it is vastly inferior to the subject parcels as it has very primitive off-site infrastructure and its proximity to either Interstate 5 or State Route 99 is signiﬁcantly inferior. The Porterville sale is of interest, but the city’s involvement as the buyer in the transaction makes the arm’s-length nature of it suspect. After examining the limited land sales that have occurred since, we believe a retail value of $90,000 per acre is reasonable for the industrial portion of the group.

Conclusion of Retail Value for Commercial Lands

It is evident that the small-lot commercial sales activity around the Petro Travel Plaza on the west side of Interstate 5 has been robust. It’s clear that the small parcels sell in the $13 to $16 range per square foot. We believe they are an excellent element of comparison for the commercial lands abutting the existing TA Travel Center within subject CFD.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

71 We have taken the conclusions for small-lot industrial and commercial sales and incorporated them into discounted cash-ﬂow analyses, which follow. However, before we do this, a discussion of absorption is in order.

Absorption

To help anticipate what the absorption rate in the Tejon Industrial Complex – East might be, we looked at the historical absorption rate within the Tejon Industrial Complex – West. From 2000 through 2010 year-to-date, slightly approximately 300 acres of commercial and industrial land have been absorbed there. This 10-year period included the dot-com bust, 9/11, the build-up to an historic credit bubble, which peaked toward the middle of the period, and the historic ﬁnancial collapse that followed. We believe that this absorption, averaging 30 acres annually, is a reasonable yardstick. In the table below, which was provided by the Tejon Ranch Co., “2010” signiﬁes year-to-date as of April 30.

Description (FAR) Years 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

TIC West Land Sales - Industrial IKEA 81.03 49.30% 81.03 Clayco 23.75 33.80% 23.75 Tejon Campus (Pad 17) 10.64 32.00% 115.42 44.50% 0.00 81.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 23.75 0.00 0.00 Land Sales - Tejon Campus Tejon Campus 0.00 0.00% 0.00 Tejon Campus 0.00 0.00% 0.00 0.00 0.00% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Partnership - In Service - Industrial Petro Travel Plaza LLC 52.06 2.30% 52.06 Tejon/Dermody LLC - Spec 33.30 44.90% 33.30 Parcel 5 West LLC - Spec 29.05 47.90% 29.05 Pad 18 30.00 46.40% 30.00 Pad 19 30.79 45.20% 30.79 175.20 33.10% 52.06 0.00 33.30 0.00 0.00 0.00 29.05 0.00 0.00 0.00 60.79 0.00

Total Industrial 290.62 37.60% 52.06 81.03 33.30 0.00 0.00 0.00 29.05 0.00 0.00 23.75 60.79 0.00

Land Sales - Retail Petro 2 (Mobile) 1.84 6.40% 1.84 IN-N-OUT (Pad 2) 1.33 6.70% 1.33 Petro 3 (Pad 2 - Chevron) 3.29 3.90% 3.29 Best Western 2.05 34.50% 2.05 Hampton Inn - No. of Best Western2.09 46.50% 2.09 10.58 19.00% 0.00 0.00 0.00 1.84 0.00 0.00 0.00 4.61 0.00 4.13 0.00 0.00

Land Leases - Retail Best Western 1.56 45.20% 1.56 Sell Best Western -1.56 45.20% -1.56 McDonald's 1.09 7.40% 1.09 Panda Express 0.79 7.00% 0.79 Denny's - No. of Hotel site #2 1.48 5.60% 1.48 3.36 6.50% 0.00 0.00 0.00 2.65 0.79 0.00 0.00 0.00 0.00 -1.56 0.00 1.48

TR Build to Suit - In Service - Retail

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

72 Starbucks - BTS Lease 1.21 2.80% 1.21 Del Taco - DMc So. Across from INO1.49 3.80% 1.49 Chipotle - (Multi-Tenant) 1.12 9.20% 1.12 3.82 5.10% 0.00 0.00 0.00 1.21 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.61

Total Retail 17.76 13.70% 0.00 0.00 0.00 5.70 0.79 0.00 0.00 4.61 0.00 2.57 0.00 4.09

TIC WEST - Sold/In Service 308.38 36% 52.06 81.03 33.30 5.70 0.79 0.00 29.05 4.61 0.00 26.32 60.79 4.09

The table below represents assumptions used in the discounted cash-ﬂow analyses on the following pages.

Assumptions Retail Lot Price/Acre Industrial $90,000 Small-Pad Price/SF Commercial $14.00 Small-Pad Price/Acre Commercial $609,840 CPI Inﬂator[1] 1.60% Sales Cost 1.50% Admin. Costs 2% Ad Valorem 1.10% CFD Special Tax per Acre $950 CFD Special Tax Escalator (per an- 2.0% num) Discount Rate 1 (Industrial Land) 20.0% Discount Rate 2 (Commercial Land) 25.0% 1] BLS CPI calculator 2000-2010

The discounted cash-ﬂow analysis below represents the industrial lands in Group I.

Year 1 2 3 4 5 6 7 8 Absorbed Acres 28.36 56.72 85.08 113.44 141.8 170.16 198.52 226.90 Proceeds $2,593,238 $2,634,730 $2,676,886 $2,719,716 $2,763,232 $2,807,443 $2,852,362 $2,898,000

Sales Costs $38,899 $39,521 $40,153 $40,796 $41,448 $42,112 $42,785 $43,470 Admin. Costs $408,420 $357,336 $306,288 $255,240 $204,192 $153,144 $102,096 $51,048 Ad Valorem Taxes $224,631 $196,535 $168,458 $140,382 $112,306 $84,229 $56,153 $28,076 Special Tax $192,366 $168,183 $142,955 $116,652 $89,238 $59,492 $30,341 Total Holding $671,950 $785,758 $683,082 $579,373 $474,598 $368,723 $260,527 $152,935 Costs

Unadj. CFs $1,921,289 $1,848,973 $1,993,803 $2,140,343 $2,288,634 $2,438,720 $2,591,836 $2,745,065 Discount Factor 0.83 0.69 0.58 0.48 0.40 0.33 0.28 0.23 Disc. CFs $1,601,074 $1,284,009 $1,153,821 $1,032,187 $919,751 $816,722 $723,334 $638,414

Indicated NPV $8,169,312 Indicated NPV/Ac $36,004.02

The discounted cash-ﬂow below represents the commercial lands in Group I.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

73 Year 1 2 3 4 5 Cum. Absorbed 1.73 3.5 5.2 6.9 8.7 Acres Proceeds $1,055,023 $1,071,904 $1,089,054 $1,106,479 $1,124,183

Sales Costs $15,825 $16,079 $16,336 $16,597 $16,863 Admin. Costs $15,570 $12,456 $9,342 $6,228 $3,114 Ad Valorem Taxes $8,564 $6,851 $5,138 $3,425 $1,713 Special Tax $6,705 $5,130 $3,488 $1,779 Total Holding Costs $39,959 $42,091 $35,946 $29,739 $23,468

Unadj. CFs $1,015,064 $1,029,813 $1,053,108 $1,076,740 $1,100,714 Discount Factor 0.80 0.64 0.51 0.41 0.33 Disc. CFs $812,051 $659,080 $539,192 $441,033 $360,682

Indicated NPV $2,812,038 Indicated NPV/SF $7.46

Highest and Best Use for Group I Parcels

The highest and best use is a basic concept in real estate valuation because it represents the underlying premise (i.e., land use) upon which the estimate of value is based. In this report the highest and best use is deﬁned as:

“The reasonably probable and legal use of vacant land or improved property, which is physically possible, appropri- ately supported, ﬁnancially feasible, and that results in the highest value.”

Proper application of this analysis requires the subject property to ﬁrst be considered as if vacant in order to identify the ideal improvements in terms of use, size and timing of development. The existing improvements (if any) are then compared to the ideal improvements to determine if the use should be continued, altered, or discontinued in prepara- tion for redevelopment of the site with a more productive or ideal use.

Legally permissible uses of the Group I parcels are a combination of industrial and commercial/retail in accordance with the Tejon Ranch Speciﬁc Plan. The land, also to the best of our knowledge, physically supports the planned industrial and commercial/retail use. We believe the earmarked uses will be absorbed, suggesting feasibility for development, at the rate of approximately 30 acres per year, which is roughly the absorption rate of the properties on the west side of Interstate 5. We believe that the maximally productive use will be industrial and commercial when feasibility is demonstrated. The ideal use will be a combination of high-cube distribution centers and roadside commercial/retail. The commercial/retail will support the industrial buildings and both will have linkage to the trafﬁc patterns along Interstate 5.

In terms of use, user and timing, typical uses have been discussed previously. The likely users will be logistics functions of large retailers and consumers along the Interstate 5 Corridor. Properties may be owner-user properties or, more than likely, owned or co-owned by REITS, insurance companies, pension funds and national investors in commercial real estate properties, since similar entities have demonstrated involvement on the west side of Interstate 5.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

74 Conclusion for Property Group I

Based on the results of our analysis of the likely composite retail price for the properties in this group and the discounted-cash-ﬂow analysis above, we believe $10,935,358, or $46,426 per acre, is reasonable. We have rounded this to $10,940,000.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

75 Property Group II

Legend Travel Plaza

Ridge Rd. CFD 2008-1 BOUNDARY Wheeler

TA Travel Center 238-390-42 64.6 ac

Laval Road

Gra pev ine Cr

eek INTERSTATE 5 INTERSTATE

CA LIF OR NIA AQ UE DU CT

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

76 Travel Plaza building looking northwest.

Shots of Travel Plaza, and automotive and truck site furnishings

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

77 Interior of TA Travel Plaza, quick-service restaurant.

Interior of Travel Plaza, C-Store

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

78 Travel Plaza restroom

Travel Plaza interior (corridor accessing coin laundry and showers).

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

79 Site Description

ITEM DESCRIPTION

Address/APN 238-390-42

Gross Site Area (Acres) 64.6

Gross Site Area (SF) (Assessor) 2,813,976

Surplus Land We believe that about half the site is surplus land.

Location The single developed parcel of Group II is at a distance of a quarter-mile from Interstate 5 at its closest point. It is on the east side of Wheeler Ridge Road north of Laval Road and south of Santa Elena Drive.

Zoning Tejon Ranch Speciﬁc Plan, which permits commercial and industrial uses.

Utilities All utilities to property line.

Shape Irregular pentagonal

Topography Level

Off-site Infrastructure New and/or upgraded streetscapes with curbs, sewer inlets, sidewalks, streetlights, anti-fatigue matting.

Parking While we did not inventory the large number of park and ve- hicular parking spaces, the plans indicate about 220 truck parking spaces and about 140 car parking spaces.

Landscaping Typical

Storage Tanks The appraised property has one underground 15,000-gallon storage tank and four underground 30,000 gallon, gasoline/ Diesel storage tanks reported to be of industry standards.

Canopy The site has two canopies. One over the MPDs in front of the travel center building building. The other in front of the truck stop building.

Multiple-Product Dispensers There are eight (8) Diesel dispensers and 12 double-sided gaso- (MPDs) line MPDs.

Sign Fixtures Pylon type

Truck Scales CAT system.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

80 ITEM DESCRIPTION

CFD Special Tax, other assess- The appraised properties are encumbered by a community fa- ments cilities district, which will put the overall rate of taxation above the typical ad valorem taxation rate.

Improvements

The improvements consist of two single-story buildings – a travel center building and a truck stop building. The travel center building contains a convenience store and food courts that, as of the date of value, contained a Pizza Hut Express, a Taco Bell Express, a Subway, a Burger King and a Popeye’s quick-service restaurant. In addition, the building has 13 showers in individual rooms, a coin laundry, ofﬁces, a television lounge with theater seating, rest rooms and storage.

The truck stop building contains three truck service bays, a small convenience store, a quick-service restaurant, storage and ofﬁce space.

ITEM DESCRIPTION

General The improvements consist primarily of two single-story buildings – a travel center building and a truck stop building.

Travel Center Building (SF) 21,037

Truck Stop Building (SF) 12,941

Total Gross Building Area (SF) 33,978

Total Canopy Size (SF) 14,800

Year Built 2009

Foundation Reinforced concrete slab

Construction Concrete block and frame and stucco

Floor Structure The ﬂoor structure is reinforced concrete

Plumbing 13 separate shower rooms; ample men’s and women’s restroom facilities.

HVAC Appears to be adequate for the buildings.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

81 ITEM DESCRIPTION

Security/Fire Suppression We believe the buildings have adequate security and ﬁre protection/ﬁre suppression equipment to meet current standards.

Rec. Vehicle Amenities Project is said to have an RV dump station.

General Adequacy of Improve- The improvements appear to be more than adequate. ments

Economic Life (in years) [1] 50

Effective Age (in years) 2

Remaining Economic Life 48

Architectural Attractiveness The buildings represent contemporary architecture.

Quality of Construction The overall quality of construction is good.

Condition of Exterior The condition of the exterior of both buildings is very good. The condition of the site furnishings is similarly very good.

Condition of Interior The condition of the interior is very good.

Room Size and Layout The room size and layout is on par with those of the Petro Travel Plaza on the west side of the Interstate 5 and that of the Flying J Travel Plaza in Gorman.

Light and Ventilation The light and ventilation are adequate to good.

Overall Usability The overall usability of the property is good. However, there is surplus land on the property.

Compatibility to Neighborhood The Travel Plaza has very good compatibility with uses in the Tejon Industrial Complex – West. There was previously a TA Travel Plaza on the east side of Interstate 5 on a multi-decade ground lease. The truck-stop use lasted throughout the term of the lease and the structure was demolished, by agreement, at the end of the term. There is a Petro Travel Plaza on the west side of Interstate 5, also within the Tejon Industrial Complex. The developer asserts that each side of the I-5 has its own “audience.” Based on our observations, and the fact that a now- defunct Chevron service station and the defunct TA Travel Plaza survived the terms of their ground leases, we believe this is correct.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

82 ITEM DESCRIPTION

Overall Appeal and Marketability Given its recent vintage and modern conﬁguration, the travel plaza currently has very good overall appeal and marketability.

1] Referred to as “Physical Life” in 2010 National Building Cost Manual for “Auto Service Center” of masonry construction.

Highest and Best Use for Group II Parcels

“The reasonably probable and legal use of vacant land or improved property, which is physically possible, appropri- ately supported, ﬁnancially feasible, and that results in the highest value”

Legally permissible uses of the Group II parcel as vacant is commercial/retail in accordance with the Tejon Ranch Speciﬁc Plan. The land, were it vacant, appears to physically support the commercial/retail use. We believe the ideal use would roadside commercial/retail. Commercial/retail would also likely be the most feasible and maximally productive use. An indicator of its long-term feasibility is the fact that development of land in the Speciﬁc Plan area began over 20 years ago with construction of a Truck Stops of America (TA) Truck Stop facility and related trucking and highway commercial uses on approximately 30 acres. These facilities were remodeled and expanded over the years and, along with other adjoining highway commercial uses, include diesel and gasoline fueling, truck parking, truck service and supply, shower and laundry facilities for drivers, truck wash, commercial scales, convenience store, and both sit-down and fast food restaurants. When the ground lease ended after several decades, the improvements were demolished.

Were feasibility or productivity of the land an issue, the use would not have had the longevity that it has. In terms of use, user, timing, typical uses have been discussed previously. The likely users will be a roadside retail or trucking support use.

We believe the newly built Travel Plaza represents the highest and best use as currently improved.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

83 Valuation of Group II Property

Approaches Utilized In developing a valuation for the single Group II property, we used the sales comparison approach and cost approach. The general owner-user nature of truck stops and service stations, and the lack of capitalization rate data, makes the income capitalization approach considerably less reliable. There are ways in which to value the going- concern of the truck stop, but the appraisal for CFD bond issuance does not take value components like back-ofﬁce efﬁciencies, personnel management expertise, advantageous jobber/wholesaler agreements, etc.

Sales Comparison Approach

We began the valuation of the Travel Center with the sales comparison approach. Few meaningful truck stop properties transferred nationwide in the past two years. This has almost certainly been a function of the current economic downturn. Therefore, we looked at at the transfer of service stations, neighborhood and convenience shopping centers and a number of truck stop listings in order to develop an opinion of value for the single Group II property.

By way of a deﬁnition, a service station, also known as a gas station, is an outlet that sells gasoline, diesel fuel, lubricants and other automotive-related products. A service station frequently contains a convenience store, automotive service bays or a combination of the two. In many cases, a dealer owns the business and an oil company or distributor owns the land and building and leases it to the dealer. By contrast, a so-called "open dealer" owns the property. A supply contract facilitates the provision of fuel via an oil company or distributor.

In contrast to a service station, a truck stop (often called "travel center") is generally a property positioned along the Interstate Highway System. Many are franchised and nationally branded. They have traditionally targeted trucking ﬂeets and their drivers, but increasing target owners of recreational vehicles. They tend to offer fuel, convenience goods, and quick-service and full-service restaurants. They usually offer other driver amenities, such as lounges, theaters, barber shops, coin laundry services, showers, business centers, banking services and wi-ﬁ Internet access. Some, depending on the state and local jurisdiction, also offer gaming. Many offer truck repair and maintenance services, and truck scales.

An often-studied synergistic effect known as "cumulative attraction" results when retail establishments locate near each other so that each can benefit from the increased volume of potential customers drawn to the cluster. The benefits of the increased traffic outweigh the negative effects of the store's proximity to its competitors. It may seem counter-intuitive, but in certain cases, retailers will actively seek to locate beside or across from competitors.

Service Station Sales Datum 1: Sale of Exxon Mobil gas station at 800 34th Street, Bakersfield; 120-181-16-00; This 3,000-square-foot property was first listed in October 2008; and then sold a year later in October 2009. The seller was Obuja Enterprises Inc.; The buyer is L Petro Inc.; We believe the transaction was arm’s-length in nature. The floor-area ratio is 9.6 percent; The property is an Exxon Mobil service station that sits on a corner in central Bakersfield near Bakersfield Memorial

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

84 Hospital. It includes a car wash, a fully stocked convenience store with ATM, Western Union, beer and wine license, lotto and lottery. Also features additional income from tenant; The listing price was $1,999,000, or about $666 per square foot; the sale price was $1,175,000 or $391.67 per square foot. The property sold for just 59 percent of its listing price. The ﬁnancing was $1,165,000 via United Central Bank for a loan-to-value ratio of 99 percent.

Datum 2: Listing of Chevron Station, 8955 Montecito Avenue, Atascadero. List price is $3,595,000 or $616.74 per square foot. The building size is 5,829 square feet. The lot size is 1.52 acres or 66,211, equating to a ﬂoor-area ratio of 08.8. Property has been listed since at least April 16, 2010; it is a relatively new listing. Property has visibility to U.S. Route 101, with, according to the broker, an annual average trafﬁc count 80,000 vehicles, which is very similar to the subject CFD. Listing includes business, service station, car wash convenience store and the fee simple. Sales data from February 2009 to February 2010 include 2,003,111 gallons of gasoline sold, 1,576,613 gallons of Diesel sold, C- Store Sales of $563,618 and Car Wash Sales of $497,208.

Datum 3: Listing of Shell/Burger King Corporate Ground Lease, 6301-6351 Hembree Lane, Windsor. Price $2,750,000 or $611.11 per square foot. The building size is 4,500 square feet. Price per square foot is $611.11. The structure was built in 1998. The lot size is 1.69 acres or 73,616 square feet, equating to a floor-area ratio of 0.06. The net operating income for 2010 year to date was $163,329. It has been on the market since mid-April 2010. Property has five bays, 10 pumps a C-Store and car wash. Signage is visible from U.S. Route 101; it is the only service station at its exit. In addition, is located at the entrance to a Walmart and Home Depot-anchored center. The current lease in place is an absolute triple-net ground lease that commenced in June of 1998 and has nine years remaining with two 10-year options. Shell is the master lessee with Burger King as a sub-tenant. The rent increases are based on cumulative consumer price index increases that occur every five years. There is some conflicting data, with one account listing the building at 3,200 square feet and the land at 61,818-square feet.

Datum 4: Listing of Branded Chevron Station w/ C-Store, AutoSpa, Lube, 2615 West Grant Line Road, Tracy. This branded service station is being offered at $5,500,000 or $687.50 per square foot. The building contains 8,000 square feet and the lot size is 1.25 acres. SJM Investment Company purchased this property from Bedrock Oil and has owned and operated this location for three years. The station has been ofﬁcially opened since beginning of 2005. This NNN property consists of three separate buildings approximately 2,800 sq. ft. each. The Gas Station has 6 pumps with 12 nozzles. The net operating income for the property is listed at $418,000.

Other than public information available in tax assessor’s records, little information was able to be garnered on the following service station sales.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

85 Service Station Sales

GROSS BUILD- LOT ING YEAR SIZE AREA SALE SALE ADDRESS/APN BUILT (AC) (SF) DATE PRICE $/SF FAR

5390 Great America Parkway, Santa Clara 2000 0.93 3,242 Mar. 2010 $1,590,000 $490.44 0.08

1288 W. El Camino Real, Mountain View 1972 0.62 2,467 Mar. 2010 $1,150,000 $466.15 0.09

1610 Meridian Ave., San Jose 1959 0.51 2,001 Mar. 2010 $1,165,000 $582.21 0.09

1099 Blossom Hill Road, San Jose 1988 0.84 3,980 Feb. 2010 $1,950,000 $489.95 0.11

8351 Washington Blvd., Pico Rivera 1985 0.52 2,417 Dec. 2009 $1,500,000 $620.60 0.11

12626 Glenoaks Blvd., Sylmar 1987 0.43 3,064 Dec. 2009 $1,200,000 $391.64 0.16

8404 Foothill Blvd., Sunland 1966 0.21 1,560 Dec. 2009 $1,150,000 $737.18 0.17

800 34th Street, Bakersﬁeld Un- 0.72 3,000 Oct. 2009 $1,175,000 $391.67 0.10 known

14518 Main St., Hesperia 1987 0.66 3,283 Oct. 2009 $1,254,500 $382.12 0.11

2015 Winchester Blvd., Campbell 1972 0.56 1,751 Aug. 2009 $1,000,000 $571.10 0.07

Minimum 1959 0.21 1,560 Aug. 2009 $1,000,000 $382.12 0.07

Maximum 2000 0.93 3,980 Mar. 2010 $1,950,000 $737.18 0.17

Median N/A 0.59 2,733.50 N/A $1,187,500 $490.19 0.10

Central Tendency 1980 0.60 2,692 N/A $1,340,375 $520.20 0.11

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

86 Service Station Listings

GROSS BUILD- LOT ING YEAR SIZE AREA LIST LIST ADDRESS/APN BUILT (AC) (SF) DATE PRICE $/SF FAR

Valero Gas Station, 1401 E. Main St., Bar- Un- 0.38 2,500 Feb. 2010 $1,580,000 $632.00 0.15 stow known

8955 Montecito Avenue, Atascadero, CA Un- 1.52 5,829 April 2010 $3,595,000 $616.74 0.09 known

Chevron Station, 2615 West Grant Line Un- 1.25 8,000 April 2010 $5,500,000 $687.50 0.15 Road, Tracy known

Sampling of California Service Station Floor-Area Ratios

BUILDING LAND SIZE NO. SIZE (SF) (AC) FAR

1 838 1.00 0.02 2 1,008 0.51 0.05 3 1,100 0.51 0.05 4 1,250 2.40 0.01 5 1,425 0.23 0.14 6 1,500 0.34 0.10 7 1,568 0.48 0.07 8 1,595 0.52 0.07 9 1,600 0.45 0.08 10 1,600 0.29 0.13 11 1,632 0.44 0.09 12 1,653 0.42 0.09 13 2,000 0.79 0.06 14 2,200 0.18 0.28 15 2,462 0.34 0.17 16 2,478 0.63 0.09 17 2,500 0.38 0.15

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

87 BUILDING LAND SIZE NO. SIZE (SF) (AC) FAR

18 2,500 1.00 0.06 19 2,500 0.28 0.20 20 2,688 0.42 0.15 21 2,688 0.42 0.15 22 3,000 1.00 0.07 23 3,000 0.52 0.13 24 3,200 1.69 0.04 25 3,272 0.36 0.21 26 5,000 1.05 0.11 27 5,600 1.05 0.12 28 5,829 1.52 0.09 29 7,220 0.45 0.37 30 8,000 1.25 0.15 31 8,500 0.76 0.26

Average 2,949 0.70 0.12 Median 2,478 0.51 0.10 Mode 2,500 1.00 0.15 Maximum 8,500 2.40 0.37 Minimum 838 0.18 0.01

Neighborhood and Convenience Center Sales Sale 1: 3690 W. Shaw Avenue, Fresno; This 16,232-square-foot property is an investor-owned unanchored convenience center; it was 100 percent leased to triple-net national and regional tenants at sale. It was first listed in June 2008 and then sold in February 2009, or approximately eight months later. The buyer was Barbaccia Properties. The floor- area ratio is 0.21; The property was used as an unanchored shopping center with a Goodwill, Jamba Juice, Panda Ex- press and Pizza Factory with nearly three years on the four leases and six years left on the Goodwill; the listing price was $4,325,000 or $304.95 per square foot; the sale price was $4,325,000 or $266.45 per square foot. With a stated net operating income of $322,538, the center sold at a capitalization rate of 7.458. Center was built in 2002. Traffic counts said to exceed 44,000 per day. Property is near Wal-Mart, Office Depot and assortment of quick-service restaurants.

Sale 2: 255 N. Clovis Avenue, Clovis; 491-303-22 and -23. This 17,696-square-foot property is investor-owned; it was 100 percent occupied at sale. It was ﬁrst listed in October 2007; and then sold in July 2008 for $4,608,000 or $260.40 per square foot. The seller was NMSBPCSLDHB (California). The buyer is John R. Driscoll et ux.; We believe the

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

88 transaction was arm’s-length. The ﬂoor-area ratio is 17,696 SF/85,813 SF or 20.62 percent; The property at sale consisted of a three-building retail center with tenants Ace Hardware, Compass Pizza.

Sale 3: 29675 The Old Road, Castaic; 2866-001-094; This 69,104-square-foot property is investor-owned; it sold in November 4, 2009. The document No. was 0001662874. The seller was Hasley Canyon Village, LLC; the buyer was U.S. Regency Retail I, LLC. The ﬂoor-area ratio is 69,104 SF divided by 318,859 SF or 21.67 percent. The property is anchored by a Ralphs and contains a bank, a Subway quick-service restaurant and a tanning salon.

Shopping Center Comparables

GROSS BUILD- LOT ING YEAR SIZE AREA SALE SALE ADDRESS/APN BUILT (AC) (SF) DATE PRICE $/SF FAR

Clovis Outpost, 255 N. Clovis Ave., 1999 1.97 17,696 Jul 2008 $4,608,000 $260.40 0.21 Clovis

Perrin 1, 993-997 Champlain Ave., 2002 2.52 18,900 May 2009 $5,300,000 $280.42 0.17 Fresno

29675 The Old Road, Castaic 2004 7.32 69,104 Nov. 2009 $16,730,000 $242.10 0.22

Waterman Grove Plaza, 9304 Elk 2006 4.43 44,300 Mar. 2009 $13,775,000 $310.95 0.23 Grove Blvd., Elk Grove

Fresno Center, 3690 Shaw Ave., 2002 1.74 16,232 Feb. 2009 $4,325,000 $266.45 0.21 Fresno

Sutter Buttes Marketplace, 1615-1721 2008 2.00 20,458 Dec. 2008 $5,082,500 $248.44 0.23 Colusa Highway, Yuba City

Minimum 1999 1.74 16,232 Aug. 2009 $4,325,000 $242.10 0.17

Maximum 2008 7.32 69,104 Mar. 2010 $16,730,000 $310.95 0.23

Median N/A 2.26 19,679 N/A $5,191,250 $263.42 0.22

Central Tendency 2004 3.33 31,115 N/A $8,303,417 $268.13 0.21

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

89 Truck Stop Sales

GROSS BUILD- LOT ING YEAR SIZE AREA SALE SALE ADDRESS BUILT (AC) (SF) DATE PRICE $/SF FAR

1128 Duanesburg Rd Schenectady, NY 2000 7.35 16,005 Mar 2009 $3,000,000 $187.44 0.05

Temple Truck Stop, 6278 Gen Bruce Tem- 1980 18.00 49,000 Oct. 2008 $5,600,000 $114.29 0.06 ple, TX

4211 Main St., San Bernardino, CA Unkn. Unkn. 3,000 Jul. 2008 $6,500,000 $2,166.67 N/A

2657 Cobbham Rd., Thomson, GA Unkn. 7.00 7,000 Jun. 2008 $2,357,800 $336.83 0.02

Perry Truck Stop, 517 Perry Boulevard Unkn. 2.03 4,068 Aug 2007 $2,450,000 $602.26 0.05 Perry, GA

Castle Rock Texaco, 1041 Dougherty 1999 1.70 3,500 Feb 2007 $1,900,000 $542.86 0.05 Drive Castle Rock, WA

Minimum 1980 1.7 3,000 N/A $1,900,000 $114.29 0.02

Maximum 2000 18 49,000 N/A $6,500,000 $2,166.67 0.06

Median N/A 7.00 5,534 N/A $2,725,000 $439.84 0.05

Central Tendency N/A 7.22 13,762 N/A $3,634,633 $658.39 0.05

Truck Stop Listings

Datum 1: 76-branded Truck Stop, 3610 S. Riverside, Bloomington, (San Bernardino County); This property has a 9,010-square-foot building on 3.77 acres or a ﬂoor-area ratio of of .054. The property is listed at $7,900,000 or $876.80 per square foot. Improvements include a large C-store with ABC license, shower and laundry facilities, a trucker’s lounge, a CAT scale and an RV dump. The property has been listed since January 2009 and has failed to sell at the above asking price. Adjoined to the C-store is a 100-seat Carl’s Jr. with drive-through. Gas sales amount to 90,000 gallons per month; Diesel sales amounted to 280,000 gallons per month and C-store sales of $95,000 with Carl’s Jr. sales of $100,000. Parking, which is a function of ﬂoor-area ratio is provided on the site for 32 trucks.

Datum 2: Truck Stop on 40 Acres of Land, Highway 395, Victorville; 3128-581-03, 04, 05, and 06; This property with an 11,000-square-foot building sits on 40 acres of land; it was ﬁrst listed in April 2007 and has failed to sell at the price of $9,900,000 or $900 per square foot. The ﬂoor-area ratio is minuscule at less than 0.01. Branding agreement with major oil company said to be in process.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

90 Datum 3: Valero-branded Truck Stop, Indio Blvd., Indio. This listing has a primary building of 6,000-square-foot on 2.23 acres. It was ﬁrst listed in January of 2010. As of the date of value, it was listed at $4,600,000 equating to $766.67 per square foot. The ﬂoor-area ratio is 0.062. The property reportedly pumps 90,000 gallons per month of gasoline; 50,000 per month of Diesel; C-Store sales are said to amount to $90,000 in sales; carwash, $13,000 self-serve and drive- through; laundry has 50 machines and is said to generate $10,000 per month. Restaurant to be leased. It has previously been rented for $4,000 per month. Seller offering the going-concern alone for $1.5 million or best offer with $15,000 per month rent. Current net operating income is listed at $322,000 per month.

In early 2010, we conducted a random sampling of truck stops listed in a common multiple-listing service for commercial real estate and from other sources. We found the following gross building areas, gross lot sizes and ﬂoor-area ratios (FARs):

Sampling of Truck Stop FARs

No. Building Size Land Size (Ac) FAR (SF) 1 11,000 40.00 0.01 2 6,000 8.94 0.02 3 7,335 10.26 0.02 4 8,383 8.61 0.02 5 12,403 12.40 0.02 6 10,650 10.10 0.02 7 8,205 6.76 0.03 8 32,422 24.07 0.03 9 2,800 1.50 0.04 10 9,010 3.77 0.05 11 50,000 20.13 0.06 12 6,000 2.23 0.06 13 25,000 5.00 0.11 14 22,252 4.34 0.12

Findings in Sampling of Truck Stop FARs

Average 15,104 11.29 0.04 Median 9,830 8.78 0.03 Mode 6,000 N/A 0.02 Maximum 50,000 40.00 0.12 Minimum 2,800 1.50 0.01

Conclusion of sales comparison approach

We examined the sales and listings of service stations, small shopping centers and truck stops. We noted a range for service stations of between about $380 and $740 per square foot, and a central tendency of about $520 per square foot. We also examined truck stop sales and found a huge spread in sales prices per square foot. Truck stop sales exhibited

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

91 a central tendency of about $660. As an additional check for reasonableness, we examined sales a number of convenience and neighborhood centers. We believe this retail group least resembles the property in Group II and gave our ﬁndings least consideration. We found truck stop listings at $766.67, $876.80 and $900.00. Listings tend to set the upper frontier of value and generally tell us what price a property will not fetch. We believe the indicated value by the sales comparison approach will be somewhat lower than the listings but higher than the central tendencies of the sales.

Via an analysis of market ﬂoor-area ratios, we believe there is approximately 7.50 acres of land that can classiﬁed as surplus. In the cost approach, we calculate this additional value at approximately $1,142,000.

We believe the sales comparison approach yields an opinion of value of about $650 per square foot of gross building area or about $22,086,000. Adding the $1,142,000 for surplus land to this amount equals $23,228,000, which is our conclusion for the sales comparison approach.

Cost Approach

Historical Construction Costs

The basis of cost analysis is the following schedule of values provided Travel Centers of America, which contracted with Wallace & Smith.

Main building Shop building

Dec 30, 2008 Dec 30, 2008

Amount Total Amount Total

$564,120 $0

Project Supervision $329,000 $0

Travel Expenses, Lodging Meals $34,216 $0

Field Utilities (Power, Telephone, Water) $33,902 $0

Dumpster $11,880 $0

Temporary Ofﬁce $4,750 $0

Equipment Rental $12,450 $0

Permits $0 $0

Survey and Engineering $0 $0

Equipment Rental $0 $0

Builders Risk Insurance $0 $0

General Liability Insurance $54,946 $0

Final Cleanup $59,016 $0

Winterization $0 $0

Bid Expense $0 $0

Misc (safety Key Lock Box) $23,960 $0

$2,500 $0

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

92 Fuel Systems / Contaminated Soils Removal N/A N/A

Existing Gas & Oil Lines $2,500 $0

$3,535,989 $0

Clearing

Erosion Control

Cut and Fill (building pad and ﬁne grading only) $267,768 $0

Curb & Gutter $0

Asphalt Paving $2,295,153 $0

Site Concrete $516,765 $0

Fence $8,050 $0

Electrical $45,650 $0

Site Sanitary $30,498 $0

Site Storm $18,825 $0

Site Water $105,160 $0

Site Gas (see notes regarding trenching) $19,740 $0

Pressure Wash Parking $0

Guard Rail

Landscaping & Irrigation $196,630 $0

Trafﬁc Control $0

Bollards

Site Miscelllaneous (Staking / Soil Treatment) $31,750 $0

$218,927 $233,077

Building Footing and Foundation $218,927 $213,975

Building Slab

Building Sidewalks

Miscellaneous (ADA Truncated Pavers) $19,102

$70,075 $5,265

Building Masonry & Stone Wainscot $70,075 $5,265

$331,013 $38,850

Structural Steel / Bar Joists / Misc. Steel $331,013 $37,900

Cold Form Framing

Miscellaneous (Incl walk mats at entries) $950

$284,166 $61,313

Rough Carpentry $123,671 $30,093

Finish Carpentry $82,725 $21,000

Millwork & Casework $77,770 $10,220

$317,277 $18,000

Rooﬁng $121,000 $0

Sheet Metal Flashings and trim $30,000 $6,425

Insulation $9,600 $1,382

Caulking and Waterprooﬁng $17,310 $7,100

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

93 Miscellaneous (EIFS) $98,000 $3,093

Miscellaneous (Roof Specialties: awning & hatch) $41,367 $0

$144,531 $55,004

Doors, Frames & Hardware $58,473 $31,762

Storefront $67,733 $15,550

Automatic Doors Inc Inc

Drive thru window Inc Inc

Overhead Doors $18,200 $7,342

Miscellaneous (Knox Box / Access Doors) $125 $350

$507,885 $134,983

Metal Studs (Int & Ext) $162,400 $66,500

Drywall $67,800 $0

FRP $31,546 $3,000

Wall Covering $10,735 $5,359

Paint $23,628 $30,667

Tile $142,900 $14,000

Carpet N/A N/A

Floor Vinyl $2,590 $2,840

Acoustical Ceiling Tile $62,151 $12,617

Miscellaneous (Epoxy Flooring / Stainless Steel) $4,135 $0

$15,517 $2,150

Toilet Partitions

Toilet Accessories

Fire Extinguishers

Lockers $1,600 $1,200

Ansul System for QSRs $9,985 $0

Miscellaneous (Signage / Corner & Wall Guards) $3,932 $950

$0 $9,800

Grease Interceptors N/A $9,800

Install Pylon N/A N/A

Install Owner Provided Items In Finish Carpentry $0

Miscellaneous N/A $0

Furnishings $5,070 $0

Furnishings N/A N/A

Miscellaneous (Pedimats) $5,070 $0

$0 $1,164,184

Gas & Diesel System Installation N/A $788,340

Gas & Diesel System Electrical N/A $269,480

Gasoline System Installation N/A N/A

Gasoline System Electrical N/A N/A

Bulk and Lube System Installation N/A $55,000

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

94 Lube Piping N/A N/A

Miscellaneous (Canopy Footers) N/A $51,364

$618,659 $214,731

Plumbing $198,800 $63,410

Fire Sprinkler $39,550 $0

HVAC Equipment $380,309 $151,321

HVAC Duct Work Inc. Inc.

$426,311 $112,761

Fixtures Inc. $0

Equipment (Fire Alarm Allowance) $27,830 $13,915

Building $398,481 $98,846

$0 $0

WC & GL

Payroll & Sales Tax

Miscellaneous

$478,535 $0

GC Overhead $478,535 $0

GC Proﬁt Inc. Inc.

Total cost by building area $7,520,575 $2,050,118

Adjustments to price:

Total main and shop costs $9,570,693 add 1 year landscape maintenance $23,760 change to: .60 TPO rooﬁng $7,084 use standard asphalt paving in car lot -$118,338 delete hot mop waterprooﬁng for foundation -$15,200

Use Guinn Construction to reduce schedule by 1 month $24,814 delete prime Coat AC paving -$27,948 performance bond split: add permformance bond costs $58,679 $20K main bldg, site work, add for printing cost of "for Construction" prints $17,250 $9K shop, $9,679 Fuel

Final adjusted total contract price $9,540,794 print cost to main building

Main building & site Shop & Fuel

SUMMARY COSTS:

DEMO $0

BUILDING $3,535,185 $1,001,298

SITE $3,458,277

FUEL $1,067,499

GENERAL CONDITIONS, OH&P $478,535

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

TOTAL $9,540,794

MODIFIED TOTAL WITH CHANGE ORDERS $10,799,156

TOTAL FF&E $4,722,394

ADDITIONAL INDIRECT COSTS $1,275,502

SUBTOTAL $16,797,052

LESS FF&E PERSONAL PROPERTY $1,000,000

TOTAL $15,797,052

TOTAL WITH ENTREPRENEURIAL INCENTIVE (AT 20% OF COST) $18,956,462

DEPRECIATED TOTAL (AT 2%) $18,577,333

The table above uses the Wallace & Smith schedule of values as a starting point. The change orders are added to this to arrive at a modiﬁed total. We next add the total FF&E for the construction project to this amount, along with additional indirect costs provided to us by Travel America. We next deducted $1,000,000 in personal FF&E, increased the total by 20 percent to allow for what we believe is an appropriate entrepreneurial incentive and then depreciated this total costs by 2 percent to account for a nominal depreciation of the structures.

Next, we looked at costs from the 2010 National Building Cost Manual. The cost manual has several “service station” and “vehicle-related” building-cost categories. We have done our best to approximate the spaces, using the categories available in the cost manual, although we must conceded that there was no category that perfectly equated to this specialized use.

Entrepre- Cost with Size/ Cost/ Location neurial In- Entr. Incen- Deprecia- Depreci- Units Units Multiple Cost centive tive tion ated Value Travel Center Building 21,037 $110.96 4.0% $2,427,636 20.00% $2,913,163 $58,263 $2,854,900 Truck Stop Building 12,941 $66.13 4.0% $890,020 20.00% $1,068,024 $21,360 $1,046,663 Site Improvements 4.0% 20.00% $4,440,023 $88,800 $4,351,223 Canopy 14,800 $35.44 4.0% $545,492 20.00% $654,591 $13,092 $641,499 Fuel Dispensers 20 $9,770 4.0% $203,216 20.00% $243,859 $4,877 $238,982 Signage Infrastructure 4.0% 20.00% $0 $0 $0 Underground 15,000- 1 $20,000 4.0% $20,800 20.00% $24,960 $499 $24,461 gallon tank Underground 30,000- 4 $40,000 4.0% $166,400 20.00% $199,680 $3,994 $195,686 gallon tank C-Store FF&E N/A N/A N/A N/A N/A $442,924 $8,858 $434,066 General Building FF&E N/A N/A N/A N/A N/A $407,488 $8,150 $399,338 Shop FF&E N/A N/A N/A N/A N/A $851,573 $17,031 $834,542 Signage Infrastructure N/A N/A N/A N/A N/A $171,016 $3,420 $167,596 HVAC 27,000 $9.93 4.0% $278,834 20.00% $334,601 $6,692 $327,909 Fire Sprinklers 33,978 2.36 4.0% $83,396 20.00% $100,075 $2,001 $98,073

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

96 Entrepre- Cost with Size/ Cost/ Location neurial In- Entr. Incen- Deprecia- Depreci- Units Units Multiple Cost centive tive tion ated Value Interior Finishes/ $3,500,000 Partitions, Drive-Thru Doors, Vehicle Hoists, Air Compressors, Air/ Water Services, Misc. Fixtures, Appurtenant QSR Equipment, other FF&E Total $11,851,977 $237,040 $15,114,938 Total (Rounded) $15,115,000

Deriving a cost ﬁgure from historical cost data and deriving one using a published cost manual both have weaknesses. The historical costs may have been overstated due to certain FF&E items. (While we attempted to discard those that were clearly personal property, we cannot, without a detailed audit, be certain that the items included were appurtenances and all items excluded were, in fact, private property.) The cost manual had its own weaknesses, since it did not have a category for truck stops speciﬁcally, the appraisers used a combination of service station and automotive construction-cost modeling to derive an estimated cost..

We have applied a 20 percent entrepreneurial incentive to both models, which, in our experience, we feel is appropriate for the market place.

The wide spread between the two outcomes gives us pause. We have considered both and given more weight to the historical costs and concluded at $17,500,000.

Next, we developed an opinion of land value for the Group II parcel. There is a dearth of meaningful sales in the market of similar large commercial land parcels. There is simply no relevant comparable data for a retail parcel of this size. Therefore, we are using small parcels, for which we have plenty of market data, in a discounted cash-ﬂow model, which we will discuss in more detail in the conclusion. However, at this point, it is appropriate and reasonable to exclude 15 percent of the land area to account for roadways, sidewalks and other backbone infrastructure.

In attempting to value this land, we have considered the signiﬁcant amount of commercially zoned lands that have sold or ground-leased in Tejon Industrial Complex – West. While this data cannot be compared directly due to the signiﬁcant size differential, it does provide us with a meaningful starting point for a discounting model, which is provided above.

Assumptions Retail Lot Price/Acre Industrial $90,000 Small-Pad Price/SF Commercial $14.00 Small-Pad Price/Acre Commercial $609,840

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

97 Assumptions CPI Inﬂator 1.60% Sales Cost 1.50% Admin. Costs 2% Ad Valorem 1.10% CFD Special Tax per Acre $950 CFD Special Tax Escalator (per an- 2.0% num) Discount Rate 1 (Industrial Land) 20.0% Discount Rate 2 (Commercial Land) 25.0%

Year 1 2 3 4 5 6 7 8 9 10 Absorbed Acres 4.65 9.298 13.947 18.596 23.245 27.894 32.543 37.192 41.841 46.49 Proceeds $2,880,508 $2,926,597 $2,973,422 $3,020,997 $3,069,333 $3,118,442 $3,168,337 $3,219,031 $3,270,535 $3,322,864

Sales Costs $43,208 $43,899 $44,601 $45,315 $46,040 $46,777 $47,525 $48,285 $49,058 $49,843 Admin. Costs $83,682 $75,314 $66,946 $58,577 $50,209 $41,841 $33,473 $25,105 $16,736 $8,368 Ad Valorem $46,025 $41,423 $36,820 $32,218 $27,615 $23,013 $18,410 $13,808 $9,205 $4,603 Taxes Special Tax $40,544 $36,760 $32,808 $28,684 $24,381 $19,895 $15,220 $10,349 $5,278 Total Holding $172,915 $201,179 $185,127 $168,918 $152,548 $136,011 $119,303 $102,417 $85,349 $68,092 Costs

Unadj. CFs $2,707,594 $2,725,417 $2,788,295 $2,852,079 $2,916,785 $2,982,431 $3,049,034 $3,116,613 $3,185,186 $3,254,772 Discount Factor 0.80 0.64 0.51 0.41 0.33 0.26 0.21 0.17 0.13 0.11 Disc. CFs $2,166,075 $1,744,267 $1,427,607 $1,168,212 $955,772 $781,826 $639,429 $522,881 $427,508 $349,478

Indicated PV $10,183,056 Less Hypotheti- $2,369,372 cal Street Infra- structure at $1.17 PSF

Less Utilities $729,038 /Water Treat- ment at $0.36 PSF Indicated NPV $7,084,646

Indicated NPV/ $2.98 SF Indicated NPV/ $3.50 SF on net basis (adjusting for streets.)

Cost Approach Conclusion

We have a parcel of more than 50 acres of commercial land. There is simply no relevant comparable data for a retail parcel of this size. In attempting to value this land, we have considered the signiﬁcant amount of commercially zoned lands that have sold or ground-leased in Tejon Industrial Complex – West. While this data cannot be compared di-

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

98 rectly due to the signiﬁcant size differential, it does provide us with a meaningful starting point for a discounting model, which is provided above.

The typical truck stop has a ﬂoor-area ratio of 0.02 and 0.04. The subject buildings total 33,978 square feet. This means that if we employ a market FAR of 0.02, we arrive at an indicated market FAR for the Group II property of 1,698,900 square feet or about 39 acres. This suggests that the market might well see the additional 7 usable acres (approximately) as surplus land. However, we believe there are potential ancillary uses for the travel plaza land, which we will discuss below. We assign a value of $3.49 per square foot for both the “primary” and additional land. The only land that is truly unusable is the land on which the berm and water catch basins lie. (It should be noted that a natural gas line runs lengthwise under the berm and the land’s usefulness is dubious, at best.) We assign no value to this land.

Cost Approach Conclusion

DEPRECIATED COST OF STRUCTURE $17,500,000

LAND VALUE PRIMARY SITE (39 $5,945,940 ACRES)

SURPLUS LAND VALUE (7.49 ACRES) $1,141,925

UNUSABLE LAND (BERM, BASINS) $0 (9.83 ACRES)

INDICATED VALUE BY COST AP- $24,587,865 PROACH

Reconciliation of Cost and Sales Comparison Approach

While the cost approach has merit as it relates to the historical cost we were able to review and utilize, it has a weak- ness relative to the estimation of land value and cost data (that was previously discussed). Therefore, less weight is given to the value indication by this approach. As a result, we have skewed our conclusion to better align with the sales comparison approach. We have concluded the sales comparison approach at $23,228,000 and the cost approach at $24,600,000. We reconcile the two values at $23,400,000.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

99 Property Group III

Legend ZONE 1 Land Parcels without Infrastructure or Infrastructure in Ridge Rd. Need of Significant Upgrading. 238-390-53 138.78 ac CFD 2008-1 BOUNDARY

238-390-50 238-390-49 Wheeler 27.9 ac 27.1 ac

238-390-43 (est.) 6.61 ac

241-440-01 7.91 ac

238-390-55 241-440-02 (est.)(est.) 47.3647.36 8.08 ac

238-091-18 241-440-03 0.38 ac 4.6 ac Laval Road

241-340-09 18.3 ac 241-440-04 4.69 ac 241-340-11 241-440-06 119.88 ac 16.7 ac 241-440-05 6.88 ac G 241-440-07 ra pev 40.11 ac ine Cre 241-440-08 ek

43.38 ac INTERSTATE 5 INTERSTATE

241-440-10 44.27 ac 241-440-09 50.72 ac

241-440-11 52.62 ac

241-440-12 44.68 ac

241-440-13 12.28 ac CA LIF OR NIA AQ UE DU CT

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

100 Sellable APN Size (ac) Owner Comments 238-390-53 138.78 Tejon Industrial Corp. Northern large industrial lot.

238-390-50 27.9 Tejon Industrial Corp. One of four approx. square lots north of Travel Plaza. Vineyard/ Almonds. 238-390-49 27.1 Tejon Industrial Corp. One of four approx. square lots north of Travel Plaza. Vineyard/ Almonds. 241-440-01 7.91 Tejon Industrial Corp. Rectangular parcel southeast of Travel Plaza

241-440-02 8.08 Tejon Industrial Corp. Irregular-shaped parcel southeast of Travel Plaza. 241-440-03 4.6 Tejon Industrial Corp. Rectangular parcel southeast of Travel Plaza 238-091-18 0.38 Tejon Industrial Corp. Triangular island parcel. 241-340-09 18.3 Tejon Industrial Corp. Irregular-shaped parcel south of Travel Plaza.

241-440-04 4.69 Tejon Industrial Corp. Rectangular parcel south of Travel Plaza

241-440-06 16.7 Tejon Industrial Corp. Irregular-shaped parcel south of Travel Plaza.

241-440-5 6.88 Tejon Industrial Corp. Irregular-shaped parcel southeast of Travel Plaza.

241-340-11 119.88 Tejon Industrial Corp. Oblong Parcel, basically rectangular

241-440-07 40.11 Tejon Industrial Corp. Trapezoid parcel with freeway frontage.

241-440-08 43.38 Tejon Industrial Corp. Trapezoid parcel with freeway frontage.

241-440-09 50.72 Tejon Industrial Corp. Trapezoid parcel with freeway frontage.

241-440-10 44.27 Tejon Industrial Corp. Trapezoid parcel with freeway frontage.

241-440-11 52.62 Tejon Industrial Corp. Trapezoid parcel with freeway frontage.

241-440-12 44.68 Tejon Industrial Corp. Essentially rectangular parcel.

238-390-55, 53.97 Tejon Industrial Corp. Lands earmarked for commercial development that are not yet served 238-390-43 by infrastructure. 241-440-13 12.28 Tejon Industrial Corp. Triangular parcel.

723.23

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

101 Various shots of Group III land.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

102 Highest and Best Use for Group III Parcels

The highest and best use of the properties in this group clearly hinges on questions of timing and interim use. The land is part of the Tejon Industrial Complex (TIC)-East Specific Plan. The legal, political and physical worlds have aligned to allow a use change of the land from agricultural to industrial/commercial. However, before these parcels can be put to this more intensive use, the properties in Group I will need to be absorbed into the market first and feasibility established for the Group III parcels. Based on historical absorption within the Tejon Industrial Complex (TIC)-West Specific Plan, we believe this may not occur for at least a decade. We believe the most likely interim use will be agricultural, taking into consideration the holding costs. We believe it is also possible that the parcels can be put into (or remain in) Williamson Act tax exemption status. In short, we believe the highest and best use as of the date of valuation is an interim agricultural use with a speculative industrial/commercial use.

Valuation In a depressed or contracting economy, there is significantly less interest in developing most property types. Devel- opment land is hit from many sides: Municipal bond investors can require higher returns for the financing of off-site infrastructure. Lenders on commercial real estate become more restrictive regarding construction loans, vacancies in the built environment increase and rents soften, making projects that were once feasible, unfeasible. This is the environment in which the appraisers attempted to find mapped development projects or paper lots to use as a reference point in valuing the parcels of Group III. Only one relevant, if somewhat dated, sale could be found. An additional, though less relevant, sale was also found. They are, as follows:

Sale 1: Lemoore Industrial-zoned land/dairy acreage; APN: 024-052-020, -059, -067, -068; 024-080-063. This property represents a December 2008 sale of 237.00 acres of land on ﬂat terrain with what is believed to be good drainage. The listing price was $5,000,000 and the sale price was also $5,000,000 or $21,097 per acre. Of the 237 acres, there is a 1,200- cow dairy, which occupies 35 acres. Efforts were made to rezone 120 acres industrial and 20 acres, heavy industrial. The property was marketed as having been newly zoned. According to the broker, there were no entitlements, no tentative parcel maps, no EIR, no renderings or civil engineering, etc., at the time of sale. A cursory assessor’s data search of the APNs indicates no zoning other than agriculture, though assessor’s data is sometimes not up to date. The broker stated in an offering document that the 2030 General Plan Update recognizes the new zoning. The property is on the edge of urban development for the City of Lemoore. It is south of a water treatment plant and golf course and east of a SK Foods and cement plant. The property has no onsite or off-site infrastructure with the exception of what is required for its dairy use. Even though the broker indicated the property sold strictly for this use and that the buyer paid no premium for the use change in the city’s General Plan, it is a fact that the property is recognized as on the cusp of urban development. The sale provides insight into the valuation of the lands within the subject CFD that are not served by infrastructure. Joe Mendiola, Assistant City Planner with the City of Lemoore, stated that the parcels are not with city limits but conﬁrmed the industrial and heavy industrial zoning. In addition to the agricultural and industrial zone, one of the parcels, -020, said Mendiola, is zoned low-density residential. There are currently single-family residences within a golf course community that abuts the property. Mendiola does not believe the dairy use is a sustainable one, due to odor and growing incompatibility.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

103 Mendiola believes the area might be a target for annexation, but points out that the city’s General Plan prohibits new annexations for at least 10 years. The General Plan was last updated in 2008.

Sale 2: A 46-acre site with 700 linear feet of frontage along State Highway 99, Madera County; APN: 029-280-058. The listing price was $17,500 per acre. Records indicate the property was first listed in December 2009. It sold for in April 2010 for $14,152 per acre. While at first blush, this would appear to be an excellent sale, not to mention an ex- traordinarily recent one, we have investigated it further and found it to be lacking as a meaningful comparable. Fur- ther discussions with the Madera County Planning department, and, more importantly, with the selling broker, who was also the seller in the transaction, confirmed that it sold for strictly an agricultural use, despite the fact that it abuts State Route 99 in an area that sees annual average daily traffic of 58,000 and is adjacent to a Pilot travel plaza with several quick-service restaurants and a hotel. The county denied a zone change from the existing agricultural use to industrial use. The county planner confirmed that the zoning and general plan status at sale (and as of the current date) was agricultural. The seller also confirmed that the buyer was a speculator and believed the development was approximately 15 years out. This sale is substantially inferior for many reasons, not least of which is believed to be an inadequate sewer (septic system) for the neighboring truck stop, hotel and restaurants. The previously mentioned zoning also makes the land significantly inferior. While a speculative sale, it is inferior to the subject in future time horizon, entitlements, existing infrastructure and zoning.

Conclusion for Property Group III

We believe that this spec land, sold in bulk to a single investor, would fetch somewhere between $46,500 per acre (our opinion of value for the properties in Group I) and $8,000 per acre (our opinion of value of the agricultural land in Group IV). Clearly, the paper lots are more valuable than farmland but less valuable than the Group I properties that beneﬁt from upgraded infrastructure and absorb ﬁrst.

We have researched the Lemoore sale above, a 237-acre property that sold for about $21,000 per acre. According to our discussions with the broker and an assistant city planner, we believe the property is at an interim use and will exploit its future industrial/heavy industrial zoning once organic job growth and household formation occurs in the area and economic conditions become auspicious. We believe the Lemoore sale can be used as a benchmark. The city, according to the assistant planner we spoke with, has a 10-year moratorium on annexations. This ten-year constraint seems to mimic our projected 10-year absorption for the Group I parcels, a prerequisite for the Group III parcels to absorb into the market. It should be noted that there is no CFD tax obligation on the Lemoore property. We believe a savvy investor would take this into consideration. The Madera County sale gives additional insights into pricing of speculative land.

As we stated above, we believe a prudent, knowledgeable buyer would take into consideration that these lands would be worth somewhere between the value of agriculture lands (Group IV properties), and fully entitled lands with upgraded infrastructure (Group I properties). That would mean that these lands would be worth more than $8,000 per acre and less than approximately $36,000 per acre. A prudent and knowledgeable buyer would consider these factors in conjunction with the special debt obligation, as well as the Lemoore market data for a sale that resulted in $21,000 per acre. Inﬂuencing the prudent buyer would be the fact that the Group III lands are fully entitled

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

104 with I-5 freeway visibility and/or frontage to the I-5, and would beneﬁt from the synergy created by TIC West, and presumably TIC East (the Group I properties that have upgraded infrastructure and would be be developed ﬁrst).

Weighing these factors, along with the market data and the range between agriculture lands and industrial lands with infrastructure, we have concluded at $21,000 per acre before adjustment for special taxes. Our special tax adjustment calculates as follows:

The speculator would undoubtedly address the atypical holding costs associated with possessing these lands, i.e., the special tax payments. According to the appraisers’ calculations, the holder of the Group III properties could pay as much as $686,000 per year in special taxes. This equates to about $950 per acre annually. (For the ﬁrst year, there is an expected capitalized interest. Therefore, taking into account a 2 percent escalator called for by the special tax, the net present value of the tax payments at a safe rate of 3 percent equals approximately $5,886,000.

A savvy investor would attempt to calculate out this net present value for the special tax and require the sale price be discounted by this amount. The net present value of nine years of special tax payments (assumes one year of capitalized interest) at the rate above, applying a safe rate of 3 percent as the discount rate, would be approximately $8,000 per acre.

Deducting the per-acre net present value for the atypical holding costs from $21,000 per acre, indicates $13,000 per acre or a total of $9,399,000 or $9,400,000 rounded. This is our opinion of market value for the Group III lands. While there may be offsetting factors (and income) that could reduce the special debt obligation (additional developed properties in TIC East, agriculture income, etc.), we believe the prudent buyer would consider these as part of the speculative process.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

105 Property Group IV

Legend ZONE 1

ZONE 2 Ridge Rd. 238-390-06

161.12 ac CFD 2008-1 BOUNDARY Wheeler

238-390-14 160.8 ac

Laval Road

241-370-14 Gra 15.59 ac pev ine Cr eek

241-370-17 INTERSTATE 5 INTERSTATE 62.88 ac

241-370-04 92.18 ac 241-370-05 103.59 ac

241-370-06 71.04 ac

Portion Included 241-370-18 241-370-07 18.61 ac 84.39 ac

241-370-09

45.1 ac Portion Excluded CA LIF OR 241-370-07 NIA 241-370-08 AQ 43.09 ac UE 45.46 ac DU CT

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

106 Sellable Lot APN Size (ac) Owner Comments 238-390-06 161.12 Tejon Ranchcorp Fallow 238-390-14 160.80 Tejon Ranchcorp Vineyard/Almonds 241-370-14 15.59 Tejon Industrial Corp. Triangular parcel. 241-370-17 62.88 Tejon Industrial Corp. Trapezoid parcel. 241-370-18 18.61 Tejon Industrial Corp. Trapezoid parcel. 241-370-04 92.18 Tejon Ranch Co. Trapezoid parcel. 241-370-05 103.59 Tejon Ranch Co. Irregular-shaped parcel. 241-370-06 71.04 Tejon Ranch Co. Irregular-shaped parcel. 241-370-07 84.39 Tejon Ranch Co. Irregular-shaped partial parcel (additional 43.09-acre section located in Grapevine Creek. Included in CFD but not valued). 84.39 acres valued. 241-370-08 45.46 Tejon Ranch Co. Square lot. 241-370-09 45.10 Tejon Ranch Co. Square lot. 860.76

Group IV Crop Breakdown

37% 45%

19%

Almonds (315.86 Ac) Wheat (161.12 Ac) Fallow (383.78 Ac)

It was difﬁcult for the appraisers to gauge boundaries on the agricultural land in the CFD when the appraisers conducted a site visit; we believe the land in this Group is approximately 50 percent almonds. Documents provided by the Tejon Ranch Co. bear this out. The pie chart above illustrates the Tejon Ranch Co.’s breakdown. The source of the

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

107 data is the Tejon Ranch Co. The land is said to have good access to district water, and well water. We believe that in terms of quality and access to water, the land would be seen as attractive to the market.

While the non-agricultural lands in the CFD have been annexed into the Tejon-Castac Water District, the agricultural lands remain, according to Tejon Ranch Co. representatives, within the Wheeler Ridge-Maricopa Water Storage Dis- trict, a public agency whose jurisdiction encompasses about 147,000 acres (230 square miles) of land at the extreme southern end of the San Joaquin Valley south of Bakersﬁeld. The district provides water supplies to about 90,000 acres of farmland within its boundaries and it is governed by an elected nine member board of directors.

There are also said to be additional wells and reservoirs that service the land. We believe the water provisioning for the agricultural lands would be considered good by market standards.

Permanent Crops vs. Row Crops in California For several decades, commodity prices, water shortages, and other factors have shifted crop production acreage in California’s Central Valley in favor of permanent crops, such as almonds, pistachio, grapes, and cattle production. A real estate appraiser evaluating an ag property would be well-advised to consider the consequences of a trend that includes a greater dependence on a narrower assortment of crops.

For example, pistachio acreage alone in the Central Valley doubled from about 64,000 acres in 1997 to about 110,000 acres in 2006. Acreage increases in pistachios, almonds, and dairy led the pack from 1997 to 2008 at the expense of crops like cotton, which lost 75 percent in acreage -- from about 1,000,000 acres in 1997 to about 250,000 acres in 2008. The top four commodities in Kern County for 2008 were milk, grapes, citrus and almonds.

Permanent crops like grapes, almonds and pistachios have been spreading out across the Central Valley at an inverse proportion to the availability of state water.

In testimony to the United States House of Representatives' Committee on Resources Subcommittee on Water and Power in 1998, Kole Upton, a farmer in the Friant Division of the Central Valley Project and chairman of the Board of Directors of the Friant Water Users Authority and Vice President of the Chowchilla Water District.

Upton farms 1,180 acres of which members of the family own various portions. The family also farms approximately 2,600 acres outside the Friant service area, within the non-federal LeGrand-Athlone Water District, a district that util- izes deep wells and purchases surplus water from the Merced Irrigation District. At the time of his testimony, he grew approximately 1,100 acres of wheat, 1,100 acres of corn, 1,300 acres of cotton and a total of 600 acres in permanent plantings, almonds and pistachios.

As rapidly as money allowed, Upton told lawmakers he was trying to convert row crop into a permanent crop operation. He stated that the effects of the Central Valley Project Improvement Act and economic circumstances have accelerated this crop conversion.

While providing a meandering account of Central Valley agricultural history might be a bit audacious for a real estate appraiser working on a project in the San Joaquin Valley, the trend toward permanent crops does tell a story.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

108 Plantings of tree crops such as almonds or pistachios involve a one time planting cost instead of annual planting costs, which are a necessary part of row crops. A concern is that so much acreage is being converted from row crops to permanent plantings that markets may become ﬂooded at the expense of commodity prices paid to growers.

Upton told lawmakers in 1998 that the potential gross return of $2,000 to $3,000 per acre for a crop such as almonds rather than the gross of $400 to $500 per acre that could be realized for wheat was extremely important, given the reality of the high water costs he faced.

A grower cannot get financing in this area without demonstrating that sufficient deep wells and adequate groundwater are available to sustain crops, Upton testified.

"My personal ability to borrow money for operating loans, capital improvements or land ﬁnancing has not been adversely affected," said Upton. "Lenders, however, now are much more geared than was previously the case toward considering water supply, and in great detail. They want to know what irrigation district the borrower is in, the depth and nature of the groundwater supply, the efﬁciency of wells, and the gallons per minute that can be pumped. A borrower today must demonstrate a stable water supply or they are not going to be lent any money, on either a long term or short term basis."

An appraiser working on a project in the Central Valley, for example, will likely ﬁnd it germane to the discussion the consequences of restricting credit on farmland -- lower real estate values and lower productivity.

Seven years later, in an article in the Bakersﬁeld Californian, farmer Mike Young said he planned to convert 2,000 acres of his family farm into two crops that won't bear any fruit for years. Over the prior 75 years, said Young, his family had grown cotton, tomatoes, carrots and lettuce in the Buttonwillow area. Young said he could make close to $2,000 more an acre with almonds than cotton at then-current prices.

From 1995 to 2005, an estimated 283,000 acres of almond groves were planted, much of them converted from other crops like cotton and tomatoes, reported the Californian. Some growers switched from row crops to less labor- intensive permanent crops like almonds and pistachios because of higher prices and better export markets.

"It's been moving pretty steadily," then-Kern County Agricultural Commissioner Ted Davis told the California in 2005. "There's been a trend toward permanent crops for at least the last 20 years."

The situation has become palpable enough to draw the attention of such diverse interests as the pizza industry; farmers from the Western Valley are abandoning plans for planting annual crops like processing tomatoes in order to di- vert precious water to permanent crops like almonds, pistachios and grapes, reported California Farm Bureau.

The reservoirs that are critical to the state's water delivery system have been under extreme pressure. Also, environ- mentalists have been successful in helping protect species like the delta smelt, which has dramatically affected water supply to the Central Valley.

Farmers in the Central Valley say they'll be forced to fallow ﬁelds, while municipalities from the San Francisco Bay area to the Mexican border might be forced to institute water rationing.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

109 An appraiser of farmland (or any purveyor of common wisdom, for that matter) may infer the obvious -- that an increasing concentration on just a few crops leaves the Central Valley vulnerable to overproduction of those crops and the potential catastrophic effect of a collapse in price.

LOCATION SALE DATE CROP SALE PRICE LOT SIZE (AC) $/AC

15502 W. Manning Ave., Kerman May 2009 72% grapes; $2,817,000 313.00 $9,000 25% almonds; 3% row

Copus Road Ranch, West of I-5, Feb. 2008 100% row $4,000,000 640.00 $6,250 Bakersﬁeld Area [1]

Tejon Highway, Arvin Apr. 2008 100% row $2,703,000 318.18 $8,495

Brannon & Highway 33, Fire- May 2009 100% row $3,200,000 440.00 $7,273 baugh, Fresno County

Tosta Ranch, 27746 W. Bunker Sep. 2009 100% row $4,400,000 640.00 $6,875 Road, Gustine, (Merced County)

Vineyard, I-5 and I-505 Junction, Nov 2008 278 acres cab- $3,150,000 411.00 $7,664 Dunnigan (Yolo County) ernet, syrah, and pinot; 120 acres ripped

Minimum Sep. 2009 N/A $2,703,000 313.00 $6,250

Maximum Feb. 2008 N/A $4,400,000 640 $9,000

Median N/A N/A $3,175,000 425.5 $7,468

Central Tendency N/A N/A $3,378,333 460 $7,593

1] We adjusted the acreage by half to approximate the limited water rights for this sale.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

110 Highest and Best Use for Group IV Parcels

Intuitively, looking at such factors as longevity of use, zoning, availability of water, historic yield and agricultural trends in the Central Valley, the highest and best use of the agricultural portion of the CFD, i.e., the Zone 2 properties, which are the Group IV properties in this appraisal assignment, is clearly agricultural. Legal permissibility, physical possibility, feasibility and maximum productivity have all been considered.

Valuation of Group IV

Sale 1: 15502 W. Manning Ave., Kerman, CA; 030-070-255; This 313-acre property is 72 percent grapes and 25 percent almonds. The remaining land contains row crops. It was first listed in December 2008 and then sold in May 2009. The seller was Sidhu Jasbir and Navjyoti; the buyer was Uppal Amrik et al. The transaction was arm’s-length, according to the broker. The broker felt, however, that the price was a bit low. She characterized the seller has having “family problems” and anxious to sell. The property was being actively farmed at the time of sale. The listing price was $3,756,000, or about $11,977 per acre; the sale price was $2,817,000 or about $9,000 per acre. The financing was in the amount of $1,800,000 with conventional terms with a loan-to-value ratio of 64 percent. The property had two mobile homes and a fenced-in equipment storage yard with a workshop. 226 acres contain four-year old fiesta grapes under contract with Gallo. Approximately 80 acres contain six-year old nonpareil and carmel almonds. Seven acres are open land. Property is not under Williamson Act. The property was not on district water, but the broker characterized the wells as “very good.”

Sale 2: Copus Road Ranch, West of I-5, Bakersﬁeld Area; 295-030-17-00; This 1,280-acre property contains row crops and has no permanent crops. The broker believes it has water to irrigate half the acreage. The property is contiguous and has some degree of district water rights and eight wells. It was ﬁrst listed in August 2006 and then sold in Feb- ruary 2008. The seller was McDivitt Dev. Inc. and the buyer, C&A Farms. We believe the sale was essentially arm’s- length, though the buyer was the owner of a neighboring property who was said to have purchased this property in order to pool his water rights and use some of the water elsewhere. The property sold with a short-term lease set to expire during the year of sale. The listing price was $4,500,000, or about $3,516 per acre; the sale price was $4,000,000 or $3,125 per acre. Adjusted for water rights, the sale works out to about $6,250 per acre.

Sale 3: Tejon Highway, Arvin; 446-010-13; This is a 318-acre property; it was ﬁrst listed in October 2007; and then sold in April 2008. The seller was Chang D. Kim et ux.; The buyer is the Thomas R. and Ruth M. Fry Trust; The transaction was arm’s length, according to the broker. The property was used for row crops and had not trellis system or other crop-related infrastructure. The listing price prior to sale was $2,703,000, or about $8,495; the sale price the same as the listing price. At the time of sale, the property had two wells and water from the Arvin-Edison Water Storage District with canal access from the property. Broker believes the buyer has drilled an additional well since the sale. The property had an outbuilding being used as an ofﬁce with little or no contributory value, said the broker.

Conclusion for Property Group IV

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

111 We believe that well-irrigated farmland with either row crops or permanent crops in the Central Valley has been well- commoditized. There was a relatively narrow range of per-acre sales prices for lots in the 300- to 1,200-acre range. After discussions with market participants and research into Central Valley land with both permanent crops and row crops, we believe the 860.76 acres of farmland in Group IV could fetch $8,000 per acre a total of about $6,886,000 rounded.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

112 Reconciliation and Value Conclusion

Reconciliation The properties appraised in this CFD have been categorized according to the degree to which they are improved and served by infrastructure. While each group of properties has been reconciled separately in earlier sections of this report, we believe it would be germane to the discussion to put the valuations into perspective. The Group I properties, those served by the newly constructed infrastructure, have been assigned a value of $46,771 per acre. The Group II property is improved with a travel plaza and is something of the odd man out in this assignment as it represents a fully improved property. We have concluded at a value of $23,400,000 for this property. Group III contains land that we believe would be viewed by market participants as a long-term hold/speculative use. We have concluded at $14,500 per acre. Finally, we have assigned a value to the agricultural lands of Group IV, which are in a different special-tax zone and not within the Tejon Industrial Complex (TIC) - East Speciﬁc Plan, of $8,000 per acre. In summary, the reader will note that the undeveloped appraised lands in this report (Groups I, III and IV) have been assigned varying values per acre, which reﬂects a staggered perspective. For example, the Group I properties, which have infrastructure and entitlements allowing for immediate development, have been assigned by far the highest value per acre. Group III properties, which are speculative in nature and have either no infrastructure or infrastructure deemed to be inadequate, fell into a value which is above our opinion of value for the strictly agricultural land but considerably below the assigned value for the Group I lands. Finally, the agricultural lands of Group IV have been valued in line with current use and their projected future use – agricultural.

Value Conclusion We have valued the fee simple estate for the above-referenced property consistent with the Uniform Standards of Professional Appraisal Practice and the Appraisal Standards for Land-Secured Financings, issued by the California Debt and Investment Advisory Commission, subject to the CFD.

The opinion of value is subject to one hypothetical condition. As a result of this investigation, study and our knowledge and experience, the following market value has been assigned as of the effective date of June 14, 2010.

OPINION OF VALUE

GROUP I $10,994,000

GROUP II $23,400,000

GROUP III $9,400,000

GROUP IV $6,886,000

TOTAL $50,680,000

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

113 The preceding values are also stated subject to the limiting conditions and any hypothetical conditions, extraordinary assumptions and appraisers’ certiﬁcation included in the attached report.

This narrative summary appraisal report sets forth the data and analyses upon which our opinion of value is, in part, predicated.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

114 Marketing and Exposure Time

Marketing Time Marketing time has been deﬁned in the Dictionary of Real Estate Appraisal (Third Edition, Chicago, Appraisal Insti- tute, 1993) as:

The time it takes an interest in real property to sell on the market subsequent to the date of an appraisal.

Reasonable marketing time is an estimate of the amount of time it might take to sell a property interest in real estate at the estimated market value level during the period immediately after the effective date of the appraisal; the anticipated time required to expose the property to a pool of prospective purchasers and to allow appropriate time for negotiation, the exercise of due diligence, and the consummation of a sale at a price supportable by concurrent market conditions.

Exposure Time Exposure time has been deﬁned in the Dictionary of Real Estate Appraisal (Third Edition, Chicago, Appraisal Insti- tute, 1993) as:

The time a property remains on the market.

The estimated length of time the property interest being appraised would have been offered on the market prior to a hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. Exposure time is always presumed to occur prior to the effective date of the appraisal. The overall concept of reasonable exposure encompasses not only adequate, sufﬁcient and reasonable time but also adequate, sufﬁcient, and reasonable effort.

Group I properties represent a bulk value an investor would pay. We believe a likely marketing time for Group I would be about one year. Group II is a unique property that would attract a relatively small and unique group of perspective buyers. We also believe a one-year period is appropriate as an exposure time. Group III properties represent speculative lands. We believe a six-month to one-year exposure time is appropriate for these properties. We have relied on the marketing time of the two sales referred to in this report. Finally, we believe one year is appropriate as well as a likely exposure time for the properties of Group IV.

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

115 Certiﬁcation

We certify that 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 are our personal, impartial, and unbiased professional analyses, opinions, and conclusions.

− We have no present or prospective interest in the property that is the subject of this report and no personal interest with respect to the parties involved. Similarly, we have no bias with respect to the property that is the subject of this report or 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 attain- ment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.

− The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics & Standards of Professional Appraisal Practice of the Ap- praisal Institute.

− The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice.

− The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

− Certified general appraisers Bruce Hull and Jeremy Bagott both have personally viewed the property that is the subject of this report and no one provided significant real property appraisal assistance to the persons signing this certification.

As of the date of this report, Bagott and Hull have completed the continuing education program of the Appraisal Institute.

Jeremy Bagott Bruce W. Hull, MAI State Certiﬁed General State Certiﬁed General Real Estate Appraiser (AG031250) Real Estate Appraiser (AG004964)

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

116 Addendum

Qualiﬁcations

Bruce W. Hull & Associates, Inc.Summary Appraisal Report

117 Bruce W. Hull, MAI 1056 E. Meta Street, Suite 202 Ventura, California 93001 (805) 641-3275 • Facsimile (805) 641-3278 E-Mail Address – [email protected]

About Bruce Hull Bruce Hull has been in the appraisal field since graduating in 1969 from Westmont College, Santa Barbara. After being employed by the Ventura County Assessor's Office for five years, he established an appraisal company in Orange County in 1974. In August 1995, he established a second office in Ventura. While most valuation projects have been in Southern California, Hull has completed projects across the State of California. Valuation assignments have been diverse, including large master-planned developments, shopping centers, industrial parks, logistics parks, large retail uses and mitigation land. A brief summary of the more challenging assignments is provided on the following pages.

Assessment Districts/Bond Issues Bruce W. Hull has been involved in the appraisals of real property secured in the following bond issues for community facilities districts and assessment districts. (This represents a partial list of assignments completed from 1990 to the present.) CFD No. 9 (Orangecrest - Improvement Areas 1, 3 & 5); City of Riverside CFD No. 2000-1 (Crosby Estate @ Rancho Santa Fe); Solana Beach CFD No. 2001-01 (Murrieta Valley U.S.D.);Murrieta CFD No. 90-1 (Lusk-Highlander); City of Riverside CFD No. 99-2, Otay Ranch SPA I, City of Chula Vista CFD No. 7 (Victoria Grove); County of Riverside CFD No. 10 (Fairfield Ranch); City of Chino Hills CFD No. 2000-1; Tejon Industrial Complex; Lebec CFD No. 99-1; Santa Margarita Water District CFD No. 97-3; City of Chula Vista CFD No. 2 (Riverside Unified School District); City of Riverside CFD No. 89-1; City of Corona A.D. Refunding; Lake Sherwood, County of Ventura CFD No. 9; City of Chino Hills CFD NO. 88-12; City of Temecula CFD No. 90-1 (Refunding); City of Corona A.D. No. 97-1-R; City of Oxnard A.D. No. 96-1; Valley Center Municipal Water District; San Diego County A.D. No. 96-1; City of Oxnard CFD No. 88-1 (Saddleback Valley Unified School Dist.); Rancho Santa Margarita CFD No. 89-2 (Saddleback Valley Unified School Dist.); Rancho Santa Margarita CFD No. 89-3 (Saddleback Valley Unified School Dist); Rancho Santa Margarita A.D. No. 95-1; (Centex) City of Corona A.D. No. 95-1; Coyote Hills, City of Fullerton A.D. No. 95-1; Sycamore Creek, City of Orange Prop. CFD No. 2 (Riverside Unified School District); City of Riverside CFD No. 91-1; City of Rancho Cucamonga

Page 1of 5 Hull Resume (Continued)

Prop. CFD No. 2; City of Chino CFD No. 9; County of San Bernardino A.D. No. 89-1; City of Corona CFD No. 87-1 (Series B); City of Moreno Valley CFD No. 90-1; City of Corona CFD No. 89-1; (Saddleback Valley Unified School District); Orange County A.D. No. 96-1; City of Oxnard A.D. Nos. 86-3, 87-1 and 89-1 (Refunding); City of Oxnard CFD No. 90-1; City of Corona CFD No. 1 (Refunding); City of Jurupa CFD No. 88-12; City of Temecula CFD 2007-A; Tejon Ranch Public Facilities Finance Authority CFD No. 2, IA-3; City of Carlsbad CFD No. 8; City of Fillmore COP: Series 2008; City of Maywood CFD No. 4; City of Moreno Valley CFD No. 2009-1; City of Chino CFD No. 2008-1; Tejon Ranch Public Facilities Finance Authority CFD No. 2006-1, IA-1 Desert Hot Springs

Industrial and Logistics Facilities Hull has valued the following industrial and logistics parks:

Centerpointe Business Park, 14-Building Complex, 3 million square feet, Moreno Valley Tejon Industrial Complex, 3 million square feet of distribution space, Kern County Agua Mansa Industrial Center, 300-acre master-planned complex, San Bernardino County Northeast Oxnard, 1,400 acres, numerous distribution and industrial products, Oxnard Channel Islands Business, 225-acre project, 3.5 million square feet, Oxnard Redlands Industrial Center, Redlands, three distribution facilities, San Bernardino County Mira Loma Industrial Center, 1.9 million square feet, Riverside County Four Distribution Buildings, 1.3 million square feet, San Bernardino County

Master-planned Developments Hull has valued the following master-planned developments:

Lake Sherwood, Hidden Valley Wood Ranch, Simi Valley Rancho San Clemente, San Clemente Towne Center, Rancho Santa Margarita Rancho Trabuco North and South, Rancho Santa Margarita Hunters Ridge, Fontana The Corona Ranch, Corona Mountain Cove, Temescal Mountain Gate, South Corona The Foothill Ranch, Corona Orangecrest, City of Riverside

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Aliso Viejo, County of Orange Talega Valley, San Clemente/County of Orange Otay Ranch, Chula Vista Canyon Crest, Lake Elsinore

Retail Involvement in valuation of retail properties includes the following: Consultant to the city of Long Beach regarding a 30-acre site (Long Beach Naval Hospital), which the city was acquiring from the U.S. Navy for inclusion in a 100-acre shopping center site. Towne Center, Rancho Santa Margarita, is a master-planned project, which contains two shopping centers (Towne Center, 160,000 square feet plus a major anchor of 122,000 square feet; Plaza Antonio, 165,000 square feet). Mission Grove, City of Riverside, is a 395,362 square-foot center, which included several major anchors. Victoria Gardens Master Plan was a proposed mixed-use project consisting of 3,065 acres of land including a mixture of residential (2,150 acres); commercial (335 acres of which 92 acres was a regional center site); schools; parks; and open space for the remainder of the lands. Menifee Village, Riverside County, is a 1977-acre master-planned development, which had approvals for 5,256 units. The assignment included the valuation of Planning Area 2-7, a commercial site that had been developed with a Target Store, Ralph's Market, and in-line stores (190,000 square feet becoming a 257,000 square-foot center).

Mitigation Lands Mitigation lands which are often acquired by public agencies or nonprofit organizations. Projects Bruce W. Hull & Associates has worked on include: Bolsa Chica, Huntington Beach, a 42-acre site that was part of a larger wetlands conservation program. This acreage was unique, since it was subject to "tidal flushing" and had both fresh and saltwater affecting the lands. This assignment was completed for Metropolitan Water District. San Joaquin Marsh, city of Irvine, consisted of approximately 289 acres of wetlands acquired for use as a buffer zone by the Irvine Ranch Water District. Eagle Valley, a 1072-acre parcel near Lake Matthews in Riverside County, was acquired by Metropolitan Water District for use as a water-treatment plant and buffer zone. Poormans Reservoir, Moreno Valley, a 38-acre site acquired by the city of Moreno Valley for preservation/open space use.

Partial List of Clients The company has conducted appraisal assignments for many types of clients. A partial list of these includes the following. Anaheim City Unified School District Bank of America NT & SA Bank of Montreal Bear, Stearns & Co., Inc. Best Best & Krieger LLP (Law Firm) Carpinteria Valley Unified School District

Page 3 of 5 Hull Resume (Continued)

Chino Unified School District Citicorp, N.A. City of Brea City of Chino City of Chino Hills City of Chula Vista City of Colton City of Corona City of Fullerton City of Huntington Beach City of Jurupa City of Mission Viejo City of Moreno Valley City of Orange City of Oxnard City of Rancho Cucamonga City of Riverside City of San Bernardino City of San Marcos City of Temecula Coast Federal Bank Colton Joint Unified School District County of Los Angeles County of Orange County of Riverside County of San Bernardino County of Ventura Downey Savings and Loan Federal National Mortgage Association (FNMA) Federal Deposit Insurance Corporation (FDIC) Fieldman, Rolapp & Associates (Financial Consultants) Irvine Ranch Water District Irvine Unified School District Jurupa Community Services District Metrobank Metropolitan Water District Meserve, Mumper & Hughes (Law Firm) Munger, Tolles & Olson LLP (Law Firm) Murrieta Valley Unified School District Rialto Unified School District Riverside Unified School District Saddleback Valley Unified School District Santa Margarita Water District Sidley & Austin (Law Firm) Solana Beach Unified School District Southern California Edison Company Stone & Youngberg LLC (Bond Underwriters) Talmantz Aviation The Irvine Company

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Wells Fargo Bank Wells Fargo Mortgage Company Weyerhaeuser Mortgage Company

Court Experience Hull is a qualified expert witness in the following courts: United States District Court/Central District of California, Los Angeles Los Angeles County Superior Court Orange County Superior Court Riverside County Superior Court Ventura County Superior Court

Organizations Member - Appraisal Institute (No. 6894)

Licenses Real Estate Broker - State of California Certified General Real Estate Appraiser - State of California (Certificate: AG004964)

Guest Speaker UCLA Symposium on Mello-Roos Districts – 1988, 2001, and 2005 “Exploring the Rumors and Realities of Land Secured Debt in California” – Conference sponsored by Stone & Youngberg, LLC, bond underwriters, held in Los Angeles on January 15, 1992 “Appraisals for Land Secured Financing” presentation for Stone & Youngberg, LLC, bond underwriters, held at San Francisco Headquarters on March 5, 1998

Miscellaneous Member Advisory Panel to California Debt Advisory Commission regarding Appraisal Standards for Land Secured Financing (May, 1994) and (June 2004)

Page 5 of 5 Jeremy Bagott Main Address 1056 East Meta Street, Suite 202 Ventura, CA 93001 (805) 794-0555 • Facsimile (805) 641-3278 [email protected] www.jeremybagottcompany.com

Bay Area Address 1150 Ballena Boulevard, Suite 253 Alameda, CA 94501

California Certified General Appraiser License: AG031250

About Jeremy Bagott Jeremy Bagott, a certified general real estate appraiser in the State of California, focuses on valuation of commercial real estate for public agencies. Assignments have included appraisals of shopping centers, industrial buildings, commercial business parks, residential master-planned communities and development land. He has been involved in appraisal of properties in condemnation cases, public financings and work for public- and private-sector entities. A former editor at the Los Angeles Daily News, Bagott holds a bachelor’s degree from California State University, Northridge, and is a former U.S. Marine. What follows is a sampling of projects on which Bagott has worked as a prime consultant or a subconsultant:

Mello-Roos Districts/Bond Issues CFD No. 3, City of Carlsbad, CA, Carlsbad Oaks North Business Park CFD No. 2003-1, County of San Bernardino, CA, Citrus Plaza Regional Shopping Center CFD No. 2001-1, Tejon Ranch, CA, Tejon Industrial Complex Public Improvements CFD No. 4-Infrastructure, Moreno Valley, CA CFD No. 8, Fillmore Business Park, Fillmore, CA CFD 2007-A; Tejon Ranch Public Facilities Finance Authority CFD No. 2, IA-3; City of Carlsbad COP: Series 2008; City of Maywood CFD No. 4; City of Moreno Valley CFD No. 2009-1; City of Chino CFD No. 2008-1; Tejon Ranch Public Facilities Finance Authority CFD No. 2006-1, IA-1 Desert Hot Springs

Special-Purpose Properties Middle School Site, Adelanto School District, Victorville, CA Elementary School, Bassett Unified School District, Baldwin Park, CA City Hall, Maywood, CA Police Station, Maywood, CA Central Library, Maywood, CA Signage Rights, Parking Garage, Oxnard, CA Community Center, Boyle Heights (Los Angeles), CA

Page 1 of 4 Bagott Resume (Cont.)

Elementary School Site, Oxnard School District, Oxnard, CA Elementary School, Pleasant Valley School District, Camarillo, CA

Master-planned Developments Riverpark, Oxnard, CA The Preserve, Chino, CA Mission Ranch, Riverside, CA Canyon Crest, Brea, CA Residential tracts, commercial parcels, Lake Elsinore, CA

Apartment Buildings, Small-Income and Single-Family Residential Residential parcels for fire station expansion, City of Fullerton, CA Neighborhood Stabilization Program services provider for City of Palmdale, CA Apartment building for City of Long Beach, CA Highest-and-best-use analyses for fire-damaged multi-tenant properties, Palmdale, CA Apartment buildings, Palmdale, CA

Residential Appraisal of hundreds of individual single-family and income properties for sundry purposes, including mortgage financing, estate planning and condemnation. He is currently assisting the cities of Palmdale, Carson and Lynwood with their Neighborhood Stabilization Programs (NSPs).

Retail Citrus Plaza, lifestyle center, Redlands, CA Mountain Grove, Redlands, CA McDonalds, Grapevine, CA Starbucks, ground lease, Grapevine, CA Panda Express, Grapevine, CA In-N-Out Burger, development site, Grapevine, CA Chevron Station, Grapevine, CA Restaurant and shops, Santa Barbara, CA Retail-Commercial land, Victorville, CA Retail-Residential Mixed-Use, East Los Angeles, CA Regional center anchored by 16-screen multiplex, Oxnard, CA Single-tenant store, Oxnard, CA

Multi-family Development Shea Artisan Luxury Apartments, Oxnard, CA Las Brisas Specific Plan, affordable housing, Oxnard, CA Senior housing, mixed-use retail, Ventura, CA Multi-family development land, Oxnard, CA

Office Multi-tenant office building, Oxnard, CA

Page 2 of 4 Bagott Resume (Cont.)

Multi-tenant office building, Mission Viejo, CA Multi-tenant office complex, Ventura, CA

Industrial Industrial land, Channel Islands Business Park, Oxnard, CA Brownfield (refinery), Carson, CA Ridge Centerpointe Business Park, MorenoValley, CA Encroachment, industrial land, Oxnard, CA Manufacturing plant, Oxnard, CA Four Distribution Buildings, 1.3 million square feet, San Bernardino County

Hospitality Hampton Inn and Suites, Poway, CA Country Inn, Santa Barbara, CA Marriott Escondido Hotel and Conference Center, Escondido, CA Hadsten House, Solvang, CA Best Western, Grapevine, CA Holiday Inn, development site, Grapevine, CA

Condemnation Industrial flex property, Alameda Corridor East Construction Authority, Diamond Bar, CA Mixed-use property, 1st Street and Utah, Los Angeles Unified School District, Los Angeles, CA Office, 4127 Cesar Chavez Ave., Los Angeles Unified School District, Los Angeles, CA Benedict Canyon Estate, take of subterranean easement for sewer line, Beverly Hills, CA Air rights, Santa Fe Ave., taking of air rights, Compton Unified School District, Compton, CA Drainage and temporary construction easements, Victorville, CA

List of Recently Completed Courses Advanced Income Capitalization, June 2007, Arcadia, CA – Appraisal Institute Advanced Applications, July 2007, Houston, TX – Appraisal Institute Advanced Sales Comparison, Cost Approaches, Feb. 2008, Pleasanton, CA – Appraisal Institute Report Writing and Valuation Analysis, January 2008, Houston, TX – Appraisal Institute General Appraiser Report Writing, Case Studies, Nov. 2007, St. Paul, MN – Appraisal Institute General Market Analysis, Highest and Best Use, Sept. 2007, Fullerton, CA – Appraisal Institute General Appraiser Income Capitalization, July 2008, Boise, ID – Appraisal Institute

Publication South Florida Sun-Sentinel – Op-ed on credit crisis, January 2008. Ventura County Star – Op-ed on credit crisis, January 2008 Pittsburgh Post Gazette – Op-ed on hidden housing inventory, November 2009 North County (San Diego) Times – Op-ed on residential real estate in 2010 Los Angeles Daily News – Op-ed on residential real estate in 2010

Page 3 of 4 Bagott Resume (Cont.)

Public Speaking “Tales from the Trenches” presentation at CASTOFF 2009 (annual meeting of public finance officials, bond underwriters, investment bankers and bond attorneys, Newport Beach, CA) “Silence of the Liens” presentation at CASTOFF 2010 (annual meeting of public finance officials, bond underwriters, investment bankers and bond attorneys, San Francisco, CA)

Membership Associate Member – Appraisal Institute

Participant Compact for a Sustainable Ventura County

Page 4 of 4

APPENDIX C

GENERAL INFORMATION CONCERNING THE COUNTY OF KERN

There follows in this Official Statement a brief description of Kern County, California (the “County”), together with current information concerning the County’s economy and governmental organization. Neither the faith and credit nor the taxing power of the Tejon Ranch Public Facilities Financing Authority (the “Authority”), the County, Tejon-Castac Water District (the “Water District”), the State of California or any political subdivision thereof is pledged to the payment of the 2010 Bonds. Except for Special Taxes, no other taxes are pledged to the payment of the 2010 Bonds. The 2010 Bonds are not obligations of the County or the Water District or general obligations of the Authority, but are limited obligations of the Authority issued by the Authority for the Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements — East) payable solely from Special Taxes and certain amounts held under the Fiscal Agent Agreement as more fully described in this Official Statement.

General Information

The County was organized on April 2, 1866 from portions of Los Angeles and Tulare Counties as then constituted. The County is the southernmost county of the State’s San Joaquin Valley. It covers 8,073 square miles, making it the State’s third largest county in geographical size. The County’s population was approximately 839,587 as of January 1, 2010. The City of Bakersfield, with a population of approximately 338,952 as of January 1, 2010, is the County seat.

The County is organized as a general law county under State law. As required by State and federal mandate, the County is responsible at the local level for activities involving public welfare, health and justice (courts and jails) and for the maintenance of public records. The County also provides services such as law enforcement, fire protection and public works to cities within the County on a cost-recovery contract basis. The County also operates recreational and cultural facilities serving both the incorporated and unincorporated areas of the County.

Governmental Organization

The County of Kern is governed by a five-member Board of Supervisors. Supervisors are elected by district to serve four-year alternating terms at elections held every two years. Other elected offices are as follows: (i) the Assessor-Recorder, (ii) the Auditor-Controller-County Clerk, (iii) the District Attorney, (iv) the Sheriff-Coroner-Public Administrator, and (v) the Treasurer-Tax Collector. All other departments are headed by appointed officials.

C-1

Population

The following table shows the population of the State of California, the County and various incorporated cities within the County for 2005 to 2010. The County’s population increased by approximately 85,889, or approximately 11.40%, over the period 2005 to 2010.

POPULATION KERN COUNTY AND INCORPORATED CITIES 2005-2010(1)

2005 2006 2007 2008 2009 2010 Arvin 14,978 14,999 16,074 16,464 16,675 16,918 Bakersfield 296,108 311,212 321,939 327,637 333,719 338,952 California City 11,510 12,028 13,080 14,330 14,828 15,014 Delano 45,086 49,280 52,871 53,716 53,972 54,447 Maricopa 1,148 1,134 1,131 1,130 1,140 1,153 McFarland 12,187 12,515 12,668 13,379 13,559 13,942 Ridgecrest 27,427 27,455 27,837 27,951 28,353 28,726 Shafter 14,130 14,474 14,926 15,561 15,812 16,208 Taft 9,057 9,134 9,136 9,188 9,117 9,264 Tehachapi 11,911 12,594 13,029 13,060 13,631 13,886 Wasco 23,722 24,252 24,084 24,938 25,434 25,541 Balance of County 286,434 288,300 291,846 297,641 300,933 305,536 Incorporated 467,264 489,077 506,775 517,354 526,240 534,051 Total County 753,698 777,377 798,621 814,995 827,173 839,587 State of California 36,676,931 37,086,191 37,472,074 37,883,992 38,292,687 38,646,090

(1) As of January 1. Source: State of California Department of Finance.

C-2

Employment

As of May 2010 the County’s labor force was 367,800, which was a 1.86% increase from the County’s labor force as of December 2008. The unemployment rate as of May 2010 increased to 15.7% from 9.7% as of December 2008. The following table compares labor force, employment and unemployment for the County, the State of California and the United States for the years 2005 through May of 2010.

KERN COUNTY ANNUAL AVERAGE LABOR FORCE(1)AND INDUSTRY EMPLOYMENT(1)

Civilian Unemployment Year Area Labor Force Employment(1) Unemployment Rate 2005 Kern County 330,400 302,500 27,900 8.4% California 17,629,200 16,761,300 957,200 5.4 United States 150,139,000 143,075,000 7,064,000 4.7 2006 Kern County 341,600 315,700 25,900 7.6% California 17,821,100 16,948,400 872,700 4.9 United States 152,519,000 146,073,000 6,446,000 4.2 2007 Kern County 351,900 322,800 29,100 8.3% California 18,078,000 17,108,700 969,300 5.4 United States 153,752,000 146,731,000 7,020,000 4.6 2008 Kern County 361,100 326,000 35,200 9.7% California 18,391,800 17,059,600 1,332,300 7.2 United States 154,661,000 144,500,000 10,161,000 6.6

2009 Kern County 366,900 314,200 52,800 14.4% California 18,250,200 16,163,900 2,086,200 11.4 United States 153,289,000 138,724,000 14,565,000 9.5

2010(2) Kern County 367,800 310,100 57,700 15.7% California 18,231,400 16,059,400 2,172,000 11.9 United States 154,393,000 139,420,000 14,973,000 9.7

(1) Civilian employment data are by place of residence and includes self-employed individuals, unpaid family workers, household domestic workers and workers on strike. (2) As of May for the year shown. Source for Kern County and California: State of California Employment Development Department. Source for United States: U.S. Department of Labor, Bureau of Labor Statistics.

C-3

Major Employers The major employers in the County and their type of business are set forth in the following table:

COUNTY OF KERN TOP 10 MAJOR EMPLOYERS 2010 Number of Employer Location Type of Business Employees Edwards Air Force Base Edwards Military 11,500 County of Kern Bakersfield Government 7,475 China Lake Naval Weapons Center China Lake Military 5,000 Giumarra Farms Bakersfield General Farming 4,200 Grimmway Farms Arvin General Farming 3,500 Wm. Bolt House Farms, Inc. Bakersfield General Farming 2,000 Bakersfield Memorial Hospital Bakersfield Healthcare 1,400 City of Bakersfield Bakersfield Government 1,300 Bear Creek Productions Wasco General Farming 1,250 Mercy Hospital Bakersfield Healthcare 1,200

Source: Greater Bakersfield Chamber of Commerce.

Industry and Employment

The largest industries in the County, in terms of the percentage of employment in each respective industry, are as follows: COUNTY OF KERN ANNUAL AVERAGE EMPLOYMENT BY INDUSTRY 2010(1) Industry Percentage of County Industry Employment Employment Government 64,100 24.10% Agriculture 37,600 14.14 Retail Trade 24,900 9.36 Educational and Health Services 26,200 9.85 Professional and Business Services 24,700 9.29 Leisure and Hospitality 20,800 7.82 Construction 11,100 4.17 Manufacturing 12,800 4.81 Transportation, Warehousing and Utilities 9,300 3.50 Natural Resources and Mining 9,500 3.57 Other Services 6,800 2.56 Wholesale Trade 7,200 2.71 Finance and Insurance 5,400 2.03 Real Estate and Rental and Leasing 2,900 1.09 Information 2,700 1.02 266,000 100.00%

(1) Preliminary data as of May of 2010. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. Source: State of California Employment Development Department.

C-4

The following table shows employment by industry group in the County of Kern from 2005 to May 2010.

COUNTY OF KERN ANNUAL AVERAGE EMPLOYMENT BY INDUSTRY GROUP(1)

Industry Group 2005 2006 2007 2008 2009 2010(2) Total Agricultural 42,800 44,000 39,000 55,400 44,600 37,600 Total Non-Agricultural Goods 39,100 42,400 42,300 42,800 36,100 33,400 Natural Resources and Mining 8,400 9,600 9,800 10,800 9,900 9,500 Construction 18,100 19,800 18,600 17,700 13,000 11,000 Manufacturing 12,700 13,000 13,300 14,300 13,200 12,800 Total Non-Agricultural Services: 181,800 194,900 197,200 241,700 227,900 228,400 Transportation, Warehousing & 9,200 9,500 9,500 9,800 9,200 9,300 Utilities Wholesale Trade 6,700 7,600 8,100 8,400 7,300 7,200 Retail Trade 27,300 30,600 29,000 29,100 25,600 24,900 Information 2,500 2,600 2,800 2,800 2,800 2,700 Finance and Insurance 5,600 5,800 5,700 5,800 5,400 5,400 Real Estate and Rental and 3,000 3,100 3,400 3,200 3,100 2,900 Leasing Professional & Business Services 22,700 25,900 26,300 26,800 24,000 24,700 Educational & Health Services 22,100 23,400 24,400 25,000 25,900 26,200 Leisure & Hospitality 19,900 20,800 21,300 20,900 21,000 20,800 Other Services 7,100 6,700 6,800 7,500 6,700 6,8500 Government(3) 55,700 57,700 60,000 49,600 61,000 61,400 Total All Industries(4): 263,700 281,300 283,900 297,100 272,400 266,000

(1) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Preliminary, data as of May of 2010. (3) Includes federal, state and local government employment. (4) Columns may not add to annual industry totals because of independent rounding. Source: State of California Employment Development Department.

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Commercial Activity Commercial activity is an important contributor to Kern County’s economy. The following table shows the County’s taxable transactions from the year 2005 through the second quarter of 2009. COUNTY OF KERN TAXABLE TRANSACTIONS BY TYPE OF BUSINESS FOR CALENDAR YEARS 2005 THROUGH SECOND QUARTER OF 2009 (IN THOUSANDS) Type of Store 2005 2006 2007 2008 2009(1) Apparel $ 218,516 $ 240,216 $ 257,050 $ 238,454 $ 120,288 General Merchandise 1,061,864 1,131,619 1,134,928 1,119,041 438,984 Food 601,637 625,168 608,367 572,680 244,666 Eating & Drinking 724,358 777,612 804,313 816,333 400,700 Household Furnishings 243,778 257,165 231,972 224,500 231,237 Building Materials 683,112 662,212 621,154 492,880 263,183 Automotive 2,443,562 2,605,245 1,501,658 1,183,724 449,308 Other Retail 548,986 614,272 1,081,500 885,229 274,383 Retail Stores Total $7,146,289 $7,595,418 $7,510,741 $6,981,166 $1,425,260 Business & Personal Services 384,557 454,627 448,512 472,046 n/a All Other Outlets 3,121,011 3,925,648 3,915,049 4,632,642 1,026,598 Total All Outlets $10,651,857 $11,975,693 $11,874,302 $12,085,853 $2,451,858

(1) Preliminary, through June of 2009. Source: Taxable Sales In California, California State Board of Equalization.

Construction Activity

The total valuation of building permits issued in the County for both residential and commercial construction is estimated at $560,800 for 2009 and $200,180 for the first five months of 2010. The following table provides a building permit valuation summary for the County for 2005 through May 2010. COUNTY OF KERN NEW BUILDING PERMIT VALUATION 2005 THROUGH MAY 2010 (IN THOUSANDS) Type of Permit 2005 2006 2007 2008 2009 2010(1) Residential: New Single-Dwelling $1,202,199 $907,665 $513,625 $280,091 $298,468 $ 97,024 New Multi-Dwelling 66,875 85,344 67,109 68,402 9,989 17,713 Additions/Alterations 60,980 64,689 62,608 49,158 36,794 17,803 Total Residential $1,330,055 $1,057,698 $643,341 $397,651 $345,251 $132,540 Non Residential: New Commercial $55,575 $119,353 $105,882 $102,955 $67,992 $6,465 New Industrial 68,092 23,698 11,178 31,711 11,287 0 Other 95,563 76,006 78,057 49,236 44,831 15,875 Additions/Alterations 76,257 90,931 107,441 129,373 91,438 45,299 Total Non Residential $295,488 $309,989 $302,560 $313,275 $215,548 $67,639 Total Valuation $1,625,544 $1,367,687 $945,901 $710,927 $560,800 $200,180

(1) Preliminary, through May, 2010. Source: Construction Industry Research Board. Note: Totals may not add up due to independent rounding.

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Agriculture

Agricultural production totaled approximately $4 billion in 2009. The following table provides a summary of agricultural production for the years 2005 through 2009.

COUNTY OF KERN AGRICULTURAL PRODUCTION 2005 THROUGH 2009 (IN THOUSANDS)

Crop 2005 2006 2007 2008 2009 Fruit & Nut Crops $1,908,630 $1,636,785 $1,871,861 $1,787,077 $1,952,661 Field Crops & Rangeland 407,383 393,565 542,866 562,302 276,645 Vegetable Crops 445,513 555,732 555,732 649,674 601,397 Nursery Crops 105,728 109,329 105,317 84,822 63,861 Industrial & Wood Crops 5,760 5,985 7,646 11,208 11,125 Seed Crops 5,198 5,701 6,039 4,621 7,305 Livestock & Poultry 212,346 215,277 230,431 232,545 182,768 Livestock & Poultry Products 441,253 426,099 732,707 651,132 469,313 Apiary Products 18,901 34,119 39,547 49,931 41,423 Total $3,550,712 $3,474,272 $4,092,147 $4,033,312 $3,606,498

Source: Kern County Agricultural Crop Reports 2005 through 2009. Note: Columns may not total due to rounding.

Transportation

The County is crossed by major state and interstate highways including State Routes 99 and 58 and Interstate 5. The County’s communities are linked by 3,343 miles of County-maintained roads and 867 miles of State roads.

Meadows Field, located in Bakersfield, is served daily by United Express, America West Express and Continental Express and provides connections to several major airline hubs throughout the nation including Houston, Los Angeles, Phoenix, and San Francisco.

Culture and Recreation

The County operates a network of regional recreational facilities, including 52 regional and community parks and three regional golf courses.

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APPENDIX D

SUMMARY OF FISCAL AGENT AGREEMENT

The following is a brief summary of certain provisions of the Fiscal Agent Agreement not otherwise described in the text of this Official Statement. Such summary is not intended to be definitive, and reference is made to the text of the Fiscal Agent Agreement for the complete terms thereof.

Definitions

Except as otherwise defined in this summary, the terms previously defined in this Official Statement have the respective meanings previously given. In addition, the following terms have the following meanings when used in this summary:

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

“Administrative Expenses” means costs directly related to the administration of the District consisting of the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the Treasurer or designee thereof or both) and the costs of collecting the Special Taxes (whether by the County or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; fees and costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agent Agreement; the costs of the Authority or its designee of complying with the disclosure provisions of the Act, the Continuing Disclosure Agreement and the Fiscal Agent Agreement, including those related to public inquiries regarding the Special Tax and disclosures to Bondowners and the Original Purchaser; the costs of the Authority or its designee related to an appeal of the Special Tax; any amounts required to be rebated to the federal government in order for the Authority to comply with the Fiscal Agent Agreement; an allocable share of the salaries of the Authority staff directly related to the foregoing and a proportionate amount of Authority general administrative overhead related thereto. Administrative Expenses shall also include amounts advanced by the Authority for any administrative purpose of the District, including costs related to prepayments of Special Taxes, recordings related to such prepayments and satisfaction of Special Taxes, amounts advanced to ensure compliance with the federal rebate provisions of the Fiscal Agent Agreement, and the costs of commencing and pursuing foreclosure of delinquent Special Taxes.

“Administrative Expense Fund” means the fund by that name established by the Fiscal Agent Agreement.

“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 the provisions of the Fiscal Agent Agreement providing for mandatory sinking payments), and (ii) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking payment due in such Bond Year pursuant to the Fiscal Agent Agreement).

“Auditor” means the auditor/controller of the County of Kern.

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

“Authorized Officer” means the Chairman, Executive Director, Treasurer, Secretary or any other officer or employee authorized by the Board of Directors of the Authority or by an Authorized Officer to undertake the action referenced in this Agreement as required to be undertaken by an Authorized Officer.

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“Bond Counsel” means (i) Quint & Thimmig LLP, or (ii) any other attorney or firm of attorneys acceptable to the Authority and nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities.

“Bond Fund” means the fund by that name established by the Fiscal Agent Agreement.

“Bond Register” means the books for the registration and transfer of Bonds maintained by the Fiscal Agent under the Fiscal Agent Agreement.

“Bond Year” means the one-year period beginning September 2nd in each year and ending on September 1st in the following year, except that the first Bond Year shall begin on the Closing Date and end on September 1, 2010.

“Bonds” means the Series 2010-A Bonds, and, if the context requires, any Parity Bonds, at any time Outstanding under the Fiscal Agent Agreement or any Supplemental Agreement.

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

“CDIAC” means the California Debt and Investment Advisory Commission of the office of the State Treasurer of the State of California or any successor agency or bureau thereto.

“Capitalized Interest Account” means the account by that name established by the Fiscal Agent Agreement.

“Closing Date” means the date upon which there is a physical delivery of the Series 2010-A Bonds in exchange for the amount representing the purchase price of the Series 2010-A Bonds by the Original Purchaser.

“Code” means the Internal Revenue Code of 1996 as in effect on the date of issuance of the Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Code.

“Continuing Disclosure Agreement” shall mean that certain Continuing Disclosure Agreement of the Authority, dated as of August 1, 2010, between the Authority and the Fiscal Agent, as the initial dissemination agent thereunder, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

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

“Costs of Issuance Fund” means the fund by that name established by the Fiscal Agent Agreement.

“County” means the County of Kern, California.

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

“Debt Service” means the scheduled amount of interest and amortization of principal payable by reasons of the Fiscal Agent Agreement on the Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period.

“Depository” means (a) initially, DTC, and (b) any other Securities Depository acting as Depository pursuant to the Fiscal Agent Agreement.

“Developed Property” has the meaning given to such term in the Rate and Method of Apportionment of Special Taxes for the District.

“District” means the Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements – East), formed by the Authority under the Act and the Resolution of Formation.

“District Value” means the market value, as of the date of the appraisal described below, of all parcels of real property in the District subject to the levy of the Special Taxes and not delinquent in the payment of any Special Taxes then due and owing, including with respect to such nondelinquent parcels the value of the then existing improvements and any facilities to be constructed or acquired with any amounts then on deposit in the Improvement Fund and with the proceeds of any proposed series of Parity Bonds, as determined by reference to (i) an appraisal performed within six (6) months of the date of issuance of any proposed Parity Bonds by an MAI appraiser (the “Appraiser”) selected by the Authority, or (ii), in the alternative, the assessed value of all such nondelinquent parcels and improvements thereon as shown on the then current County real property tax roll available to the Treasurer. Neither the Authority nor the Treasurer shall be liable to the Owners, the Original Purchaser or any other person or entity in respect of any appraisal provided for purposes of this definition or by reason of any exercise of discretion made by any Appraiser pursuant to this definition.

“Fair Market Value” means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm’s length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term “Fair Market Value” means the acquisition price in a bona fide arm’s length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State of California.

“Federal Securities” means any of the following which are non-callable and which at the time of investment are legal investments under the laws of the State of California for funds held by the Fiscal Agent: direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the United States Department of the Treasury) and obligations, the payment of principal of and interest on which are directly or indirectly guaranteed by the United States of America, including, without limitation, such of the foregoing which are commonly referred to as “stripped” obligations and coupons.

“Fiscal Agent” means the Fiscal Agent appointed by the Authority and acting as an independent fiscal agent with the duties and powers provided in the Fiscal Agent Agreement, its successors and assigns, and any

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other corporation or association which may at any time be substituted in its place, as provided in the Fiscal Agent Agreement.

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

“Improvement Fund” means the fund by that name created by and held by the Fiscal Agent Agreement.

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

“Information Services” means the Electronic Municipal Market Access System (referred to as “EMMA”), a facility of the Municipal Securities Rulemaking Board, (at http://emma.msrb.org); and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such services providing information with respect to called bonds as the Authority may designate in an Officer’s Certificate delivered to the Fiscal Agent.

“Interest Payment Dates” means March 1 and September 1 in each year, commencing September 1, 2010.

“Letter of Credit” means a standby letter of credit, which is:

(i) irrevocable during its term;

(ii) in a form reasonably satisfactory to counsel to the Original Purchaser;

(iii) for the benefit of the Fiscal Agent;

(iv) issued by federal or state chartered bank or other financial institution reasonably acceptable to the Treasurer and the Original Purchaser, which bank’s or institution’s unsecured debt obligations are rated at least “A” or better by Moody’s or S&P;

(v) at the time of delivery thereof to the Fiscal Agent for purposes of this Agreement, accompanied by a certificate to the effect that the Letter of Credit is a legal, valid and binding obligation of the provider thereof, enforceable against the provider thereof in accordance with its terms, except as limited by applicable reorganization, insolvency, liquidation, readjustment of debt, moratorium or other similar laws affecting the enforcement of rights of creditors generally as such laws may be applied in the event of a reorganization, insolvency, liquidation, readjustment of debt or other similar proceeding of or moratorium applicable to the provider thereof and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law);

(vi) for a term of at least one year, effective from no later than the date it is delivered to the Fiscal Agent, and any Letter of Credit provided in substitution for any then outstanding Letter of Credit shall be for a term of at least one year commencing not later than the expiration date of the term of the prior Letter of Credit;

(vii) for the account of any entity other than Authority or any other governmental entity;

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(viii) in a stated amount equal to the maximum Debt Service payable on the Series 2010-A Bonds for any two year period that the Series 2010-A Bonds will be outstanding; excluding for such purpose an amount equal to two times that portion of the Debt Service due on the Series 2010-A Bonds which is payable from Special Taxes levied in the most recent Fiscal Year on Developed Property and on Update Property; and

(ix) not secured, as to the reimbursement of any draws thereon, by any property located in the District, or if so secured, any such security shall be expressly subordinate to the lien of the Special Taxes.

Any Letter of Credit delivered to the Fiscal Agent shall be accompanied by a written certificate from the provider thereof which identifies the County Assessor’s parcels in the District to which such Letter of Credit pertains.

“Letter of Credit Account” means the account by that name established by the Fiscal Agent Agreement.

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

“Moody’s” means Moody’s Investors Service, and any successor thereto.

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

“Ordinance” means Ordinance No. 10-1 enacted by the Board of Directors of the Authority on April 12, 2010, and any amendment thereof or supplement thereto, or any subsequent ordinance of the Authority levying the Special Taxes.

“Original Purchaser” means Stone & Youngberg, LLC, the first purchaser of the Bonds from the Authority.

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

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

“Parity Bonds” means any bonds issued by the Authority for the District on a parity with any then Outstanding Bonds pursuant to the Fiscal Agent Agreement.

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

“Permitted Investments” means any of the following, but only to the extent that the same are acquired at Fair Market Value: (a) Federal Securities, and direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC); obligations of the Resolution Funding Corporation (REFCORP); and senior

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debt obligations of the Federal Home Loan Bank System; (b) time certificates of deposit or negotiable certificates of deposit issued by a state or nationally chartered bank or trust company which may include the Fiscal Agent and its affiliates, or a state or federal savings and loan association; provided, that the certificates of deposit shall be one or more of the following: continuously and fully insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, and/or continuously and fully secured by securities described in paragraph (a) of this definition of Permitted Investments which shall have a market value, as determined on a marked-to-market basis calculated at least weekly, and exclusive of accrued interest, of not less than 102 percent of the principal amount of the certificates on deposit; (c) investments in a money market fund (including any funds of the Fiscal Agent or its affiliates and including any funds for which the Fiscal Agent or its affiliates provides investment advisory or other management services) rated in the highest rating category (without regard to plus (+) or minus (-) designations) by Moody’s or S&P; (d) investment agreements, guaranteed investment contracts, funding agreements, or any other form of corporate note which represents the unconditional obligation of one or more banks, insurance companies or other financial institutions, or are guaranteed by a financial institution which has an unsecured rating, or which agreement is itself rated, as of the date of execution thereof, “AA” and “Aa2”, respectively, by S&P and Moody’s, provided that (1) such agreement shall require that if during its term the provider’s rating by either S&P or Moody’s falls below AA- or Aa3, respectively, the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (i) collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider’s books) to the Authority, the Fiscal Agent or a third party acting solely as agent therefor (the “Holder of the Collateral”) collateral free and clear of any third-party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to S&P and Moody’s to maintain an A rating in an A rated structured financing (with a market value approach); or (ii) at the sole expense of the provider, the provider shall obtain the unconditional assumption of their remaining obligations under the same terms and conditions of the investment agreement from an eligible replacement provider whose ratings are at least AA- and Aa3 by S&P and Moody’s, respectively; (2) if the provider’s rating by either S&P or Moody’s is withdrawn or suspended or falls below A- or A3, respectively, the provider must, at the direction of the Authority or the Fiscal Agent, within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the Authority; (3) in the event that the provider shall default in its payment obligations, the provider’s obligations under the investment agreement shall, at the direction of the Authority or the Fiscal Agent, be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Authority or the Fiscal Agent, as appropriate; and (4) should the provider become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. (“event of insolvency”), the provider’s obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Authority or the Fiscal Agent, as appropriate; (e) the Local Agency Investment Fund of the State Treasurer of the State of California as permitted by the State Treasurer pursuant to Section 16429.1 of the California Government Code; and (f) any other lawful investment for Authority funds.

“Principal Office” means the principal corporate trust office of the Fiscal Agent set forth in the Fiscal Agent Agreement, except for the purpose of maintenance of the registration books and presentation of Bonds for payment, transfer or exchange, such term shall mean the office at which the Fiscal Agent conducts its corporate agency business, or such other or additional offices as may be designated by the Fiscal Agent.

“Project” means the facilities authorized to be funded by the District, as more particularly described in the Resolution of Intention.

“Qualified Reserve Fund Credit Instrument” means an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank or insurance company and deposited with the Fiscal Agent pursuant to the Fiscal Agent Agreement, provided that all of the following requirements are met: (a) the long- term credit rating or claims paying ability of such bank or insurance company is in one of the three highest rating categories by S&P and Moody’s; (b) such letter of credit or surety bond has a term of at least twelve (12) months; (c) such letter of credit or surety bond has a stated amount at least equal to the portion of the

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Reserve Requirement with respect to which funds are proposed to be released pursuant to the Fiscal Agent Agreement; and (d) the Fiscal Agent is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder for the purpose of making payments from the Reserve Fund required pursuant to the Fiscal Agent Agreement.

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

“Refunding Bonds” means bonds issued by the Authority for the District the net proceeds of which are used to refund all or a portion of the then Outstanding Bonds; provided that the debt service on the Refunding Bonds in any Bond Year is not in excess of the debt service on the Bonds being refunded and the final maturity of the Refunding Bonds is not later than the final maturity of the Bonds being refunded.

“Reserve Fund” means the fund by that name established by the Fiscal Agent Agreement.

“Reserve Requirement” means, as of any date of calculation, an amount equal to the least of (i) the then Maximum Annual Debt Service, (ii) one hundred twenty-five percent (125%) of the then average Annual Debt Service, or (iii) ten percent (10%) of the then Outstanding principal amount of the Bonds. Amounts, if any, in the Letter of Credit Account are not taken into account with respect to any determination of the Reserve Requirement.

“Resolution” means the resolution authorizing the issuance of the Series 2010-A Bonds, adopted by the Board of Directors of the Authority on June 22, 2010.

“Resolution of Formation” means Resolution No. 08-04, adopted by the Board of Directors of the Authority on April 30, 2008.

“Resolution of Intention” means Resolution No. 08-02, adopted by the Board of Directors of the Authority on March 28, 2008.

“S&P” means Standard & Poor’s Ratings Service, a division of McGraw-Hill, and any successor thereto.

“Securities Depositories” means The Depository Trust Company, 55 Water Street, 1SL, New York, New York 10041-0099, Attention: Call Notification Department, Fax-(212) 855-3274; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority may designate in an Officer’s Certificate delivered to the Fiscal Agent.

“Series 2010-A Bonds” means the Bonds so designated and authorized to be issued under the Fiscal Agent Agreement.

“Special Tax Fund” means the fund by that name established by the Fiscal Agent Agreement.

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

“Special Tax Prepayments Account” means the account by that name established by the Fiscal Agent Agreement.

“Special Tax Revenues” means the proceeds of the Special Taxes received by the Authority, including any scheduled payments and any prepayments thereof, interest thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest

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thereon; provided that amounts collected in respect of delinquent Special Taxes shall not be Special Tax Revenues to the extent, and only to the extent, of any proceeds of a draw on a Letter of Credit under the Fiscal Agent Agreement (which amounts shall be repaid to the Letter of Credit provider, as specified in the Fiscal Agent Agreement). “Special Tax Revenues” does not include any penalties collected in connection with delinquent Special Taxes.

“Special Taxes” means the special taxes levied within the District pursuant to the Act, the Ordinance and the Fiscal Agent Agreement.

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

“Tax Consultant” means David Taussig & Associates or another independent financial or tax consultant retained by the Authority for the purpose of computing the Special Taxes.

“Treasurer” means the Treasurer of the Authority or such other officer or employee of the Authority performing the functions of the chief financial officer of the Authority.

“Update Property” means an Assessor’s Parcel of Undeveloped Property for which a building permit has been issued, but which has not yet been classified as Developed Property, as the terms “Assessor’s Parcel” and “Developed Property” are defined in the Rate and Method of Apportionment of the Special Taxes for the District.

Funds and Accounts

The Fiscal Agent Agreement provides for the following funds and accounts.

Improvement Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent, the Improvement Fund, to the credit of which deposits shall be made as required by the Fiscal Agent Agreement. Moneys in the Improvement Fund shall be held in trust by the Fiscal Agent for the benefit of the Authority, and shall be disbursed for the payment or reimbursement of costs of the Project. Amounts in this fund are not pledged to the repayment of the Bonds.

Disbursements from the Improvement Fund shall be made by the Fiscal Agent upon receipt of an Officer’s Certificate which shall: (i) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made (which shall be for payment of a Project cost or to reimburse expenditures of the Authority or any other party for Project costs previously paid), that the disbursement is a proper expenditure from the Improvement Fund, and the person to which the disbursement is to be paid; and (ii) certify that no portion of the amount then being requested to be disbursed was set forth in any Officer’s Certificate previously filed requesting a disbursement. Each such Officer’s Certificate submitted to the Fiscal Agent as described in the Fiscal Agent Agreement will be sufficient evidence to the Fiscal Agent of the facts stated therein, and the Fiscal Agent shall have no duty to confirm the accuracy of such facts. Moneys in the Improvement Fund shall be invested and deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits from such investment and deposit shall be retained in the Improvement Fund to be used for the purposes of the Improvement Fund.

Upon the filing of an Officer’s Certificate stating that the Project has been completed and that all costs of the Project have been paid, or that any such costs are not required to be paid from the Improvement Fund, the Fiscal Agent shall (i) transfer the amount, if any, remaining in the Improvement Fund to the Bond Fund to be used to pay debt service on the Bonds on the next Interest Payment Date; and (ii) upon such transfer, close the Improvement Fund.

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Reserve Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent the Reserve Fund, to the credit of which a deposit shall be made as required by the Fiscal Agent Agreement equal to the Reserve Requirement as of the Closing Date for the Series 2010-A Bonds, and deposits shall be made as provided in the Fiscal Agent Agreement. There also is established under the Fiscal Agent Agreement in the Reserve Fund a separate account to be held by the Fiscal Agent, the Letter of Credit Account, for the benefit of which the Fiscal Agent shall hold the Letter of Credit delivered on the Closing Date and to the credit of which deposits shall be made as described under “Letters of Credit” below.

Moneys in the Reserve Fund shall be held in trust by the Fiscal Agent for the benefit of the Owners of the Bonds as a reserve for the payment of principal of, and interest and any premium on, the Bonds and shall be subject to a lien in favor of the Owners of the Bonds. Moneys in the Letter of Credit Account, and any Letter of Credit held for the benefit of such account, shall be held by the Fiscal Agent for the benefit of the Owners of the Series 2010-A Bonds (and not for the benefit of the Owners of any Parity Bonds), and shall be subject to a lien in favor of the Owners of the Series 2010-A Bonds.

Except as otherwise described below, all amounts deposited in the Reserve Fund (exclusive of amounts in the Letter of Credit Account, which shall be used and withdrawn solely as described under “Letters of Credit” below) shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of, and interest and any premium on, the Bonds, or, in accordance with the provisions of the Fiscal Agent Agreement for the purpose of redeeming Bonds from the Bond Fund.

Whenever, on the Business Day prior to any Interest Payment Date, or on any other date at the request of the Treasurer, the amount in the Reserve Fund exceeds the Reserve Requirement (exclusive of amounts in the Letter of Credit Account), the Fiscal Agent shall provide written notice to the Treasurer of the amount of the excess and shall transfer an amount equal to the excess from the Reserve Fund to the Bond Fund to be used for the payment of interest on the Bonds on the next Interest Payment Date in accordance with the Fiscal Agent Agreement.

Whenever the balance in the Reserve Fund (exclusive of amounts in the Letter of Credit Account) equals or exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall upon the written direction of the Treasurer transfer the amount in the Reserve Fund (exclusive of amounts in the Letter of Credit Account) to the Bond Fund to be applied, on the next succeeding Interest Payment Date to the payment and redemption, in accordance with the Fiscal Agent Agreement, of all of the Outstanding Bonds. In the event that the amount so transferred from the Reserve Fund to the Bond Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the Authority to be used for any lawful purpose of the Authority.

Notwithstanding the foregoing, no amounts shall be transferred from the Reserve Fund to pay or redeem the Bonds, as described in the preceding paragraph, until after (i) the calculation of any amounts due to the federal government pursuant to the Fiscal Agent Agreement following payment of the Bonds and withdrawal of any such amount from the Reserve Fund for purposes of making such payment to the federal government, and (ii) payment of any fees and expenses due to the Fiscal Agent.

Whenever Special Taxes are prepaid and Bonds are to be redeemed with the proceeds of such prepayment, a proportionate amount in the Reserve Fund (determined on the basis of the principal of Bonds to be redeemed, and the original principal of the Bonds, and not including any amounts in the Letter of Credit Account) shall be transferred on the Business Day prior to the redemption date by the Fiscal Agent to the Bond Fund to be applied to the redemption of the Bonds.

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Amounts in the Reserve Fund (exclusive of amounts in the Letter of Credit Account) may at any time be used, at the written direction of an Authorized Officer, for purposes of paying any federal rebate liability under the Fiscal Agent Agreement.

Letters of Credit. The Fiscal Agent shall hold any Letter of Credit delivered to it for the benefit of the Letter of Credit Account. The Fiscal Agent shall advise the Treasurer in writing promptly following the actual knowledge of the Fiscal Agent that the credit rating of the provider of any Letter of Credit then in effect has been reduced to A- (or its equivalent) or lower by S&P or Moody’s, or has been reduced to BBB (or its equivalent) or lower by S&P or Moody’s.

Draws on Letters of Credit.

(a) The Fiscal Agent shall draw upon a Letter of Credit promptly following receipt by the Fiscal Agent of a written direction of the Treasurer instructing the Fiscal Agent to draw on a Letter of Credit (as described in the Collection of Special Tax Revenues section of the Fiscal Agent Agreement), identifying the Letter of Credit and the amount to be so drawn, and to the effect that Special Taxes levied in the District on parcels in the District (other than Developed Property and Update Property) are then delinquent. Each draw on a Letter of Credit shall be in an amount equal to that portion of the delinquent Special Taxes that represent the allocable portion of the debt service on the Series 2010-A Bonds (and not any portion of Administrative Expenses or debt service on any Parity Bonds) included in the levy on the applicable parcel or parcels. The amount received pursuant to any draw on a Letter of Credit as described in this subparagraph shall not act as a credit in respect of the amount of any Special Taxes that have been levied in the District on the parcels with delinquencies. Upon collection of any delinquent Special Taxes with respect to which a draw on a Letter of Credit has been made, the Authority shall send to the provider of the Letter of Credit a portion of the amount so collected up to the amount of the proceeds of the draw on the Letter of Credit received by the Fiscal Agent in respect of the applicable parcel or parcels.

(c) The proceeds of any draw on a Letter of Credit described in subparagraph (a) above shall be deposited by the Fiscal Agent to the Bond Fund.

The proceeds of any draw on a Letter of Credit described in subparagraph (b) above shall be held by the Fiscal Agent in the Letter of Credit Account, to be (a) drawn upon at the written direction of the Treasurer prior to any Interest Payment Date to the effect that the amount specified in such written direction to be drawn is in the amount of any delinquent Special Taxes levied on parcels in the District (other than Developed Property and Update Property) that represents the delinquent parcels’ proportionate share of the debt service on the Series 2010-A Bonds (and not any portion of Administrative Expenses or debt service on any Parity Bonds), or (b) released or reduced at the written direction of the Treasurer when the Letter of Credit to which such proceeds pertain would

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otherwise be released or reduced as described in the following two subparagraphs (with a written acknowledgment of any amount so reduced or released to be sent by the Fiscal Agent to the provider of the Letter of Credit).

Release of Letters of Credit. The Fiscal Agent shall release a Letter of Credit only upon (a) receipt of written direction from the Treasurer to the effect that, of the Special Tax levy in the District in the most recent Fiscal Year on Developed Property and on Update Property, the portion of such levy to pay the scheduled debt service on the Series 2010-A Bonds is sufficient to pay all of the scheduled debt service on the Series 2010-A Bonds coming due in the calendar year that commences in such Fiscal Year; and (b) upon the payment in full (or provision for such payment as provided in the defeasance provisions of the Fiscal Agent Agreement) of the Series 2010-A Bonds. In such event, any Letter of Credit shall be returned to the provider thereof, and in the case of the preceding clause (b) any amounts then held in the Letter of Credit Account that represent the proceeds of a draw on the Letter of Credit to be released (and any investment earnings thereon) shall be remitted by the Fiscal Agent to the account party with respect to the Letter of Credit to be released.

Reduction of Letters of Credit. The Fiscal Agent may reduce or acknowledge reduction of the amount of any Letter of Credit held by it upon receipt by the Fiscal Agent of:

(a) a Letter of Credit which satisfies the requirements set forth in the definition of “Letter of Credit” in the Fiscal Agent Agreement in substitution or replacement for all or a portion of the amount available to be drawn under any Letter of Credit then held by the Fiscal Agent, accompanied by a written statement of the provider of or account party under such new Letter of Credit as to the undeveloped parcels to which the new Letter of Credit pertains, and then the amount under the then applicable outstanding Letter of Credit may be reduced by the amount available to be drawn under the new Letter of Credit; or

Substitution of Qualified Reserve Fund Credit Instrument. The Authority shall have the right at any time to release funds from the Reserve Fund, in whole or in part, by tendering to the Fiscal Agent: (i) a Qualified Reserve Fund Credit Instrument, and (ii) an opinion of Bond Counsel stating that neither the release of such funds nor the acceptance of such Qualified Reserve Fund Credit Instrument will cause interest on the Bonds to become includable in gross income for purposes of federal income taxation. Upon tender of such items to the Fiscal Agent, and upon delivery by the Authority to the Fiscal Agent of a written calculation of the amount permitted to be released from the Reserve Fund (upon which calculation the Fiscal Agent may conclusively rely), the Fiscal Agent shall transfer such funds from the Reserve Fund to the Authority free and clear of the lien of this Agreement. The Fiscal Agent shall comply with all documentation relating to a Qualified Reserve Fund Credit Instrument as shall be required to maintain such Qualified Reserve Fund Credit Instrument in full force and effect and as shall be required to receive payments thereunder in the event and to the extent required to make any payment when and as required under the Reserve Fund provisions of the Fiscal Agent Agreement.

At least fifteen (15) days prior to the expiration of any Qualified Reserve Fund Credit Instrument, the Authority shall be obligated either (i) to replace such Qualified Reserve Fund Credit Instrument with a new Qualified Reserve Fund Credit Instrument, or (ii) to deposit or cause to be deposited with the Fiscal Agent an amount of funds such that the amount on deposit in the Reserve Fund is equal to the Reserve Requirement (without taking into account such expiring Qualified Reserve Fund Credit Instrument). In the event that the Authority shall fail to take action as specified in clause (i) or (ii) of the preceding sentence, the Fiscal Agent

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shall, prior to the expiration thereof, draw upon the Qualified Reserve Fund Credit Instrument in full and deposit the proceeds of such draw in the Reserve Fund.

In the event that the Reserve Requirement shall at any time be maintained in the Reserve Fund in the form of a combination of cash and a Qualified Reserve Fund Credit Instrument, the Fiscal Agent shall apply the amount of such cash to make any payment required to be made from the Reserve Fund before the Fiscal Agent shall draw any moneys under such Qualified Reserve Fund Credit Instrument for such purpose. In the event that the Fiscal Agent shall at any time draw funds under a Qualified Reserve Fund Credit Instrument to make any payment then required to be made from the Reserve Fund, the Special Tax Revenues thereafter received by the Fiscal Agent, to the extent deposited to the Reserve Fund under the Fiscal Agent Agreement, shall be used to reinstate the Qualified Reserve Fund Credit Instrument.

Bond Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent the Bond Fund, to the credit of which deposits shall be made as provided in the Fiscal Agent Agreement. There is also created in the Bond Fund, as accounts to be held by the Fiscal Agent, the Special Tax Prepayments Account and the Capitalized Interest Account, to the credit of which deposits shall be made as provided in the Fiscal Agent Agreement. Moneys in the Bond Fund and the accounts therein shall be held in trust by the Fiscal Agent for the benefit of the Owners of the Bonds, shall be disbursed for the payment of the principal of, and interest and any premium on, the Bonds as provided below, and, pending such disbursement, shall be subject to a lien in favor of the Owners of the Bonds.

On each Interest Payment Date, the Fiscal Agent shall withdraw from the Bond Fund and pay to the Owners of the Bonds the principal, and interest and any premium, then due and payable on the Bonds, including any amounts due on the Bonds by reason of the sinking payments or a redemption of the Bonds, such payments to be made in the priority listed in the second succeeding sentence. In the event that amounts in the Bond Fund are insufficient for the purposes set forth in the preceding sentence, and following any applicable transfer to the Bond Fund from the Letter of Credit Account (representing the proceeds of a draw on Letter of Credit or an equivalent draw on amounts in such account) as described under “Letters of Credit – Draws on Letters of Credit” above since the last Interest Payment Date for the Bonds (which amounts, if any, so transferred shall be used solely to pay debt service due on the Series 2010-A Bonds), the Fiscal Agent shall withdraw from the Reserve Fund to the extent of any funds therein amounts to cover the amount of such Bond Fund insufficiency. If, after the foregoing transfers, there are insufficient funds in the Bond Fund to make the payments provided for in the first sentence of the first sentence of this paragraph, the Fiscal Agent shall apply the available funds first to the payment of interest on the Bonds, then to the payment of principal due on the Bonds other than by reason of sinking payments, and then to payment of principal due on the Bonds by reason of sinking payments. Any sinking payment not made as scheduled shall be added to the sinking payment to be made on the next sinking payment date. Any payment of principal on the Bonds not made in full as scheduled shall continue to bear interest at the interest rate on the Bonds until paid.

Moneys in the Special Tax Prepayments Account shall be transferred by the Fiscal Agent to the Bond Fund on the next date for which notice of redemption of Bonds can timely be given under the Fiscal Agent Agreement, and shall be used to redeem Bonds on the redemption date selected.

All moneys in the Capitalized Interest Account shall be transferred by the Fiscal Agent to the Bond Fund on the Business Day prior to September 1, 2010.

Moneys in the Bond Fund, the Capitalized Interest Account and the Special Tax Prepayments Account shall be invested and deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from the investment and deposit of amounts in the Bond Fund, the Capitalized Interest Account and the Special Tax Prepayments Account shall be retained in the Bond Fund and such accounts, respectively, to be used for purposes of such fund and accounts.

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Special Tax Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent, the Special Tax Fund, to the credit of which the Authority shall deposit, as soon as practicable following receipt, all Special Tax Revenues received by the Authority and any amounts required by the Fiscal Agent Agreement to be deposited therein. Notwithstanding the foregoing, (i) any Special Tax Revenues constituting payment of the portion of the Special Tax levy for Administrative Expenses shall be deposited by the Treasurer in the Administrative Expense Fund, (ii) any proceeds of Special Tax Prepayments shall be transferred by the Treasurer to the Fiscal Agent for deposit by the Fiscal Agent as follows: (a) that portion of any Special Tax Prepayment constituting a prepayment of construction costs (which otherwise could have been included in the proceeds of Parity Bonds) shall be deposited by the Fiscal Agent to the Improvement Fund, and (b) any remaining portion of any Special Tax Prepayment shall be deposited by the Fiscal Agent directly in the Special Tax Prepayments Account; and (iii) a portion of any collections of delinquent Special Taxes with respect to parcels for which a draw on a Letter of Credit have been made as described in the Fiscal Agent Agreement, do not constitute Special Tax Revenues and shall be remitted to the provider of the applicable Letter of Credit as provided in the definition of “Special Tax Revenues” in the Fiscal Agent Agreement and otherwise as described under “Letters of Credit” above.

Moneys in the Special Tax Fund shall be held in trust by the Authority for the benefit of the Authority and the Owners of the Bonds, shall be disbursed as provided below and, pending disbursement, shall be subject to a lien in favor of the Owners of the Bonds and the Authority.

On the Business Day prior to each Interest Payment Date, the Fiscal Agent shall withdraw from the Special Tax Fund and transfer the following amounts in the following order of priority (i) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund and any expected transfers from the Improvement Fund, the Reserve Fund, the Capitalized Interest Account, the Special Tax Prepayments Account and the Letter of Credit Account to the Bond Fund pursuant to the Fiscal Agent Agreement, such that the amount in the Bond Fund equals the principal (including any sinking payment), premium, if any, and interest due on the Bonds on the next Interest Payment Date, and (ii) to the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund, such that the amount in the Reserve Fund is equal to the Reserve Requirement (exclusive of any amount in the Letter of Credit Account).

Moneys in the Special Tax Fund shall be invested and deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from such investment and deposit shall be retained in the Special Tax Fund to be used for the purposes thereof.

Administrative Expense Fund. There is established under the Fiscal Agent Agreement, as a separate fund to be held by the Treasurer, the Administrative Expense Fund to the credit of which deposits shall be made as required by the Fiscal Agent Agreement. Moneys in the Administrative Expense Fund shall be held in trust by the Treasurer for the benefit of the Authority, and shall be disbursed as provided below. Amounts in this fund are not pledged to the repayment of the Bonds.

Amounts in the Administrative Expense Fund will be withdrawn by the Treasurer and paid to the Authority or its order upon receipt by the Treasurer of an Officer’s Certificate stating the amount to be withdrawn, that such amount is to be used to pay an Administrative Expense or a Cost of Issuance, and the nature of such Administrative Expenses or Cost of Issuance. Annually, on the last day of each Fiscal Year commencing with the last day of Fiscal Year 2010-2011, the Treasurer shall withdraw any amounts then remaining in the Administrative Expense Fund in excess of $25,000 that have not been allocated to pay Administrative Expenses incurred but not yet paid, and which are not otherwise encumbered, and transfer such amounts to the Fiscal Agent for deposit in the Special Tax Fund.

Moneys in the Administrative Expense Fund must be invested and deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from said investment shall be retained by the Treasurer in the Administrative Expense Fund to be used for the purposes of such fund.

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Costs of Issuance Fund. There is established under the Fiscal Agent Agreement, as a separate fund to be held by the Fiscal Agent, the Costs of Issuance Fund to the credit of which a deposit shall be made as required by the Fiscal Agent Agreement. Moneys in the Costs of Issuance Fund will be held in trust by the Fiscal Agent and shall be disbursed for the payment or reimbursement of Costs of Issuance. Amounts in this fund are not pledged to the repayment of Bonds.

Amounts in the Costs of Issuance Fund will be disbursed from time to time to pay Costs of Issuance, as set forth in a requisition containing respective amounts to be paid to the designated payees, signed by the Treasurer and delivered to the Fiscal Agent concurrently with the delivery of the Bonds. The Fiscal Agent is required to pay all Costs of Issuance after receipt of an invoice from any such payee which requests payment in an amount which is less than or equal to the amount set forth with respect to such payee pursuant to an Officer’s Certificate requesting payment of Cost of Issuance. The Fiscal Agent will maintain the Costs of Issuance Fund for a period of 90 days from the date of delivery of the Bonds and then shall transfer any moneys remaining therein, including any investment earnings thereon, to the Treasurer for deposit by the Treasurer in the Administrative Expense Fund.

Parity Bonds

The Authority may from time to time issue Parity Bonds by means of a Supplemental Agreement and without the consent of any Bondowners, upon compliance with the provisions of the Fiscal Agent Agreement listed below. Any such Parity Bonds shall be secured by a lien on the Special Tax Revenues and funds pledged for the payment of the Bonds under the Fiscal Agent Agreement on a parity with all other Bonds Outstanding thereunder; provided, however, that any Letter of Credit and any amounts in the Letter of Credit Account are solely for the benefit of the Series 2010-A Bonds. The Authority may issue the Parity Bonds subject to the following specific conditions precedent:

(A) Current Compliance. The Authority shall be in compliance on the date of issuance of the Parity Bonds with all covenants set forth in the Fiscal Agent Agreement and all Supplemental Agreements.

(B) Payment Dates. The Supplemental Agreement providing for the issuance of such Parity Bonds shall provide that interest thereon shall be payable on March 1 and September 1, and principal thereof shall be payable on September 1 in any year in which principal is payable (provided that there shall be no requirement that any Parity Bonds pay interest on a current basis).

(C) Funds and Accounts; Reserve Fund Deposit. The Supplemental Agreement providing for the issuance of such Parity Bonds may provide for the establishment of separate funds and accounts, and shall provide for a deposit to the Reserve Fund in an amount necessary so that the amount on deposit therein (exclusive of any amount in the Letter of Credit Account), following the issuance of such Parity Bonds, is equal to the Reserve Requirement.

(D) Value-to-Lien Ratio. The District Value shall be at least four times the sum of: (i) the aggregate principal amount of all Bonds then Outstanding, plus (ii) the aggregate principal amount of the series of Parity Bonds proposed to be issued, plus (iii) the aggregate principal amount of any fixed assessment liens on the parcels in the District subject to the levy of Special Taxes, plus (iv) a portion of the aggregate principal amount of any and all other community facilities district bonds then outstanding and payable at least partially from special taxes to be levied on parcels of land within the District (the “Other District Bonds”) equal to the aggregate principal amount of the Other District Bonds multiplied by a fraction, the numerator of which is the amount of special taxes levied for the Other District Bonds on parcels of land within the District, and the denominator of which is the total amount of special taxes levied for the Other District Bonds on all parcels of land against which the special taxes are levied to pay the Other District Bonds (such fraction to be determined based upon the

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maximum special taxes which could be levied in the year in which maximum annual debt service on the Other District Bonds occurs), based upon information from the most recent available Fiscal Year.

(E) The Special Tax Coverage. The Authority shall obtain a certificate of a Tax Consultant to the effect that (i) the amount of the maximum Special Taxes that may be levied in each Fiscal Year shall be at least one hundred ten percent (110%) of the total Annual Debt Service for each such Fiscal Year on the Bonds and the proposed Parity Bonds plus estimated Administrative Expenses, and (ii) based upon the Special Taxes that may be levied under the Rate and Method of Apportionment of the Special Taxes for the District at the time when there is no longer any Undeveloped Property (as defined in said rate and method of apportionment) in the District, and taking into account the status of the then and expected Developed Property (as defined in said rate and method of apportionment) in the District, (a) the estimated maximum Special Taxes that may then be levied in the District on the then existing and expected Developed Property in each Fiscal Year are reasonably expected to exceed one hundred ten percent (110%) of the total Annual Debt Service for each Fiscal Year on the Bonds and the proposed Parity Bonds, and (b) the aggregate Special Tax Prepayments that could occur after the issuance of the Parity Bonds is not less than the Outstanding principal amount of the Bonds and such Parity Bonds.

(F) Minimum Value Test. The District Value (including, for purposes of this paragraph, only those parcels of real property in the District then constituting “Undeveloped Property”, as defined in the Rate and Method of Apportionment of Special Taxes for the District) shall be at least two times (i) the sum of the amounts referred to in clauses (i), (ii), (iii) and (iv) of paragraph (D) above, but including, for purposes of this paragraph, with respect to said clauses (iii) and (iv) only those parcels constituting such “Undeveloped Property”, and not all parcels in the District, less (ii) that portion of the principal amount of the Outstanding Bonds and any proposed Parity Bonds the maximum annual debt service on which is equal to the aggregate Maximum Special Tax in the then Fiscal Year for all then Developed Property (as the terms “Maximum Special Tax”, and “Developed Property” are defined in the Rate and Method of Apportionment of the Special Taxes for the District).

(G) Officer’s Certificate. The Authority shall deliver to the Fiscal Agent an Officer’s Certificate certifying that the conditions precedent to the issuance of such Parity Bonds described in paragraphs (A), (B), (C), (D), (E) and (F) above have been satisfied.

Covenants of the Authority

The Authority will punctually pay or cause to be paid the principal of, and interest and any premium on, the Bonds when and as due in strict conformity with the terms of the Fiscal Agent Agreement and any Supplemental Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Fiscal Agent Agreement and all Supplemental Agreements and of the Bonds.

The Bonds are limited obligations of the Authority on behalf of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund (including the Capitalized Interest Account and the Special Tax Prepayment Account therein), the Reserve Fund and the Special Tax Fund created under the Fiscal Agent Agreement.

In order to prevent any accumulation of claims for interest after maturity, the Authority may not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and may not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the Authority, such claim for interest so extended or funded shall not be entitled, in case of default under the Fiscal Agent Agreement, to the benefits of the Fiscal Agent Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded.

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The Authority will not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien under the Fiscal Agent Agreement for the benefit of the Bonds, except as permitted by the Fiscal Agent Agreement.

The Authority will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Authority, in which complete and correct entries are made of all transactions relating to the expenditure of amounts disbursed from the Administrative Expense Fund and to the Special Tax Revenues. Such books of record and accounts will at all times during business hours be subject to the inspection of the Fiscal Agent and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.

The Fiscal Agent will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Fiscal Agent, in which complete and correct entries must be made of all transactions relating to the expenditure of amounts disbursed from the Bond Fund (including the Capitalized Interest Account and the Special Tax Prepayments Account therein), the Improvement Fund, the Special Tax Fund, the Reserve Fund and the Costs of Issuance Fund. Such books of record and accounts must at all times during business hours be subject to the inspection of the Authority and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.

The Authority will preserve and protect the security of the Bonds and the rights of the Owners, and will warrant and defend their rights against all claims and demands of all persons. From and after the delivery of any of the Bonds by the Authority, the Bonds shall be incontestable by the Authority.

On or within five (5) Business Days of each June 1, the Fiscal Agent is required provide the Treasurer with a notice stating the amount then on deposit in the Bond Fund, the Capitalized Interest Account and the Reserve Fund, and informing the Authority that the Special Taxes may need to be levied pursuant to the Ordinance as necessary to provide for Annual Debt Service and Administrative Expenses and replenishment (if necessary) of the Reserve Fund so that the balances therein equal the Reserve Requirement. The receipt of or failure to receive such notice by the Treasurer shall in no way affect the obligations of the Treasurer under the following two paragraphs, and the Fiscal Agent shall not be responsible for any inability or failure to provide such notice. Upon receipt of such notice, the Treasurer shall communicate with the Auditor to ascertain the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year.

The Treasurer shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance by each July 15 that the Bonds are outstanding, or otherwise such that the computation of the levy is complete before the final date on which Auditor will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the Treasurer shall prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll.

The Treasurer shall fix and levy the amount of Special Taxes within the District required for the payment of principal of and interest on any outstanding Bonds of the District becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Fund for the Bonds and an amount estimated to be sufficient to pay the Administrative Expenses (including amounts necessary to pay any rebate due to the federal government) during such year, taking into account the balances in such funds and in the Special Tax Fund. The Special Taxes so levied shall not exceed the authorized amounts as provided in the proceedings pursuant to the Resolution of Formation.

The Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, become

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delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the ad valorem taxes on real property; provided that, pursuant to and in accordance with the Ordinance, the Special Taxes may be collected by means of direct billing of the property owners within the District, in which event the Special Taxes shall become delinquent if not paid when due pursuant to said billing.

If the Special Taxes levied on any parcel in the District that is not Developed Property or Update Property is not paid in full when due, the Treasurer shall direct the Fiscal Agent to draw upon any Letter of Credit then held for the benefit of the Letter of Credit Account to which such undeveloped parcels pertain in the amount of such delinquency (or, if applicable, to draw on amounts in the Letter of Credit Account) as described under “Letters of Credit” above. Each draw on a Letter of Credit or draw on amounts in the Letter of Credit Account, as applicable, shall be in an amount equal to that portion of the delinquent Special Taxes that represent the allocable portion of the debt service on the Series 2010-A Bonds (and not any portion of Administrative Expenses or debt service on any Parity Bonds) included in the levy on the applicable parcel or parcels. The Treasurer shall ascertain if any such delinquencies exist as described in the second succeeding paragraph, and shall provide such direction to the Fiscal Agent no later than March 15 (with respect to Special Taxes that are delinquent if not paid by the immediately preceding December 10) and July 15 (with respect to Special Taxes that are delinquent if not paid by the immediately preceding April 10) of each year, so that the Fiscal Agent receives the proceeds of the draw before the next succeeding Interest Payment Date.

Pursuant to Section 53356.1 of the Act, the Authority has covenanted with and for the benefit of the Owners of the Bonds that it will order, and cause to be commenced as provided below, and thereafter diligently prosecute to judgment (unless such delinquency is theretofore brought current), an action in the superior court to foreclose the lien of any Special Tax or installment thereof not paid when due as described in the following paragraph. The Treasurer shall notify the Authority Attorney of any such delinquency of which it is aware, and the Authority Attorney shall commence, or cause to be commenced, such proceedings.

The Treasurer shall, on or about each March 1 and July 1, compare the amount of Special Taxes theretofore levied in the District to the amount of Special Taxes theretofore received by the Authority, and if the Treasurer determines that any single parcel subject to the Special Tax in the District is delinquent in the payment of Special Taxes, then the Treasurer shall send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) foreclosure proceedings shall be commenced by the Authority within 60 days of such determination.

The Authority shall take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Bonds. If necessary, the Authority may use earnings on amounts in the Reserve Fund (exclusive of amounts in the Letter of Credit Account), amounts on deposit in the Administrative Expense Fund, and any other funds available to the District, including amounts advanced by the Authority, in its sole discretion, to be repaid by the District as soon as practicable from amounts described in the preceding clauses, to satisfy its obligations described in this paragraph.

The Authority shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Bonds.

The Authority covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Fiscal Agent Agreement, failure of the Authority to comply with the Continuing Disclosure Agreement shall not be considered a default under the Fiscal Agent Agreement; however, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the Authority of its obligations thereunder, including seeking mandate or specific performance by court order.

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The Authority covenants and agrees to not consent or conduct proceedings with respect to a reduction in the maximum Special Taxes that may be levied on parcels in Zone 1 of the District below an amount, for any Fiscal Year, equal to 110% of the aggregate of the debt service due on the Bonds in such Fiscal Year, plus a reasonable estimate of Administrative Expenses for such Fiscal Year. It is hereby acknowledged in the Fiscal Agent Agreement that Bondowners are purchasing the Bonds in reliance on the foregoing covenant, and that said covenant is necessary to assure the full and timely payment of the Bonds.

The Authority covenants not to exercise its rights under the Act to waive delinquency and redemption penalties related to the Special Taxes or to declare Special Tax penalties amnesty program if to do so would materially and adversely affect the interests of the owners of the Bonds and further covenants not to permit the tender of Bonds in payment of any Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such tender will not result in the Authority having insufficient Special Tax Revenues to pay the principal of and interest on the Bonds and any Parity Bonds remaining Outstanding following such tender.

The Authority may at anytime, without notice to or the consent of the Fiscal Agent or the Bondowners, release property in the District from the lien of Special Taxes pursuant to and in accordance with the provisions of Section I of the Rate and Method of Apportionment of Special Taxes for the District, as in effect on the Closing Date.

Investments

Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Fiscal Agent is required to be invested by the Fiscal Agent in Permitted Investments, as directed pursuant to an Officer’s Certificate filed with the Fiscal Agent at least two (2) Business Days in advance of the making of such investments. In the absence of any such Officer’s Certificate, the Fiscal Agent shall invest to the extent reasonably practicable any such moneys in the Permitted Investments described in clause (c) of the definition thereof in the Fiscal Agent Agreement.

Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Treasurer shall be invested by the Treasurer in any Permitted Investment, which in any event by their terms mature prior to the date on which such moneys are required to be paid out. 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 the Fiscal Agent Agreement for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts. Whenever in the Fiscal Agent Agreement any moneys are required to be transferred by the Authority to the Fiscal Agent, such transfer may be accomplished by transferring a like amount of Permitted Investments.

The Fiscal Agent and its affiliates or the Treasurer may act as sponsor, advisor, depository, principal or agent in the acquisition or disposition of any investment. Neither the Fiscal Agent nor the Treasurer shall incur any liability for losses arising from any investments made pursuant to the Fiscal Agent Agreement. The Fiscal Agent will not be required to determine the legality of any investments.

Except as otherwise provided in the next sentence, all investments of amounts deposited in any fund or account created by or pursuant to the Fiscal Agent Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of Section 148 of the Code) shall be acquired, disposed of, and valued (as of the date that valuation is required by the Fiscal Agent Agreement or the Code) at Fair Market Value. Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under the applicable provisions of the Code and (unless valuation is undertaken at least annually) investments in the subaccounts within the Reserve Fund shall be valued at their present value (within the meaning of section 148 of the Code). The Fiscal Agent shall not be liable for verification of the application of such sections of the Code.

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Investments in any and all funds and accounts may be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions herein for transfer to or holding in or to the credit of particular funds or accounts of amounts received or held by the Fiscal Agent or the Treasurer, provided that the Fiscal Agent or the Treasurer, as applicable, shall at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in the Fiscal Agent Agreement. The Fiscal Agent or the Treasurer, as applicable, shall sell at Fair Market Value, or present for redemption, any investment security whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such investment security is credited and neither the Fiscal Agent nor the Treasurer shall be liable or responsible for any loss resulting from the acquisition or disposition of such investment security in accordance with the Fiscal Agent Agreement.

Liability of Authority

The Authority shall not incur any responsibility in respect of the Bonds or the Fiscal Agent Agreement other than in connection with the duties or obligations explicitly in the Fiscal Agent Agreement or in the Bonds assigned to or imposed upon it. The Authority shall not be liable in connection with the performance of its duties under the Fiscal Agent Agreement, except for its own negligence or willful default. The Authority shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements of the Fiscal Agent in the Fiscal Agent Agreement or of any of the documents executed by the Fiscal Agent in connection with the Bonds, or as to the existence of a default or event of default thereunder.

In the absence of bad faith, the Authority, including the Treasurer, 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 Authority and conforming to the requirements of the Fiscal Agent Agreement. The Authority, including the Treasurer, 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 the Fiscal Agent Agreement shall require the Authority to expend or risk its own general funds or otherwise incur any financial liability (other than with respect to the Special Tax Revenues) in the performance of any of its obligations under the Fiscal Agent Agreement, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

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

The Authority shall not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactory established, if disputed.

Whenever in the administration of its duties under the Fiscal Agent Agreement the Authority or the Treasurer shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Fiscal Agent Agreement, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of willful misconduct on the part of the Authority, be deemed to be conclusively proved and established by a certificate of the Fiscal Agent, an Independent Financial Consultant or a Tax Consultant, and such certificate shall be full warrant to the Authority and the Treasurer for any action taken or suffered under the provisions of the Fiscal Agent Agreement or any Supplemental

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Agreement upon the faith thereof, but in its discretion the Authority or the Treasurer 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 under the Fiscal Agent Agreement, the Authority and/or the Treasurer may employ such persons or entities as it deems necessary or advisable. The Authority shall not be liable for any of the acts or omissions of such persons or entities employed by it in good faith under the Fiscal Agent Agreement, 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.

The Fiscal Agent

The Fiscal Agent undertakes to perform such duties, and only such duties, as are specifically set forth in the Fiscal Agent Agreement, and no implied covenants or obligations shall be read into the Fiscal Agent Agreement against the Fiscal Agent.

Any company into which the Fiscal Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Fiscal Agent may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under the following paragraph, shall be the successor to such Fiscal Agent without the execution or filing of any paper or any further act.

The Authority may remove the Fiscal Agent initially appointed, and any successor thereto, and may appoint a successor or successors thereto, but any such successor shall be a bank, corporation or trust company having a combined capital (exclusive of borrowed capital) and surplus of at least Fifty Million Dollars ($50,000,000), and be subject to supervision or examination by federal or state authority. If such bank, corporation or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.

The Fiscal Agent may at any time resign by giving written notice to the Authority and by giving to the Owners notice by mail of such resignation. Upon receiving notice of such resignation, the Authority shall promptly appoint a successor Fiscal Agent by an instrument in writing. Any resignation or removal of the Fiscal Agent shall become effective upon acceptance of appointment by the successor Fiscal Agent.

If no appointment of a successor Fiscal Agent shall be made within forty-five (45) days after the Fiscal Agent shall have given to the Authority written notice or after a vacancy in the office of the Fiscal Agent shall have occurred by reason of its inability to act, the Fiscal Agent or any Owner may apply to any court of competent jurisdiction to appoint a successor Fiscal Agent. Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a successor Fiscal Agent.

If, by reason of the judgment of any court, or reasonable agency, the Fiscal Agent is rendered unable to perform its duties under the Fiscal Agent Agreement, all such duties and all of the rights and powers of the Fiscal Agent thereunder shall be assumed by and vest in the Treasurer of the Authority in trust for the benefit of the Owners. The Authority covenants for the direct benefit of the Owners that its Treasurer in such case shall be vested with all of the rights and powers of the Fiscal Agent under the Fiscal Agent Agreement, and shall assume all of the responsibilities and perform all of the duties of the Fiscal Agent thereunder, in trust for the benefit of the Owners of the Bonds. In such event, the Treasurer may designate a successor Fiscal Agent qualified to act as Fiscal Agent thereunder.

The recitals of facts, covenants and agreements in the Fiscal Agent Agreement and in the Bonds contained shall be taken as statements, covenants and agreements of the Authority, and the Fiscal Agent

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assumes no responsibility for the correctness of the same, or makes any representations as to the validity or sufficiency of the Fiscal Agent Agreement or of the Bonds, or shall incur any responsibility in respect thereof, other than in connection with the duties or obligations in the Fiscal Agent Agreement or in the Bonds assigned to or imposed upon it. The Fiscal Agent shall not be liable in connection with the performance of its duties under the Fiscal Agent Agreement, except for its own negligence or willful default. The Fiscal Agent assumes no responsibility or liability for any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds.

In the absence of bad faith, the Fiscal Agent 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 Fiscal Agent and conforming to the requirements of the Fiscal Agent Agreement; but in the case of any such certificates or opinions by which any provision of the Fiscal Agent Agreement are specifically required to be furnished to the Fiscal Agent, the Fiscal Agent shall be under a duty to examine the same to determine whether or not they conform to the requirements of the Fiscal Agent Agreement. Except as provided above in this paragraph, Fiscal Agent shall be protected and shall incur no liability in acting or proceeding, or in not acting or not proceeding, in good faith, reasonably and in accordance with the terms of the Fiscal Agent Agreement, upon any resolution, order, notice, request, consent or waiver, certificate, statement, affidavit, or other paper or document which it shall in good faith reasonably believe to be genuine and to have been adopted or signed by the proper person or to have been prepared and furnished pursuant to any provision of the Fiscal Agent Agreement, and the Fiscal Agent shall not be under any duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument.

The Fiscal Agent shall not be liable for any error of judgment made in good faith unless it shall be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts. No provision of the Fiscal Agent Agreement shall require the Fiscal Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under the Fiscal Agent Agreement, or in the exercise of any of its rights or powers.

The Fiscal Agent shall be under no obligation to exercise any of the rights or powers vested in it by the Fiscal Agent Agreement at the request or direction of any of the Owners pursuant to the Fiscal Agent Agreement unless such Owners shall have offered to the Fiscal Agent reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

The Fiscal Agent may become the owner of the Bonds with the same rights it would have if it were not the Fiscal Agent.

The Fiscal Agent shall have no duty or obligation whatsoever to enforce the collection of Special Taxes or other funds to be deposited with it hereunder, or as to the correctness of any amounts received, and its liability shall be limited to the proper accounting for such funds as it shall actually receive.

In order to perform its duties and obligations under the Fiscal Agent Agreement, the Fiscal Agent may employ such persons or entities as it deems necessary or advisable. The Fiscal Agent shall not be liable for any of the acts or omissions of such persons or entities employed by it in good faith under the Fiscal Agent Agreement, 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.

The Fiscal Agent agrees to accept and act upon instructions or directions pursuant to the Fiscal Agent Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods; provided, however, that the Fiscal Agent shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. The Fiscal Agent shall not be liable for any losses, costs or expenses arising directly or indirectly from the Fiscal Agent’s reliance upon and compliance with such instructions

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notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Authority agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Fiscal Agent, including without limitation the risk of interception and misuse by third parties.

The Fiscal Agent shall not be considered in breach of or in default in its obligations under the Fiscal Agent Agreement or progress in respect thereto in the event of enforced delay (“unavoidable delay”) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, acts of god or of the public enemy or terrorists, acts of a government, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Fiscal Agent.

The Fiscal Agent may rely and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The Fiscal Agent may consult with counsel, who may be counsel to the Authority, 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 under the Fiscal Agent Agreement in good faith and in accordance therewith.

The Fiscal Agent shall not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed.

Whenever in the administration of its duties under the Fiscal Agent Agreement the Fiscal Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Fiscal Agent Agreement, such matter (unless other evidence in respect thereof be in the Fiscal Agent Agreement specifically prescribed) may, in the absence of willful misconduct on the part of the Fiscal Agent, be deemed to be conclusively proved and established by an Officer’s Certificate, and such certificate shall be full warrant to the Fiscal Agent for any action taken or suffered under the provisions of the Fiscal Agent Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable.

Amendment of the Fiscal Agent Agreement

The Fiscal Agent Agreement and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting, of the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Fiscal Agent Agreement. 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 Authority 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 Authority of any pledge or lien upon the Special Taxes superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the laws of the State of California or the Fiscal Agent Agreement), or (iii) reduce the percentage of Bonds required for the amendment of the Fiscal Agent Agreement. Any such amendment may not modify any of the rights, obligations or immunities of the Fiscal Agent without its written consent.

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

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(A) to add to the covenants and agreements of the Authority in the Fiscal Agent Agreement contained, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power in the Fiscal Agent Agreement reserved to or conferred upon the Authority;

(B) to make modifications not adversely affecting any outstanding series of Bonds of the Authority in any material respect;

(C) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Fiscal Agent Agreement, or in regard to questions arising under the Fiscal Agent Agreement, as the Authority or the Fiscal Agent may deem necessary or desirable and not inconsistent with the Fiscal Agent Agreement, and which shall not adversely affect the rights of the Owners of the Bonds;

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

(E) in connection with the issuance of Parity Bonds under and pursuant to the Fiscal Agent Agreement.

Any such amendment may not modify any of the rights, obligations or immunities of the Fiscal Agent without its written consent.

Discharge of the Bonds and the Fiscal Agent Agreement

The Authority shall have the option to pay and discharge the entire indebtedness on all or any portion of the Bonds Outstanding in any one or more of the following ways:

(A) by well and truly paying or causing to be paid the principal of, and interest and any premium on, such Bonds Outstanding, as and when the same become due and payable;

(B) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the Reserve Fund (exclusive of amounts in the Letter of Credit Account) and in the Bond Fund as provided in the Fiscal Agent Agreement is fully sufficient to pay such Bonds Outstanding, including all principal, interest and redemption premiums; or

(C) by irrevocably depositing with the Fiscal Agent, in trust, cash and Federal Securities in such amount as the Authority shall determine as confirmed by Bond Counsel or an independent certified public accountant will, together with the interest to accrue thereon and moneys then on deposit in the Reserve Fund (exclusive of amounts in the Letter of Credit Account) and in the Bond Fund as provided in the Fiscal Agent Agreement, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates.

If the Authority shall have taken any of the actions specified in (A), (B) or (C) above, and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been given as in the Fiscal Agent Agreement provided or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, then, at the election of the Authority, and notwithstanding that any Bonds shall not have been surrendered for payment, the pledge of the Special Taxes and other funds provided for in the Fiscal Agent Agreement and all other obligations of the Authority under the Fiscal Agent Agreement with respect to such Bonds Outstanding shall cease and terminate. Notice of such election shall be filed with the Fiscal Agent. Notwithstanding the foregoing, the obligation of the Authority to pay or cause to be paid to the Owners of the Bonds not so surrendered and paid all sums due thereon, to pay all amounts owing to the Fiscal Agent pursuant

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to the Fiscal Agent Agreement, and otherwise to assure that no action is taken or failed to be taken if such action or failure adversely affects the exclusion of interest on the Bonds from gross income for federal income tax purposes, shall continue in any event.

Upon compliance by the Authority with the foregoing with respect to all Bonds Outstanding, any funds held by the Fiscal Agent after payment of all fees and expenses of the Fiscal Agent, which are not required for the purposes of the preceding paragraph, shall be paid over to the Authority and any Special Taxes thereafter received by the Authority shall not be remitted to the Fiscal Agent but shall be retained by the Authority to be used for any purpose permitted under the Act.

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APPENDIX E

CONTINUING DISCLOSURE AGREEMENT OF THE AUTHORITY

This Continuing Disclosure Agreement of the Authority, dated as of August 1, 2010 (the “Disclosure Agreement”) is executed and delivered by the Tejon Ranch Public Facilities Financing Authority (the “Issuer”) and The Bank of New York Mellon Trust Company, N.A., as fiscal agent (the “Fiscal Agent”) and as dissemination agent (the “Dissemination Agent”), in connection with the issuance and delivery by the Issuer of $12,670,000 aggregate principal amount of its Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements — East) Special Tax Bonds, Series 2010-A (the “2010 Bonds”). The 2010 Bonds are being issued pursuant to a Fiscal Agent Agreement, dated as of August 1, 2010, by and between the Authority for and on behalf of the District and the Fiscal Agent (the “Fiscal Agent Agreement”). The Issuer, the Fiscal Agent and the Dissemination Agent covenant as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Issuer, the Fiscal Agent and the Dissemination Agent, for the benefit of the Owners and Beneficial Owners of the 2010 Bonds and in order to assist the Participating Underwriter in complying with the Rule.

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

“Annual Report” shall mean any Annual Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any 2010 Bonds (including persons holding 2010 Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any 2010 Bonds for federal income purposes.

“Disclosure Representative” shall mean the Executive Director of the Issuer or his or her designee, or such other officer or employee as the Issuer shall designate in writing to the Dissemination Agent from time to time.

“Dissemination Agent” shall mean, initially, The Bank of New York Mellon Trust Company, N.A., acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Issuer and which has been filed with the then current Dissemination Agent a written acceptance of such designation.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

“MSRB” shall mean the Municipal Securities Rulemaking Board. As of the date hereof, the MSRB’s required method of filing is electronically via its Electronic Municipal Market Access (“EMMA”) system available on the Internet at http://emma.msrb.org.

“Participating Underwriter” shall mean the original Underwriter of the 2010 Bonds required to comply with the Rule in connection with offering of the 2010 Bonds, which is Stone & Youngberg LLC, whose address for purposes of this Disclosure Agreement is 515 South Figueroa Street, Suite 1060, Los Angeles, California, 90071.

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

“Tax-exempt” shall mean that interest on the 2010 Bonds is excluded from gross income for federal income tax purposes, whether or not such interest is includable as an item of tax preferences or otherwise includable directly or indirectly for purposes of calculating any other tax liability, including any alternative minimum tax or environmental tax.

SECTION 3. Provision of Annual Reports.

(a) The Issuer shall, or shall cause the Dissemination Agent by written direction to such Dissemination Agent to, not later than December 1 after the end of the Issuer’s fiscal year (which currently ends on June 30), commencing with the report due on December 1, 2010, provide to the MSRB, in electronic format as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. If in any year December 1 falls on a Saturday, Sunday or a holiday on which the Dissemination Agent’s offices are closed for business, such deadline shall be extended to the next following day on which the Dissemination Agent’s offices are open for business. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Issuer may be submitted separately from and later than the balance of the Annual Report if they are not available by the date required above for the filing of the Annual Report.

An Annual Report shall be provided at least annually notwithstanding any fiscal year longer than 12 calendar months. The Issuer’s fiscal year is currently effective from July 1 to the immediately succeeding June 30 of the following year. The Issuer will promptly notify the Municipal Securities Rulemaking Board and the Fiscal Agent and the Dissemination Agent of a change in the fiscal year dates.

(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the Issuer shall provide the Annual Report to the Dissemination Agent and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent). If by fifteen (15) Business Days prior to such date the Fiscal Agent has not received a copy of the Annual Report, the Fiscal Agent shall notify the Issuer and the Dissemination Agent of such failure to receive the report. The Issuer shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent and Fiscal Agent may conclusively rely upon such certification of the Issuer and shall have no duty or obligation to review such Annual Report.

(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB, in substantially the form attached as Exhibit A.

(d) The Dissemination Agent shall:

(i) provide the Annual Report received by it to the MSRB, as provided herein; and

(ii) promptly after receipt of the Annual Report, file a report with the Issuer and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided to the MSRB.

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SECTION 4. Content of Annual Report. The Issuer’s Annual Report shall contain or include by reference:

(a) Financial Statements. The audited financial statements of the Issuer for the most recent fiscal year of the Issuer then ended. If the Issuer prepares audited financial statements and if the audited financial statements are not available by the time the Annual Report is required to be filed, the Annual Report shall contain any unaudited financial statements of the Issuer in a format similar to the audited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. Audited financial statements of the Issuer shall be audited by such auditor as shall then be required or permitted by State law or the Fiscal Agent Agreement. Audited financial statements, if prepared by the Issuer, shall be prepared in accordance with generally accepted accounting principles as prescribed for governmental units by the Governmental Accounting Standards Board; provided, however, that the Issuer may from time to time, if required by federal or state legal requirements, modify the basis upon which its financial statements are prepared. In the event that the Issuer shall modify the basis upon which its financial statements are prepared, the Issuer shall provide a notice of such modification to the MSRB, including a reference to the specific federal or state law or regulation specifically describing the legal requirements for the change in accounting basis.

(b) Financial and Operating Data. The Annual Report shall contain or incorporate by reference the following information:

(i) the principal amount of 2010 Bonds outstanding as of the September 2 preceding the filing of the Annual Report;

(ii) the balance in each fund under the Fiscal Agent Agreement as of the September 2 preceding the filing of the Annual Report;

(iii) an update on the status of construction of the public improvements to be constructed with the proceeds of the 2010 Bonds, which shall include an update of Table 1 in the Official Statement;

(iv) any changes to the Rate and Method approved or submitted to the qualified electors for approval prior to the filing of the Annual Report and a description of any Zone 2 property which has been released under the Rate and Method and any parcels for which the Special Taxes have been prepaid in the Fiscal Year for which the Annual Report is being prepared;

(v) an update of Table 5 in the Official Statement based upon the most recent Special Tax levy preceding the date of the Annual Report and on the assessed values of property for the current fiscal year;

(vi) an update of Table 2 in the Official Statement, including a list of all taxpayers within the District which own property in the District upon which 5% or more of the total Special Taxes for the current fiscal year have been levied, and a statement as to whether any of such taxpayers is delinquent in the payment of Special Taxes;

(vii) any event known to the Issuer which reduces the number of square feet of commercial and industrial development permitted to be constructed within the District or which results in a moratorium on future building within the District;

(viii) the amount of Special Taxes levied in the preceding fiscal year, and the percentage delinquent for such fiscal year and the status of any foreclosure actions being pursued by the Issuer with respect to delinquent Special Taxes; and

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(ix) any information not already included under (i) through (viii) above that the Issuer is required to file in its annual report to the California Debt and Investment Advisory Commission pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended.

(c) Any or all of the items listed in (a) or (b) above may be included by specific reference to other documents, including official statements of debt issues of the Issuer or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, 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, the Issuer shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2010 Bonds, if material:

(1) principal and interest payment delinquencies.

(2) an event of default under the Fiscal Agent Agreement other than as described in (1) above.

(3) unscheduled draws on the Reserve Fund reflecting financial difficulties.

(4) unscheduled draws on any credit enhancements securing the 2010 Bonds reflecting financial difficulties.

(5) substitution of credit or liquidity providers or any failure by such providers to perform.

(6) adverse tax opinions or events adversely affecting the Tax-exempt status of the 2010 Bonds.

(7) modifications to the rights of Bond Owners.

(8) unscheduled redemption of any 2010 Bond.

(9) defeasances.

(10) any release, substitution, or sale of property securing repayment of the 2010 Bonds.

(11) rating changes.

(b) Whenever the Issuer obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent or otherwise, the Issuer shall as soon as possible determine if such event would be material under applicable federal securities laws. The Fiscal Agent shall have no responsibility to determine the materiality of any of the Listed Events.

(c) If the Issuer has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Issuer shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (e).

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(d) If in response to a request under subsection (b), the Issuer determines that the Listed Event would not be material under applicable federal securities laws, the Issuer shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (e).

(e) If the Dissemination Agent has been instructed by the Issuer to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected 2010 Bonds pursuant to the Fiscal Agent Agreement.

(f) The Issuer hereby agrees that the undertaking set forth in this Disclosure Agreement is the responsibility of the Issuer and that the Fiscal Agent or the Dissemination Agent shall not be responsible for determining whether the Issuer’s instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule.

SECTION 6. Termination of Reporting Obligation. The obligation of the Issuer, the Fiscal Agent and the Dissemination Agent under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2010 Bonds. If such termination occurs prior to the final maturity of the 2010 Bonds, the Issuer shall give notice of such termination in the same manner as for a Listed Event under Section 5.

SECTION 7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. If at any time there is not any other designated Dissemination Agent, the Fiscal Agent shall be the Dissemination Agent. The Dissemination Agent may resign by providing (i) thirty days written notice to the Issuer and the Fiscal Agent and (ii) upon appointment of a new Dissemination Agent hereunder.

SECTION 8. Amendment. (a) This Disclosure Agreement may be amended, by written agreement of the parties, without the consent of the Owners, if all of the following conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thereof, or a change in the identity, nature or status of the Issuer or the type of business conducted thereby, (2) this Disclosure Agreement as so amended would have complied with the requirements of the Rule as of the date of this Disclosure Agreement, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, (3) the Issuer shall have delivered to the Fiscal Agent an opinion of a nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the Issuer and the Fiscal Agent, to the same effect as set forth in clause (2) above, (4) the Issuer shall have delivered to the Dissemination Agent an opinion of nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the Issuer, to the effect that the amendment does not materially impair the interests of the Owners or Beneficial Owners, and (5) the Issuer shall have delivered copies of such opinion and amendment to the MSRB.

(b) This Disclosure Agreement may be amended, by written agreement of the parties, upon obtaining consent of Owners in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of the Owners of the 2010 Bonds, provided that the conditions set forth in Section 8(a)(1), (2) and (3) have been satisfied.

(c) To the extent any amendment to this Disclosure Agreement results in a change in the type of financial information or operating data provided pursuant to this Disclosure Agreement, the first Annual Report provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change.

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(d) If an amendment is made to the basis on which financial statements are prepared, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Such comparison shall include a quantitative and, to the extent reasonably feasible, qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information.

(e) Neither the Fiscal Agent nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases their respective duties or obligations hereunder.

SECTION 9. 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 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 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 Report or notice if occurrence of a Listed Event.

The Issuer acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Issuer, and that under some circumstances compliance with this Disclosure Agreement, without additional disclosures or other action, may not fully discharge all duties and obligations of the Issuer under such laws.

SECTION 10. Default. In the event of a failure of the Issuer or the Dissemination Agent to comply with any provision of this Disclosure Agreement, any Owner or Beneficial Owner of the 2010 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Issuer to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Issuer or the Fiscal Agent or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Agent. Article VII of the Fiscal Agent Agreement is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Dissemination Agent and the Fiscal Agent shall be entitled to the same protections, limitations from liability and indemnification hereunder as are afforded the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Issuer agrees to indemnify and save the Dissemination Agent and the Fiscal Agent and their respective officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their 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 or the Fiscal Agent’s respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Issuer for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Fiscal Agent shall have no duty or obligation to review any information provided to them hereunder. The obligations of the Issuer under this Section shall survive resignation or removal of the Dissemination Agent and Fiscal Agent and payment of the 2010 Bonds. No person shall have any right to commence any action against the Fiscal Agent or the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement. The Dissemination Agent and the Fiscal Agent shall not be liable under any circumstances for monetary damages to any person for any breach under this

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Disclosure Agreement. Any company succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act.

SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the 2010 Bonds, and shall create no rights in any other person or entity.

SECTION 13. Notices. Notices should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing.

Disclosure Representative: Tejon Ranch Public Facilities Financing Authority c/o Tejon Ranch Company 4436 Lebec Road Lebec, California 93243 Attn: Executive Director

Dissemination Agent: The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, California 90017 Attn: Corporate Trust

Fiscal Agent: The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, California 90017 Attn: Corporate Trust

Participating Underwriter: Stone & Youngberg LLC 515 South Figueroa Street, Suite 1060 Los Angeles, California 90071 Attn: Municipal Bond Division

SECTION 14. 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.

TEJON RANCH PUBLIC FACILITIES FINANCING AUTHORITY

By: Executive Director

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Fiscal Agent and Dissemination Agent

By: Authorized Officer

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EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Tejon Ranch Public Facilities Financing Authority for and on behalf of Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements — East)

Name of Bond Issue: $12,670,000 Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements — East) Special Tax Bonds, Series 2010-A

Date of Issuance: August 10, 2010

NOTICE IS HEREBY GIVEN that the Tejon Ranch Public Facilities Authority has not provided an Annual Report with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Agreement of the Authority, dated as of August 1, 2010, by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as fiscal agent and dissemination agent. [The Authority anticipates that the Annual Report will be filed by ______.]

Dated:

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

cc: Tejon Ranch Public Facilities Financing Authority

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APPENDIX F

CONTINUING DISCLOSURE AGREEMENT OF TEJON RANCHCORP

This Continuing Disclosure Agreement of Tejon Ranchcorp (the “Disclosure Agreement”) dated as of August 1, 2010 is executed and delivered by the Tejon Ranchcorp, a California corporation (the “Landowner”), and The Bank of New York Mellon Trust Company, N.A., as fiscal agent (the “Fiscal Agent”) and as dissemination agent (the “Dissemination Agent”), in connection with the execution and delivery by the Tejon Ranch Public Facilities Financing Authority (the “Authority”) of $12,670,000 aggregate principal amount of its Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvement) Special Tax Bonds, Series 2010-A (the “2010 Bonds”). The 2010 Bonds are being executed and delivered pursuant to a Fiscal Agent Agreement, dated as of August 1, 2010, by and between the Authority for and on behalf of the District and the Fiscal Agent (the “Fiscal Agent Agreement”). The Landowner covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Landowner for the benefit of the Bondowners and Beneficial Owners and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Pursuant to this Disclosure Agreement, the Landowner agrees to provide the information required to be provided by the Landowner under the Rule at the time and in the manner required by the Rule. This Disclosure Agreement does not address additional undertakings, if any, by or with respect to persons other than the Landowner who may be considered obligated persons or purposes of the Rule, which additional undertakings, if any, may be required for the Participating Underwriter to comply with the Rule.

“Affiliate” shall mean, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially or as an agent, guardian or other fiduciary, twenty-five percent (25%) or more of any class of Equity Securities of such Person, (b) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person or (c) each of such Person’s executive officers, directors, joint venturers and general partners; provided, however, that in no case shall the Authority be deemed to be an Affiliate of the Landowner for purposes of this Disclosure Agreement. For the purpose of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. Tejon Industrial Corp. is an Affiliate of Tejon Ranchcorp for purposes of this Disclosure Agreement.

“Annual Report” shall mean any Annual Report provided by the Landowner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Beneficial Owner” shall mean any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of the 2010 Bonds (including persons holding 2010 Bonds through nominees, depositories or other intermediaries).

“Disclosure Representative” shall mean the Chief Financial Officer or his designee acting on behalf of the Landowner, or such other officer or employee as the Landowner shall designate in writing to the Dissemination Agent from time to time.

“Dissemination Agent” shall mean The Bank of New York Mellon Trust Company, N.A., acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by

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the Landowner and which has filed with the Landowner and the Authority a written acceptance of such designation.

“District” shall mean Tejon Ranch Public Facilities Financing Authority, Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements — East).

“Equity Securities” of any Person shall mean (a) all common stock, preferred stock, participations, shares, general partnership interests or other equity interests in and of such person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing.

“Fiscal Year” shall mean the period beginning on July 1 of each year and ending on the next succeeding June 30.

“Government Authority” shall mean any national, state or local government, any political subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Listed Event” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

“Official Statement” shall mean the Official Statement, dated July 22, 2010, relating to the 2010 Bonds.

“Parity Bonds” shall mean bonds of the District that are secured on a parity with the 2010 Bonds.

“Person” shall mean any natural person, corporation, partnership, firm, association, Government Authority or any other Person whether acting in an individual fiduciary, or other capacity.

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

“Semiannual Report” shall mean any report to be provided by the Landowner on or prior to December 15 of each year pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“State” shall mean the State of California.

“Tejon Ranch Co.” shall mean Tejon Ranch Co., a Delaware corporation, and its successors and assigns.

SECTION 3. Provision of Annual Reports.

(a) The Landowner shall, or shall cause the Dissemination Agent to, not later than June 15 of each year, commencing June 15, 2011, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement.

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If , in any year, June 15 falls on a Saturday, Sunday or a holiday on which the Dissemination Agent’s offices are closed for business, such deadline shall be extended to the next following day on which the Dissemination Agent’s offices are open for business. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement, provided that the audited financial statements, if any, of the Landowner may be submitted separately from the balance of the Annual Report and later than the date required for the filing of the Annual Report if they are not available by that date. In addition, until such time as the infrastructure to be constructed within the District with the proceeds of the 2010 Bonds and any Parity Bonds is complete, the Landowner shall, or shall cause the Dissemination Agent to, not later than December 15 of each year, commencing December 15, 2010, provide to the MSRB, in an electronic format as prescribed by the MSRB, a Semiannual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. If , in any year, December 15 falls on a Saturday, Sunday or a holiday on which the Dissemination Agent’s offices are closed for business, such deadline shall be extended to the next following day on which the Dissemination Agent’s offices are open for business.

(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report and Semiannual Report to the MSRB, the Landowner shall provide the Annual Report or the Semiannual Report, as applicable, to the Dissemination Agent or shall provide notification to the Dissemination Agent that the Landowner is preparing, or causing to be prepared, the Annual Report or the Semiannual Report, as applicable, and the date which the Annual Report or the Semiannual Report, as applicable, is expected to be available. If by such date, the Dissemination Agent has not received a copy of the Annual Report or the Semiannual Report, as applicable, or notification as described in the preceding sentence, the Dissemination Agent shall notify the Landowner of such failure to receive the report.

(c) If the Dissemination Agent is unable to provide an Annual Report or Semiannual Report to the MSRB by the date required in subsection (a) or to verify that an Annual Report or Semiannual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A.

(d) The Landowner shall, or shall cause the Dissemination Agent to:

(i) provide the Annual Report received by it to the MSRB, as provided herein; and

(ii) promptly after receipt of the Annual Report, file a report with the Landowner and the Authority certifying that the Annual Report or the Semiannual Report, as applicable, has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided.

SECTION 4. Content of Annual Report and Semiannual Report.

(a) The Landowner’s Annual Report and Semiannual Report shall contain or include by reference the information which is available as of the date of the filing of the Annual Report or the Semiannual Report, as applicable, relating to the following:

1. An update to the section in the Official Statement entitled “THE DEVELOPMENT AND PROPERTY OWNERSHIP,” including an update of Table 6 therein and a discussion of the sources of funds to finance development of property owned by the Landowner and its Affiliates within the District, and whether any material defaults exist under any loan arrangement related to such financing.

2. A summary of development activity within the District, including: (i) the number of parcels for which building permits have been issued and the square footage of improvements listed thereon, and (ii) the number of parcels for which certificates of occupancy have been issued. In

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addition, as to property owned by the Landowner and its Affiliates, such summary shall include: (i) the number of parcels for which land sales have closed, including the amount of land in each transaction, the sales price, the name of the purchaser of the land and a statement as to whether, to the knowledge of the Landowner, the purchaser is purchasing for its own use or purchasing with the intent to build to sell or lease to other end users, and (ii) for completed buildings retained by the Landowner and its Affiliates for lease, the total square footage available to lease and the names of the tenants and the square footage leased by each tenant.

3. Status of any major governmentally-imposed preconditions for commencement or continuation of development of the parcels owned by the Landowner or its Affiliates within the District.

4. Status of completion of the development being undertaken by the Landowner and its Affiliates and any major legislative, administrative and judicial challenges known to the Landowner to or affecting the construction of the development or the time for construction of any public or private improvements to be made by the Landowner or any Affiliate within the District other than the public improvements described in (5) below (the “Landowner Improvements”).

5. Status of completion of the development being undertaken by the Landowner and its Affiliates and any major legislative, administrative and judicial challenges known to the Landowner to or affecting the construction of the public improvements to be constructed with proceeds of the 2010 Bonds (the “District Improvements”).

6. Any significant amendments to land use entitlements with respect to parcels owned by the Landowner or its Affiliates within the District, or that are otherwise known to the Landowner, including an update of the total acres subject to the levy of Special Taxes if the amendment affects the total number of acres subject to the levy of the Special Taxes.

7. Status of Special Tax payments on all parcels owned by the Landowner and its Affiliates.

8. In the Annual Report only, the audited financial statements of Tejon Ranch Co. for its most recently completed fiscal year (which currently ends on each December 31), prepared in accordance with generally accepted accounting principles as promulgated to apply to private entities from time to time by the Financial Accounting Standards Board. If Tejon Ranch Co. has audited financial statements prepared and the audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements for the preceding year, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) In the event that as a result of subsequent amendment of the Rule, interpretive releases, no- action letters or other official guidance from the Securities and Exchange Commission or its staff, the information required to satisfy the Rule shall differ from the information described above, the Landowner shall provide to the Dissemination Agent such other information as is available to the Landowner and not otherwise readily available to the Authority.

(c) Any and all of the items listed above may be included by specific reference to other documents, including official statements of debt issues which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Landowner shall clearly identify each such other document so included by reference.

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SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Landowner shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2010 Bonds, if material under clauses (b) and (c):

1. Failure to pay any real property taxes, special taxes or assessments levied within the District on a parcel owned by the Landowner or any Affiliate;

2. Damage to or destruction of any of the Landowner Improvements or the District Improvements which has a material adverse effect on the value of the parcels owned by the Landowner or any Affiliate;

3. Material default by the Landowner or any Affiliate on any loan with respect to the construction or permanent financing of the Landowner Improvements;

4. Material default by the Landowner or any Affiliate on any loan secured by property within the District owned by the Landowner or any Affiliate;

5. Payment default by the Landowner or any Affiliate on any loan of the Landowner or any Affiliate (whether or not such loan is secured by property within the District) which is beyond any applicable cure period in such loan;

6. The filing of any proceedings with respect to the Landowner or any Affiliate, in which the Landowner or any Affiliate, may be adjudicated as bankrupt or discharged from any or all of their respective debts or obligations or granted an extension of time to pay debts or a reorganization or readjustment of debts; and

7. The filing of any lawsuit against the Landowner or any of its Affiliates which, in the reasonable judgment of the Landowner, will adversely affect the completion of the District Improvements, the Landowner Improvements or the development of parcels owned by the Landowner or its Affiliates within the District, or litigation which if decided against the Landowner, or any of its Affiliates, in the reasonable judgment of the Landowner, would materially adversely affect the financial condition of the Landowner or its Affiliates.

(b) Whenever the Landowner obtains knowledge of the occurrence of a Listed Event, the Landowner shall as soon as possible determine if such event would be material under applicable federal securities laws. The Fiscal Agent shall have no responsibility to determine the materiality of any of the Listed Events.

(c) If the Landowner determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Landowner shall promptly file a notice of such occurrence with the Dissemination Agent which shall then distribute such notice to the MSRB, with a copy to the Authority.

(d) The Landowner shall also give notice of the occurrence of any of the following events (to the extent the Landowner has actual knowledge thereof): (i) the date of release of any Zone 2 Property and the acreage released, and (ii) the date of issuance and principal amount of any Parity Bonds.

SECTION 6. Termination of Reporting Obligation. The Landowner’s obligations under this Disclosure Agreement shall terminate upon the following events:

(a) the legal defeasance, prior redemption or payment in full of all of the 2010 Bonds,

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(b) if as of the date for filing the Annual Report the Landowner and its Affiliates own property within the District which is responsible for less than twenty percent (20%) of the Special Taxes levied in the Fiscal Year for which the Annual Report is being prepared, and the Landowner Improvements and any District Improvements to be constructed by the Landowner have been completed,

(d) upon the delivery by the Landowner to the Authority of an opinion of nationally recognized bond counsel to the effect that the information required by this Disclosure Agreement is no longer required. Such opinion shall be based on information publicly provided by the Securities and Exchange Commission or a private letter ruling obtained by the Landowner or a private letter ruling obtained by a similar entity to the Landowner. If such termination occurs prior to the final maturity of the 2010 Bonds, the Landowner shall give notice of such termination in the same manner as for an Annual Report hereunder.

SECTION 7. Dissemination Agent. The Landowner may from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. If the Dissemination Agent is not the Landowner, the Dissemination Agent shall not be responsible in any manner for the form or content of any notice or report prepared by the Landowner pursuant to this Disclosure Agreement. The Dissemination Agent may resign by providing (i) thirty days written notice to the Landowner and the Fiscal Agent and (ii) upon appointment of a new Dissemination Agent hereunder.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Landowner may amend this Disclosure Agreement, 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, 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 2010 Bonds, or the type of business conducted;

(b) This Disclosure Agreement, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel addressed to the Authority, the Fiscal Agent and the Participating Underwriter, have complied with the requirements of the Rule at the time of the original issuance of the 2010 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances;

(c) The amendment or waiver either (i) is approved by the Bondowners in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Bondowners, or (ii) does not, in the opinion of nationally recognized bond counsel addressed to the Authority and the Fiscal Agent, materially impair the interests of the Bondowners or Beneficial Owners of the 2010 Bonds; and

(d) The Landowner, or the Dissemination Agent, shall have delivered copies of the amendment and any opinions delivered under (b) and (c) above.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Landowner shall describe such amendment in the next Annual Report or Semiannual 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 Landowner. 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 to the MSRB, and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and

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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 principles. The comparison of financial data described in clause (ii) of the preceding sentence shall be provided at the time financial statements, if any, are filed under Section 4(g) hereof.

SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Landowner from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Landowner chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Landowner shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

The Landowner acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Landowner, and that under some circumstances compliance with this Disclosure Agreement, without additional disclosures or other action, may not fully discharge all duties and obligations of the Landowner under such laws.

SECTION 10. Default. In the event of a failure of the Landowner to comply with any provision of this Disclosure Agreement, any Participating Underwriter or any Bondowner or Beneficial Owner of the 2010 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Landowner or the Dissemination Agent to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Landowner to comply with this Disclosure Agreement shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement and the Landowner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of theirs 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. The Landowner agrees to pay the Dissemination Agent a reasonable annual fee for the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Landowner, the Participating Underwriter, Bondowners or Beneficial Owners or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon a direction from the Landowner or an opinion of nationally recognized bond counsel. The obligations of the Landowner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2010 Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement. The Dissemination Agent may conclusively rely upon the Annual Report provided to it by the Landowner as constituting the Annual Report required of the Landowner in accordance with this Disclosure Agreement and shall have no duty or obligation to review such Annual Report. The Dissemination Agent shall have no duty to prepare the Annual Report nor shall the Dissemination Agent be responsible for filing any Annual Report not provided to it by the Landowner in a timely manner in a form suitable for filing with the MSRB. Any company succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act.

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The Dissemination Agent will not, without the Landowner’s prior written consent, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification may be sought hereunder unless such settlement, compromise or consent includes an unconditional release of the Landowner and its controlling persons from all liability arising out of such claim, action or proceedings. If a claim, action or proceeding is settled with the consent of the Landowner or if there is a final judgment (other than a stipulated final judgment without the approval of the Landowner) for the plaintiff in any such claim, action or proceeding, with or without the consent of the Landowner, the Landowner agrees to indemnify and hold harmless the Dissemination Agent to the extent described herein.

SECTION 12. Reporting Obligation of Landowner’s Transferees; Covenant Running With Land. The Landowner shall, in connection with any sale or transfer of ownership of land within the District which will result in the transferee (which term shall include any successors and assigns of the Landowner) becoming responsible (i) for the payment of more than 20 percent of the Special Taxes levied on property within the District in the Fiscal Year following such transfer and (ii) for the construction and/or installation of some or all of the improvements needed to permit parcels to be sold and developed, cause such transferee to enter into a disclosure agreement with terms substantially similar to the terms of this Disclosure Agreement, whereby such transferee agrees to be bound by the obligations of the Landowner under this Disclosure Agreement as an additional obligated party. Additionally, the Landowner shall, in connection with any sale or transfer of ownership of land within the District which will result in the transferee becoming responsible for the payment of 20 percent or more of the Special Taxes levied on property within the District in the Fiscal Year following such transfer, but where the transferee is not responsible for the construction or installation of some or all of the infrastructure needed to construct improvements on such land, cause such transferee to enter into a disclosure agreement with terms substantially similar to the terms of this Disclosure Agreement, whereby such transferee agrees to provide its audited financial statements, if any, and the information of the type described in Section 4(a)(2), (3), (6) and (7) of this Disclosure Agreement; provided that such transferee’s obligations under such disclosure agreement shall terminate upon the sold or transferred land being improved with structures, or the land owned by the transferee becoming responsible for the payment of less than 20 percent of the annual Special Taxes. The Landowner agrees that its obligations pursuant to this Disclosure Agreement shall be a covenant running with the land owned by the Landowner within the District such that its obligations pursuant to this Disclosure Agreement shall be binding upon all such transferees described above as though the obligations of the Landowner and such transferees were expressly set forth in the grant deeds whereby such transferees obtain title to or an estate in such land from the Landowner as provided in Sections 1460 through 1470 of the Civil Code of the State of California. A memorandum regarding the Landowner’s obligations under this Disclosure Agreement and of the covenant running with the land created hereby may be recorded in the Official Records in the office of the County Recorder of the County of Kern, California.

SECTION 13. Landowner as Independent Contractor. In performing under this Disclosure Agreement, it is understood that the Landowner is an independent contractor and not an agent of the Authority.

SECTION 14. Notices. Notices should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing.

Disclosure Representative: Tejon Ranch Public Facilities Financing Authority c/o Tejon Ranch Company 4436 Lebec Road Lebec, California 93243 Attn: Executive Director

Dissemination Agent: The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, California 90017 Attn: Corporate Trust

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Fiscal Agent: The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, California 90017 Attn: Corporate Trust

Participating Underwriter: Stone & Youngberg LLC 515 South Figueroa Street, Suite 1060 Los Angeles, California 90071 Attn: Municipal Bond Division

SECTION 15. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Landowner, the Authority, the Dissemination Agent, the Fiscal Agent, the Participating Underwriter and Bondowners and Beneficial Owners from time to time of the 2010 Bonds, and shall create no rights in any other person or entity.

TEJON RANCHCORP, a California corporation

By: Authorized Officer

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Dissemination Agent and Fiscal Agent

By: Authorized Officer

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EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of the Issuer: Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements — East)

Date of Issuance: August 10, 2010

NOTICE IS HEREBY GIVEN that Tejon Ranchcorp has not provided an [Annual Report or Semiannual Report] with respect to the above-named 2010 Bonds as required by the Continuing Disclosure Agreement. [The Landowner anticipates that such [Annual Report or Semiannual Report] will be filed not later than ______, ____.]

Dated: ______

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

cc: Tejon Ranch Public Facilities Financing Authority

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APPENDIX G

FORM OF OPINION OF BOND COUNSEL

August __, 2010

Board of Directors Tejon Ranch Public Facilities Financing Authority 4436 Lebec Road Lebec, California 93243

OPINION: $12,670,000 Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements - East) Special Tax Bonds, Series 2010-A

Members of the Board of Directors:

We have acted as bond counsel in connection with the issuance by the Tejon Ranch Public Facilities Financing Authority (the “Authority”) of its $12,670,000 Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements – East) Special Tax Bonds, Series 2010-A (the “Bonds”) pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq., of the California Government Code) (the “Act”), a Fiscal Agent Agreement, dated as of August 1, 2010 (the “Fiscal Agent Agreement”), by and between the Authority, for and on behalf of Tejon Ranch Public Facilities Financing Authority Community Facilities District No. 2008-1 (Tejon Industrial Complex Public Improvements – East) (the “District”), and The Bank of New York Mellon Trust Company, N.A., as fiscal agent, and Resolution No. 10-01 adopted by the Authority on June 22, 2010 (the “Resolution”).

In connection with this opinion, we have examined the law and such certified proceedings and other documents as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Authority contained in the Resolution and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

Based upon the foregoing, we are of the opinion, under existing law, as follows:

1. The Authority is duly created and validly existing as a joint exercise of powers authority under the laws of the State of California, with the power to adopt the Resolution, enter into the Fiscal Agent Agreement and perform the agreements on its part contained therein and issue the Bonds.

2. The Fiscal Agent Agreement has been duly entered into by the Authority and constitutes a valid and binding obligation of the Authority enforceable upon the Authority in accordance with its terms.

3. Pursuant to the Act, the Fiscal Agent Agreement creates a valid lien on the funds pledged by the Fiscal Agent Agreement for the security of the Bonds, on a parity with the pledge thereof for the security of any Parity Bonds that may be issued under, and as such term is defined in, the Fiscal Agent Agreement; except that the lien on the Letter of Credit Account established under the Fiscal Agent Agreement (and any Letter of Credit held for such account) is solely for the benefit of the Bonds and not for the benefit of any Parity Bonds.

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4. The Bonds have been duly authorized, executed and delivered by the Authority and are valid and binding limited obligations of the Authority for the District, payable solely from the sources provided therefor in the Fiscal Agent Agreement.

5. Subject to the Authority’s compliance with certain covenants interest on the Bonds (i) is excludable from gross income of the owners thereof for federal income tax purposes, (ii) is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Internal Revenue Code of 1986, as amended (the “Code”), and (iii) is not taken into account in computing adjusted current earnings, which is used as an adjustment in determining the federal alternative minimum tax for certain corporations. Failure by the Authority to comply with certain of such covenants could cause interest on the Bonds to be includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds.

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

Ownership of the Bonds may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Bonds.

The rights of the owners of the Bonds and the enforceability of the Bonds, the Resolution and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity.

In rendering this opinion, we have relied upon certifications of the Authority and others with respect to certain material facts. Our opinion represents our legal judgment based upon such review of the law and facts that we deem relevant to render our opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

Respectfully submitted,

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APPENDIX H

BOOK-ENTRY SYSTEM

The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2010 Bonds, payment of principal, premium, if any, and interest on the 2010 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2010 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2010 Bonds (the “2010 Bonds”). The 2010 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 2010 Bond certificate will be issued for each maturity of the 2010 Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of 2010 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2010 Bonds on DTC’s records. The ownership interest of each actual purchaser of each 2010 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 2010 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 2010 Bonds, except in the event that use of the book-entry system for the 2010 Bonds is discontinued.

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To facilitate subsequent transfers, all 2010 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 2010 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 2010 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such 2010 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 2010 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2010 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2010 Bond documents. For example, Beneficial Owners of 2010 Bonds may wish to ascertain that the nominee holding the 2010 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the 2010 Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2010 Bonds unless authorized by a Direct Participant in accordance with DTC’s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts 2010 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, redemption price and interest payments on the 2010 Bonds will be made to Cede& Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Fiscal Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Fiscal Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Fiscal Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the 2010 Bonds at any time by giving reasonable notice to the Authority or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, 2010 Bond certificates are required to be printed and delivered.

The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, 2010 Bond certificates will be printed and delivered.

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