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HomeMy WebLinkAboutRES 486 Draft 01 2004-2006 COUNTY OF HAWAII STATE OF HAWAII RESOLUTION NO. A RESOLUTION DECLARING THE INTENTION OF THE COUNTY OF HAWAII TO ESTABLISH A COMMUNITY FACILITIES DISTRICT, DESIGNATED AS COMMUNITY FACILITIES DISTRICT NO. 1 -THE VILLAGES OF AINA LE`A, TO AUTHORIZE FINANCING FOR PRESCRIBED SPECIAL IMPROVEMENTS, TO AUTHORIZE LEVY OF A SPECIAL TAX, AND TO AUTHORIZE ISSUANCE OF BONDS SECURED BY PROCEEDS OF THE SPECIAL TAX WHEREAS, in response to a petition (the "Petition") submitted to the Council of the County of Hawaii (the "Council") by Bridge Aina Le`a, LLC, a Hawaii limited liability company (the "Developer"), as the owner of the land shown on a map (the "Boundary Map") attached to the Petition, the Council proposes to establish a community facilities district (the "Proposed District"), including four (4) improvement areas (each, an "Improvement Area"), within the County of Hawaii (the "County") under the terms of Chapter 32 of the Hawaii County Code 1983 (2005 Edition, as amended) ("Chapter 32"), with the boundaries of the Proposed District to be as shown on the Boundary Map, which is on file with the Director of Finance of the County; and WHEREAS, prior to submission to the County Clerk of the Petition, the Developer has deposited with the County the sum of $75,000, representing an initial deposit pursuant to a Deposit and Reimbursement Agreement (the "Deposit Agreement"), between the County and the Developer, which amount is to be supplemented by additional deposits from the Developer, if and when necessary, all as provided by the Deposit Agreement; and WHEREAS, the Council hereby determines that the arrangement established by the Deposit Agreement is sufficient to compensate the County for its costs of proceedings to establish the Proposed District; and WHEREAS, in response to the Petition, the Council intends to provide for the issuance of one or more series of bonds (the "Special Tax Bonds") pursuant to Article 6 of Chapter 32 (all references hereafter in this resolution to Articles and Sections shall be deemed to be references to the corresponding Article or Section as set forth in Chapter 32 unless indicated otherwise) in an aggregate principal amount not to exceed $100,000,000 to finance (i) all or a portion of the costs of the special improvements (the "Facilities") described in Exhibit A attached hereto, and (ii) all or a portion of certain incidental expenses (the "Incidental Expenses"), as identified in Exhibit B attached hereto, which Exhibits are, by this reference, incorporated herein and made a part hereof; and WHEREAS, the Special Tax Bonds shall be secured by the special taxes to be levied upon taxable property in the Proposed District, as herein provided; and WHEREAS, the Council further intends, except where funds are otherwise available, to provide for the annual levy of a special tax upon the taxable parcels within the Proposed District (the "Special Taxes") sufficient in amount to pay for the costs of the Facilities and Incidental Expenses, including the debt service on any Special Tax Bonds issued to finance or refinance any Facilities and Incidental Expenses, said Special Taxes to be calculated in accordance with the rate and method of apportionment for the Improvement Areas (the "Rate and Method of Apportionment") set forth in Exhibits C-1 through CC4, attached hereto and by this reference incorporated herein and made a part hereof; and WHEREAS, the Council intends to establish the Proposed District for a term not to exceed fifty (50) years commencing with the Fiscal Year ending June 30, 2008, subject to the further provisions specified herein; and WHEREAS, Section 32-20 provides that proceedings for the establishment of a community facilities district pursuant to Chapter 32 shall be instituted by the adoption of a resolution of intention containing the matters set forth in said Section 32-20, as provided hereafter in this resolution. NOW, THEREFORE, BE IT RESOLVED by the Council of the County of Hawaii as follows: 1. The Council hereby finds and determines that the Petition satisfies the requirements of Chapter 32 pertaining thereto; that the Petition is signed by the owner of all of the land shown on the Boundary Map to be included within the Proposed District; and that the arrangement established by the Deposit Agreement, together with the actual initial deposit of $75,000, is sufficient to compensate the County for the estimated costs of the County for the proceedings to establish the Proposed District and to issue the Special Tax Bonds. 2. The Proposed District and the Improvement Areas therein are proposed to be established under the terms of Chapter 32. The Proposed District shall be named the Community Facilities District No. 1 -The Villages of Aina Le`a. The Improvement Areas shall be named the Community Facilities District No. 1 -The Villages of Aina Le`a, Improvement Area No. 1 through 4, respectively. 3. The Council hereby establishes the initial boundary of the Proposed District, including the respective boundaries of the Improvement Areas therein, as shown on the Boundary Map on file with the Director of Finance of the County. 4. The County intends to issue the Special Tax Bonds, in an aggregate principal amount not to exceed a maximum of $100,000,000, exclusive of refunding bonds (if any), to finance all or a portion of the authorized Facilities and Incidental Expenses. 2 5. The Facilities proposed to be financed, in whole or in part, by proceeds of the Special Tax Bonds and/or the Special Taxes nre set forth in Exhibit A. Proceeds of the Special Tax Bonds and/or Special Taxes for any given Improvement Area may be utilized to finance all or a portion of any of the Facilities set forth in Exhibit A irrespective of the location of such facilities either within or outside the boundaries of such Improvement Area. 6. The Incidental Expenses proposed to be incurred and authorized to be paid, in whole or in part, from the proceeds of the Special "fax Bonds and/or the Special Taxes aze set forth in Exhibit B. 7. Following establishment of the Proposed District, and except where funds are otherwise available, Special Taxes sufficient to pay for the costs of the Facilities and Incidental Expenses shall be annually levied within the Proposed District in accordance with the provisions of Article 5. The Rate and Method of Apportionment for the Special Taxes, as applicable to each Improvement Area, shall be as set forth in Exhibits C-1 through C-4 unless modified in accordance with Chapter 32 prior to establishment of the Proposed District. As authorized by Section 32-20(d), the Special Taxes for each Improvement Area may be prepaid and permanently satisfied upon the terms and conditions set forth in the Rate and Method of Apportionment applicable to such Improvement Area. 8. Advances of funds or contributions of work in kind from any lawful source, specifically including but not limited to the County or the Developer may be reimbursed from bond proceeds or from special tax revenr~e or both to the extent of the lesser of the value or cost of the contribution. 9. Pursuant to the terms and conditions of an Acquisition Agreement (the "Acquisition Agreement"), between the County and the Developer, the Facilities will be constructed by or at the direction of the Developer, and upon completion of construction of portions thereof to the satisfaction of the County or other entity which will become the owner thereof (the "Accepting Agency"), the Developer will be paid or reimbursed from available Special Tax Bond proceeds, if, as and when such proceeds become available to the County, for such portion of the Facilities, which will be subsequently transferred in due course to the Accepting Agency in accordance with the established procedures of such Accepting Agency, all in accordance with the terms, conditions and procedures set forth in the Acquisition Agreement. In addition, the Developer will be reimbursed for all amounts advanced by the Developer to the Accepting Agency with respect to Facilities to be constructed by the Accepting Agency in accordance with and subject to the terms, conditions and procedures set forth in the Acquisition Agreement. 10. The Petition has been filed by the sole owner of all of the land in the Proposed District, and there are no lessees for such land. Accordingly, pursuant to Section 32-24, the Council determines that it is unnecessary to conduct a public hearing or give notice of public hearing prior to the adoption of an ordinance of formation for the Proposed District. Pursuant to the Petition, the owner of the land within the Proposed District will conduct a public informational workshop and provide a report to the Council prior to the adoption by the Council of the ordinance of formation establishing the Proposed District. 3 11. The term of the Proposed District shall be fifty (50) years commencing with the Fiscal Year ending June 30, 2008; provided that the Proposed District shall not expire in any event until all bonds and other debt incurred pursuant to Chapter 32 and all incidental expenses related thereto that are payable from the Special Taxes have been fully paid or payment duly provided for. 12. The Council hereby directs the Director of Public Works of the County to study the Proposed District, to prepare the report required by Section 32-21 and to file the report with the County Clerk not later than sixty (60) days after the adoption of this Resolution; provided that the Director of Public Works may consult with other officials and departments of the County or the State in connection with the study and the report; and provided further that, if deemed necessary or desirable by the Director of Public Works, the study and report may be conducted and prepared by or with the assistance of an independent consultant under the direction of the Director of Public Works. The report shall include, but not be limited to, an estimate of the cost of providing the Facilities and Incidental Expenses. 13. This Resolution shall take effect immediately upon its adoption. Dated at Hilo ,Hawaii, this 3lstday of October ,2(106 . INTRODUCED BY: ` ItiU--- CO CIL MEMBER, COUNTY OF HAWAII COUNTY COUNCIL ROLL CALL VOTE County of Hawaii Avss NOES ABS Ex H110, H3Wa1 `1 ARAKAKI g Ii1GA X I hereby certify that the foregoing RESOLUTION was by I IOFFMANN g the vote indicated to the right hereof adopted by the COUNCIL of the HOLSCHUH County of Hawaii on October 31, 2006 X IKEDA X ISBELL X ATTEST: .IACOBSON X PILAGO ~ _ _ _ SAh'ARIK X Reference: _ C-1122/FC-349 COUNTY CLERK CHAIRMAN & PRESIDING OFFICER RESOLUTION NO. 486 f) _ 4 EXHIBIT A DESCRIPTION OF AJTHORIZED FACILITIES The Facilities to be financed for the Proposed District and for each Improvement Area therein shall include the following: Roads Water System Sewer System Solid Waste Facilities Electric and Telephone Systems Fair Share Contributions Park and Recreational Facilities Police and Fire Facilities Other County/Public Infrastructure A-1 EXHIBIT B DESCRIPTION OF AUTHORIZED INCIDENTAL EXPENSES It is anticipated that the following incidental expenses may be incurred in the proceedings for formation of the Proposed District, implementation of the authorized Facilities project and related bond financing and will be payable trom proceeds of the Special Tax Bonds or directly from the proceeds of the Special Taxes: Engineering, Architectural (Building and Landscape), Geotechnical and Environmental and Related, Miscellaneous Consulting services Survey, Staking and Contract Administration services Permits, Plan Check Fees, Entitlement Processing Fees and Expenses Special tax consultant services County staff review, oversight and administrative services Bond Counsel, Special Tax Counsel and Disclosure Counsel services Financial advisor services Special tax administrator services Appraiser/Market absorption consultant services Initial bond transfer agent, fiscal agent, registrar and paying agent services, and rebate calculation service set up charge Bond printing Official Statement printing and mailing Publishing, mailing and posting of notices Recording fees Underwriter's discount, fees and expenses Bond reserve fund Capitalized interest Governmental notification and tiling fees Credit enhancement costs Real estate acquisition costs Rating agency fees Other costs of bond issuance or special tax/district administration The expenses of certain recurring services pertaining to the Proposed District may be included in each annual special tax levy. These include: Trustee, bond transfer agent, registrar and paying agent services Rebate calculation services and periodic arbitrage rebate payments Special tax administrator services Other necessary consultant services incidental to the administration of the Proposed District Rating agency fccs Posting, collecting and enforcing payment of the special taxes, including but not limited to foreclosure attorneys' services Personnel and administrative services provided by County personnel B-1 Continuing disclosure services The foregoing enumeration is supplemented in its entirety by the items listed in the definition of "Administrative Expenses "set forth in the applicable Rate and Method of Apportionment, and shall not be regarded as exclusive but rather shall be deemed to include any other incidental expenses of a like nature which may be incurred from time to time with respect to the Proposed District. B-2 EXHIBIT C-1 RATE AND METHOD OF APPORTIONMENT FOR IMPROVEMENT AREA NO. 1 OF COMMUNITY FACILITIES DISTRICT NO. 1 - THE VILLAGES OF AINA LE`A A Special Tax as hereinafter defined shall be levied on all Tax Map Key parcels in Improvement Area No. 1 ("IA No. 1 of the Community Facilities District No. 1 -The Villages of Aina Le`a of the County of Hawaii ("CFD No. 1 and collected each Fiscal Year commencing in Fiscal Year 2007-08, in an amount determined by the CFD Administrator (as defined below) through the application of the procedures described below. All of the real property in IA No. 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 number of acres of land area of a TMK Parcel as shown on the applicable Tax Map, or if the land area is not shown on such Tax Map, the land azea shown on the applicable Final Map, parcel map, condominium plan, or other recorded pazcel map. If such maps are not available, the land area of the TMK Pazcel shall be calculated by the CFD Administrator. "Administrative Expenses" means the following actual or reasonably estimated costs related to the administration of IA No. 1: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the County or designee thereof or both); the costs of collecting the Special Taxes (whether by the County, through foreclosure proceedings, or otherwise); the costs of remitting the Special Taxes to the Trustee; the costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the County, IA No. 1 or any designee thereof of complying with azbitrage rebate requirements; the costs to the County, IA No. 1 or any designee thereof of complying with County, IA No. 1 or obligated persons disclosure requirements associated with applicable federal and state securities laws and of the Code; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regazding the Special Taxes; the costs of the County, IA No. 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 County's annual administration fees and third party expenses. Administrative Expenses shall also include amounts estimated or advanced by the County or IA No. 1 for any other administrative purposes of IA No. 1, including attorney's fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes. County of Hawaii /A No. ! ojCFD No. 1-The Vi[[ages of Aina Le'a Page 1 "Approved Property" means, for each Fiscal Year, all Taxable Property which is located within a Final Map that was recorded prior to January 1 of the prior Fiscal Year; provided, however, that Approved Property shall not include Developed Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property. "Assigned Special Tax" means the Special Tax for each Land Use Class of Developed Property, as determined in accordance with Section C.1.b below. "Backup Special Tax" means the Special Tax applicable to each TMK Parcel of Developed Property, as determined in accordance with Section C.1.c below. "Bonds" means any bonds or other debt (as defined in Section 32-16 of the Code), whether in one or more series, issued under the Code. "CFD Administrator" means an official of the County, or designee thereof, who is responsible for determining the Special Tax Requirement and providing for the levy and collection of the Special Taxes. "CFD No. 1" means the County of Hawaii Community Facilities District No. 1 -The Villages of Aina Le`a. "Clubhouse Property" means all TMK Parcels ofNon-Residential Property for which a building permit was issued for golf course clubhouse purposes. "Code" means the Community Facilities Districts Code (1994, Ord. No. 94-77, sec. 3), being Chapter 32 of the Hawaii County Code 1983 (2005 Edition, as amended). "Commercial Village Center Property" means all TMK Parcels of Non-Residential Property which is zoned CV (Village Commercial Districts) according to the Hawaii County Code Chapter 25, Article 5 and for which the building permit was issued for golf clubhouse, retail, or commercial purposes. "Council" means the Council of the County of Hawaii, acting as the legislative body of CFD No. 1. "County" means the County of Hawaii. "Developed Property" means, for each Fiscal Year, all Taxable Property for which a building permit for new construction was issued after January 1, 2006 and prior to March 1 of the prior Fiscal Year; provided, however, that Developed Property shall not include Taxable Property Owncr Association Property, Taxable Public Property, and Taxable Non- Taxable Zone Property. "Expected Special Tax" means the Special Tax for each Acre of Approved Property and Undeveloped Property, as determined in accordance with Section C.2 below. County ojHawai'i /A No. 1 ojCFD No. 1 -The Villages q(Aina Le'a Page 1 "Fiscal Year" means the period starting July 1 and ending on the following June 30. "Final Map" means a fina] map approved by the County pursuant to the Subdivision Control Code (Hawai`i County Code Chapter 23) that creates individual lots for which building permits may be issued or, in the case of a condominium project, the condominium property regime map recorded with the declaration of condominium property regime that creates the individual condominium units for which building permits may be issued. "IA No. 1" means Improvement Area No. 1 of CFD No. 1 as identified on the boundary map For CFD No. 1. "Indenture" 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. "Land Use Class" means any of the classes listed in Table 1. "Maximum Special Tax" means the Maximum Special Tax, determined in accordance with Section C.l.a below, that can be levied in any Fiscal Year on any TMK Parcel. "Non-Residential Property" means all TMK Parcels of Developed Property for which a building permit(s) was issued for anon-residential use, including Clubhouse Property and Commercial Village Center Property. "Non-Taxable Zone Property" means al] TMK Parcels within the boundaries of IA No. 1, which are not considered Taxable Zone Property. "Outstanding Bonds" means all Bonds which are deemed to be outstanding under the Indenture. "Property Owner Association Property" means, for each Fiscal Year, all Taxable Zone Property, other than Clubhouse Property or Commercial Village Center Property, that is owned by or irrevocably dedicated to a property owner association, including any master or sub-association. "Proportionately" means for Developed Property that the ratio of the actual Special Tax levy to the Assigned Special Tax is equal for all TMK Parcels of Developed Property. For Approved Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Parcels of Approved Property. For Undeveloped Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Parcels of Undeveloped Property. For Taxable Public Property and Taxable Property Owner Association Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax is equal for all TMK Parcels ofTaxable Public Property and Taxable Property Owner Association Property, as applicable. For Taxable Non-Taxable Zone Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Parcels of Taxable Non-Taxable Zone Property. County of Hawa/`i /A No. / of CFD No. / -The Villages of Aina Le'a Page 3 "Public Property" means, for each Fiscal Year, all Taxable Zone Property that (i) is owned by or irrevocably offered for dedication to the federal government, the State, the County, or any other public agency, provided however that any property leased by a public agency to a private entity and subject to taxation under Section 32-54 of the Code shall be taxed and classified in accordance with its use; or (ii) is encumbered by a road, access, public utility easement or other easement or recorded restriction for community or public use making impractical its use for any purpose other than that set forth in the easement or recorded restriction. "Residential Floor Area" means all of tre square footage of living area within the perimeter of a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio, or similar area. The determination of Residential Floor Area shall be made by reference to the building permit(s) issued for such TMK Parcel. "Residential Property" means all TMK Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwelling units. "Special Tax" means the special tax to be levied in each Fiscal Year on each TMK Parcel of Developed Property, Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property to fund the Special Tax Requirement. "Special Tax Requirement" means that amount required in any Fiscal Year for IA No. 1 to: (i) pay debt service on all Outstanding Bonds; (ii) pay periodic costs on the Outstanding Bonds, including but not limited to, credit enhancement and rebate payments on the Outstanding 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 acquisition or construction of facilities eligible to be financed by IA No. 1 to the extent that the inclusion of such amount does not increase the Special Tax levy on Undeveloped Property; (vi) pay for reasonably anticipated delinquent Special Taxes based on the delinquency rate for Special Taxes levied in the previous Fiscal Year; less (vii) a credit for funds available to reduce the annual Special Tax levy, as determined by the CFD Administrator pursuant to the Indenture. "State" means the State of Hawaii. "Tax Map" means an official map of the County designating parcels by Tax Map Key number. "Tax Map Key Parcel" or "TMK Parcel" means a lot or parcel shown on a Tax Map with an assigned tax map key number. A TMK Parcel may include a portion of a lot or two or more lots. "Taxable Non-Taxable Zone Property" means all TMK Parcels of Non-Taxable Zone Property that are not exempt pursuant to Section E below. County ojHawai`i IA No. 1 of CFD No. ! -The Villages ojAina Le`a Page 4 "Taxable Property" means, for each Fiscal Year, all property which is not exempt from the Special Tax pursuant to law or Section E below. "Taxable Property Owner Association Property" means all TMK Parcels of Property Owner Association Property that are not exempt pursuant to Section E below. "Taxable Public Property" means all TMK Parcels of Public Property that are not exempt pursuant to Section E below. "Taxable Zone Property" means (i) ail TMK Parcels within the boundaries of IA No. 1 for which the zoning according to the Hawaii County Code Chapter 25, Article 5 is RS (Single- Family Residential Districts), RD (Double-Family Residential Districts), RM (Multiple- Family Residential Districts), RCX (Residential-Commercial Mixed Use Districts), RA (Residential and Agricultural Districts), V (Resort-Hotel Districts), CN (Neighborhood Commercial Districts), CG (General Commercial Districts), CV (Village Commercial Districts), MCX (Industrial-Commercial Mixed Districts), ML (Limited Industrial Districts), or MG (General Industrial Districts); or (ii) any other TMK Parcel within the boundaries of IA No. 1 on which one or more residential dwelling units is or are constructed. "Trustee" means the trustee or fiscal agent under the Indenture. "Undeveloped Property" means, for each Fiscal Year, all Taxable Property not classified as Developed Property, Approved Property, Taxable Property Owner Association Property, Taxable Public Property, or Taxable Non-Taxable Zone Property. B. ASSIGNMENT TO LAND USE CATEGf)RiF,S Each Fiscal Year, all Taxable Property within IA No. 1 shall be classified as Developed Property, Approved Property, Taxable Public Property, Taxable Property Owner Association Property, Taxable Non-Taxable Zone 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 The Maximum Special Tax for each TMK Parcel classified as Developed Property shall be the greater of (i) the Assigned Special Tax or (ii) the Backup Special Tax. County of Hawaii /A No. / ofCFD No. / -The Vi!inges ofAina Le`a Page 5 b. Assigned Special "fax The Assigned Special Tax for Residential Property shall be based on the Residential Floor Area of each dwelling unit located on the TMK Parcel. The Assigned Special Tax for Non-Residential Property shall be based on the Acreage of the "FMK Parcel. The Assigned Special Tax for each Land Use Class is shown below in Table 1. TABLE 1 Assi ned S ecial Tax for Develo ed Pro er Land Use Residential Floor Assigned Special Tax Class Description Area Per unit/Acre 1 Residential Property > 2,050 sq. ft. $5,658 per unit 2 Residential Property 1,850-2,049 sq. ft. $5,063 per unit 3 Residential Property 1,650 - 1,849 sq. ft. $4,169 per unit 4 Residential Property < 1,650 sq. ft. $3,454 per unit 5 Non-Residential Property Not Applicable $7,000 per Acre c. Backup Special Tax (i) Residential Property The Backup Special 'l'ax attributable to Residential Property within a Final Map will equal $20,056 multiplied by the Acreage of all Taxable Property located within such Final Map, excluding current or expected Non-Residential Property, Taxable Public Property, Taxable Property Owner Association Property, and Taxable Non- Taxable Zone Property. The Backup Special Tax for each TMK Parcel of Residential Property in a Final Map shall be computed by dividing the aggregate Backup Special Tax attributable to such Final Map by the aggregate number of units for which building permits for residential construction have or may be issued within the Final Map and multiplying the resulting quotient by the number of units within each TMK Parcel for which building permits for residential construction have been or may be issued. Notwithstanding the foregoing, if all or any portion of a Final Map is subsequently changed or modified, then the Backup Special Tax for each TMK Parcel of Residential Property in such Final Map that is changed or modified shall be a rate per Acre calculated as follows: County of Hawaii /A No. ! of CFD No. ! -The Villages of Ainn Le`a Page 6 1. Determine the total Backup Special Taxes anticipated to apply to the changed or modified portion of the Final Map prior to the change or modification. 2. The result of paragraph 1 above shall be divided by the total Acreage of Taxable Property excluding Non-Residential Property, Taxable Public Property, Taxable Property Owner Association Property, and Taxable Non-Taxable Zone Property which is ultimately expected to exist in such changed or modified Final Map area, as reasonably determined by the CPD Administrator. 3. The result is the Backup Special Tax per Acre which shall be applicable to all TMK Parcels of Residential Property in such changed or modified Final Map. (ii) Non-Residential Property The Backup Special Tax for Non-Residential Property shall be $20,056 per Acre. d. Multiple Land Use Classes In some instances a TMK Parcel of Developed Property may contain more than one Land Use Class. The Assigned Special Tax levied on a TMK Pazcel shall be the sum of the Assigned Special Tax for all Land Use Classes located on that TMK Parcel. The Maximum Special Tax that can be levied on a TMK Parcel shall be the sum of the Maximum Special Tax that can be levied for all Land Use Classes located on that TMK Parcel For a TMK Pazcel that contains both Residential Property and Non-Residential Property, the Acreage of such TMK Parcel shall be allocated to each type of property based on the amount of Acreage designated for each land use as determined by reference to the site plan approved for such TMK Parcel. The CFD Administrator's allocation to each type of property shall be final. 2. Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property a. Expected Special Tax The Expected Special Tax for Approved Property and Undeveloped Property shall be $15,000 per Acre. County of Hawaii /A No. ! of CFD No. 1-The Villages of Ainn Le`n Page 7 b. Maximum Special Tax The Maximum Spcc~al Tax for Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property shall be $20,056 per Acre. D. METHOD OF APPORTIONMENT OF'1'HE SPECIAL TAX 1. Special Tax Commencing with Fiscal Year 2007-08 and for each following Fiscal Year, the CFD Administrator shall determine the Special Tax Requirement and the Council shall levy the Special Tax as follows: First: The Special Tax shall be levied Proportionately on each TMK Parcel of Developed Property 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 TMK Parcel of Approved Property at up to 100% of the Expected Special Tax for Approved Property; 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 TMK Parcel of Undeveloped Property at up to 100% of the Expected 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, the Special Tax shall be levied Proportionately on each TMK Parcel of Approved Property at up to 100% of the Maximum Special Tax for Approved Property; Fifth: If additional monies are needed to satisfy the Special Tax Requirement after the first four steps have been completed, then the levy of the Special Tax on each TMK Parcel of Developed Property 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 TMK Parcel; Sixth: If additional monies are needed to satisfy the Special Tax Requirement after the first five steps have been completed, the Special Tax shall be levied Proportionately on each TMK Parcerof Undeveloped Property at up to 100% of the Maximum Special Tax for Undeveloped Property; Seventh: If additional monies arc needed to satisfy the Special Tax Requirement after the first six steps have been completed, then the Special Tax shall be levied County of Hawaii !A No. / ofCFD No. l -The Vilinges ofAina Le4e Page 8 Proportionately on each TMK Parcel of Taxable Property Owner Association Property and Taxable Public Property at up to the Maximum Special Tax for Taxable Property Owner Association Property or Taxable Public Property. Eighth: If additional monies are needed to satisfy the Special Tax Requirement after the first seven steps have been completed, then the Special Tax shall be levied Proportionately on each TMK Parcel of Taxable Non-Taxable Zone Property at up to the Maximum Special Tax for Taxable Non-Taxable Zone Property. E. EXEMPTIONS No Special Taxes shall be levied on Non-Taxable Zone Property, Property Owner Association Property and Public Property, so long as the Acreage of Taxable Property is at least 78.09 Acres. Tax-exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Non-Taxable Zone Property, Property Owner Association Property or Public Property. To the extent that the exemption of an Assessor's Parcel of Property Owner Association Property, Public Property, or Non-Taxable Zone Property would reduce the Acreage of Taxable Property below 78.09 Acres, such Assessor's Parcel shall be classified as Taxable Property Owner Association Property, Taxable Public Property, or Taxable Non-Taxable Zone Property, as applicable, and shall be subject to the levy of the Special Tax and shall be taxed as part of the appropriate step in Section D above. Should a TMK Parcel no longer be classified as Non-Taxable Zone Property, Property Owner Association Property, or Public Property, its tax-exempt status will, without the necessity of any action by the Council, terminate. F. INTERPRETATIONS Interpretations may be made by the Council by ordinance or resolution for purposes of clarifying any vagueness or ambiguity in this Rate and Method of Apportionment. G. 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 IA No. 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 TMK Parcels as permitted by the Code. H. PREPAYMENT OF SPECIAL TAX The following definition applies to this Section H: "CFD Public Facilities" means either $9.7 million in 2006 dollars, which shall increase by the Construction Inflation Index on July 1, 2007, and on each July 1 thereafter, or such lower County of Hawaii LA No. I of CFD No. 1 -The Villages ofAinn Le`a Page 9 number as (i) shall be determined by the CFD Administrator as sufficient to provide the public facilities to be provided by IA No. 1 under the authorized bonding program for IA No. I, or (ii) shall be determined by the Council concurrently with a covenant that it will not issue any more Bonds to be supported by Special "faxes levied under this Rate and Method of Apportionment as described in Section D. "Construction Fund" means an account specifically identified in the Indenture to hold funds which are currently available for expenditure to acquire or construct public facilities eligible under the Code. "Construction Inflation Index" means the annual percentage change in the Honolulu Construction Cost Tndex: Single Family Residence, measured as of the calendaz yeaz 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 CFD Administrator that is reasonably comparable to the Honolulu Construction Cost Index: Single Family Residence. "Future Facilities Costs" means the CFD Public Facilities minus (i) public facility costs previously paid from the Construction Fund, (ii) moneys currently on deposit in the Construction Fund, and (iii) moneys currently on deposit in an escrow fund that aze expected to be available to finance public facilities costs. "Outstanding Bonds" means, for purposes of this section H, all Bonds which are deemed to be outstanding under the Indenture after the first interest and/or principal payment date following the current Fiscal Year. 1. Prepayment in Full Any 'fMK Parcel of Developed Property, or Approved Property or Undeveloped Property for which a building permit has been issued, may be prepaid. 'l he Special Tax obligation applicable to such TMK Parcel in IA No. 1 may be fully prepaid and the obligation of the TMK Pazcel to pay the Special lax permanently satisfied as described herein; provided that a prepayment may be made only if there are no delinquent Special Taxes with respect to such TMK Parcel at the time of prepayment. An owner of a TMK Parcel intending to prepay the Special Tax obligation shall provide the CFD Administrator with written notice of intent to prepay. Within 30 days of receipt of such written notice, the CFD Administrator shall notify such owner of the prepayment an~ount of such "fMK Parcel. The CFD Administrator may charge a reasonable fee for providing this amount. 'I~hc Prepayment Amount (dclincd below) shall be calculated as summarized below (capitalized terms as defined below): Bond Redemption Amount plus Redemption Premium plus Future Facilities Amount County of Hawaii IA No. 1 ojCFD No. I -The Villu;;es n/fl ina Le`u Page 10 plus Uefeasance Amount plus Administrative Fecs and Expenses less Reserve fund Credit less Cayitalized 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 'Fax delinquencies apply to such TMK Parcel. 2. For TMK Parcels of Developed Property, compute the Assigned Special Tax and Backup Special Tax applicable for the TMK Parcel to be prepaid. For TMK Parcels of Approved Property or Undeveloped I'ropcrty for which a building permit has been issued, compute the Assigned Special Tax and Backup Special Tax for that TMK Parcel as though it was already designated as Developed Property, based upon the building permit which has already been issued for that TMK Parcel. 3. (a) Divide the Assigned Special Tax computed pursuant to paragraph 2 by the total estimated Assigned Special Tax for the entire IA No. 1 based on the Developed Property Special Tax which could be charged in the current Fiscal Ycar on all expected development through buildout of IA No. 1, and (b) Divide tha Backup Special Tax computed pursuant to paragraph 2 by the total estimated Backup Special Tax at buildout for the entire IA No. 1. 4. Multiply the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the Outstanding Bonds to compute the amount of Outstanding Bonds to be retired and prepaid (the "Bond Redemption AmounP'). 5. Multiply the Bond Redemption Amount computed pursuant to paragraph 4 by the applicable redemption premium, if any, on the Outstanding Bonds 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 ?(b) by the amount determined pursuant to paragraph 6 to compute the amount of Future Facilities Costs to be prepaid (the "Future 1•'acililies Amount"). County oJHawai'i /A No. 1 ofCFD No. 1- Tke Vittare.c n~Aina Le4r Page 11 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 Ycar until the earliest redemption date for the Outstanding Bonds. 9. Determine the Special Tax levied on the TMK Parcel in the current Fiscal Year v~hich have not yet been paid. 10. Compute the minimum amount the CFD Administrator reasonably expects to derive from the reinvestment of the Prepayment Amount less the Future Facilities Amount and the Administrative Fees and lxxpenses from the date of prepayment until the redemption date for the Outstanding Bonds to be redeemed with the prepayment. 1 L 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 IA No. 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 am' notices to ccidence the prepayment and the redemption (the "Administrative Fees and Expenses"). 13. The reserve fund credit ("/leserve !'und CrediP') shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement (as defined in the Indenture) in effect after the redemption of Outstanding Bonds 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 iuterest for the Outstanding Bonds 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 "Capitalised Interest CreddP'). 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 AmnrmP'). County of Hawaii lA No. / of CFD No. I - 77re Villages a f: I ins I_c `n Page 12 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 Indenture and be used to retire Outstanding Bonds or make debt service payments. The amount computed pursuant to paragraph 7 shall be deposited into the Construction Fund. The amount computed pursuant to paragraph 12 shall be retained by IA No. 1. The Prepayment Amount may be suClicicnt to redeem other than a $5,000 increment of Bonds. [n such cases, the increment above $5,000 or integral multiple thereof will be retained in the appropriate fund established under the Indenture to be used with the next prepayment of bonds or to make debt service payments. As a result of the payment of the current Fiscal Year's Special Tax levy as determined under paragraph 9 (above), the CFD Administrator shall remove the current Fiscal Year's Special Tax levy for such TMK Parcel from the County tax rolls. With respect to any TMK Pazcel that is prepaid, the Council shat I cause a suitable notice to be recorded and filed with the bureau of conveyances or land court in compliance with the Code, to indicate the prepayment of Special Taxes and the release of the Special Tax lien on such TMK Parcel, and the obligation of such TMK Parcel to pay the Special Tax shall cease. 11ic CFD Administrator shall mail a copy of the notice to the owner and any known lessee of the property. Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Assigned Special Tax that may be levied on Taxable Property (excluding Taxable Property Owner Association Property and Taxable Public Property) within IA No. 1 both prior to and after the proposed prepayment is at Icast 1.1 times the maximum annual debt service on all Outstanding Bonds plus the estimated Administrative Expenses. 2. Prepayment in Part The Maximum Special "fax on a TMK Parcel of Developed Property, or Approved Property or Undeveloped Property for which a building permit has been issued may he partially prepaid. The amount of the prepayment shall be calculated as in Section H.l; except that a partial prepayment shall be calculated according to the following formula: These terms have the following meaning: PP =the partial prepayment PE = the Prepayment Amount calculated according to Section H.1 County oJHawai'i !A No. l of CFD No. ] -The Vilingec n(Ainn l_e`a Page 73 P = the percent by which the owner of the TMK Parcel(s) is partially prepaying the Maximum Annual Special Tax. A = the Administrative Fees and Expenses according to Section H.1 The owner of any "fMK Parcel who desires such prepayment shall notify the CFD Administrator of such owner's intent to partially prepay the Special Tax and the percentage by which the Special Tax shall be prepaid. The CFD Administrator shall provide the owner with a statement of the amount required for the partial prepayment of the Special Tax for a TMK Parcel within thirty (30) days of the request and may charge a reasonable fee for providing this service. With respect to any TMK Parcel that is partially prepaid, the County shall (i) distribute the funds remitted to it according to Section H.1., and (ii) indicate in the records of IA No. 1 that there has been a partial prepayment of the Special 7~ax and that a portion of the Special Tax equal to the outstanding percentage (1.00 - F) of the remaining Maximum Special Tax shall continue to be levied on such TMK Parcel pursuant to Section D. Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Assigned Special Tax that may be levied on Taxable Property (excluding Taxable Property Owner Association Property and Taxable Public Property) within IA No. 1 both prior to and after the proposed prepayment is at Icast 1.1 times the maximum annual debt service on all Outstanding Bonds plus estimated Administrative Expenses. I. TERM OFSPI;CIA1,'I'A~ The Special Tax shall be levied for a period not to exceed fifty years commencing with Fiscal Year 2007-08. County ojHawai'i IA No. 1 ojCFD No. 7 -The Vilinges o/~linrr Le`n Page 14 EXHIBIT C-2 RATE AND METHOD OF APPORTIONMENT FOR IMPROVEMENT AREA NO.2 OF COMMUNITY FACILITIES DISTRICT NO. 1 - THE VILLAGES OF AINA LE`A A Special Tax as hereinafter defined shall be levied on all Tax Map Key parcels in Improvement Area No. 2 ("IA No. 2") of the Community Facilities District No. 1 -The Villages of Aina Le`a of the County of Hawaii ("CFD No. 1 and collected each Fiscal Year commencing in Fiscal Year 2007-08, in an amount determined by the CFD Administrator (as defined below) through the application of the procedures described below. All of the real property in IA No. 2, 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 number of acres of land area of a TMK Parcel as shown on the applicable Tax Map, or if the land area is not shown on such Tax Map, the land area shown on the applicable Final Map, parcel map, condominium plan, or other recorded parcel map. If such maps are not available, the land area of the TMK Parcel shall be calculated by the CFD Administrator. "Administrative Expenses" means the following actual or reasonably estimated costs related to the administration of IA No. 2: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the County or designee thereof or both); the costs of collecting the Special Taxes (whether by the County, through foreclosure proceedings, or otherwise); the costs of remitting the Special Taxes to the Trustee; the costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the County, IA No. 2 or any designee thereof of complying with arbitrage rebate requirements; the costs to the County, IA No. 2 or any designee thereof of complying with County, IA No. 2 or obligated persons disclosure requirements associated with applicable federal and state securities laws and of the Code; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the County, IA No. 2 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 County's annual administration fees and third party expenses. Administrative Expenses shall also include amounts estimated or advanced by the County or IA No. 2 for any other administrative purposes of IA No. 2, including attorney's fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes. Coanry ojHawai`i /A No. 2 of CFD No. 1-(The Villages of Aina Le`a Page 1 "Affordable Property" means, for each Fiscal Year, any TMK Parcel for which a building permit was issued for one or more Affordable Units prior to Januazy 1 of the prior Fiscal Year. "Affordable Unit(s)" means up to 385 dwelling units that are subject to deed restrictions, resale restrictions, and/or regulatory agreements recorded in favor of the County providing for affordable housing. Dwelling units shall be classified as Affordable Units by the CFD Administrator in the chronological order in which the deed restrictions, resale restrictions, and/or regulatory agreements for such property aze recorded. If the total number of Affordable Units exceeds the amount sated above, then the units exceeding such total shall not be considered Affordable Units and shall be assigned to Land Use Classes 1 through 5 based on the Residential Floor Area for such units. In order to ensure that a dwelling unit is correctly classified as an Affordable Unit, the owner of such property shall provide the CFD Administrator with a copy of any applicable deed restrictions, resale restrictions, and/or regulatory agreements. When the deed restrictions, resale restrictions, and/or regulatory agreements terminate, the affected units shall no longer be classified as Affordable Unit(s), and shall be assigned to Land Use Classes 1 through 5, as appropriate. Notwithstanding the above, the number of Affordable Units may exceed 385 dwelling units if the total number of dwelling units in IA No. 2 exceed 799. In such cases, the number of Affordable Units exceeding 385 shall not be greater than the total number of units in IA No. 2 which exceed 799. "Approved Property" means, for each Fiscal Year, all Taxable Property which is located within a Final Map that was recorded prior to January 1 of the prior Fiscal Year; provided, however, that Approved Property shat' not include Developed Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property. "Assigned Special Tax" means the Special Tax for each Land Use Class of Developed Property, as determined in accordance with Section C.l.b below. "Backup Special Tax" means the Special Tax applicable to each TMK Pazcel of Developed Property, as determined in accordance with Section C.l.c below. "Bonds" means any bonds or other debt (as defined in Section 32-16 of the Code), whether in one or more series, issued under the Code. "CFD Administrator" means an official of the County, or designee thereof, who is responsible for determining the Special Tax Requirement and providing for the levy and collection of the Special Taxes. "CFD No. 1" means the County of Hawaii Community Facilities District No. 1 -The Villages of Aina Le`a. "Clubhouse Property" means all TMK Parcels of Non-Residential Property for which a building permit was issued for golf course clubhouse purposes. County of Hawaii /A No. 2 of CFD No. 1-(The Vi(/ages ojAina Le`a Page Z "Code" means the Community Facilities Districts Code (1994, Ord. No. 94-77, sec. 3), being Chapter 32 of the Hawaii Coun*y Code 1983 (2005 Edition, as amended). "Commercial Village Center Property" means all TMK Parcels of Non-Residential Property which is zoned CV (Village Commercial Districts) according to the Hawaii County Code Chapter 25, Article 5 and for which the building permit was issued for golf clubhouse, retail, or commercial purposes. "Council" means the Council of the County of Hawaii, acting as the legislative body of CFD No. 1. "County" means the County of Hawaii. "Developed Property" means, for each Fiscal Yeaz, all Taxable Property for which a building permit for new construction was issued after January 1, 2006 and prior to March 1 of the prior Fiscal Year; provided, however, that Developed Property shall not include Affordable Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property. "Expected Special Tax" means the Special Tax for each Acre of Approved Property and Undeveloped Property, as determined in accordance with Section C.2 below. "Fiscal Year" means the period starting July 1 and ending on the following June 30. "Final Map" means a final map approved by the County pursuant to the Subdivision Control Code (Hawai`i County Code Chapter 23) that creates individual lots for which building pennits may be issued or, in the case of a condominium project, the condominium property regime map recorded with the declaration of condominium property regime that creates the individual condominium units for which building permits may be issued. "IA No. 2" means Improvement Area No. 2 of CFD No. 1 as identified on the boundary map for CFD No. 1. "Indenture" 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. "Land Use Class" means any of the classes listed in Table 1. "Maximum Special Tax" means the Maximum Special Tax, determined in accordance with Section C.1.a below, that can be levied in any Fiscal Year on any TMK Parcel. "Non-Residential Property" means all TMK Parcels of Developed Property for which a building permit(s) was issued for anon-residential use, including Clubhouse Property and Commercial Village Center Property. County of Hawaii IA No. 2 oJCFD No. !-(The Villages oJA/na Le`a Page 3 "Non-Taxable Zone Property" means all TMK Parcels within the boundaries of IA No. 2, which are not considered Taxable Zone Property. "Outstanding Bonds" means all Bonds which are deemed to be outstanding under the Indenture. "Property Owner Association Property" means, for each Fiscal Yeaz, all Taxable Zone Property, other than Clubhouse Property or Commercial Village Center Property, that is owned by or irrevocably dedicated to a property owner association, including any master or sub-association. "Proportionately" means for Developed Property that the ratio of the actual Special Tax levy to the Assigned Special Tax is equal for all TMK Parcels of Developed Property. For Approved Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Pazcels of Approved Property. For Undeveloped Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Parcels of Undeveloped Property. For Taxable Public Property and Taxable Property Owner Association Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax is equal for all TMK Parcels of Taxable Public Property and Taxable Property Owner Association Property, as applicable. For Taxable Non-Taxable Zone Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Parcels of Taxable Non-Taxable Zone Property. "Public Property" means, for each Fiscal Year, all Taxable Zone Property that (i) is owned by or irrevocably offered for dedication to the federal government, the State, the County, or any other public agency, provided however that any property leased by a public agency to a private entity and subject to taxation under Section 32-54 of the Code shall be taxed and classified in accordance with its use; or (ii) is encumbered by a road, access, public utility easement or other easement or recorded restriction for community or public use making impractical its use for any purpose other than that set forth in the easement or recorded restriction. "Residential Floor Area" means all of the square footage of living area within the perimeter of a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio, or similaz azea. The determination of Residential Floor Area shall be made by reference to the building permit(s) issued for such TMK Parcel. "Residential Property" means all TMK Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwelling units. "Special Tax" means the special tax to be levied in each Fiscal Year on each TMK Parcel of Developed Property, Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property to fund the Special Tax Requirement. County of Hawaii /A No. 2 of CFD No. 1-(The Vi[[ages of Aina Le`a Page 4 "Special Tax Requirement" means that amount required in any Fiscal Year for IA No. 2 to: (i) pay debt service on all Outstanding Bonds; (ii) pay periodic costs on the Outstanding Bonds, including but not limited to, credit enhancement and rebate payments on the Outstanding 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 acquisition or construction of facilities eligible to be financed by IA No. 2 to the extent that the inclusion of such amount does not increase the Special Tax levy on Undeveloped Property; (vi) pay for reasonably anticipated delinquent Special Taxes based on the delinquency rate for Special Taxes levied in the previous Fiscal Year; less (vii) a credit for funds available to reduce the annual Special Tax levy, as determined by the CFD Administrator pursuant to the Indenture. "State" means the State of Hawaii. "Tax Map" means an official map of the County designating parcels by Tax Map Key number. "Tax Map Key Parcel" or "TMK Pae•cel" means a lot or parcel shown on a Tax Map with an assigned tax map key number. A TMK Parcel may include a portion of a lot or two or more lots. "Taxable Non-Taxable Zone Property" means all TMK Parcels of Non-Taxable Zone Property that are not exempt pursuant to Section E below. "Taxable Property" means, for each Fiscal Year, all property which is not exempt from the Special Tax pursuant to law or Section E below. "Taxable Property Owner Association Property" means all TMK Parcels of Property Owner Association Property that are not exempt pursuant to Section E below. "Taxable Public Property" means all TMK Parcels of Public Property that are not exempt pursuant to Section E below. "Taxable Zone Property" means (i) all TMK Parcels within the boundaries of IA No. 2 for which the zoning according to the Hawaii County Code Chapter 25, Article 5 is RS (Single- Family Residential Districts), RD (Double-Family Residential Districts), RM (Multiple- Family Residential Districts), RCX (Residential-Commercial Mixed Use Districts), RA (Residential and Agricultural Districts), V (Resort-Hotel Districts), CN (Neighborhood Commercial Districts), CG (General Commercial Districts), CV (Village Commercial Districts), MCX (Industrial-Commercial Mixed Districts), ML (Limited Industrial Districts), or MG (General Industrial Districts); or (ii) any other TMK Parcel within the boundaries of IA No. 2 on which one or more residential dwelling units is or are constructed. "Trustee" means the trustee or fiscal agent under the Indenture. County of Hawaii /A No. 2 of CFD No. 1-(The Vi![ages ojAina Le'a Page 5 "Undeveloped Property" means, for each Fiscal Year, all Taxable Property not classified as Developed Property, Approved Property, Taxable Property Owner Association Property, Taxable Public Property, or Taxable Non-Taxable7.one Property. B. ASSIGNMENT TO LAND USE CATEGORIES Each Fiscal Year, all Taxable Property within IA No. 2 shall be classified as Developed Property, Approved Property, Taxable Public Property, Taxable Property Owner Association Property, Taxable Non-Taxable Zone 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 The Maximum Special Tax for each TMK Parcel classified as Developed Property shall be the greater of (i) the Assigned Special Tax or (ii) the Backup Special Tax. b. Assi ng ed Special Tax The Assigned Special Tax for Residential Property shall be based on the Residential Floor Area of each dwelling unit located on the TMK Parcel. The Assigned Special Tax for Non-Residential Property shall be based on the Acreage of the TMK Parcel. The Assigned Special Tax for each Land Use Class is shown below in Table 1. TABLE 1 Assi ned S ecial Tax for Develo ed Pro er Land Use Residential Floor Assigned Special Tax Class Description Area Per unit/Acre 1 Residential Property > 2,050 sq. ft. $5,846 per unit 2 Residential Property 1,850 - 2,049 sq. ft. $5,231 per unit 3 Residential Property 1,650 - 1,849 sq. ft. $4,308 per unit 4 Residential Property 1,300 - 1,649 sq. ft. $3,569 per unit 5 Residential Property < 1,300 sq. ft. $2,769 per unit 6 Non-Residential Property Not Applicable $7,000 per Acre County ojHawai`i /A No. 1 ojCFD No. 1-(The Villages ofAina Le`a Page 6 c. Backup Special 'fax (i) Residential Property The Backup Special Tax attributable to Residential Property within a Final Map will equal $38,504 multiplied by the Acreage of all Taxable Property located within such Final Map, excluding current or expected Non-Residential Property, Taxable Public Property, Taxable Property Owner Association Property, and Taxable Non- Taxable Zone Property. The Backup Special Tax for each TMK Parcel of Residential Property in a Final Map shal? be computed by dividing the aggregate Backup Special Tax attributable to such Final Map by the aggregate number of units for which building permits for residential construction have or may be issued within the Final Map and multiplying the resulting quotient by the number of units within each TMK Parcel for which building permits for residential construction have been or may be issued. Notwithstanding the foregoing, if all or any portion of a Final Map is subsequently changed or modified, then the Backup Special Tax for each TMK Parcel of Residential Property in such Final Map that is changed or modified shall be a rate per Acre calculated as follows: 1. Determine the total Backup Special Taxes anticipated to apply to the changed or modified portion of the Final Map prior to the change or modification. 2. The result of paragraph 1 above shall be divided by the total Acreage of Taxable Property excluding Non-Residential Property, Taxable Public Property, Taxable Property Owner Association Property, and Taxable Non-Taxable Zone Property which is ultimately expected to exist in such changed or modified Final Map area, as reasonably determined by the CFD Administrator. 3. The result is the Backup Special Tax per Acre which shall be applicable to all TMK Parcels of Residential Property in such changed or modified Final Map. (ii) Non-Residential Property The Backup Special Tax for Non-Residential Property shall be $38,504 per Acre. County of Hawaii /A No. 2 ojCFD No. /-(The Villages ojAina Le`a Page 7 d. Multiple Land Use Classes In some instances a TMK Pazcel of Developed Property may contain more than one Land Use Class. The Assigned Special Tax levied on a TMK Parcel shall be the sum of the Assigned Special Tax for all Land Use Classes located on that TMK Parcel. The Maximum Special Tax that can be levied on a TMK Parcel shall be the sum of the Maximum Special Tax that can be levied for all Land Use Classes located on that TMK Pazcel. For a TMK Pazcel that contains both Residential Property and Non-Residential Property, the Acreage of such TMK Pazcel shall be allocated to each type of property based on the amount of Acreage designated for each land use as determined by reference to the site plan approved for such TMK Parcel. The CFD Administrator's allocation to each type of property shall be final. 2. Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property a. Expected Special Tax The Expected Special Tax for Approved Property and Undeveloped Property shall be $28,000 per Acre. b. Maximum Special Tax The Maximum Special Tax for Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property shall be $38,504 per Acre. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX 1. Special Tax Commencing with Fiscal Year 2007-08 and for each following Fiscal Year, the CFD Administrator shall determine the Special Tax Requirement and the Council shall levy the Special Tax as follows: First: The Special Tax shall be levied Proportionately on each TMK Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax as needed to satisfy the Special Tax Requirement; Second: If additional monies aze needed to satisfy the Special Tax Requirement afrer the first step has been completed, the Special Tax shall be levied Proportionately on each TMK Parcel of Approved Property at up to 100% of the Expected Special Tax for Approved Property; County of Hawai `i IA No. 2 ojCFD No. /-(The Villages ofAina Le'a Page 8 Third: If additional monies are needed to satisfy the Special Tax Requirement afrer the first two steps have been completed, the Special Tax shall be levied Proportionately on each TMK Parcel of Undeveloped Property at up to 100% of the Expected Special Tax for Undeveloped Property; Fourth: If additional monies are needed to satisfy the Special Tax Requirement afrer the first three steps have been completed, the Special Tax shall be levied Proportionately on each TMK Parcel of Approved Property at up to 100% of the Maximum Special Tax for Approved Property; Fifth: If additional monies are needed to satisfy the Special Tax Requirement afrer the first four steps have been completed, then the levy of the Special Tax on each TMK Parcel of Developed Property 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 TMK Parcel; Sixth: If additional monies are needed to satisfy the Special Tax Requirement after the first five steps have be:,n completed, the Special Tax shall be levied Proportionately on each TMK Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax for Undeveloped Property; Seventh: If additional monies are needed to satisfy the Special Tax Requirement afrer the first six steps have been completed, then the Special Tax shall be levied Proportionately on each TMK Parcel of Taxable Property Owner Association Property and Taxable Public Property at up to the Maximum Special Tax for Taxable Property Owner Association Property or Taxable Public Property. Eighth: If additional monies are needed to satisfy the Special Tax Requirement afrer the first seven steps have been completed, then the Special Tax shall be levied Proportionately on each TMK Parcel of Taxable Non-Taxable Zone Property at up to the Maximum Special Tax for Taxable Non-Taxable Zone Property. E. EXEMPTIONS No Special Taxes shall be levied on Affordable Property, Non-Taxable Zone Property, Property Owner Association Property and Public Property, so long as the Acreage of Taxable Property is at least 44.37 Acres. Tax-exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Affordable Property, Non-Taxable Zone Property, Property Owner Association Property or Public Property. Notwithstanding the foregoing, the first 40.82 Acres with tax-exempt status shall be reserved for current or expected Affordable Property. However, the number of Acres of Affordable Property may exceed 40.82 Acres to the extent that the total number of Acres of Taxable Property does not go below 44.37 Acres. To the extent that the exemption of an Assessor's Parcel of Property Owner Association Property, Public Property, Non-Taxable Zone Property, or Affordable Property would reduce County oJHawai`i /A No. 2 oJCFD No. 1-(The Villages ofAina Le`a Page 9 the Acreage of Taxable Property below 44.37 Acres, such Assessor's Parcel shall be classified as Taxable Property Owner Association Property, Taxable Public Property, Taxable Non-Taxable Zone Property, as applicable, or assigned to Land Use Class 1 through 5, as appropriate, for property no longer considered Affordable Property, and shall be subject to the levy of the Special Tax and shall be taxed as part of the appropriate step in Section D above. Should a TMK Parcel no longer be classified as Affordable Property, Non-Taxable Zone Property, Property Owner Association Property, or Public Property, its tax-exempt status will, without the necessity of any action by the Council, terminate. F. INTERPRETATIONS Interpretations may be made by the Council by ordinance or resolution for purposes of clarifying any vagueness or ambiguity in this Rate and Method of Apportionment. G. 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 IA No. 2 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 TMK Parcels as permitted by the Code. H. PREPAYMENT OF SPECIAL TAX The following definition applies to this Section H: "CFD Public Facilities" means either $10.6 million in 2006 dollars, which shall increase by the Construction Inflation Index on July 1, 2007, and on each July 1 thereafter, or such lower number as (i) shall be determined by the CFD Administrator as sufficient to provide the public facilities to be provided by IA No. 2 under the authorized bonding program for IA No. 2, or (ii) shall be determined by the Council 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 as described in Section D. "Construction Fund" means an account specifically identified in the Indenture to hold funds which are currently available for expenditure to acquire or construct public facilities eligible under the Code. "Construction Inflation Index" means the annual percentage change in the Honolulu Construction Cost Index: Single Family Residence, measured as of the calendar yeaz 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 CFD Administrator that is reasonably compazable to the Honolulu Construction Cost Index: Single Family Residence. County of Hawaii !A No. 1 of CFD No. !-(The Vi[(ages of Aina Le`a Page (0 "Future Facilities Costs" means the CFD Public Facilities minus (i) public facility costs previously paid from the Construction Fund, (ii) moneys currently on deposit in the Construction Fund, and (iii) moneys currently on deposit in an escrow fund that aze expected to be available to finance public facilities costs. "Outstanding Bonds" means, for purposes of this section H, all Bonds which are deemed to be outstanding under the Indenture after the first interest and/or principal payment date following the current Fiscal Year. 1. Prepayment in Full Any TMK Parcel of Developed Property, or Approved Property or Undeveloped Property for which a building permit has been issued, may be prepaid. The Special Tax obligation applicable to such TMK Parcel in IA No. 2 may be fully prepaid and the obligation of the TMK 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 TMK Parcel at the time of prepayment. An owner of a TMK Parcel intending to prepay the Special Tax obligation shall provide the CFD Administrator with written notice of intent to prepay. Within 30 days of receipt of such written notice, the CFD Administrator shall notify such owner of the prepayment amount of such TMK Pazcel. The CFD Administrator may charge a reasonable :ee for providing this amount. 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 TMK Parcel. 2. For TMK Parcels of Developed Property, compute the Assigned Special Tax and Backup Special Tax applicable for the TMK Parcel to be prepaid. For TMK Parcels of Approved Property or Undeveloped Property for which a building permit has been issued, County of Hawaii /A No. 1 of CFD No. 1-(The Villages ojAina Le`a Page 11 compute the Assigned Special Tax and Backup Special Tax for that TMK Parcel as though it was already designated as Developed Property, based upon the building permit which has already been issued for that TMK Parcel. 3. (a) Divide the Assigned Special Tax computed pursuant to paragraph 2 by the total estimated Assigned Special Tax for the entire IA No. 2 based on the Developed Property Special Tax which could be charged in the current Fiscal Year on all expected development through buildout of IA No. 2, and (b) Divide the Backup Special Tax computed pursuant to paragraph 2 by the total estimated Backup Special Tax at buildout far the entire IA No. 2. 4. Multiply the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the Outstanding Bonds to compute the amount of Outstanding Bonds to be retired and prepaid (the "Bond Redemption Amount"). 5. Multiply the Bond Redemption Amount computed pursuant to pazagraph 4 by the applicable redemption premium, if any, on the Outstanding Bonds 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 ; uture Facilities Costs to be prepaid (the "Future Facilities Amount"). 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. 9. Determine the Special Tax levied on the TMK Parcel in the current Fiscal Year which have not yet been paid. 10. Compute the minimum amount the CFD Administrator 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 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"). County oJHawai'i !A No. 2 of CFD No. !-(The Villages ofAina Le'a Page /2 12. Verify the administrative fees and expenses of IA No. 2, 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 fiord credit ("Reserve Fund Credit") shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement (as defined in the Indenture) in effect after the redemption of Outstanding Bonds 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 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 pazagraph 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 pazagraphs 4, 5, 1 I, 13 and 14 shall be deposited into the appropriate fund as established under the Indenture and be used to retire Outstanding Bonds or make debt service payments. The amount computed pursuant to paragraph 7 shall be deposited into the Construction Fund. The amount computed pursuant to pazagraph 12 shall be retained by IA No. 2. 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 Indenture to be used with the next prepayment of bonds or to make debt service payments. As a result of the payment of the current Fiscal Year's Special Tax levy as determined under pazagraph 9 (above), the CFD Administrator shall remove the current Fiscal Year's Special Tax levy for such TMK Parcel from the County tax rolls. With respect to any TMK Pazcel that is prepaid, the County of Hawaii /A No. 2 ojCFD No. I-(The Vi/loges ofAina Le`a Page 13 Council shall cause a suitable notice to be recorded and filed with the bureau of conveyances or land court in compliance with the Code, to indicate the prepayment of Special 'taxes and the release of the Special Tax lien on such TMK Parcel, and the obligation of such TMK Parcel to pay the Special Tax shall cease. The CFD Administrator shall mail a copy of the notice to the owner and any known lessee of the property. Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Assigned Special Tax that may be levied on Taxable Property (excluding Taxable Property Owner Association Property and Taxable Public Property) within IA No. 2 both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds plus the estimated Administrative Expenses. 2. Prepayment in Part The Maximum Special Tax on a TMK Parcel of Developed Property, or Approved Property or Undeveloped Property for which a building permit has been issued 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: These terms have the following meaning: PP =the partial prepayment P~ = the Prepayment Amount calculated according to Section H.1 F = the percent by which the owner of the TMK Parcel(s) is partially prepaying the Maximum Annual Special Tax. A = the Administrative Fees and Expenses according to Section H.1 The owner of any TMK Parcel who desires such prepayment shall notify the CFD Administrator of such owner's intent to partially prepay the Special Tax and the percentage by which the Special Tax shall be prepaid. The CFD Administrator shall provide the owner with a statement of the amount required for the partial prepayment of the Special Tax for a TMK Parcel within thirty (30) days of the request and may charge a reasonable fee for providing this service. With respect to any TMK Parcel that is partially prepaid, the County shall (i) distribute the funds remitted to it according to Section H.1., and (ii) indicate in the records of IA No. 2 that there has been a partial prepayment of the Special Tax and that a portion of the Special Tax equal to the outstanding percentage (1.00 - F) of the remaining Maximum Special Tax shall continue to be levied on such TA4K Parcel pursuant to Section D. County of Hawaii /A No. 2 of CFD No. /-(The Villages ofAina Le`a Page !4 Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Assigned Special Tax that may be levied on Taxable Property (excluding Taxable Property Owner Association Property and Taxable Public Property) within IA No. 2 both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds plus estimated Administrative Expenses. I. TERM OF SPECIAL TAX The Special Tax shall be levied for a period not to exceed fifty years commencing with Fiscal Year 2007-08. County of Hawaii /A No. 2 of CFD No. /-(The Vi//ages of Ahra Le'a Page I S EXHIBIT C-3 RATE AND METHOD OF APPORTIONMENT FOR IMPROVEMENT AREA N0.3 OF COMMUNITY FACILITIES DISTRICT NO. 1 - THE VILLAGES OF AINA LE`A A Special Tax as hereinafter defined shall be :evied on all Tax Map Key parcels in Improvement Area No. 3 ("IA No. 3") of the Community Facilities District No. 1 -The Villages of Aina Le`a of the County of Hawaii ("CFD No. 1") and collected each Fiscal Yeaz commencing in Fiscal Year 2007-08, in an amount determined by the CFD Administrator (as defined below) through the application of the procedures described below. All of the real property in IA No. 3, 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 number of acres of land azea of a TMK Parcel as shown on the applicable Tax Map, or if the land area is not shown on such Tax Map, the land area shown on the applicable Final Map, parcel map, condominium plan, or other recorded parcel map. If such maps aze not available, the land area of the TMK Pazcel shall be calculated by the CFD Administrator. "Administrative Expenses" means the following actual or reasonably estimated costs related to the administration of IA No. 3: the costs of computing the Special Taxes and prepazing the annual Special Tax collection schedules (whether by the County or designee thereof or both); the costs of collecting the Special Taxes (whether by the County, through foreclosure proceedings, or otherwise); the costs of remitting the Special Taxes to the Trustee; the costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the County, IA No. 3 or any designee thereof of complying with arbitrage rebate requirements; the costs to the County, IA No. 3 or any designee thereof of complying with County, IA No. 3 or obligated persons disclosure requirements associated with applicable federal and state securities laws and of the Code; the costs associated with prepazing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the County, IA No. 3 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 County's annual administration fees and third party expenses. Administrative Expenses shall also include amounts estimated or advanced by the County or IA No. 3 for any other administrative purposes of IA No. 3, including attorney's fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes. County of Hawaii /A No. 3 oJCFD No. 1-The Villages of Aina Le`a Page 1 "Approved Property" means, for each Fiscal Yeaz, all Taxable Property which is located within a Final Map that was recorded prior to January 1 of the prior Fiscal Year; provided, however, that Approved Property shat; not include Developed Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property. "Assigned Special Tax" means the Special Tax for each Land Use Class of Developed Property, as determined in accordance with Section C.l.b below. "Backup Special Tax" means the Special Tax applicable to each TMK Parcel of Developed Property, as determined in accordance with Section C.1.c below. "Bonds" means any bonds or other debt (as defined in Section 32-16 of the Code), whether in one or more series, issued under the Code. "CFD Administrator" means an official of the County, or designee thereof, who is responsible for determining the Special Tax Requirement and providing for the levy and collection of the Special Taxes. "CFD No. 1" means the County of Hawaii Community Facilities District No. -1 -The Villages of Aina Le`a. "Clubhouse Property" means all TMK Parcels ofNon-Residential Property for which a building permit was issued for golf course clubhouse purposes. "Code" means the Community Facilities Districts Code (1994, Ord. No. 94-77, sec. 3), being Chapter 32 of the Hawaii County Code 1983 (2005 Edition, as amended). "Commercial Village Center Property" means all TMK Parcels of Non-Residential Property which is zoned CV (Village Commercial Districts) according to the Hawaii County Code Chapter 25, Article 5 and for which the building permit was issued for golf clubhouse, retail, or commercial purposes. "Council" means the Council of the County of Hawaii, acting as the legislative body of CFD No. 1. "County" means the County of Hawaii. "Developed Property" means, for each Fiscal Year, all Taxable Property for which a building permit for new construction was issued after January 1, 2006 and prior to March 1 of the prior Fiscal Year; provided, however, that Developed Property shall not include Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non- Taxable Zone Property. "Expected Special Tax" means the Special Tax for each Acre of Approved Property and Undeveloped Property, as determined in accordance with Section C.2 below. County of Hawaii /A No. 3 of CFD No. 1-The Villages of Aina Le`a Page 2 "Fiscal Year" means the period starting July 1 and ending on the following June 30. "Final Map" means a final map approved by the County pursuant to the Subdivision Control Code (Hawai`i County Code Chapter 23) that creates individual lots for which building permits may be issued or, in the case of a condominium project, the condominium property regime map recorded with the declaration of condominium property regime that creates the individual condominium units for which building permits may be issued. "IA No. 3" means Improvement Area No. 3 of CFD No. 1 as identified on the boundazy map for CFD No. 1. "Indenture" 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. "Land Use Class" means any of the classes listed in Table 1. "Maximum Special Tax" means the Maximum Special Tax, determined in accordance with Section C.l.a below, that can be levied in any Fiscal Year on any TMK Pazcel. "Non-Residentia? Property" means all TMK Pazcels of Developed Property for which a building permit(s) was issued for anon-residential use, including Clubhouse Property and Commercial Village Center Property. "Non-Taxable Zone Property" means all TMK Parcels within the boundaries of IA No. 3, which aze not considered Taxable Zone Property. "Outstanding Bonds" means all Bonds which are deemed to be outstanding under the Indenture. "Property Owner Association Property" means, for each Fiscal Yeaz, all Taxable Zone Property, other than Clubhouse Property or Commercial Village Center Property, that is owned by or irrevocably dedicated to a property owner association, including any master or sub-association. "Proportionately" means for Developed Property that the ratio of the actual Special Tax levy to the Assigned Special Tax is equal for all TMK Parcels of Developed Property. For Approved Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Parcels of Approved Property. For Undeveloped Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Parcels of Undeveloped Property. For Taxable Public Property and Taxable Property Owner Association Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax is equal for all TMK Parcels of Taxable Public Property and Taxable Property Owner Association Property, as applicable. For Taxable Non-Taxable Zone Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Parcels of Taxable Non-Taxable Zone Property. County of Hawaii /A No. 3 oJCFD No. / -The Villages ofAina Le`a Page 3 "Public Property" means, for each Fiscal Year, all Taxable Zone Property that (i) is owned by or irrevocably offered for dedication to the federal government, the State, the County, or any other public agency, provided however that any property leased by a public agency to a private entity and subject to taxation under Section 32-54 of the Code shall be taxed and classified in accordance with its use; or (ii) is encumbered by a road, access, public utility easement or other easement or recorded restriction For community or public use making impractical its use for any purpose other than that set forth in the easement or recorded restriction. "Residential Floor Area" means all of the square footage of living area within the perimeter of a residential structure, not including any cazport, walkway, gazage, overhang, patio, enclosed patio, or similar area. The determination of Residential Floor Area shall be made by reference to the building permit(s) issued for such TMK Parcel. "Residential Property" means all TMK Pazcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwelling units. "Special Tax" means the special tax to be levied in each Fiscal Yeaz on each TMK Parcel of Developed Property, Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property to fund the Special Tax Requirement. "Special Tax Requirement" means that amount required in any Fiscal Year for IA No. 3 to: (i) pay debt service on all Outstanding Bonds; (ii) pay periodic costs on the Outstanding Bonds, including but not limited to, credit enhancement and rebate payments on the Outstanding 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 acquisition or construction of facilities eligible to be financed by IA No. 3 to the extent that the inclusion of such amount does not increase the Special Tax levy on Undeveloped Property; (vi) pay for reasonably anticipated delinquent Special Taxes based on the delinquency rate for Special Taxes levied in the previous Fiscal Year; less (vii) a credit for funds available to reduce the annual Special Tax levy, as determined by the CFD Administrator pursuant to the Indenture. "State" means the State of Hawaii. "Tax Map" means an official map of the County designating parcels by Tax Map Key number. "Tax Map Key Parcel" or "TMK Parcel" means a lot or pazcel shown on a Tax Map with an assigned tax map key number. A TMK Parcel may include a portion of a lot or two or more lots. "Taxable Non-Taxable Zone Property" means all TMK Parcels of Non-Taxable Zone Property that are not exempt pursuant to Section E below. County of Hawai `i /A No. 3 of CFD No. ! -The Vi![ages ojAina Le`a Page 4 "Taxable Property" means, for each Fiscal Year, all property which is not exempt from the Special Tax pursuant to law or Section E below. "Taxable Property Owner Association Property" means all TMK Parcels of Property Owner Association Property that are not exempt pursuant to Section E below. "Taxable Public Property" means all TMK Parcels of Public Property that aze not exempt pursuant to Section E below. "Taxable Zone Property" means (i) atl TMK Pazcels within the boundaries of IA No. 3 for which the zoning according to the Hawaii County Code Chapter 25, Article 5 is RS (Single- Family Residential Districts), RD (Double-Family Residential Districts), RM (Multiple- Family Residential Districts), RCX (Residential-Commercial Mixed Use Districts), RA (Residential and Agricultural Districts), V (Resort-Hotel Districts), CN (Neighborhood Commercial Districts), CG (General Commercial Districts), CV (Village Commercial Districts), MCX (Industrial-Commercial Mixed Districts), ML (Limited Industrial Districts), or MG (General Industrial Districts); or (ii) any other TMK Parcel within the boundaries of IA No. 3 on which one or more residential dwelling units is or are constructed. "Trustee" means the trustee or fiscal agent under the Indenture. "Undeveloped Property" means, for each Fiscal Year, all Taxable Property not classified as Developed Property, Approved Property, Taxable Property Owner Association Property, Taxable Public Property, or Taxable Non-Taxable Zone Property. B. ASSIGNMENT TO LAND USE CATEGORIES Each Fiscal Year, all Taxable Property within IA No. 3 shall be classified as Developed Property, Approved Property, Taxable Public Property, Taxable Property Owner Association Property, Taxable Non-Taxable Zone 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 The Maximum Special Tax for each TMK Parcel classified as Developed Property shall be the greater of (i) the Assigned Special Tax or (ii) the Backup Special Tax. County ojHawai`i /A No. 3 ojCFD No. / -The Villages oJAina Le`a Page 5 b. Assigned Special 1'ax The Assigned Special Tax for Residential Property shall be based on the Residential Floor Area of each dwelling unit located on the TMK Parcel. The Assigned Special Tax for Non-Residential Property shall be based on the Acreage of the TMK Parcel. The Assigned Special Tax for each Land Use Class is shown below in Table 1. TABLE 1 Assi ned S ecial Tax for Develo ed Pro e Land Use Residential Floor Assigned Special Tax Class Description Area Per unit/Acre 1 Residential Property > 2,050 sq. ft. $5,878 per unit 2 Residential Property 1,850 - 2,049 sq. ft. $5,259 per unit 3 Residential Property 1,650 - 1,849 sq. ft. $4,331 per unit 4 Residential Property < 1,650 sq. ft. $3,588 per unit 5 Non-Residential Property Not Applicable $7,000 per Acre c. Backup Special Tax (i) Residential Property The Backup Special Tax attributable to Residential Property within a Final Map will equal $26,716 multiplied by the Acreage of all Taxable Property located within such Final Map, excluding current or expected Non-Residential Property, Taxable Public Property, Taxable Property Owner Association Property, and Taxable Non- Taxable Zone Property. The Backup Special Tax for each TMK Parcel of Residential Property in a Final Map shall be computed by dividing the aggregate Backup Special Tax attributable to such Final Map by the aggregate number of units for which building permits for residential construction have or may be issued within the Final Map and multiplying the resulting quotient by the number of units within each TMK Parcel for which building permits for residential construction have been or may be issued. Notwithstanding the foregoing, if all or any portion of a Final Map is subsequently changed or modified, then the Backup Special Tax for each TMK Parcel of Residential Property in such Final Map that is changed or modified shall be a rate per Acre calculated as follows: County of Hawaii /A No. 3 of CFD No. 1-The Vi/[ages ojAina Le`a Page 6 1. Determine the total Backup Special Taxes anticipated to apply to the changed or modified portion of the Final Map prior to the change or modification. 2. The result of paragraph 1 above shall be divided by the total Acreage of Taxable Property excluding Non-Residential Property, Taxable Public Property, Taxable Property Owner Association Property, and Taxable Non-Taxable Zone Property which is ultimately expected to exist in such changed or modified Final Map area, as reasonably determined by the CFD Administrator. 3. The result is the Backup Special Tax per Acre which shall be applicable to all TMK Parcels of Residential Property in such changed or modified Final Map. (ii) Non-Residential Property The Backup Special Tax for Non-Residential Property shall be $26,716 per Acre. d. Multiple Land Use Classes In some instances a TMK Parcel of Developed Property may contain more than one Land Use Class. The Assigned Special Tax levied on a TMK Pazcel shall be the sum of the Assigned Special Tax for all Land Use Classes located on that TMK Parcel. The Maximum Special Tax that can be levied on a TMK Parcel shall be the sum of the Maximum Special Tax that can be levied for all Land Use Classes located on that TMK Parcel. For a TMK Parcel that contains both Residential Property and Non-Residential Property, the Acreage of such TMK Pazcel shall be allocated to each type of property based on the amount of Acreage designated for each land use as determined by reference to the site plan approved for such TMK Parcel. The CFD Administrator's allocation to each type of property shall be final. 2. Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property a. Expected Special Tax The Expected Special Tax for Approved Property and Undeveloped Property shall be $19,000 per Acre. County ojHawai'i /A No. 3 ojCFD Nn. ! -The Villages ofAina Le`a Page ~ b. Maximum Special 'l'ax The Maximum Special Tax for Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property shall be $26,716 per Acre. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX 1. Special Tax Commencing with Fiscal Year 2007-08 and for each following Fiscal Year, the CFD Administrator shall determine the Special Tax Requirement and the Council shall levy the Special Tax as follows: First: The Special Tax shall be levied Proportionately on each TMK Parcel of Developed Property 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 TMK Parcel of Approved Property at up to 100% of the Expected Special Tax for Approved Property; Third: If additional monies aze needed to satisfy the Special Tax Requirement after the first two steps have been completed, the Special Tax shall be levied Proportionately on each TMK Pazcel of Undeveloped Property at up to 100% of the Expected 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, the Special Tax shall be levied Proportionately on each TMK Parcel of Approved Property at up to 100% of the Maximum Special Tax for Approved Property; Fifth: If additional monies are needed to satisfy the Special Tax Requirement after the first four steps have been completed, then the levy of the Special Tax on each TMK Parcel of Developed Property 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 TMK Pazcel; Sixth: If additional monies are needed to satisfy the Special Tax Requirement after the first five steps have been completed, the Special Tax shall be levied Proportionately on each TMK Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax for Undeveloped Property; Seventh: If additional monies are needed to satisfy the Special Tax Requirement after the first six steps have been completed, then the Special Tax shall be levied County of Hawaii /A No. 3 ofCFD No. 1-The Villages ofAina Le`a Page 8 Proportionately on each TMK Parcel of Taxable Property Owner Association Property and Taxable Public Property at up to the Maximum Special Tax for Taxable Property Owner Association Property or Taxable Public Property. Eighth: If additional monies are needed to satisfy the Special Tax Requirement after the first seven steps have been completed, then the Special Tax shall be levied Proportionately on each TMK Parcel of Taxable Non-Taxable Zone Property at up to the Maximum Special Tax for Taxable Non-Taxable Zone Property. E. EXEMPTIONS No Special Taxes shall be levied on Non-Taxable Zone Property, Property Owner Association Property and Public Property, so long as the Acreage of Taxable Property is at least 101.79 Acres. Tax-exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Non-Taxable Zone Property, Property Owner Association Property or Public Property. To the extent that the exemption of an Assessor's Parcel of Property Owner Association Property, Public Property, or Non-Taxable Zone Property would reduce the Acreage of Taxable Property below 101.79 Acres, such Assessor's Parcel shall be classified as Taxable Property Owner Association Property, Taxable Public Property, or Taxable Non-Taxable Zone Property, as applicable, and shall be subject to the levy of the Special Tax and shall be taxed as part of the appropriate step in Section I) above. Should a TMK Parcel no longer be classified as Non-Taxable Zone Property, Property Owner Association Property, or Public Property, its tax-exempt status will, without the necessity of any action by the Council, terminate. F. INTERPRETATIONS Interpretations may be made by the Council by ordinance or resolution for purposes of clarifying any vagueness or ambiguity in this Rate and Method of Apportionment. G. 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 IA No. 3 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 TMK Parcels as permitted by the Code. H. PREPAYMENT OF SPECIAL T.AX The following definition applies to this Section H: "CFD Public Facilities" means either $17.0 million in 2006 dollars, which shall increase by the Construction Inflation Index on July 1, 2007, and on each July 1 thereafter, or such County of Hawaii [A No. 3 of CFD No. / -The ViDages of Aina Le'a Page 9 lower number as (i) shall be determined by the CFD Administrator as sufficient to provide the public facilities to be provided by IA No. 3 under the authorized bonding program for IA No. 3, or (ii) shall be determined by the Council 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 as described in S°ction D. "Construction Fund" means an account specifically identified in the Indenture to hold funds which aze currently available for expenditure to acquire or construct public facilities eligible under the Code. "Construction Inflation Index" means the annual percentage change in the Honolulu Construction Cost Index: Single Family Residence, 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 CFD Administrator that is reasonably compazable to the Honolulu Construction Cost Index: Single Family Residence. "Future Facilities Costs" means the CFD Public Facilities minus (i) public facility costs previously paid from the Construction Fund, (ii) moneys currently on deposit in the Construction Fund, and (iii) moneys currently on deposit in an escrow fund that aze expected to be available to finance public facilities costs. "Outstanding Bonds" means, for purposes of this section H, all Bonds which are deemed to be outstanding under the Indenture after the first interest and/or principal payment date following the current Fiscal Year. 1. Prepayment in Full Any TMK Parcel of Developed Property, or Approved Property or Undeveloped Property for which a building permit has been issued, may be prepaid. The Special Tax obligation applicable to such TMK Parcel in IA No. 3 may be fully prepaid and the obligation of the TMK 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 TMK Parcel at the time of prepayment. An owner of a TMK Parcel intending to prepay the Special Tax obligation shall provide the CFD Administrator with written notice of intent to prepay. Within 30 days of receipt of such written notice, the CFD Administrator shall notify such owner of the prepayment amount of such TMK Parcel. The CFD Administrator may charge a reasonable fee for providing this amount. The Prepayment Amount (defined below) shall be calculated as summarized below (capitalized terms as defined below): Bond Redemption Amount plus Kedemption Premium plus Future Facilities Amount County of Hawaii /A No. 3 of CFD No. 1-The Vi/!ages of Aina Le`a Page 10 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: Paraeraph No.: 1. Confirm that no Special Tax delinquencies apply to such TMK Parcel. 2. For TMK Parcels of Developed Property, compute the Assigned Special Tax and Backup Special Tax applicable for the TMK Parcel to be prepaid. For TMK Parcels of Approved Property or Undeveloped Property for which a building permit has been issued, compute the Assigned Special Tax and Backup Special Tax for that TMK Parcel as though it was already designated as Developed Property, based upon the building permit which has already been issued for that TMK Parcel. 3. (a) Divide the Assigned Special Tax computed pursuant to paragraph 2 by the total estimated Assigned Special Tax for the entire IA No. 3 based on the Developed Property Special Tax which could be charged in the current Fiscal Year on all expected development through buildout of IA No. 3, and (b) Divide the Backup Special Tax computed pursuant to paragraph 2 by the total estimated Backup Special Tax at buildout for the entire IA No. 3. 4. Multiply the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the Outstanding Bonds to compute the amount of Outstanding Bonds 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 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 amo~xnt determined pursuant to paragraph 6 to compute the amount of Future Facilities Costs to be prepaid (the "Future Facilities Amount"). Coanry of Hawa!`i /A No. 3 oJCFD No. ! -The Villages of Aina Le'a Page 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. 9. Determine the Special Tax levied on the TMK Parcel in the current Fiscal Year which have not yet been paid. 10. Compute the minimum amount the CFD Administrator 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 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 IA No. 3, 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 "Administrutive Fees and Expenses"). 13. The reserve fund credit ("Reserve Fund Credit") shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement (as defined in the Indenture) in effect after the redemption of Outstanding Bonds 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 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 afer 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"). County oJHawai`i /A No. 3 of CFD No. 1-The Villages oJAina Le`a Page 12 16. From the Prepa; ment Amount, the amounts computed pursuant to pazagraphs 4, 5, 11, 13 and 14 shall be deposited into the appropriate fund as established under the Indenture and be used to retire Outstanding Bonds or make debt service payments. The amount computed pursuant to paragraph 7 shall be deposited into the Construction Fund. The amount computed pursuant to paragraph 12 shall be retained by IA No. 3. 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 Indenture to be used with the next prepayment of bonds or to make debt service payments. As a result of the payment of the current Fiscal Year's Special Tax levy as determined under pazagraph 9 (above), the CFD Administrator shall remove the current Fiscal Ycar's Special Tax levy for such TMK Parcel from the County tax rolls. With respect to any TMK Parcel that is prepaid, the Council shall cause a suitable notice to be recorded and filed with the bureau of conveyances or land court in compliance with the Code, to indicate the prepayment of Special Taxes and the release of the Special Tax lien on such TMK Parcel, and the obligation of such TMK Parcel to pay the Special Tax shall cease. The CFD Administrator shall mail a copy of the notice to the owner and any known lessee of the property. Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Assigned Special Tax that may be levied on Taxable Property (excluding Taxable Property Owner Association Property and Taxable Public Property) within IA No. 3 both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds plus the estimated Administrative Expenses. 2. Prepayment in Part The Maximum Special Tax on a TMK Parcel of Developed Property, or Approved Property or Undeveloped Property for which a building permit has been issued 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: These terms have the following meaning: PP =the partiai prepayment PE = the Prepayment Amount calculated according to Section H.1 County of Hawai `i /A No. 3 oJCFD No. 1-The Vi[[ages oJAina Le'a Page /3 F = the percent by which the owner of the TMK Pazcel(s) is partially prepaying the Maximum Annual Special Tax. A = the Administrative Fees and Expenses according to Section H.1 The owner of any TMK Pazcel who desires such prepayment shall notify the CFD Administrator of such owner's intent to partially prepay the Special Tax and the percentage by which the Special Tax shall be prepaid. The CFD Administrator shall provide the owner with a statement of the amount required for the partial prepayment of the Special Tax for a TMK Parcel within thirty (30) days of the request and may charge a reasonable fee for providing this service. With respect to any TMK Parcel that is partially prepaid, the County shall (i) distribute the funds remitted to it according to Section H.l., and (ii) indicate in the records of IA No. 3 that there has been a partial prepayment of the Special Tax and that a portion of the Special Tax equal to the outstanding percentage (1.00 - F) of the remaining Maximum Special Tax shall continue to be levied on such TMK Parcel pursuant to Section D. Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Assigned Special Tax that may be levied on Taxable Property (excluding Taxable Property Owner Association Property and Taxable Public Property) within IA No. 3 both prior to and afrer the proposed prepayment is at least L 1 times the maximum annual debt service on all Outstanding Bonds plus estimated Administrative Expenses. I. TERM OF SPECIAL TAX The Special Tax shall be levied for a period not to exceed fifty years commencing with Fiscal Year 2007-08. County of Hawai'/ /A No. 3 oJCFD No. 1-The Villages ofAina Le`a Page /4 EXHIBIT C-4 RATE AND METHOD OF APPORTIONMENT FOR IMPROVEMENT AREA N0.4 OF COMMUNITY FACILITIES DISTRICT NO. 1 - THE VILLAGES OF AINA LE`A A Special Tax as hereinafter defined shall be levied on all Tax Map Key parcels in Improvement Area No. 4 ("IA No. 4") of the Community Facilities District No. 1 -The Villages of Aina Le`a of the County of Hawaii ("CFD No. 1") and collected each Fiscal Yeaz commencing in Fiscal Yeaz 2007-08, in an amount determined by the CFD Administrator (as defined below) through the application of the procedures described below. All of the real property in IA No. 4, 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 number of acres of land area of a TMK Parcel as shown on the applicable Tax Map, or if the land area is not shown on such Tax Map, the land area shown on the applicable Final Map, pazcel map, condominium plan, or other recorded parcel map. If such maps aze not available, the land azea of the TMK Parcel shall be calculated by the CFD Administrator. "Administrative Expenses" means the following actual or reasonably estimated costs related to the administration of IA No. 4: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the County or designee thereof or both); the costs of collecting the Special Taxes (whether by the County, through foreclosure proceedings, or otherwise); the costs of remitting the Special Taxes to the Trustee; the costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the County, IA No. 4 or any designee thereof of complying with azbitrage rebate requirements; the costs to the County, IA No. 4 or any designee thereof of complying with County, IA No. 4 or obligated persons disclosure requirements associated with applicable federal and state securities laws and of the Code; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the County, IA No. 4 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 County's annual administration fees and third party expenses. Administrative Expenses shall also include amounts estimated or advanced by the County or IA No. 4 for any other administrative purposes of IA No. 4, including attorney's fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes. County ojHawai`i /A No. 4 oJCFD No. 1-The Villages oJAina Le`a Page 1 "Approved Property" means, for each Fiscal Year, all Taxable Property which is located within a Final Map that was recorded prior to January 1 of the prior Fiscal Year; provided, however, that Approved Property shah not include Developed Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property. "Assigned Special Tax" means the Special Tax for each Land Use Class of Developed Property, as determined in accordance with Section C.l.b below. "Backup Special Tax" means the Special Tax applicable to each TMK Pazcel of Developed Property, as determined in accordance with Section C.1.c below. "Bonds" means any bonds or other debt (as defined in Section 32-16 of the Code), whether in one or more series, issued under the Code. "CFD Administrator" means an official of the County, or designee thereof, who is responsible for determining the Special Tax Requirement and providing For the levy and collection of the Special Taxes. "CFD No. 1" means the County of Hawaii Community Facilities District No. 1 -The Villages of Aina Le`a. "Clubhouse Property" means all TMK Pazcels ofNon-Residential Property for which a building permit was issued for golf course clubhouse purposes. "Code" means the Community Facilities Districts Code (1994, Ord. No. 94-77, sec. 3), being Chapter 32 of the Hawaii County Code 1983 (2005 Edition, as amended). "Commercial Village Center Property" means all TMK Parcels of Non-Residential Property which is zoned CV (Village Commercial Districts) according to the Hawaii County Code Chapter 25, Article 5 and for which the building permit was issued for golf clubhouse, retail, or commercial purposes. "Council" means the Council of the County of Hawaii, acting as the legislative body of CFD No. 1. "County" means the County of Hawaii. "Developed Property" means, for each Fiscal Year, all Taxable Property for which a building permit for new construction was issued afrer January 1, 2006 and prior to March 1 of the prior Fiscal Year; provided, however, that Developed Property shall not include Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non- Taxable Zone Property. "Expected Special Tax" means the Special Tax for each Acre of Approved Property and Undeveloped Property, as determined in accordance with Section C.2 below. County of Hawaii /A No. 4 oJCFD No. 1-The Vi/loges oJAina Le'a Page 2 "Fiscal Year" means the period starting July 1 and ending on the following June 30. "Final Map" means a final map approved by the County pursuant to the Subdivision Control Code (Hawai`i County Code Chapter 23) that creates individual lots for which building permits may be issued or, in the case of a condominium project, the condominium property regime map recorded with the declaration of condominium property regime that creates the individual condominium units for which building permits may be issued. "IA No. 4" means Improvement Area No. 4 of CFD No. 1 as identified on the boundary map for CFD No. 1. "Indenture" 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. "Land Use Class" means any of the classes listed in Table 1. "Maximum Special Tax" means the Maximum Special Tax, determined in accordance with Section C.l.a below, that can be levied in any Fiscal Year on any TMK Parcel. "Non-Residential Property" means all TMK Parcels of Developed Property for which a building permit(s) was issued for anon-residential use, including Clubhouse Property and Commercial Village Center Property. "Non-Taxable Zone Property" means all TMK Parcels within the boundaries of IA No. 4, which are not considered Taxable Zone Property. "Outstanding Bonds" means all Bonds which are deemed to be outstanding under the Indenture. "Property Owner Association Property" means, for each Fiscal Year, all Taxable Zone Property, other than Clubhouse Property or Commercial Village Center Property, that is owned by or in•evocably dedicated to a property owner association, including any master or sub-association. "Proportionately" means for Developed Property that the ratio of the actual Special Tax levy to the Assigned Special Tax is equal for all TMK Parcels of Developed Property. For Approved Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Parcels of Approved Property. For Undeveloped Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Pazcels of Undeveloped Property. For Taxable Public Property and Taxable Property Owner Association Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax is equal for all TMK Pazcels of Taxable Public Property and Taxable Property Owner Association Property, as applicable. For Taxable Non-Taxable Zone Property, "Proportionately" means that the ratio of the actual Special Tax levy to the Maximum Special Tax, is equal for all TMK Parcels of Taxable Non-Taxable Zone Property. County ojHawai`i /A No. 4 of CFD No. 1-The Villages of Aina Le`a Page 3 "Public Property" means, for each Fiscal Year, all Taxable Zone Property that (i) is owned by or irrevocably offered for dedication to the federal government, the State, the County, or any other public agency, provided however that any property leased by a public agency to a private entity and subject to taxation under Section 32-54 of the Code shall be taxed and classified in accordance with its use; or (ii) is encumbered by a road, access, public utility easement or other easement or recorded restriction for community or public use making impractical its use for any purpose other than that set forth in the easement or recorded restriction. "Residential Floor Area" means all of the square footage of living area within the perimeter of a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio, or similaz area. The determination of Residential Floor Area shall be made by reference to the building permit(s) issued for such TMK Pazcel. "Residential Property" means all TMK Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwelling units. "Special Tax" means the special tax to be levied in each Fiscal Yeaz on each TMK Parcel of Developed Property, Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property to fund the Special Tax Requirement. "Special Tax Requirement" means that amount required in any Fiscal Year for IA No. 4 to: (i) pay debt service on all Outstanding Bonds; (ii) pay periodic costs on the Outstanding Bonds, including but not limited to, credit enhancement and rebate payments on the Outstanding 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 acquisition or construction of facilities eligible to be financed by IA No. 4 to the extent that the inclusion of such amount does not increase the Special Tax levy on Undeveloped Property; (vi) pay for reasonably anticipated delinquent Special Taxes based on the delinquency rate for Special Taxes levied in the previous Fiscal Year; less (vii) a credit for funds available to reduce the annual Special Tax levy, as determined by the CFD Administrator pursuant to the Indenture. "State" means the State of Hawaii. "Tax Map" means an official map of the County designating parcels by Tax Map Key number. "Tax Map Key Parcel" or "TMK Parcel" means a lot or parcel shown on a Tax Map with an assigned tax map key number. A TMK Parcel may include a portion of a lot or two or more lots. "Taxable Non-Taxable Zone Property" means all TMK Parcels of Non-Taxable Zone Property that are not exempt pursuant to Section E below. County of Hawaii /A No. 4 of CFD No. 1-The Vi![ages of Aina Le`a Page 4 "Taxable Property" means, for each Fiscal Year, all property which is not exempt from the Special Tax pursuant to law or Section E below. "Taxable Property Owner Association Property" means all TMK Parcels of Property Owner Association Property that are not exempt pursuant to Section E below. "Taxable Public Property" means all TMK Pazcels of Public Property that are not exempt pursuant to Section E below. "Taxable Zone Property" means (i) a.l TMK Pazcels within the boundazies of IA No. 4 for which the zoning according to the Hawaii County Code Chapter 25, Article 5 is RS (Single- Family Residential Districts), RD (Double-Family Residential Districts), RM (Multiple- Family Residential Districts), RCX (Residential-Commercial Mixed Use Districts), RA (Residential and Agricultural Districts), V (Resort-Hotel Districts), CN (Neighborhood Commercial Districts), CG (General Commercia? Districts), CV (Village Commercial Districts), MCX (Industrial-Commercial Mixed Districts), ML (Limited Industrial Districts), or MG (General Industrial Districts); or (ii) any other TMK Parcel within the boundaries of IA No. 4 on which one or more residential dwelling units is or are constructed. "Trustee" means the trustee or fiscal agent under the Indenture. "Undeveloped Property" means, for each Fiscal Year, all Taxable Property not classified as Developed Property, Approved Property, Taxable Property Owner Association Property, Taxable Public Property, or Taxable Non-Taxable Zone Property. B. ASSIGNMENT TO LAND USE CATEGORIES Each Fiscal Year, all Taxable Property within IA No. 4 shall be classified as Developed Property, Approved Property, Taxable Public Property, Taxable Property Owner Association Property, Taxable Non-Taxable Zone 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 The Maximum Special Tax for each TMK Parcel classified as Developed Property shall be the greater of (i) the Assigned Special Tax or (ii) the Backup Special Tax. County ojHawai`/ /A No. 4 of CFD No. ! -The Villages of Aina Le`a Page 5 b. Assi ng ed Special Tax The Assigned Special "i ax for Residential Property shall be based on the Residential Floor Area of each dwelling unit located on the TMK Parcel. The Assigned Special Tax for Non-Residential Property shall be based on the Acreage of the TMK Parcel. The Assigned Special Tax for each Land Use Class is shown below in Table 1. TABLE 1 Assi ned S ecial Tax for Develo ed Pro er Land Use Residential Floor Assigned Special Tax Class Description Area Per uniUAcre 1 Residential Property > 2,150 sq. fr. $5,864 per unit 2 Residential Property 1,850 - 2,149 sq. ft. $5,247 per unit 3 Residential Property 1,550 - 1,849 sq. fr. $4,414 per unit 4 Residential Property 1,250 - 1,549 sq. ft. $3,580 per unit 5 Residential Property < 1,250 sq. fr. $2,778 per unit 6 Non-Residential Property Not Applicable $7,000 per Acre c. Backup Special Tax (i) Residential Property The Backup Special Tax attributable to Residential Property within a Final Map will equal $38,815 multiplied by the Acreage of all Taxable Property located within such Final Map, excluding current or expected Non-Residential Property, Taxable Public Property, Taxable Property Owner Association Property, and Taxable Non- Taxab?e Zone Property. The Backup Special Tax for each TMK Parcel of Residential Property in a Final Map shall be computed by dividing the aggregate Backup Special Tax attributable to such Final Map by the aggregate number of units for which building permits for residential construction have or may be issued within the Final Map and multiplying the resulting quotient by the number of units within each TMK Parcel for which building permits for residential construction have been or may be issued. Notwithstanding the foregoing, if all or any portion of a Final Map is subsequently changed or modified, then the Backup Special Tax for County ojHawai`i !A No. 4 of CFD No. 1 -The Villages ojAina Le'a Page 6 each TMK Parcel of Residential Property in such Final Map that is changed or modified shall be a rate per Acre calculated as follows: 1. Determine the total Backup Special Taxes anticipated to apply to the changed or modified portion of the Final Map prior to the change or modification. 2. The result of paragraph 1 above shall be divided by the total Acreage of Taxable Property excluding Non-Residential Property, Taxable Public Property, Taxable Property Owner Association Property, and Taxable Non-Taxable Zone Property which is ultimately expected to exist in such changed or modified Final Map area, as reasonably determined by the CFD Administrator. 3. The result is the Backup Special Tax per Acre which shall be applicable to all TMK Parcels of Residential Property in such changed or modified Final Map. (ii) Non-Residential Property The Backup Special Tax for Non-Residential Property shall be $38,815 per Acre. d. Multiple Land Use Classes In some instances a TMK Parcel of Developed Property may contain more than one Land Use Class. The Assigned Special Tax levied on a TMK Pazcel shall be the sum of the Assigned Special Tax for all Land Use Classes located on that TMK Parcel. The Maximum Special Tax that can be levied on a TMK Parcel shall be the sum of the Maximum Special Tax that can be levied for all Land Use Classes located on that TMK Pazcel. For a TMK Parcel that contains both Residential Property and Non-Residential Property, the Acreage of such TMK Parcel shall be allocated to each type of property based on the amount of Acreage designated for each land use as determined by reference to the site plan approved for such TMK Parcel. The CFD Administrator's allocation to each type of property shall be final. 2. Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property a. Ex ected S ecial Tax The Expected Special Tax for Approved Property and Undeveloped Property shall be $28,000 per Acre. County ojHawai'i /A No. 4 ojCFD No. 1-The Villages ojAina Le`a Page 7 b. Maximum Special Tax The Maximum Special Tax for Approved Property, Undeveloped Property, Taxable Property Owner Association Property, Taxable Public Property, and Taxable Non-Taxable Zone Property shall be $38,815 per Acre. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX 1. Special Tax Commencing with Fiscal Year 2007-08 and for each following Fiscal Year, the CFD Administrator shall determine the Special Tax Requirement and the Council shall levy the Special Tax as follows: First: The Special Tax shall be levied Proportionately on each TMK Parcel of Developed Property 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 TMK Parcel of Approved Property at up to 100% of the Expected Special Tax for Approved Property; 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 TMK Parcel of Undeveloped Property at up to 100% of the Expected 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, the Special Tax shall be levied Proportionately on each TMK Parcel of Approved Property at up to 100% of the Maximum Special Tax for Approved Property; Fifth: If additional monies are needed to satisfy the Special Tax Requirement after the first four steps have been completed, then the levy of the Special Tax on each TMK Parcel of Developed Property 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 TMK Parcel; Sixth: If additional monies are needed to satisfy the Special Tax Requirement after the first five steps have been completed, the Special Tax shall be levied Proportionately on each TMK Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax for Undeveloped Property; Seventh: If additional monies are needed to satisfy the Special Tax Requirement after the first six steps have been completed, then the Special Tax shall be levied County of Hawa/'/ !A No. 4 oJCFD No. 1-The Villages ofAina Le`n Page 8 Proportionately on each TMK Parcel of Taxable Property Owner Association Property and Taxable Public Property at up to the Maximum Special Tax for Taxable Property Owner Association Property or Taxable Public Property. Ei the If additional monies are needed to satisfy the Special Tax Requirement after the first seven steps have been completed, then the Special Tax shall be levied Proportionately on each TMK Pazcel of Taxable Non-Taxable Zone Property at up to the Maximum Special Tax for Taxable Non-Taxable Zone Property. E. EXEMPTIONS No Special Taxes shall be levied on Non-Taxable Zone Property, Property Owner Association Property and Public Property, so long as the Acreage of Taxable Property is at least 52.57 Acres. Tax-exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Non-Taxable Zone Property, Property Owner Association Property or Public Property. To the extent that the exemption of an Assessor's Parcel of Property Owner Association Property, Public Property, or Non-Taxable Zone Property would reduce the Acreage of Taxable Property below 52.57 Acres, such Assessor's Parcel shall be classified as Taxable Property Owner Association Property, Taxable Public Property, or Taxable Non-Taxable Zone Property, as applicable, and shall be subject to the levy of the Special Tax and shall be taxed as part of the appropriate step in Section D above. Should a TMK Parcel no longer be classified as Non-Taxable Zone Property, Property Owner Association Property, or Public Property, its tax-exempt status will, without the necessity of any action by the Council, terminate. F. INTERPRETATIONS Interpretations may be made by the Council by ordinance or resolution for purposes of clarifying any vagueness or ambiguity in this Rate and Method of Apportionment. G. 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 IA No. 4 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 TMK Parcels as permitted by the Code. H. PREPAYMENT OF SPECIAL TAX The following definition applies to this Section H: "CFD Public Facilities" means either $12.7 million in 2006 dollars, which shall increase by the Construction Inflation Index on July 1, 2007, and on each July 1 thereafrer, or such County ojHawai'i /A No. 4 oJCFD No. 1-The Villages of Aina Le'a Page 9 lower number as (i) shall be determined by the CFD Administrator as sufficient to provide the public facilities to be provided by IA No. 4 under the authorized bonding program for IA No. 4, or (ii) shall be determined by the Council concun•ently 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 as described in Section D. "Construction Fund" means an account specifically identified in the Indenture to hold funds which are currently available for expenditure to acquire or construct public facilities eligible under the Code. "Construction Inflation Index" means the annual percentage change in the Honolulu Construction Cost Index: Single Family Residence, 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 CFD Administrator that is reasonably comparable to the Honolulu Construction Cost Index: Single Fami~ Residence. "Future Facilities Costs" means the CFD Public Facilities minus (i) public facility costs previously paid from the Construction Fund, (ii) moneys currently on deposit in the Construction Fund, and (iii) moneys currently on deposit in an escrow fund that aze expected to be available to finance public facilities costs. "Outstanding Bonds" means, for purposes of this section H, all Bonds which are deemed to be outstanding under the Indenture after the first interest and/or principal payment date following the current Fiscal Year. 1. Prepayment in Full Any TMK Parcel of Developed Property, or Approved Property or Undeveloped Property for which a building permit has been issued, may be prepaid. The Special Tax obligation applicable to such TMK Parcel in IA No. 4 may be fully prepaid and the obligation of the TMK Parcel to pay the Special Tax permanently satisfied as described herein; provided that a prepayment may be made only if there aze no delinquent Special Taxes with respect to such TMK Parcel at the time of prepayment. An owner of a TMK Parcel intending to prepay the Special Tax obligation shall provide the CFD Administrator with written notice of intent to prepay. Within 30 days of receipt of such written notice, the CFD Administrator shall notify such owner of the prepayment amount of such TMK Parcel. The CFD Administrator may charge a reasonable fee for providing this amount. The Prepayment Amount (defined below) shall be calculated as summazized below (capitalized terms as defined below): Bond Redemption Amount plus Redemption Premium plus Future Facilities Amount County ojHawai`i lA No. 4 of CFD No. I -The Villages of Aina Le'a Page 10 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 TMK Parcel. 2. For TMK Parcels of Developed Property, compute the Assigned Special Tax and Backup Special Tax applicable for the TMK Parcel to be prepaid. For TMK Parcels of Approved Property or Undeveloped Property for which a building permit has been issued, compute the Assigned Special Tax and Backup Special Tax for that TMK Parcel as though it was already designated as Developed Property, based upon the building permit which has already been issued for that TMK Parcel. 3. (a) Divide the Assigned Special Tax computed pursuant to paragraph 2 by the total estimated Assigned Special Tax for the entire IA No. 4 based on the Developed Property Special Tax which could be charged in the current Fiscal Year on all expected development through buildout of IA No. 4, and (b) Divide the Backup Special Tax computed pursuant to paragraph 2 by the total estimated Backup Special Tax at buildout for the entire IA No. 4. 4. Multiply the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the Outstanding Bonds to compute the amount of Outstanding Bonds 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 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"). County ojHawai'i /A No. 4 ojCFD No. / -The Vi(/ages of Aina Le'a Page 1 t 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. 9. Determine the Special Tax levied on the TMK Parcel in the current Fiscal Year which have not yet been paid. 10. Compute the minimum amount the CFD Administrator 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 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 IA No. 4, 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 "Admtnlstrative Fees and Expenses"). 13. The reserve fund credit ("Reserve Fund Credit") shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement (as defined in the Indenture) in effect afer the redemption of Outstanding Bonds 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 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"). County ojHawai`i /A No. 4 of CFD No. 1-The Villages of Aina Le`a Page /2 16. From the Prepayment Amount, the amounts computed pursuant to pazagraphs 4, 5, 11, 13 and 14 shall be deposited into the appropriate fund as established under the Indenture and be used to retire Outstanding Bonds or make debt service payments. The amount computed pursuant to pazagraph 7 shall be deposited into the Construction Fund. The amount computed pursuant to paragraph 12 shall be retained by IA No. 4. 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 Indenture to be used with the next prepayment of bonds or to make debt service payments. As a result of the payment of the current Fiscal Year's Special Tax levy as determined under pazagraph 9 (above), the CFD Administrator shall remove the current Fiscal Year's Special Tax levy for such TMK Pazcel from the County tax rolls. With respect to any TMK Parcel that is prepaid, the Council shall cause a suitable notice to be recorded and filed with the bureau of conveyances or land court in compliance with the Code, to indicate the prepayment of Special Taxes and the release of the Special Tax lien on such TMK Parcel, and the obligation of such TMK Parcel to pay the Special Tax shall cease. The CFD Administrator shall mail a copy of the notice to the owner and any known lessee of the property. Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Assigned Special Tax that may be levied on Taxable Property (excluding Taxable Property Owner Association Property and Taxable Public Property) within IA No. 4 both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds plus the estimated Administrative Expenses. 2. Prepayment in Part The Maximum Special Tax on a TMK Parcel of Developed Property, or Approved Property or Undeveloped Property for which a building permit has been issued maybe 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: These terms have the following meaning: PP =the partial prepayment PE = the Prepayment Amount calculated according to Section H.1 County oJHawai`i /A No. 4 of CFD No. 1- THe Villages ofAina Le`a Page /3 F = the percent by which the owner of the TMK Parcel(s) is partially prepaying the Maximum Annual Special Tax. A = the Administrative Fees and Expenses according to Section H.1 The owner of any TMK Parcel who desires such prepayment shall notify the CFD Administrator of such owner's intent to partially prepay the Special Tax and the percentage by which the Special Tax shall be prepaid. The CFD Administrator shall provide the owner with a statement of the amount required for the partial prepayment of the Special Tax for a TMK Parcel within thirty (30) days of the request and may charge a reasonable fee for providing this service. With respect to any TMK Parcel that is partially prepaid, the County shall (i) distribute the funds remitted to it according to Section H.1., and (ii) indicate in the records of IA No. 4 that there has been a partial prepayment of the Special Tax and that a portion of the Special Tax equal to the outstanding percentage (1.00 - F) of the remaining Maximum Special Tax shall continue to be levied on such TMK Parcel pursuant to Section D. Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Assigned Special Tax that may be levied on Taxable Property (excluding Taxable Property Owner Association Property and Taxable Public Property) within IA No. 4 both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds plus estimated Administrative Expenses. I. TERM OF SPECIAL TAX The Special Tax shall be levied for a period not to exceed fifty yeazs commencing with Fiscal Year 2007-08. County ojHawai'i /A No. 4 oJCFD No. 1-The Villages ofAina Le`a Page /4