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HomeMy WebLinkAboutRES 613 Draft 01 2024-2026A RESOLUTION DECLARING THE INTENTION OF THE COUNTY OF HAWAI‘I TO ESTABLISH A COMMUNITY FACILITIES DISTRICT, DESIGNATED AS HAWAI‘I COUNTY COMMUNITY FACILITIES DISTRICT NO. 1-2026 (WAIKOLOA HEIGHTS PROJECT), INCLUDING THREE IMPROVEMENT AREAS THEREIN, TO AUTHORIZE FUNDING 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, Section 32-20 of the Hawaiʻi County Code 1983 (2016 Edition, as amended) (the “Code”) 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, as provided hereafter in this resolution; and WHEREAS, Nana Kai Development Corp., a Hawai‘i corporation, and Waikoloa Heights Land Investors, L.P., a Delaware limited partnership (individually and collectively, the “Petitioner”) are developing a master-planned community consisting of single- and multi-family residences, community service and recreational facilities, and potential commercial locations, known as “Nana Kai,” located in Waikoloa, South Kohala, Hawaiʻi (the “Development”); and WHEREAS, in connection with the Development, the Petitioner proposes to construct certain special improvements, as defined in Chapter 32 of the Code (“Chapter 32,” with all references herein to articles or sections, unless otherwise defined being intended to mean and refer to the appropriate articles or sections within Chapter 32) and as more specifically described herein (the “Special Improvements”); and WHEREAS, by petition dated July 3, 2026 (the “Petition”), the Petitioner, as owner in fee simple of 100% of the land by area within the proposed Community Facilities District, requested that the County Council institute the procedure for the establishment of a proposed Community Facilities District encompassing the Development (the “Proposed District”), including three improvement areas therein (each an “Improvement Area” and referred to as “Improvement Area No. 1,” “Improvement Area No. 2,” and “Improvement Area No. 3,” respectively), for the purpose of financing the costs of the Special Improvements, as provided in Chapter 32 and as further described herein; and WHEREAS, in response to the Petition, the Council proposes to institute proceedings in accordance with Chapter 32 to establish the Proposed District and to provide for the issuance of one or more series of bonds (the “Special Tax Bonds”) to finance all or a portion of: (1) the actual costs of constructing the Special Improvements (the “Actual Costs”) and (2) certain “incidental expenses,” as defined in Section 32-16 and more specifically identified herein (the “Incidental Expenses”); 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 Improvement Area No. 1, Improvement Area No. 2, and/or Improvement Area No. 3, respectively (the “Special Taxes”), in amounts sufficient to pay for the Actual Costs of the Special Improvements and Incidental Expenses, including the debt service on Special Tax Bonds, allocated to Improvement Area No. 1, Improvement Area No. 2, and/or Improvement Area No. 3, respectively; and WHEREAS, Special Taxes will be calculated in accordance with the applicable rate and method of apportionment (“RMA”) established separately for Improvement Area No. 1, Improvement Area No. 2, and Improvement Area No. 3 (each an “Improvement Area RMA” and referred to as “Improvement Area No. 1 RMA,” the “Improvement Area No. 2 RMA,” and the “Improvement Area No. 3 RMA,” respectively); and WHEREAS, the Council intends to establish the Proposed District, including Improvement Area No. 1, Improvement Area No. 2, and Improvement Area No. 3, for a term of 50 years, commencing with the fiscal year ending June 30, 2027 (the “Initial Fiscal Year”), subject to further provisions hereof regarding such term; and WHEREAS, in connection with the proceedings for the establishment of the Proposed District, the County and the Petitioner entered into a Deposit and Reimbursement Agreement dated December 26, 2024 (the “Deposit and Reimbursement Agreement”), pursuant to which the Petitioner: (1) initially deposited the sum of $75,000 with the County for the purpose of paying costs incurred by the County in connection with the establishment of the Proposed District and the issuance of Special Tax Bonds, and (2) agreed to replenish such deposit upon request of the County; now, therefore, BE IT RESOLVED BY THE COUNCIL OF THE COUNTY OF HAWAI‘I that, in accordance with Chapter 32: 1. The Council hereby finds and determines that instituting proceedings for the establishment of the Proposed District, including Improvement Area No. 1, Improvement Area No. 2, and Improvement Area No. 3, is in the public interest. 2. The Proposed District, including Improvement Area No. 1, Improvement Area No. 2, and Improvement Area No. 3 therein, is to be established under the terms of Chapter 32. The Proposed District shall be named “Hawai‘i County Community Facilities District No. 1-2026 (Waikoloa Heights Project),” and the Improvement Areas within the Proposed District shall be named “Hawai‘i County Community Facilities District No. 1-2026 (Waikoloa Heights Project) - Improvement Area No. 1,” “Hawai‘i County Community Facilities District No. 1-2026 (Waikoloa Heights Project) - Improvement Area No. 2,” and “Hawai‘i County Community Facilities District No. 1-2026 (Waikoloa Heights Project) - Improvement Area No. 3,” respectively. 3. The Council hereby establishes the initial boundaries of the Proposed District, including the initial boundaries of Improvement Area No. 1, Improvement Area No. 2, and Improvement Area No. 3, as described in the Petition and as shown on the boundary map on file with the Director of Finance. 4. The County intends to issue Special Tax Bonds to finance all or a portion of the Actual Costs of the Special Improvements and Incidental Expenses which may be allocated to Improvement Area No. 1, Improvement Area No. 2, and/or Improvement Area No. 3. The aggregate principal amount of Special Tax Bonds shall not exceed a maximum of $60,000,000, exclusive of refunding bonds, if any, which amount shall be allocated to Improvement Area No. 1, Improvement Area No. 2, and/or Improvement Area No. 3 as determined by the Director of Finance in consultation with the Petitioner. 5. Set forth in Exhibit A, attached hereto and incorporated herein by reference, is a description of the Special Improvements proposed to be funded, in whole or in part, by proceeds of the Special Tax Bonds and/or the Special Taxes which Special Improvements shall be allocated to Improvement Area No. 1, Improvement Area No. 2, and/or Improvement Area No. 3 as determined by the Director of Finance in consultation with the Petitioner. The construction and funding of such Special Improvements shall be subject to the terms of an acquisition and funding agreement to be entered into between the County and the Petitioner (the “Acquisition and Funding Agreement”). Subject to compliance with the provisions or the Acquisition and Funding Agreement and all applicable State and County laws and rules, and to oversight and supervision by the appropriate County department, the Petitioner or its authorized representative shall be permitted to let and administer the contracts for the construction of the Special Improvements (unless the County undertakes the letting and administration of such contracts under the Acquisition and Funding Agreement) and, where applicable, such Special Improvements shall be conveyed to the County upon completion. 6. It is currently expected that all of the Special Improvements to be funded will be owned by the County, except for the following: (a) The recreational trail park identified in Exhibit A will not be owned by the County, but will be subject to a perpetual easement, license, or other appropriate property interest in favor of the County, which provides for the park to be maintained and operated as a recreational trail park open to the general public; and (b) The emergency ingress/egress road identified in Exhibit A will not be owned by the County, but will be subject to a perpetual easement, license, or other appropriate property interest in favor of the County, which provides for the road to be maintained and operated for ingress and egress by the general public in the event of emergencies. Based on the foregoing, the recreational trail park and the emergency ingress/egress road are hereby determined to serve a public purpose as provided in Section 32-7. In the event that any other Special Improvements are not owned by the County, the funding of such Special Improvements shall be subject to a further determination by the Council that they serve a public purpose under Section 32-7. 7. The Incidental Expenses proposed to be incurred and authorized to be paid, in whole or in part, from the proceeds of the Special Tax Bonds and/or the Special Taxes are set forth in Exhibit B, attached hereto and incorporated herein by reference. Such Incidental Expenses shall be allocated to Improvement Area No. 1, Improvement Area No. 2, and/or Improvement Area No. 3 as determined by the Director of Finance in consultation with the Petitioner. 8. Improvement Area RMAs. (a) Following the establishment of the Proposed District, and except where funds are otherwise available, Special Taxes sufficient to pay for the Actual Costs of the Special Improvements and Incidental Expenses or the debt service on Special Tax Bonds issued to pay such Actual Costs and Incidental Expenses, as allocated to each Improvement Area, shall be annually levied on taxable properties within such Improvement Area pursuant to the provisions of Chapter 32 and the applicable Improvement Area RMA. The Improvement Area No. 1 RMA, the Improvement Area No. 2 RMA, and the Improvement Area No. 3 RMA are hereby approved in the forms set forth in Exhibit C, attached hereto and incorporated herein by reference, subject to modification in accordance with the applicable provisions thereof and of Chapter 32. (b) The foregoing approval of the Improvement Area RMAs includes the provisions of Section J of each Improvement Area RMA, as shown in Exhibit C, which provides that the “Majority Owner” of property within any Improvement Area may, prior to the issuance of any Special Tax Bonds secured by Special Taxes levied on properties within such Improvement Area, request in writing a reduction in the “Maximum Special Tax” on properties within the Improvement Area, which reduction shall reflect an equal percentage reduction in the Maximum Special Tax across all “Land Use Classes” of properties within the Improvement Area; provided that the requested reduction complies with the requirements of such Section of the applicable Improvement Area RMA, as determined by the Director of Finance, such reduction shall be deemed authorized hereby and shall be permitted without further authorization or approval by the Council. 9. Any provision hereof to the contrary notwithstanding, the Special Taxes on properties within each Improvement Area shall be levied and administered separately and independently from the Special Taxes on properties within any other Improvement Area, to wit: (a) Properties within each Improvement Area shall be subject only to the levy of Special Taxes pursuant to the Improvement Area RMA applicable thereto; (b) Special Tax Bonds issued with respect to each Improvement Area shall be secured solely by Special Taxes levied on properties within such Improvement Area and shall not be cross-defaulted with Special Tax Bonds secured by Special Taxes levied on properties in any other Improvement Area; and (c) In the event of any modifications with respect to any Improvement Area pursuant to Article 3, including modifications of the applicable term, authorized Special Improvements, or Special Taxes, shall be determined independently of any modifications to any other Improvement Area and shall be subject only to the rights afforded by said Article to the owners of taxable properties within the affected Improvement Area. 10. The term of the Proposed District, including Improvement Area No. 1, Improvement Area No. 2, and Improvement Area No. 3, shall be 50 years commencing with the Initial Fiscal Year; provided that the term of the Proposed District shall expire at such time, but in no event until such time, whether before or after the end of such term, as 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. 11. Appropriate provisions have been made under the Deposit and Reimbursement Agreement to ensure that sufficient funds have been and will be provided to pay the costs to be incurred by the County in connection with the formation of the Proposed District and issuance of the Special Tax Bonds. The Deposit and Reimbursement Agreement attached as Exhibit D hereto is hereby approved, and the execution and delivery thereof by the appropriate County officials is hereby approved, ratified, and confirmed. 12. Advances of funds or contributions of work in kind from any lawful source, specifically including but not limited to the County or the Petitioner, may be reimbursed from Special Tax Bond proceeds or from Special Tax revenues, or both, to the extent of the lesser of the value or cost of the contribution. This resolution is adopted in part for the purpose of establishing compliance with the requirements of Section 1.150-2 of the United States Treasury Regulations. 13. The Petition satisfies the applicable requirements of Chapter 32 and has been signed and filed by the Petitioner, the owner in fee simple of all of the land in the Proposed District. There are no lessees of such land who, by the express terms of any existing leases, are obligated to pay the Special Taxes. The Petitioner has waived the public hearing and notice requirements under Section 32-24. Accordingly, 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. 14. The Council hereby directs the Director of Public Works, and/or such other appropriate department or departments to be responsible for operating and maintaining the Special Improvements, to study the Proposed District, to prepare the report required by Section 32-21 (the “Report”), and to file the Report with the County Clerk not later than 60 days after the adoption of this resolution. Such Director may consult with and rely upon other officials and departments of the County or the State in connection with such study and the Report. If deemed necessary or desirable by such Director, the study may be conducted and the Report may be prepared, in whole or in part, by an independent consultant (including a consultant retained by the Petitioner) under the supervision of such Director. The Report shall include, but not be limited to, an estimate of the fair and reasonable cost of the Special Improvements and Incidental Expenses. BE IT FINALLY RESOLVED that the County Clerk shall transmit a copy of this resolution to the Honorable C. Kimo Alameda, Mayor of the County of Hawaiʻi; Diane Nakagawa, Director of Finance; Renee N. C. Schoen, Corporation Counsel; Wesley Segawa, Director of Public Works; Nana Kai Development Corp.; and Waikoloa Heights Land Investors, L.P. Dated at _____________, Hawai‘i, this ______ day of ___________________, 20___. INTRODUCED BY: _______________________________________ MATTHEW KĀNEALIʻI-KLEINFELDER Council Member BY REQUEST OF THE: Director of Finance EXHIBIT A Description of Authorized Special Improvements Sanitary Sewer and Water Systems Paniolo Avenue Extension Improvements (including but not limited to swales, sidewalks, paths, landscaping, grading, paving, traffic signage or otherwise improving or related to the foregoing) County Right of Way Landscape Improvements Recreational Trail Park Improvements Nana Kai Park Land Improvements Regional Traffic Mitigation and Flood Control Measures (including but not limited to transportation and traffic-related improvement, pedestrian and bicycle facilities, roadway safety enhancements, signalization, flood and drainage control, stabilization, intersection improvements and transit-related infrastructure) Emergency ingress/egress road (engineering costs only) Additional special improvements reasonably related to the Development, as determined by mutual agreement between the County and the Petitioner, including but not limited to streets, roads, trails (hiking and biking) medians, landscaping, parks, signals, traffic signage, flood control, and other utilities and transit improvements EXHIBIT B DESCRIPTION OF AUTHORIZED INCIDENTAL EXPENSES A. Initial Incidental Expenses. It is anticipated that the following incidental expenses may be incurred by the County and/or the Petitioner in the proceedings for formation of the Proposed District, implementation of the authorized Special Improvements and related bond financing and will be payable or reimbursable from 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 Archeological and Cultural Monitoring services Permits, Plan Check Fees, Entitlement Processing Fees and Expenses Special tax consultant services County staff review, oversight and administrative services Legal services, including services of Bond Counsel, Special Tax Counsel, Disclosure Counsel, Developer’s Counsel and Underwriter’s Counsel 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 Escrow services 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 filing fees Credit enhancement costs Real estate acquisition costs Rating agency fees Other costs of bond issuance or special tax/district administration B. Recurring Incidental Expenses. The expenses of certain recurring services pertaining to the Proposed District may be included in each annual special tax levy. These may include: Trustee, bond transfer agent, registrar and paying agent services Rebate calculation services and periodic arbitrage rebate payments Special tax administrator services Appraisal services Other necessary consultant services incidental to the administration of the Proposed District Rating agency fees 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 Continuing disclosure services The enumeration of initial and recurring Incidental Expenses under A and B above is supplemented in its entirety by the items listed in the definition of “Administrative Expenses,” set forth in the applicable Improvement Area RMA, and shall not be regarded as exclusive but rather shall be deemed to include any other incidental expenses within the meaning of Chapter 32 which may be incurred from time to time with respect to the Proposed District. Without limiting the generality of the foregoing, all expenditures made from the funds deposited by the Petitioner with the County to defray the County’s expenses of the proceedings for the Proposed District, implementation of authorized Special Improvements and related bond financings, and all amounts paid by the Petitioner to third parties providing services in connection therewith, shall constitute authorized Incidental Expenses reimbursable to the Petitioner from either proceeds of the Special Taxes or proceeds of sale of the Bonds for the Proposed District. EXHIBIT C RATE AND METHOD OF APPORTIONMENT [See Attached] RATE AND METHOD OF APPORTIONMENT FOR COUNTY OF HAWAII IMPROVEMENT AREA NO. 1 OF COMMUNITY FACILITIES DISTRICT NO. 1-2026 (WAIKOLOA HEIGHTS PROJECT) A Special Tax as hereinafter defined shall be levied on all Tax Map Key parcels in Improvement Area No. 1 (“IA No. 1”) of Community Facilities District No. 1-2026 of the County of Hawaii (Waikoloa Heights Project) ("CFD No. 1-2026") and collected each Fiscal Year commencing in Fiscal Year 2027-2028, in an amount determined by the County Council of the County Hawai‘i (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 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. "Acquisition Agreement” means the Acquisition and Funding Agreement by and between the County relating to CFD No. 1-2026 and Nana Kai Development Corp. and Waikoloa Heights Land Investors, L.P., as modified, amended and/or supplemented from time to time in accordance with its terms, or any applicable successor to or restatement of such agreement. "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 arbitrage 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 regarding 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. "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. 1-2026" means the County of Hawaii Community Facilities District No. 1-2026 (Waikoloa Heights Project). "Code" means the Community Facilities Districts Code (1994, Ord. No. 94-77, sec. 3), being Chapter 32 of the Hawaii County Code. "Council" means the Council of the County of Hawaii, acting as the legislative body of CFD No. 1-2026. "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, 2022 and prior to August 1 of the prior Fiscal Year; provided, however, that Developed Property shall not include Taxable Property Owner Association Property and Taxable Public Property. "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 (Hawaii 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. 1-2026 as identified on the boundary map for CFD No. 1-2026. "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. "Initial Fiscal Year" means Fiscal Year 2027-2028. "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 a non-residential use. "Ordinance of Formation" means the ordinance of formation for CFD No. 1-2026 adopted by the Council. "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 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 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. "Public Property" means, for each Fiscal Year, all Taxable 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 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, Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public 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 or Bonds expected to be issued in such Fiscal Year by IA No. 1; (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 or Bonds expected to be issued in such Fiscal Year by IA No. 1; (v) pay directly for acquisition or construction of facilities eligible to be financed by IA No. 1 to the extent permitted by the Ordinance of Formation and the Acquisition Agreement, such 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 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. "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, Taxable Property Owner Association Property, or Taxable Public Property. B. ASSIGNMENT TO LAND USE CATEGORIES Each Fiscal Year, all Taxable Property within IA No. 1 shall be classified as Developed Property, Taxable Public Property, Taxable Property Owner Association 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. Assigned 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 Initial Fiscal Year Assigned Special Tax for each Land Use Class is shown below in Table 1. The amounts shown in Table 1 shall increase thereafter, commencing on July 1, 2028 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. TABLE 1 Assigned Special Tax for Developed Property Land Use Class Description Residential Floor Area Initial Fiscal Year Assigned Special Tax  1 Residential Property > 2,800 sq. ft. $8,364 per unit  2 Residential Property 2,400 – 2,799 sq. ft. $7,834 per unit  3 Residential Property 2,065 – 2,399 sq. ft. $7,303 per unit  4 Residential Property < 2,065 sq. ft. $6,763 per unit  5 Non-Residential Property Not Applicable $27,120 per Acre   c. Backup Special Tax The Initial Fiscal Year Backup Special Tax shall equal $27,120 per Acre, and shall increase thereafter, commencing on July 1, 2028 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. 2. Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property The Initial Fiscal Year Maximum Special Tax for Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property shall be $27,120 per Acre, and shall increase thereafter, commencing on July 1, 2028 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. 3. 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 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 Parcel. 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. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX 1. Special Tax Commencing with Initial Fiscal Year and for each following Fiscal Year, the Council shall levy the Special Tax until the amount of Special Taxes levied equals the Special Tax Requirement. The Special Tax shall be levied each Fiscal Year as follows: First: The Special Tax shall be levied Proportionately on each TMK Parcel of Developed Property at up to one-hundred percent (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 Undeveloped Property at up to one-hundred percent (100%) of the Maximum Special Tax for Undeveloped Property; Third: If additional monies are needed to satisfy the Special Tax Requirement after the first two 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; Fourth: If additional monies are needed to satisfy the Special Tax Requirement after the first three 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. E. EXEMPTIONS No Special Taxes shall be levied on Property Owner Association Property and Public Property, so long as the Acreage of Taxable Property is at least 23.1 Acres. Tax-exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Property Owner Association Property or Public Property. To the extent that the exemption of an Assessor’s Parcel of Property Owner Association Property, or Public Property would reduce the Acreage of Taxable Property below 23.1 Acres, such Assessor’s Parcel shall be classified as Taxable Property Owner Association Property, or Taxable Public 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 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 $9.2 million in 2027 dollars, which shall increase by the Construction Inflation Index on July 1, 2028, 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. 1 under the authorized bonding program for IA No. 1, 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 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 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 are 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 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. 1 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 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 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. 1 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. 1, 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. 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 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"). 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. 1, including the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming Bonds, and the costs of recording any notices to evidence the prepayment and the redemption (the "Administrative Fees and Expenses"). 13. The reserve fund credit ("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 after such first interest and/or principal payment (the "Capitalized Interest Credit"). 15. The Special Tax prepayment is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 7, 11 and 12, less the amounts computed pursuant to paragraphs 13 and 14 (the "Prepayment Amount"). 16. From the Prepayment Amount, the amounts computed pursuant to paragraphs 4, 5, 11, 13 and 14 shall be deposited into the appropriate fund as established under the 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 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 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 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. 1 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 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: PP = (PE – A) ( F + A. These terms have the following meaning: PP = the partial prepayment PE = the Prepayment Amount calculated according to Section H.1 F = the percent by which the owner of the 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. 1 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. 1 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 (50) years commencing with the Initial Fiscal Year. J. SPECIAL TAX REDUCTION The following additional definition applies to this Section J: “Majority Owner” means the owner of record of the majority of property within IA No. 1 and a party to the Acquisition Agreement. Pursuant to the Ordinance of Formation, and prior to the issuance of the first series of Bonds, the Majority Owner may request a reduction in the Maximum Special Tax. Such request shall be submitted in writing to the CFD Administrator and shall reflect an equal percentage reduction in the Maximum Special Tax across all Land Use Classes. Provided that the Special Tax and the County facilities to be funded by IA No. 1 following the reduction remain consistent with County policies, the CFD Administrator shall prepare and execute a Certificate of Reduction in Special Taxes in the form attached as Exhibit A hereto. APPENDIX A CERTIFICATE OF REDUCTION IN SPECIAL TAXES FOR IMPROVEMENT AREA NO. 1 OF COMMUNITY FACILITIES DISTRICT NO. 1-2026 (WAIKOLOA HEIGHTS PROJECT) OF THE COUNTY OF HAWAI‘I CERTIFICATE OF REDUCTION IN SPECIAL TAXES FOR IMPROVEMENT AREA NO. 1 OF COMMUNITY FACILITIES DISTRICT NO. 1-2026 (WAIKOLOA HEIGHTS PROJECT) OF THE COUNTY OF HAWAI‘I 1. Pursuant to Section J of the Rate and Method of Apportionment, the Assigned Special Tax for Developed Property for all Land Use Classes within IA No. 1 of CFD No. 1-2026 and the Backup Special Tax has been reduced. 2. The calculations made pursuant to Section J were based upon a uniform percentage reduction of ___% applied to all Land Use Classes and the Backup Special Tax that was received by the CFD Administrator on _________________. 3. Table 1 below shows the Assigned Special Tax for each Land Use Class after such reduction. Table 1: Assigned Special Tax Rates for Improvement Area No. 1 Land Use Class Description Residential Floor Area ASSIGNED Special Tax*  1 Residential Property > 2,800 sq. ft. $__________  2 Residential Property 2,400 – 2,799 sq. ft. $__________  3 Residential Property 2,065 – 2,399 sq. ft. $__________  4 Residential Property < 2,065 sq. ft. $__________  * Per residential dwelling unit for Residential Property.  4. The Backup Special Tax after such reduction shall be equal to $______ per Acre. 5. The CFD Public Facilities amount in Section H shall be equal to $__________. 6. Upon execution of this certificate by CFD No. 1-2026, CFD No. 1-2026 shall cause an amended notice of Special Tax lien for IA No. 1 of CFD No. 1-2026 to be recorded reflecting the Assigned Special Tax, Backup Special Tax, and CFD Public Facilities amount set forth herein. Submitted CFD ADMINISTRATOR By: Date: ___________________ By execution hereof, the undersigned acknowledges, on behalf of CFD No. 1-2026, receipt of this certificate and modification of the Rate and Method of Apportionment as set forth in this certificate. Community Facilities District No. 1-2026 (Waikoloa Heights Project) of the County of Hawai‘i By: Date as of: [closing date of Bonds] RATE AND METHOD OF APPORTIONMENT FOR COUNTY OF HAWAII IMPROVEMENT AREA NO. 2 OF COMMUNITY FACILITIES DISTRICT NO. 1-2026 (WAIKOLOA HEIGHTS PROJECT) A Special Tax as hereinafter defined shall be levied on all Tax Map Key parcels in Improvement Area No. 2 (“IA No. 2”) of Community Facilities District No. 1-2026 of the County of Hawaii (Waikoloa Heights Project) ("CFD No. 1-2026") and collected each Fiscal Year commencing in Fiscal Year 2027-2028, in an amount determined by the County Council of the County Hawai‘i (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. "Acquisition Agreement” means the Acquisition and Funding Agreement by and between the County relating to CFD No. 1-2026 and Nana Kai Development Corp. and Waikoloa Heights Land Investors, L.P., as modified, amended and/or supplemented from time to time in accordance with its terms, or any applicable successor to or restatement of such agreement. "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. "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. 1-2026" means the County of Hawaii Community Facilities District No. 1-2026 (Waikoloa Heights Project). "Code" means the Community Facilities Districts Code (1994, Ord. No. 94-77, sec. 3), being Chapter 32 of the Hawaii County Code. "Council" means the Council of the County of Hawaii, acting as the legislative body of CFD No. 1-2026. "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, 2022 and prior to August 1 of the prior Fiscal Year; provided, however, that Developed Property shall not include Taxable Property Owner Association Property and Taxable Public Property. "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 (Hawaii 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. 2" means Improvement Area No. 2 of CFD No. 1-2026 as identified on the boundary map for CFD No. 1-2026. "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. "Initial Fiscal Year" means Fiscal Year 2027-2028. "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 a non-residential use. "Ordinance of Formation" means the ordinance of formation for CFD No. 1-2026 adopted by the Council. "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 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 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. "Public Property" means, for each Fiscal Year, all Taxable 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 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, Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property to fund the Special Tax Requirement. "Special Tax Requirement" means that amount required in any Fiscal Year for IA No. 2 to: (i) pay debt service on all Outstanding Bonds or Bonds expected to be issued in such Fiscal Year by IA No. 2; (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 or Bonds expected to be issued in such Fiscal Year by IA No. 2; (v) pay directly for acquisition or construction of facilities eligible to be financed by IA No. 2 to the extent permitted by the Ordinance of Formation and the Acquisition Agreement, such 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 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. "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, Taxable Property Owner Association Property, or Taxable Public Property. B. ASSIGNMENT TO LAND USE CATEGORIES Each Fiscal Year, all Taxable Property within IA No. 2 shall be classified as Developed Property, Taxable Public Property, Taxable Property Owner Association 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. Assigned 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 Initial Fiscal Year Assigned Special Tax for each Land Use Class is shown below in Table 1. The amounts shown in Table 1 shall increase thereafter, commencing on July 1, 2028 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. TABLE 1 Assigned Special Tax for Developed Property Land Use Class Description Residential Floor Area Initial Fiscal Year Assigned Special Tax  1 Residential Property > 2,800 sq. ft. $8,690 per unit  2 Residential Property 2,400 – 2,799 sq. ft. $8,337 per unit  3 Residential Property 2,065 – 2,399 sq. ft. $7,985 per unit  4 Residential Property < 2,065 sq. ft. $7,438 per unit  5 Non-Residential Property Not Applicable $31,929 per Acre   c. Backup Special Tax The Initial Fiscal Year Backup Special Tax shall equal $31,929 per Acre, and shall increase thereafter, commencing on July 1, 2028 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. 2. Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property The Initial Fiscal Year Maximum Special Tax for Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property shall be $31,929 per Acre, and shall increase thereafter, commencing on July 1, 2028 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. 3. 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 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 Parcel. 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. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX 1. Special Tax Commencing with Initial Fiscal Year and for each following Fiscal Year, the Council shall levy the Special Tax until the amount of Special Taxes levied equals the Special Tax Requirement. The Special Tax shall be levied each Fiscal Year as follows: First: The Special Tax shall be levied Proportionately on each TMK Parcel of Developed Property at up to one-hundred percent (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 Undeveloped Property at up to one-hundred percent (100%) of the Maximum Special Tax for Undeveloped Property; Third: If additional monies are needed to satisfy the Special Tax Requirement after the first two 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; Fourth: If additional monies are needed to satisfy the Special Tax Requirement after the first three 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. E. EXEMPTIONS No Special Taxes shall be levied on Property Owner Association Property and Public Property, so long as the Acreage of Taxable Property is at least 19.8 Acres. Tax-exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Property Owner Association Property or Public Property. To the extent that the exemption of an Assessor’s Parcel of Property Owner Association Property, or Public Property would reduce the Acreage of Taxable Property below 19.8 Acres, such Assessor’s Parcel shall be classified as Taxable Property Owner Association Property, or Taxable Public 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 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 $10.0 million in 2027 dollars, which shall increase by the Construction Inflation Index on July 1, 2028, 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 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 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 are 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 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 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 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 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. 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 for 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 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"). 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. 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 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 after such first interest and/or principal payment (the "Capitalized Interest Credit"). 15. The Special Tax prepayment is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 7, 11 and 12, less the amounts computed pursuant to paragraphs 13 and 14 (the "Prepayment Amount"). 16. From the Prepayment Amount, the amounts computed pursuant to paragraphs 4, 5, 11, 13 and 14 shall be deposited into the appropriate fund as established under the 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. 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 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 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. 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 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: PP = (PE – A) ( F + A. These terms have the following meaning: PP = the partial prepayment PE = the Prepayment Amount calculated according to Section H.1 F = the percent by which the owner of the 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 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. 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 (50) years commencing with the Initial Fiscal Year. J. SPECIAL TAX REDUCTION The following additional definition applies to this Section J: “Majority Owner” means the owner of record of the majority of property within IA No. 2 and a party to the Acquisition Agreement. Pursuant to the Ordinance of Formation, and prior to the issuance of the first series of Bonds, the Majority Owner may request a reduction in the Maximum Special Tax. Such request shall be submitted in writing to the CFD Administrator and shall reflect an equal percentage reduction in the Maximum Special Tax across all Land Use Classes. Provided that the Special Tax and the County facilities to be funded by IA No. 2 following the reduction remain consistent with County policies, the CFD Administrator shall prepare and execute a Certificate of Reduction in Special Taxes in the form attached as Exhibit A hereto. APPENDIX A CERTIFICATE OF REDUCTION IN SPECIAL TAXES FOR IMPROVEMENT AREA NO. 2 OF COMMUNITY FACILITIES DISTRICT NO. 1-2026 (WAIKOLOA HEIGHTS PROJECT) OF THE COUNTY OF HAWAI‘I CERTIFICATE OF REDUCTION IN SPECIAL TAXES FOR IMPROVEMENT AREA NO. 2 OF COMMUNITY FACILITIES DISTRICT NO. 1-2026 (WAIKOLOA HEIGHTS PROJECT) OF THE COUNTY OF HAWAI‘I 1. Pursuant to Section J of the Rate and Method of Apportionment, the Assigned Special Tax for Developed Property for all Land Use Classes within IA No. 2 of CFD No. 1-2026 and the Backup Special Tax has been reduced. 2. The calculations made pursuant to Section J were based upon a uniform percentage reduction of ___% applied to all Land Use Classes and the Backup Special Tax that was received by the CFD Administrator on _________________. 3. Table 1 below shows the Assigned Special Tax for each Land Use Class after such reduction. Table 1: Assigned Special Tax Rates for Improvement Area No. 2 Land Use Class Description Residential Floor Area ASSIGNED Special Tax*  1 Residential Property > 2,800 sq. ft. $__________  2 Residential Property 2,400 – 2,799 sq. ft. $__________  3 Residential Property 2,065 – 2,399 sq. ft. $__________  4 Residential Property < 2,065 sq. ft. $__________  * Per residential dwelling unit for Residential Property.  4. The Backup Special Tax after such reduction shall be equal to $______ per Acre. 5. The CFD Public Facilities amount in Section H shall be equal to $__________. 6. Upon execution of this certificate by CFD No. 1-2026, CFD No. 1-2026 shall cause an amended notice of Special Tax lien for IA No. 2 of CFD No. 1-2026 to be recorded reflecting the Assigned Special Tax, Backup Special Tax, and CFD Public Facilities amount set forth herein. Submitted CFD ADMINISTRATOR By: Date: ___________________ By execution hereof, the undersigned acknowledges, on behalf of CFD No. 1-2026, receipt of this certificate and modification of the Rate and Method of Apportionment as set forth in this certificate. Community Facilities District No. 1-2026 (Waikoloa Heights Project) of the County of Hawai‘i By: Date as of: [closing date of Bonds] RATE AND METHOD OF APPORTIONMENT FOR COUNTY OF HAWAII IMPROVEMENT AREA NO. 3 OF COMMUNITY FACILITIES DISTRICT NO. 1-2026 (WAIKOLOA HEIGHTS PROJECT) A Special Tax as hereinafter defined shall be levied on all Tax Map Key parcels in Improvement Area No. 3 (“IA No. 3”) of Community Facilities District No. 1-2026 of the County of Hawaii (Waikoloa Heights Project) ("CFD No. 1-2026") and collected each Fiscal Year commencing in Fiscal Year 2027-2028, in an amount determined by the County Council of the County Hawai‘i (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 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. "Acquisition Agreement” means the Acquisition and Funding Agreement by and between the County relating to CFD No. 1-2026 and Nana Kai Development Corp. and Waikoloa Heights Land Investors, L.P., as modified, amended and/or supplemented from time to time in accordance with its terms, or any applicable successor to or restatement of such agreement. "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 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. 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 preparing 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. "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. 1-2026" means the County of Hawaii Community Facilities District No. 1-2026 (Waikoloa Heights Project). "Code" means the Community Facilities Districts Code (1994, Ord. No. 94-77, sec. 3), being Chapter 32 of the Hawaii County Code. "Council" means the Council of the County of Hawaii, acting as the legislative body of CFD No. 1-2026. "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, 2022 and prior to August 1 of the prior Fiscal Year; provided, however, that Developed Property shall not include Taxable Property Owner Association Property and Taxable Public Property. "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 (Hawaii 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. 1-2026 as identified on the boundary map for CFD No. 1-2026. "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. "Initial Fiscal Year" means Fiscal Year 2027-2028. "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 a non-residential use. "Ordinance of Formation" means the ordinance of formation for CFD No. 1-2026 adopted by the Council. "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 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 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. "Public Property" means, for each Fiscal Year, all Taxable 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 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, Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public 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 or Bonds expected to be issued in such Fiscal Year by IA No. 3; (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 or Bonds expected to be issued in such Fiscal Year by IA No. 3; (v) pay directly for acquisition or construction of facilities eligible to be financed by IA No. 3 to the extent permitted by the Ordinance of Formation and the Acquisition Agreement, such 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 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. "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, Taxable Property Owner Association Property, or Taxable Public Property. B. ASSIGNMENT TO LAND USE CATEGORIES Each Fiscal Year, all Taxable Property within IA No. 3 shall be classified as Developed Property, Taxable Public Property, Taxable Property Owner Association 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. Assigned 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 Initial Fiscal Year Assigned Special Tax for each Land Use Class is shown below in Table 1. The amounts shown in Table 1 shall increase thereafter, commencing on July 1, 2028 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. TABLE 1 Assigned Special Tax for Developed Property Land Use Class Description Residential Floor Area Initial Fiscal Year Assigned Special Tax  1 Residential Property > 2,800 sq. ft. $9,157 per unit  2 Residential Property 2,400 – 2,799 sq. ft. $8,758 per unit  3 Residential Property 2,065 – 2,399 sq. ft. $8,359 per unit  4 Residential Property < 2,065 sq. ft. $8,117 per unit  5 Non-Residential Property Not Applicable $30,382 per Acre   c. Backup Special Tax The Initial Fiscal Year Backup Special Tax shall equal $30,382 per Acre, and shall increase thereafter, commencing on July 1, 2028 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. 2. Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property The Initial Fiscal Year Maximum Special Tax for Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property shall be $30,382 per Acre, and shall increase thereafter, commencing on July 1, 2028 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. 3. 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 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 Parcel. 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. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX 1. Special Tax Commencing with Initial Fiscal Year and for each following Fiscal Year, the Council shall levy the Special Tax until the amount of Special Taxes levied equals the Special Tax Requirement. The Special Tax shall be levied each Fiscal Year as follows: First: The Special Tax shall be levied Proportionately on each TMK Parcel of Developed Property at up to one-hundred percent (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 Undeveloped Property at up to one-hundred percent (100%) of the Maximum Special Tax for Undeveloped Property; Third: If additional monies are needed to satisfy the Special Tax Requirement after the first two 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; Fourth: If additional monies are needed to satisfy the Special Tax Requirement after the first three 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. E. EXEMPTIONS No Special Taxes shall be levied on Property Owner Association Property and Public Property, so long as the Acreage of Taxable Property is at least 33.8 Acres. Tax-exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Property Owner Association Property or Public Property. To the extent that the exemption of an Assessor’s Parcel of Property Owner Association Property, or Public Property would reduce the Acreage of Taxable Property below 33.8 Acres, such Assessor’s Parcel shall be classified as Taxable Property Owner Association Property, or Taxable Public 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 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 TAX The following definition applies to this Section H: "CFD Public Facilities" means either $16.4 million in 2027 dollars, which shall increase by the Construction Inflation Index on July 1, 2028, 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. 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 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 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 are 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 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 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 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 amount determined pursuant to paragraph 6 to compute the amount of Future 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"). 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 "Administrative 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 after such first interest and/or principal payment (the "Capitalized Interest Credit"). 15. The Special Tax prepayment is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 7, 11 and 12, less the amounts computed pursuant to paragraphs 13 and 14 (the "Prepayment Amount"). 16. From the Prepayment Amount, the amounts computed pursuant to paragraphs 4, 5, 11, 13 and 14 shall be deposited into the appropriate fund as established under the 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 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 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 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: PP = (PE – A) ( F + A. These terms have the following meaning: PP = the partial prepayment PE = the Prepayment Amount calculated according to Section H.1 F = the percent by which the owner of the 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. 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 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 (50) years commencing with the Initial Fiscal Year. J. SPECIAL TAX REDUCTION The following additional definition applies to this Section J: “Majority Owner” means the owner of record of the majority of property within IA No. 3 and a party to the Acquisition Agreement. Pursuant to the Ordinance of Formation, and prior to the issuance of the first series of Bonds, the Majority Owner may request a reduction in the Maximum Special Tax. Such request shall be submitted in writing to the CFD Administrator and shall reflect an equal percentage reduction in the Maximum Special Tax across all Land Use Classes. Provided that the Special Tax and the County facilities to be funded by IA No. 3 following the reduction remain consistent with County policies, the CFD Administrator shall prepare and execute a Certificate of Reduction in Special Taxes in the form attached as Exhibit A hereto. APPENDIX A CERTIFICATE OF REDUCTION IN SPECIAL TAXES FOR IMPROVEMENT AREA NO. 3 OF COMMUNITY FACILITIES DISTRICT NO. 1-2026 (WAIKOLOA HEIGHTS PROJECT) OF THE COUNTY OF HAWAI‘I CERTIFICATE OF REDUCTION IN SPECIAL TAXES FOR IMPROVEMENT AREA NO. 3 OF COMMUNITY FACILITIES DISTRICT NO. 1-2026 (WAIKOLOA HEIGHTS PROJECT) OF THE COUNTY OF HAWAI‘I 1. Pursuant to Section J of the Rate and Method of Apportionment, the Assigned Special Tax for Developed Property for all Land Use Classes within IA No. 3 of CFD No. 1-2026 and the Backup Special Tax has been reduced. 2. The calculations made pursuant to Section J were based upon a uniform percentage reduction of ___% applied to all Land Use Classes and the Backup Special Tax that was received by the CFD Administrator on _________________. 3. Table 1 below shows the Assigned Special Tax for each Land Use Class after such reduction. Table 1: Assigned Special Tax Rates for Improvement Area No. 3 Land Use Class Description Residential Floor Area ASSIGNED Special Tax*  1 Residential Property > 2,800 sq. ft. $__________  2 Residential Property 2,400 – 2,799 sq. ft. $__________  3 Residential Property 2,065 – 2,399 sq. ft. $__________  4 Residential Property < 2,065 sq. ft. $__________  * Per residential dwelling unit for Residential Property.  4. The Backup Special Tax after such reduction shall be equal to $______ per Acre. 5. The CFD Public Facilities amount in Section H shall be equal to $__________. 6. Upon execution of this certificate by CFD No. 1-2026, CFD No. 1-2026 shall cause an amended notice of Special Tax lien for IA No. 3 of CFD No. 1-2026 to be recorded reflecting the Assigned Special Tax, Backup Special Tax, and CFD Public Facilities amount set forth herein. Submitted CFD ADMINISTRATOR By: Date: ___________________ By execution hereof, the undersigned acknowledges, on behalf of CFD No. 1-2026, receipt of this certificate and modification of the Rate and Method of Apportionment as set forth in this certificate. Community Facilities District No. 1-2026 (Waikoloa Heights Project) of the County of Hawai‘i By: Date as of: [closing date of Bonds] EXHIBIT D DEPOSIT AND REIMBURSEMENT AGREEMENT [See Attached] / / / / / /