DEER RUN COMMUNITY DEVELOPMENT DISTRICT (City of Bunnell, Florida) $8,165,000 Special Assessment Bonds, Series 2008

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1 NEW ISSUE - BOOK-ENTRY ONLY LIMITED OFFERING NOT RATED In the opinion of Bond Counsel, assuming continuing compliance with certain tax covenants, interest on the 2008 Bonds (as defined below) is excluded from gross income for federal income tax purposes under existing statutes, regulations, rulings and court decisions. Interest on the 2008 Bonds is not a specific preference item for purposes of the federal alternative minimum tax imposed on individuals and corporations. See TAX MATTERS herein for a description of certain other federal tax consequences of ownership of the 2008 Bonds. Bond Counsel is further of the opinion that the 2008 Bonds and interest thereon are not subject to taxation under the laws of the State of Florida except as to estate taxes and taxes imposed by Chapter 220, Florida Statutes, on interest, income or profits on debt obligations owned by corporations as defined in Chapter 220. DEER RUN COMMUNITY DEVELOPMENT DISTRICT (City of Bunnell, Florida) $8,165,000 Special Assessment Bonds, Series 2008 Dated: May 1, 2008 Due: May 1, as shown below The Deer Run Community Development District Special Assessment Bonds, Series 2008 (the 2008 Bonds ) are being issued by the Deer Run Community Development District (the District ) only in fully registered form, in denominations of $5,000 and integral multiples thereof, provided however, the 2008 Bonds will be deliverable to the initial purchasers only in aggregate principal amounts of $100,000 and integral multiples of $5,000 in excess thereof. The 2008 Bonds will bear interest at the fixed rate set forth below, calculated on the basis of a 360-day year comprised of twelve thirty-day months, payable semi-annually on each May 1 and November 1, commencing November 1, The 2008 Bonds, when issued, will be registered in the name of Cede & Co., as Bond Owner and nominee for The Depository Trust Company ( DTC ), New York, New York. Purchases of beneficial interests in the 2008 Bonds will be made in book-entry form. Accordingly, principal of and interest on the 2008 Bonds will be paid from the Series 2008 Pledged Revenues (as hereinafter defined) by Regions Bank, as trustee (the Trustee ) directly to DTC as the registered owner thereof. Disbursements of such payments to the Direct Participants is the responsibility of DTC and disbursements of such payments to the beneficial owners is the responsibility of the Direct Participants and the Indirect Participants, as more fully described herein. Any purchaser of a beneficial interest in a 2008 Bond must maintain an account with a broker or dealer who is, or acts through, a Direct Participant to receive payment of the principal of and interest on such 2008 Bond. See DESCRIPTION OF THE 2008 BONDS Book-Entry Only System herein. The 2008 Bonds are being issued by the District, a local unit of special purpose government of the State of Florida, organized and existing in accordance with the Uniform Community Development District Act of 1980, Chapter 190, Florida Statutes, as amended (the Act ) and established by Ordinance No of the City Commission of the City of Bunnell, Florida effective May 15, The 2008 Bonds are being issued pursuant to the Act and a Master Trust Indenture, dated as of May 1, 2008 (the Master Indenture ) and a First Supplemental Trust Indenture dated as of May 1, 2008 (the Supplemental Indenture, collectively with the Master Indenture, the Indenture ), by and between the District and the Trustee. Pursuant to the Indenture, the 2008 Bonds are subject to optional, mandatory and extraordinary mandatory redemption at the times, in the amounts and at the redemption price as more fully described herein under the caption DESCRIPTION OF THE 2008 BONDS - Redemption Provisions. THE 2008 BONDS ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY OUT OF THE SERIES 2008 PLEDGED REVENUES PLEDGED THEREFOR UNDER THE INDENTURE AND NEITHER THE PROPERTY, THE FULL FAITH AND CREDIT, NOR THE TAXING POWER OF THE DISTRICT, THE CITY OF BUNNELL, FLAGLER COUNTY, FLORIDA, THE STATE OF FLORIDA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED AS SECURITY FOR THE PAYMENT OF THE 2008 BONDS, EXCEPT THAT THE DISTRICT IS OBLIGATED UNDER THE INDENTURE TO LEVY, AND TO EVIDENCE AND CERTIFY, OR CAUSE TO BE CERTIFIED, FOR COLLECTION, SPECIAL ASSESSMENTS (AS DEFINED IN THE INDENTURE) TO SECURE AND PAY THE 2008 BONDS. THE 2008 BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OF THE DISTRICT, THE CITY OF BUNNELL, FLORIDA, FLAGLER COUNTY, FLORIDA, THE STATE OF FLORIDA, OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION OR LIMITATION. THE 2008 BONDS INVOLVE A DEGREE OF RISK (SEE BOND OWNERS RISKS HEREIN) AND ARE NOT SUITABLE FOR ALL INVESTORS (SEE SUITABILITY FOR INVESTMENT HEREIN). NO APPLICATION HAS BEEN MADE FOR A RATING WITH RESPECT TO THE 2008 BONDS. THE UNDERWRITER IS REQUIRED TO LIMIT THIS OFFERING TO ACCREDITED INVESTORS. SUCH LIMITATION REGARDING THE LIMITED OFFERING DOES NOT DENOTE RESTRICTIONS ON TRANSFER IN ANY SECONDARY MARKET FOR THE 2008 BONDS. POTENTIAL INVESTORS ARE SOLELY RESPONSIBLE FOR EVALUATING THE MERITS AND RISKS OF AN INVESTMENT IN THE 2008 BONDS. SEE SUITABILITY FOR INVESTMENT, BOND OWNERS RISKS AND NO RATING OR CREDIT ENHANCEMENT HEREIN. This cover page contains information for quick reference only. It is not a summary of the 2008 Bonds. Investors must read the entire Limited Offering Memorandum to obtain information essential to the making of an informed investment decision. MATURITY SCHEDULE $8,165, % 2008 Term Bonds due May 1, 2039, Price 100%, Initial CUSIP No AA6 (1) The 2008 Bonds are offered for delivery when, as and if issued by the District and accepted by the Underwriter and subject to the receipt of the approving legal opinion of Greenberg Traurig, P.A., Orlando, Florida, Bond Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel Akerman Senterfitt, Orlando, Florida; for the District by its counsel, Hopping Green & Sams, P.A., Tallahassee, Florida; for the Developer by its counsel, Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, P.A., Viera, Florida; and for the Trustee by its counsel, Bryant Miller Olive P.A., Orlando, Florida. It is expected that the 2008 Bonds will be delivered in book-entry form through the facility of DTC, New York, New York on or about May 1, Dated: April 25, 2008 PRAGER, SEALY & CO., LLC (1) The District is not responsible for the use of the CUSIP number referenced herein nor is any representation made by the District as to its correctness; such CUSIP number is included solely for the convenience of the readers of this Limited Offering Memorandum.

2 REGARDING USE OF THIS LIMITED OFFERING MEMORANDUM No broker, dealer, salesperson, or other person has been authorized by the District, the State of Florida or the Underwriter to give any information or to make any representations, other than those contained in this Limited Offering Memorandum, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Limited Offering Memorandum does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the 2008 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the District, the District Engineer, the District Manager, the Developer (as hereinafter defined), the Financial Consultant (as defined herein), the Landowners (as defined herein) and other sources that are believed by the Underwriter to be reliable. The Underwriter has reviewed the information in this Limited Offering Memorandum in accordance with, and as part of its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guaranty the accuracy or completeness of such information. The District, the Developer, the Landowners, the District Engineer and the Financial Consultant will all, at closing, deliver certificates certifying substantially to the effect that the information each supplied for inclusion herein does not contain any untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary to make the statements herein, in light of the circumstances under which they were made, not misleading. The information set forth herein has also been obtained from public documents, records and other sources, which are believed to be reliable but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of the Underwriter. The information and expressions of opinion herein contained are subject to change without notice and neither the delivery of this Limited Offering Memorandum, nor any sale made hereunder, shall, under any circumstances, create any implication that there has been no change in the affairs of the District, the Developer, the Landowners, the Development or the 2008 Project since the date hereof. THE UNDERWRITER IS LIMITING THIS OFFERING TO ACCREDITED INVESTORS WITHIN THE MEANING OF THE RULES OF THE FLORIDA DEPARTMENT OF FINANCIAL SERVICES. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2008 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE 2008 BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON CERTAIN EXEMPTIONS SET FORTH IN SUCH ACTS. THE REGISTRATION, QUALIFICATION OR EXEMPTION OF THE 2008 BONDS IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAW PROVISIONS OF ANY JURISDICTIONS WHEREIN THESE SECURITIES HAVE BEEN OR WILL BE REGISTERED, QUALIFIED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. Statements contained herein that are not purely historical, are forward-looking statements, including statements regarding the District s and the Developer s expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included herein are based on information available on the date hereof, and the District assumes no obligation to update any such forward-looking statements. Such forward-looking statements are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties. Assumptions` related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the District and the Developer. Actual results could differ materially from those discussed in such forward-looking statements and, therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. i

3 TABLE OF CONTENTS INTRODUCTION... 1 SUITABILITY FOR INVESTMENT... 2 DESCRIPTION OF THE 2008 BONDS... 3 General Description... 3 Redemption Provisions... 4 Notice of Redemption... 5 Book-Entry Only System... 5 SECURITY FOR AND SOURCE OF PAYMENT OF THE 2008 BONDS... 7 General... 7 No Parity Bonds... 8 Reserve Fund... 8 Deposit and Application of the Series 2008 Pledged Revenues... 9 Investments Enforcement of Payment of Assessments Other Covenants of the District Prepayment of Assessments Adjustments to Assessments ENFORCEMENT OF ASSESSMENT COLLECTIONS General Tax Collection Procedures Sale of Tax Certificates Judicial Proceedings BOND OWNERS' RISKS Risk Factors ESTIMATED SOURCES AND USES OF BOND PROCEEDS DEBT SERVICE REQUIREMENTS THE DISTRICT General Board of Supervisors The District Manager and Other Consultants THE CAPITAL IMPROVEMENT PLAN AND THE 2008 PROJECT ASSESSMENT METHODOLOGY THE DEVELOPMENT General Land Acquisition/ Development Financing District Financing Plan Development Entitlements/ Permits Land Use and Development Plan Status of Development Residential Community Recreational and Lifestyle Amenities Education Sales/Builder Program Marketing ii

4 Projected Absorption Fees and Assessments Competition THE LANDOWNERS AND THE DEVELOPER TAX MATTERS DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS VALIDATION LITIGATION The District The Developer and Landowners CONTINUING DISCLOSURE UNDERWRITING LEGAL MATTERS AGREEMENT BY THE STATE NO FINANCIAL STATEMENTS EXPERTS AND CONSULTANTS CONTINGENT AND OTHER FEES NO RATING OR CREDIT ENHANCEMENT LEGALITY FOR INVESTMENT FORWARD-LOOKING STATEMENTS MISCELLANEOUS Appendix A Appendix B Appendix C Appendix D Appendix E REPORT OF DISTRICT ENGINEER FORM OF THE INDENTURE PROPOSED FORM OF APPROVING OPINION OF BOND COUNSEL PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT ASSESSMENT METHODOLOGY iii

5 DEER RUN COMMUNITY DEVELOPMENT DISTRICT (City of Bunnell, Florida) $8,165,000 Special Assessment Bonds, Series 2008 INTRODUCTION The purpose of this Limited Offering Memorandum, including the cover page and appendices hereto, is to set forth certain information in connection with the offering and issuing by the Deer Run Community Development District (the District ) of its $8,165,000 Special Assessment Bonds, Series 2008 (the 2008 Bonds ). The District is a local unit of special purpose government organized in the manner provided by the Uniform Community Development District Act of 1980, Chapter 190, Florida Statutes, as amended (the Act ) and established by Ordinance No of the City Commission of the City of Bunnell, Florida (the Ordinance ) effective May 15, The 2008 Bonds are being issued pursuant to the Act, a Master Trust Indenture dated as of May 1, 2008 (the Master Indenture ) and a First Supplemental Trust Indenture dated as of May 1, 2008, (the Supplemental Indenture collectively with the Master Indenture, the Indenture ) both by and between the District and Regions Bank, as trustee (the Trustee ), and various resolutions of the District. All capitalized terms used in this Limited Offering Memorandum that are defined in the Indenture and not defined herein shall have the respective meanings set forth in the Indenture (see FORM OF THE INDENTURE, Appendix B hereto). The 2008 Bonds are secured under the Indenture by a lien upon and pledge of the Series 2008 Pledged Revenues. The Supplemental Indenture defines the Series 2008 Pledged Revenues as (a) all revenues received by the District from Series 2008 Special Assessments levied and collected on the District Lands benefited by the 2008 Project (see THE CAPITAL IMPROVEMENT PLAN AND THE 2008 PROJECT herein), including without limitation, amounts received from any foreclosure proceeding for the enforcement of collection of such Series 2008 Special Assessments or from the issuance and sale of tax certificates with respect to such Series 2008 Special Assessments, and (b) all moneys on deposit in the Funds and Accounts established under the Indenture with respect to the 2008 Bonds; provided, however, Series 2008 Pledged Revenues does not include (A) any moneys transferred to the Series 2008 Account of the Rebate Fund and investment earnings thereon and (B) special assessments levied and collected by the District under Section of the Act for maintenance purposes or maintenance special assessments levied and collected by the District under Section (3) of the Act. THE 2008 BONDS ARE NOT RATED OR CREDIT ENHANCED, AND ARE NOT A SUITABLE INVESTMENT FOR ALL INVESTORS (SEE SUITABILITY FOR INVESTMENT AND BOND OWNERS RISKS HEREIN). PROSPECTIVE INVESTORS IN THE 2008 BONDS ARE INVITED TO VISIT THE DISTRICT, ASK QUESTIONS OF REPRESENTATIVES OF THE DEVELOPER AND LANDOWNERS (AS HEREINAFTER DEFINED) AND TO REQUEST DOCUMENTS, INSTRUMENTS AND INFORMATION WHICH MAY NOT NECESSARILY BE REFERRED TO, SUMMARIZED OR DESCRIBED HEREIN. THEREFORE, PROSPECTIVE INVESTORS SHOULD RELY ON THE INFORMATION APPEARING IN THIS LIMITED OFFERING MEMORANDUM WITHIN THE CONTEXT OF THE AVAILABILITY OF SUCH ADDITIONAL INFORMATION AND THE SOURCES THEREOF. PROSPECTIVE INVESTORS MAY REQUEST SUCH ADDITIONAL INFORMATION AND ARRANGE TO VISIT THE DISTRICT AS DESCRIBED HEREIN UNDER THE CAPTION SUITABILITY FOR INVESTMENT HEREIN. The District was established for the purpose of delivering services and facilities described in the Act. The Act grants to the District the power to issue bonds for the purpose, among others, of financing, funding, planning, establishing, acquiring, constructing or reconstructing, enlarging or extending, equipping, operating and maintaining facilities relating to such services, and other basic infrastructure projects within and without the boundaries of the District, all as provided in the Act and the Ordinance. Under the Constitution and laws of the State of Florida, including the Act, the District has the power and authority to levy non ad valorem assessments upon specially benefited lands within the District (sometimes referred to as District Lands ) and to issue the 2008 Bonds for the purposes of providing community development services and facilities, including those comprising the 2008 Project, described below. Consistent with the requirements of the Act, the 2008 Bonds are being issued for the primary purpose of financing the acquisition and/or construction by the District of certain infrastructure and facilities specially benefiting District Lands and constituting the 2008 Project. More specifically, the Project includes, but is not limited to, stormwater management, roads, water and 1

6 sewer facilities, landscaping and related professional fees and permits, more fully described in the Report of District Engineer (the Engineer s Report ) attached hereto as APPENDIX A. The 2008 Bonds are the first debt to be issued by the District. Proceeds of the 2008 Bonds will be used to provide funds for (i) the payment of a portion of the costs of the 2008 Project, (ii) the payment of interest on the 2008 Bonds through November 1, 2009, (iii) the funding of the Series 2008 Debt Service Reserve Account in an amount equal to the Debt Service Reserve Requirement, and (iv) payment of all or a portion of the costs of issuance of the 2008 Bonds. In the Indenture, the District covenants that the Series 2008 Pledged Revenues are not and shall not be subject to any other lien, whether senior to, subordinate to, or on a parity with the lien created in favor of the 2008 Bonds. See SECURITY FOR AND SOURCE OF PAYMENT OF THE 2008 BONDS No Parity Bonds, herein. However, the District intends to impose certain non-ad valorem special assessments called maintenance assessments payable on a parity with the Special Assessments to fund the maintenance and operation of the District. The District may also issue bonds in the future secured by Special Assessments. The District, OB AT FLAGLER, LLC (the Developer ) and OB INVESTORS, LLC (collectively with the Developer, the Landowners ) have covenanted to comply with the continuing disclosure requirements contained in Securities and Exchange Commission Rule 15c2-12. See CONTINUING DISCLOSURE herein and Appendix D hereto. There follows in this Limited Offering Memorandum a brief description of the District, the 2008 Project, the Developer, the Landowners and the Development, together with summaries of the terms of the 2008 Bonds, the Indenture and certain provisions of the Act. All references herein to the Indenture and the Act are qualified in their entirety by reference to such document and statute and all references to the 2008 Bonds are qualified by reference to the definitive forms thereof and the information with respect thereto contained in the Indenture. The form of the Indenture appears as Appendix B hereto. The information herein under the captions THE DEVELOPMENT, and THE LANDOWNERS AND THE DEVELOPER has been furnished by the Developer and Landowners and not by the District or the Underwriter. This Limited Offering Memorandum speaks only as of its date and the information contained herein is subject to change. THE INFORMATION PROVIDED UNDER THIS CAPTION, INTRODUCTION, IS INTENDED TO PROVIDE A BRIEF OVERVIEW OF THE INFORMATION PROVIDED IN THE OTHER CAPTIONS HEREIN AND IS NOT INTENDED, AND SHOULD NOT BE CONSIDERED, FULLY REPRESENTATIVE OR COMPLETE AS TO THE SUBJECTS DISCUSSED HEREUNDER. SUITABILITY FOR INVESTMENT While the 2008 Bonds are not subject to registration under the Securities Act of 1933, as amended (the Securities Act ), the Underwriter will, as required by Chapter 189, Florida Statutes, offer the 2008 Bonds only to accredited investors, as defined in Chapter 517, Florida Statutes, and the rules promulgated thereunder. The limitation of the initial offering to accredited investors does not denote restrictions on transfer in any secondary market for the 2008 Bonds. Prospective investors in the 2008 Bonds should have knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of an investment in the 2008 Bonds and should have the ability to bear the economic risks of such prospective investment, including a complete loss of such investment. Investment in the 2008 Bonds poses certain economic risks. See BOND OWNERS RISKS herein. No dealer, broker, salesman or other person has been authorized by the District or the Underwriter to give any information or make any representations, other than those contained in this Limited Offering Memorandum. Additional information will be made available to each prospective investor, including the benefit of a site visit to the District, and the opportunity to ask questions of the Developer, as such prospective investor deems necessary in order to make an informed decision with respect to the purchase of the 2008 Bonds. Prospective investors are 2

7 encouraged to request such additional information, visit the District and ask such questions. Such requests should be directed to: General Description Mr. Brett Sealy Prager, Sealy & Co., LLC 200 South Orange Avenue Suite 1900 Orlando, Florida Telephone: (407) DESCRIPTION OF THE 2008 BONDS The 2008 Bonds are issuable as fully registered bonds in denominations of $5,000 and integral multiples thereof, provided however, the 2008 Bonds will be delivered to the initial purchasers only in aggregate principal amounts of $100,000 and integral multiples of $5,000 in excess thereof. The 2008 Bonds will be dated, and will bear interest at the fixed rate per annum set forth on the cover page hereof from the Interest Payment Date to which interest has been paid next preceding their date of authentication, unless any such 2008 Bond is authenticated as of an Interest Payment Date or between a Record Date and an Interest Payment Date, in which case it will bear interest from such Interest Payment Date, or unless a 2008 Bond is registered and authenticated prior to delivery to the initial purchaser thereof, in which event such 2008 Bond will bear interest from its dated date. Interest on the 2008 Bonds will be computed on the basis of a 360-day year consisting of twelve (12) thirty (30) day months. The 2008 Bonds will mature, subject to the redemption provisions set forth below, on the dates and in the amounts set forth on the cover page hereof. The 2008 Bonds will be initially issued in the form of a single fully registered certificate for each maturity thereof. Upon initial issuance, the ownership of the 2008 Bonds will be registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), the initial bond depository. All of the Outstanding Bonds will be registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee of DTC (see DESCRIPTION OF THE 2008 BONDS - Book-Entry Only System ). During the period for which Cede & Co. is Registered Owner of the 2008 Bonds, any notices to be provided to any Registered Owner will be provided to Cede & Co. DTC shall be responsible for notices to Direct Participants (as hereinafter defined) and Direct Participants shall be responsible for notices to Indirect Participants (as hereinafter defined), and Direct Participants and Indirect Participants shall be responsible for notices to Beneficial Owners. The Indenture provides that the District, the Trustee, the Paying Agent, the Registrar, or the Authenticating Agent shall deem and treat the person in whose name any 2008 Bond is registered as the absolute Owner thereof (whether or not such 2008 Bond shall be overdue and notwithstanding any notation of ownership or other writing thereon made by anyone other than the District, the Trustee, any Paying Agent, the Registrar or the Authenticating Agent) for the purpose of receiving payment of or on account of the principal or Redemption Price of and interest on such 2008 Bond, and for all other purposes, and the District, the Trustee, any Paying Agent, the Registrar and the Authenticating Agent shall not be affected by any notice to the contrary. All such payments so made to any such Owner, or upon his order, shall be valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Bond. Regions Bank is the Trustee, Registrar and Paying Agent for the 2008 Bonds. 3

8 Redemption Provisions Optional Redemption. The 2008 Bonds may, at the option of the District be called for redemption prior to maturity as a whole at any time or in part on any Interest Payment Date on or after May 1, 2018 (less than all 2008 Bonds to be selected by lot), at a Redemption Price equal to 100% of the principal amount of the 2008 Bonds to be redeemed plus accrued interest from the most recent Interest Payment Date to which interest has been paid to the redemption date. Extraordinary Mandatory Redemption in Whole or in Part. The 2008 Bonds are subject to extraordinary mandatory redemption prior to maturity by the District in whole, on any date, or in part, on any Interest Payment Date at an extraordinary mandatory redemption price equal to 100% of the principal amount of the 2008 Bonds to be redeemed, plus interest accrued to the redemption date, as follows: (a) from Series 2008 Prepayment Principal deposited into the Series 2008 Prepayment Account of the 2008 Bond Redemption Account following the payment in whole or in part of Series 2008 Special Assessments on any portion of the District Lands specially benefited by the Project in accordance with the provisions of the Supplemental Indenture, including excess moneys transferred from the Series 2008 Debt Service Reserve Account to the Series 2008 Prepayment Account of the 2008 Bond Redemption Fund resulting from such Series 2008 Special Assessment prepayments. (b) from moneys, if any, on deposit in the Series 2008 Accounts and Subaccounts in the Series 2008 Funds and Accounts (other than the Series 2008 Rebate Account of the Rebate Fund and the Project Acquisition and Construction Account) sufficient to pay and redeem all Outstanding 2008 Bonds and accrued interest thereon to the redemption date or dates in addition to all amounts owed to Persons under the Master Indenture. (c) on or after the Completion Date of the Project, from amounts remaining in the Project Acquisition and Construction Account of the Acquisition and Construction Fund, not reserved by the District for the payment of any remaining part of the Cost of the Project and/or Deferred Obligations, and transferred to the Series 2008 General Subaccount of the 2008 Bond Redemption Fund in accordance with the Indenture to be applied to the extraordinary mandatory redemption of the 2008 Bonds. (d) from excess moneys transferred from the Series 2008 Revenue Account to the Series 2008 General Subaccount of the Series 2008 Bond Redemption Account in accordance with the Indenture. (e) from amounts on deposit in the Series 2008 Debt Service Reserve Account in excess of the Debt Service Reserve Requirement for the 2008 Bonds not resulting from Prepayments, which excess amounts have, pursuant to the requirements of the Indenture, been transferred to the Series 2008 General Subaccount within the 2008 Bond Redemption Account, in accordance with the terms of the Indenture to be used for the extraordinary mandatory redemption of the 2008 Bonds. Mandatory Sinking Fund Redemption. The 2008 Bonds are subject to mandatory redemption in part by the District by lot prior to the scheduled maturity from moneys in the Series 2008 Sinking Fund Account established under the Indenture in satisfaction of applicable Sinking Fund Installments at the Redemption Price of 100% of the principal amount thereof, without premium, together with accrued interest to the date of redemption on May 1 of the years and in the principal amounts set forth below: 4

9 Year (May 1) Amortization Installment Year (May 1) Amortization Installment *Maturity 2010 $ 75, $ 230, , , , , , , , , , , , , , , , , , , , , , , , , , , , * 665,000 Notice of Redemption Notice of each redemption of 2008 Bonds is required to be mailed by the Trustee not less than thirty (30) nor more than sixty (60) days prior to the date of redemption to each Owner of 2008 Bonds to be redeemed at the address of such registered Owner recorded on the registration books on the fifth (5th) day prior to such mailing. No defect in said notice nor any failure to mail such notice will affect the validity of the redemption or purchase of the 2008 Bonds for which notice was duly mailed Bonds so called for redemption, for which moneys have been duly deposited with the Trustee, will cease to bear interest on the specified redemption date, shall no longer be secured by the Indenture and shall not be deemed to be Outstanding under the provisions of the Indenture. Book-Entry Only System The following contains a description of the procedures and operations of DTC and is based upon information provided by DTC. The District has not independently investigated or verified such procedures and operations and assumes no responsibility for the accuracy or completeness of the description thereof. DTC, New York, New York, will act as securities depository for the 2008 Bonds. The 2008 Bonds will be issued as fully registered 2008 Bonds, registered in the name of Cede &Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. DTC, the world s largest depository, is a limited purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues and money market instruments from over one hundred (100) countries that DTC s Participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-u.s. 5

10 securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of 2008 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2008 Bonds on DTC s records. The ownership interest of each actual purchaser of each 2008 Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participant s records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmation providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2008 Bonds are to be accomplished by entries made on the books of Direct and Indirect of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2008 Bonds, except in the event that use of the book-entry system for the 2008 Bonds is discontinued. To facilitate subsequent transfers, all 2008 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of 2008 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2008 Bonds, DTC s records reflect only the identity of the Direct Participants to whose accounts such 2008 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2008 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2008 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of 2008 Bonds may wish to ascertain that the nominee holding the 2008 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the 2008 Bonds are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the 2008 Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the 2008 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). The redemption price and principal and interest payments on the 2008 Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the District or the Paying Agent on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption price and principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. 6

11 DTC may discontinue providing its services as depository with respect to the 2008 Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, 2008 Bond certificates are required to be printed and delivered. Subject to the policies and procedures of DTC (or any successor securities depository), the District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event 2008 Bonds certificates will be printed and delivered. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE 2008 BONDS, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE HOLDER OF THE 2008 BONDS OR REGISTERED OWNERS OF THE 2008 BONDS SHALL MEAN DTC AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE 2008 BONDS. The District can make no assurances that DTC will distribute payments of principal of, redemption price, if any, or interest on the 2008 Bonds to the Direct Participants, or that Direct and Indirect Participants will distribute payments of principal of, redemption price, if any, or interest on the 2008 Bonds or redemption notices to the Beneficial Owners of such 2008 Bonds or that they will do so on a timely basis, or that DTC or any of its Participants will act in a manner described in this Official Statement. The District is not responsible or liable for the failure of DTC to make any payment to any Direct Participant or failure of any Direct or Indirect Participant to give any notice or make any payment to a Beneficial Owner in respect to the 2008 Bonds or any error or delay relating thereto. The rights of holders of beneficial interests in the 2008 Bonds and the manner of transferring or pledging those interests is subject to applicable state law. Holders of beneficial interests in the 2008 Bonds may want to discuss the manner of transferring or pledging their interest in the 2008 Bonds with their legal advisors. NEITHER THE DISTRICT NOR THE TRUSTEE SHALL HAVE ANY OBLIGATION WITH RESPECT TO ANY DEPOSITORY PARTICIPANT OR BENEFICIAL OWNER OF THE 2008 BONDS DURING SUCH TIME AS THE 2008 BONDS ARE REGISTERED IN THE NAME OF A SECURITIES DEPOSITORY PURSUANT TO A BOOK-ENTRY ONLY SYSTEM OF REGISTRATION. General SECURITY FOR AND SOURCE OF PAYMENT OF THE 2008 BONDS The principal of, redemption premium, if any, and interest on the 2008 Bonds are secured by a first lien upon and pledge of the Series 2008 Pledged Revenues. The Series 2008 Pledged Revenues consist primarily of all revenues received by the District from Special Assessments levied and collected on the District Lands benefited by the Project, including, without limitation, amounts received from any foreclosure proceeding for the enforcement of collection of such Special Assessments or from the issuance and sale of tax certificates with respect to such Special Assessments. Special Assessments are the non-ad valorem special assessments levied by the District against developable acreage within the District Lands specially benefited by such projects or any portion thereof, pursuant to Section , Florida Statutes, as amended, and the Assessment Resolutions. The Special Assessments are a species of non-ad valorem assessments which are imposed and levied against the land subject thereto upon the basis of a special and peculiar benefit to such land determined to result from the implementation of the Project. Non-ad valorem assessments are not based on millage and are not taxes, but can become a lien against the homestead as permitted in Section 4, Article X of the Florida State Constitution. The Assessment Methodology is included as Appendix E hereto. THE 2008 BONDS ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY OUT OF THE SERIES 2008 PLEDGED REVENUES PLEDGED THEREFOR UNDER THE INDENTURE AND NEITHER THE PROPERTY, THE FULL FAITH AND CREDIT, NOR THE TAXING POWER OF THE DISTRICT, FLAGLER COUNTY, FLORIDA, THE CITY OF BUNNELL, THE STATE OF FLORIDA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED AS SECURITY FOR THE PAYMENT OF THE 2008 BONDS, EXCEPT THAT THE DISTRICT IS OBLIGATED UNDER THE INDENTURE TO LEVY, AND TO 7

12 EVIDENCE AND CERTIFY, OR CAUSE TO BE CERTIFIED, FOR COLLECTION, SPECIAL ASSESSMENTS (AS DEFINED IN THE INDENTURE) TO SECURE AND PAY THE 2008 BONDS. THE 2008 BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OF THE DISTRICT, THE CITY OF BUNNELL, FLORIDA, FLAGLER COUNTY, FLORIDA, THE STATE OF FLORIDA, OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION OR LIMITATION. No Parity Bonds Pursuant to the Master Indenture, the District has covenanted not to issue any obligations other than the 2008 Bonds payable from the Series 2008 Pledged Revenues, nor voluntarily create or cause to be created any debt, lien, pledge, assignment, encumbrance or other charge, payable from Series 2008 Pledged Revenues, except as otherwise provided in the Supplemental Indenture. The Supplemental Indenture provides that anything in the Master Indenture to the contrary notwithstanding, no additional Series of Bonds may be issued by the District which are to be secured by Special Assessments to be levied on real property within the District unless and until: the amount of such Additional Bonds when aggregated with all Outstanding Bonds of the District burdening the same land, if any, does not exceed an amount that would cause the ratio of "Land Value" to Bond indebtedness for the burdened land to be less than 2:1. "Land Value" shall be determined by an independent third party appraisal ordered by the District and shared with existing Bondholders and shall be based upon the sum of "as is" value of the real property to be burdened by the Special Assessments for the additional Series of Bonds at the time of the appraisal plus the amounts to be included in the trust estate for the additional Series of Bonds that are to be segregated for construction of planned improvements within the District, as such value is reasonably interpolated. Additionally, See BOND OWNERS RISKS herein regarding taxes and other obligations payable on a parity with the Series 2008 Special Assessments. Reserve Fund The Indenture establishes a Series 2008 Debt Service Reserve Account within the Debt Service Reserve Fund. Such Debt Service Reserve Account will, at the time of delivery of the 2008 Bonds be funded from the proceeds of the 2008 Bonds in an amount equal to the Debt Service Reserve Requirement. The Master Indenture provides that whenever for any reason on a Interest or Principal Payment Date or mandatory redemption date with respect to 2008 Bonds the amount in the Series 2008 Interest Account, the 2008 Principal Account or the Series 2008 Sinking Fund Account, as the case may be, is insufficient to pay all amounts payable on such 2008 Bonds, the Trustee shall, without further instructions, transfer the amount of any such deficiency from the Series 2008 Debt Service Reserve Account into the Series 2008 Interest Account, Series 2008 Principal Account and the Series 2008 Sinking Fund Account, as the case may be, with priority to the related Series 2008 Interest Account and then, proportionately according to the respective deficiencies therein, to the Series 2008 Principal Account and the Series 2008 Sinking Fund Account, to be applied to pay the 2008 Bonds. The Supplemental Indenture defines the Debt Service Reserve Requirement as: (i) initially the maximum annual debt service for the 2008 Bonds, which is % of the initial principal amount of the 2008 Bonds (initially $695,303.13), and (ii) at any time after the issuance, the Initial Series 2008 Reserve Account Percentage times the Deemed Outstanding 2008 Bonds as of the time of any such calculation. The terms of the Indenture provide that at any time Substantial Absorption has been achieved or the 2008 Bonds have been assigned an Investment Grade Rating, the District, or the District Manager, on behalf of the District, shall provide written notice to the Trustee of the occurrence of either or both events, upon which notice the Trustee may conclusively rely. Upon receipt of such notice, the Trustee shall calculate the Debt Service Reserve Requirement for the 2008 Bonds so that the amount required to be on deposit in the Series 2008 Debt Service Reserve Account is equal to 50% of the maximum annual debt service requirement for the Deemed Outstanding 2008 Bonds. Any excess in the Series 2008 Debt Service Reserve Account as a result of such calculation shall be transferred by the Trustee first, to the Project Acquisition and Construction Account to be used to pay the Costs of the Project if such transfer shall occur prior to the Completion Date and, if after the Completion Date, to pay any Deferred Obligations and second, transferred by the Trustee to the Series 2008 General Subaccount of the Series 2008 Bond Redemption Account to be used for the extraordinary mandatory redemption of the 2008 Bonds in accordance with the terms of the Indenture. "Deemed Outstanding" means with respect to the 2008 Bonds, the aggregate Outstanding principal amount of the 2008 Bonds reduced by the result of dividing the amount on deposit in the 2008 Prepayment Subaccount in the 2008 Redemption Account by 1 minus the Initial Series 2008 Reserve Account Percentage. 8

13 "Initial Series 2008 Reserve Account Percentage" shall mean, (i) the result of dividing the Series 2008 Debt Service Reserve Requirement on the date of initial issuance and delivery of the 2008 Bonds ($695,303.13) by the initial Outstanding aggregate principal amount of the 2008 Bonds, which equals %. Investment Grade Rating shall mean a rating on the 2008 Bonds of at least BBB-, Baa3, or BBB-, by S&P, Moody s, or Fitch, respectively. "Substantial Absorption" shall mean the date on which at least 75% of the principal amount of the Series 2008 Special Assessments to be levied and collected each year will be levied on District Lands with respect to which final certificates of occupancy have been issued for the structure thereon. Acquisition Agreement means one or more improvement acquisition agreements relating to the Project, as defined in the Supplemental Indenture, between the District and the Developer. On each March 15 and September 15 (or, if such date is not a Business Day, on the Business Day next preceding such day), the Trustee shall determine the amount on deposit in the Series 2008 Debt Service Reserve Account and transfer any excess thereinabove the Debt Service Reserve Requirement for the 2008 Bonds caused by investment earnings to the Series 2008 Capitalized Interest Subaccount of the Series 2008 Interest Account, if such transfer shall occur on or before November 1, 2009, and second, any investment earnings after November 1, 2009, or any other excess in the Series 2008 Debt Service Reserve Account, not resulting from Prepayments or reductions in the Series 2008 Debt Service Reserve Account as a result of achieving Substantial Absorption or receiving an Investment Grade Rating, shall be transferred to the Project Acquisition and Construction Account, to be used to pay the Cost of the Project if prior to the Completion Date and, if after the Completion Date, to pay any Deferred Obligations, then to the Series 2008 General Subaccount of the Series 2008 Bond Redemption Account, to be used for the extraordinary mandatory redemption of 2008 Bonds in accordance with the Indenture. Deposit and Application of the Series 2008 Pledged Revenues Pursuant to the Indenture the District covenants to cause any Special Assessments collected or otherwise received by it to be deposited with the Trustee within five (5) Business Days after receipt thereof for deposit into the Revenue Fund. Pursuant to the Indenture the Trustee has covenanted to deposit Special Assessments (except for Prepayments which shall be deposited into the Series Prepayment Subaccount as described in the Indenture) into the Series 2008 Revenue Account. Pursuant to the Supplemental Indenture the Trustee shall transfer from amounts on deposit in the Series 2008 Revenue Account, to the Funds and Accounts designated below, the following amounts, at the following times and in the following order of priority: FIRST, upon receipt but no later than the Business Day preceding the first May 1 for which there remains an insufficient amount from 2008 Bond proceeds (or investment earnings thereon) on deposit in the Series 2008 Capitalized Interest Subaccount to be applied to the payment of interest on the 2008 Bonds due on the next succeeding May 1, and upon receipt but no later than the Business Day next preceding each May 1 thereafter, to the Series 2008 Interest Account of the Debt Service Fund, an amount from the Series 2008 Revenue Account equal to the interest on the 2008 Bonds becoming due on the next succeeding May 1, less any amounts on deposit in the Series 2008 Interest Account not previously credited; SECOND, no later than the Business Day next preceding each May 1, commencing with the first May 1 which is a principal payment date for the 2008 Bonds, to the Series 2008 Principal Account of the Debt Service Fund, an amount from the Series 2008 Revenue Account equal to the principal amount of 2008 Bonds Outstanding maturing on such May 1, if any, less any amounts on deposit in the Series 2008 Principal Account not previously credited; THIRD, no later than the Business Day next preceding each May 1, commencing May 1, 2010, to the Series 2008 Sinking Fund Account of the Debt Service Fund, an amount from the Series 2008 Revenue Account equal to the principal amount of 2008 Bonds subject to sinking fund redemption on such May 1, less any amount on deposit in the Series 2008 Sinking Fund Account not previously credited; FOURTH, upon receipt but no later than the Business Day preceding the first November 1 for which there remains an insufficient amount from 2008 Bond proceeds (or investment earnings thereon) on 9

14 deposit in the Series 2008 Capitalized Interest Subaccount to be applied to the payment of interest on the 2008 Bonds due on the next succeeding November 1, and upon receipt but no later than the Business Day next preceding each November 1 thereafter to the Series 2008 Interest Account of the Debt Service Fund, an amount from the Series 2008 Revenue Account equal to the interest on the 2008 Bonds becoming due on the next succeeding November 1, less any amount on deposit in the Series 2008 Interest Account not previously credited; FIFTH, upon receipt but no later than the Business Day next preceding each Interest Payment Date while 2008 Bonds remain Outstanding, to the Series 2008 Debt Service Reserve Account, an amount from the Series 2008 Revenue Account equal to the amount, if any, which is necessary to make the amount on deposit therein equal to the Debt Service Reserve Requirement for the 2008 Bonds; and SIXTH, notwithstanding the foregoing, at any time the 2008 Bonds are subject to redemption on a date which is not a May 1 or November 1 Interest Payment Date, the Trustee shall be authorized to transfer from the Series 2008 Revenue Account to the Series 2008 Interest Account, the amount necessary to pay interest on the 2008 Bonds subject to redemption on such date; and SEVENTH, subject to the foregoing paragraphs, the balance of any moneys remaining after making the foregoing deposits shall remain in the Series 2008 Revenue Account, unless pursuant to the Arbitrage Certificate, it is necessary to make a deposit into the Series 2008 Rebate Account, in which case, the District shall direct the Trustee to make such deposit thereto. The Trustee shall within ten (10) Business Days after the last Interest Payment Date in any calendar year withdraw any moneys held for the credit of the Series 2008 Revenue Account which are not otherwise required to be deposited pursuant to the Indenture and deposit such moneys to the credit of the Series 2008 General Subaccount of the Series 2008 Bond Redemption Account to be used for the extraordinary mandatory redemption of 2008 Bonds pursuant to the terms of the Indenture. Notwithstanding the foregoing, if pursuant to the Arbitrage Certificate it is necessary to make a deposit into the Series 2008 Rebate Account, the Issuer shall direct the Trustee to make such deposit thereto. Prepayments of the Special Assessments shall be deposited directly into the Series 2008 Prepayment Subaccount of the Series 2008 Bond Redemption Account, as provided in the Indenture. Notwithstanding that the District has funded the Series 2008 Capitalized Interest Subaccount to pay interest on the 2008 Bonds until at least November 1, 2009, moneys on deposit in the Series 2008 Capitalized Interest Subaccount, including all investment earnings thereon, shall remain on deposit in such subaccount and be used by the Trustee to pay interest on the 2008 Bonds on any subsequent Interest Payment Date if moneys remain after November 1, When such subaccount has been depleted of all funds, the Trustee shall be authorized to close such subaccount. Investments The Trustee shall, as directed by the District in writing, invest moneys held in the Debt Service Fund and any Bond Redemption Fund only in Government Obligations and other Investment Securities as provided in the Indenture. See Appendix B hereto. The Trustee shall, as directed by the District in writing, invest moneys held in the Debt Service Reserve Fund in Investment Securities. All deposits in time accounts shall be subject to withdrawal without penalty and all investments shall mature or be subject to redemption by the holder without penalty and all investments shall mature or be subject to redemption by the holder without penalty, not later than the date when the amounts will foreseeably be needed for purposes set forth in the Indenture. All securities securing investments shall be deposited with a Federal Reserve Bank, with the trust department of the Trustee, as authorized by law with respect to trust funds in the State, or with a bank or trust company having a combined net capital and surplus of not less than $50,000,000. The interest and income received upon such investments and any interest paid by the Trustee or any other depositary of any Fund or Account and any profit or loss resulting from the sale of securities shall be added or charged to the Fund or Account for which such investments are made; provided, however, that if the amount in any Fund or Account equals or exceeds the amount required to be on deposit therein, any interest and other income so received shall be deposited in the related Series Account of the Revenue Fund. 10

15 Absent specific instructions as aforesaid, all moneys in the Funds and Account (other than moneys in the Debt Service Fund and Bond Redemption Fund which shall be invested only as provided above) established under the Indenture shall be invested in Government Obligations. See Appendix B hereto. Moneys in any of the Funds and Accounts established pursuant to the Indenture, when held by the Trustee, shall be immediately invested by the Trustee as provided in the Indenture. The Trustee shall not be liable or responsible for any loss or entitled to any gain resulting from any investment or sale. The Trustee shall value the assets in each of the Funds and Accounts established under the Indenture on March 15 and September 15 of each Fiscal Year, and as soon as practicable after each such valuation date (but no later than ten (10) days after such valuation date) shall provide the District a report of the status of each Fund and Account as of the Valuation Date. Obligations in which money in such Fund or Account shall have been invested shall be valued at the market value or the amortized cost thereof, whichever is lower, or at the redemption price thereof, to the extent that any such obligation is then redeemable at the option of the holder. Enforcement of Payment of Assessments The District has covenanted to levy Special Assessments to the extent and in an amount sufficient to pay Debt Service Requirements on all Outstanding Bonds. If any Special Assessment shall be either in whole or in part annulled, vacated or set aside by the judgment of any court, or if the District shall be satisfied that any such Special Assessment is so irregular or defective that the same cannot be enforced or collected, or if the District shall have omitted to make such Special Assessment when it might have done so, the District has additionally covenanted to either (i) take all necessary steps to cause a new Special Assessment to be made for the whole or any part of said improvement or against any property benefited by said improvement; or (ii) in its sole discretion, make up the amount of such Special Assessment from legally available moneys, which moneys shall be deposited into the Series 2008 Revenue Account. In case such second Special Assessment shall be annulled, the District shall obtain and make other Special Assessments until a valid Special Assessment shall be made. Other Covenants of the District Pursuant to the Indenture the District has additionally covenanted to: (i) carry or cause to be carried, in respect of the Project (as defined in the Supplemental Indenture), comprehensive general liability insurance (covering bodily injury and property damage) issued by one or more insurance companies authorized or eligible and qualified to do business under the laws of the State, in such amounts as is customary for similar operations. Such insurance may be maintained through Qualified Self Insurance; (ii) not use the Series 2008 Pledged Revenues for any purpose other than as provided in the Indenture and not to enter into any contract or contracts or take any action which will be inconsistent with the provisions of the Indenture; and (iii) not make or direct the making of any investment or other use of the proceeds of any Bonds which would cause such Bonds to be arbitrage bonds as that term is defined in Section 148 (or any successor provision thereto) of the Code and or private activity bonds as that term is defined in Section 141 (or any successor provision thereto) of the Code, and that it will comply with the requirements of such Code sections and related regulations throughout the term of such Bonds. Prepayment of Assessments Pursuant to the Assessment Resolutions, the owner of a parcel of land subject to the Special Assessments may, on a per parcel basis, prepay the entire remaining balance of the Special Assessments at any time, or a portion of the remaining balance of the Special Assessments one time if there is also paid, in addition to the prepaid principal balance of the Special Assessments, an amount equal to the interest that would otherwise be due on such prepaid amount on the next succeeding Interest Payment Date for the 2008 Bonds, or, if prepaid during the forty day 11

16 period preceding such Interest Payment Date, to the Interest Payment Date following such next succeeding Interest Payment Date. Also pursuant to the terms of the Act and the Assessment Resolutions, the owner of property subject to Special Assessments may pay the entire balance of the Special Assessments remaining due, without interest, within thirty (30) days after the Project has been completed and the Board of Supervisors has adopted a resolution accepting the Project as provided by Florida Statutes, Section This right will be waived by the Developer and Landowners in connection with the issuance of the 2008 Bonds. The 2008 Bonds are subject to extraordinary mandatory redemption from the Series 2008 Prepayment Principal as indicated under DESCRIPTION OF THE 2008 BONDS - Redemption Provisions - Extraordinary Mandatory Redemption. The prepayment of Special Assessments does not entitle the owner of the property to a discount for early payment. Adjustments to Assessments Upon completion of the 2008 Project, the Special Assessments shall be credited, pro rata, with any excess of the original Special Assessments over the actual Cost (which Cost includes, without limitation, costs associated with the issuance of the 2008 Bonds, the capitalized interest and the Debt Service Reserve Accounts funded from proceeds of the 2008 Bonds) of the Project. General ENFORCEMENT OF ASSESSMENT COLLECTIONS The primary source of payment for the 2008 Bonds is the Special Assessments imposed on certain lands in the District specially benefited by the Project or portions thereof pursuant to the Assessment Proceedings. See APPENDIX E ASSESSMENT METHODOLOGY. The determination, order, levy, and collection of the Special Assessments must comply with procedural requirements and guidelines provided by State law. Failure by the District to comply with such requirements could result in delay in the collection of, or the complete inability to collect, Special Assessments during any year. Such delays in the collection of Special Assessments, or complete inability to collect Special Assessments, would have a material adverse effect on the ability of the District to make full or punctual payment of the debt service on the 2008 Bonds. See BOND OWNERS RISKS. To the extent that landowners fail to pay the Special Assessments, delay payments, or are unable to pay the same, the successful pursuance of collection procedures available to the District is essential to continued payment of principal of and interest on the 2008 Bonds. The Act provides for various methods of collection of delinquent Special Assessments by reference to other provisions of the Florida Statutes. The following is a description of certain provisions of State law with respect to assessment payment and collection procedures but is qualified in its entirety by reference to such statutes. The Indenture provides that subject to the District entering into a Property Appraiser and Tax Collector Agreement, Special Assessments levied on platted lots and pledged to secure the 2008 Bonds will be collected pursuant to the uniform method for the levy, collection and enforcement of Special Assessments afforded by Sections , and , Florida Statutes, as amended (the "Uniform Method"). Notwithstanding any provision in the Master Indenture to the contrary, Special Assessments levied on unplatted lots and pledged to secure the 2008 Bonds shall not be collected by the District pursuant to the Uniform Method, unless the District determines that collection pursuant to the Uniform Method, is in the best interests of the District. Tax Collection Procedures The Special Assessments will be payable in annual installments and will be certified for collection by the District each year. The determination, order, levy and collection of Special Assessments must be done in compliance with procedural requirements and guidelines provided by State law. Failure by the District or the Tax Collector or the Property Appraiser to comply with such requirements could result in delays in the collection of, or the complete inability to collect, Special Assessments during any year. Such delays in the collection of, or complete 12

17 inability to collect, Special Assessments could have a material adverse effect on the ability of the District to make full or punctual payment of Debt Service on the 2008 Bonds. As stated herein, the primary prospective source of payment for the 2008 Bonds are the Special Assessments imposed on each parcel of benefited land within the District pursuant to the Assessment Resolutions. To the extent that landowners fail to pay such Special Assessments, delay payments, or are unable to pay the same, the successful pursuance of collection procedures available to the District is essential to continued payment of principal of and interest on the 2008 Bonds. The Act provides for various methods of collection of Delinquent Assessments by reference to other provisions of the Florida Statutes. The following is a description of certain statutory provisions of assessment payment and collection procedures appearing in the Florida Statutes, but is qualified in its entirety by reference to such statutes. The Florida Statutes provide that, subject to certain conditions, assessments such as the Special Assessments may be collected in the same manner as ad valorem taxes. The statutes relating to enforcement of ad valorem taxes provide that ad valorem taxes become due and payable on November 1 of the year when assessed or as soon thereafter as the certified tax roll is released by the tax collector and constitute a lien upon the land from the date of imposition thereof until paid. Special Assessments are a lien on the land against which they are assessed from the date of imposition thereof until paid or barred by operation of law. The lien of the Special Assessments is of equal dignity with the liens for state and ad valorem taxes upon land, and thus is a first lien, superior to all other liens, including mortgages (except for state and county taxes and other taxes which are of equal dignity). Such taxes and assessments (including the Special Assessments, if any, being collected by the Uniform Method) are to be billed, and landowners in the District, subject to next succeeding sentence, are required to pay all such taxes and assessments, without preference in payment of any particular increment of the tax bill, such as the increment owing for the Special Assessments. However, if a landowner initiates legal proceedings contesting the levy or the amount of a particular ad valorem tax or possibly a non ad valorem assessment which could include the Special Assessments, under certain circumstances, such landowner may be permitted to pay only that amount of ad valorem taxes and possibly non ad valorem assessments that the landowner, in good faith, admits to be owing. Additionally, legislation has been filed for consideration by the Florida legislature which proposes to amend , Florida Statutes, by adding the following language: The tax collector of the county shall accept any payment consisting of any portion of the total amount of taxes specified in the tax notice by the deadline specified in the tax notice. The District is unable to predict the likelihood of this proposed legislation becoming law or if such legislation becomes law, the effect any such legislation would have on the collection of the Special Assessments. As described below, if a landowner should commence legal proceedings regarding the Special Assessments, this could result in the delay of certain remedial actions made available using the Uniform Method. If a significant number of landowners contest the levy or amount of Special Assessments, it is possible the District would not have sufficient Series 2008 Pledged Revenues to timely pay debt service on the 2008 Bonds. Except as described above, all City, County, school and special district, including the District, ad valorem taxes, non ad valorem special assessments and voter-approved ad valorem taxes levied to pay principal of and interest on bonds, including the Special Assessments collected pursuant to the Uniform Method, are payable at one time. Under certain circumstances, the District may opt out of using the Uniform Method and utilize the foreclosure procedures described in the section below captioned Judicial Proceedings. If Special Assessments are paid during November when due or during the following three months, the taxpayer is granted a variable discount equal to 4% in November and decreasing one percentage point per month to 1% in February. All unpaid taxes become delinquent on April 1 of the year following assessment, and the Tax Collector is required to collect taxes prior to April 1 and after that date to institute statutory procedures upon delinquency to collect assessed taxes. Delay in the mailing of tax notices to taxpayers may result in a delay throughout this process. Sale of Tax Certificates The collection of delinquent Special Assessments is, in essence, based upon the sale by the Tax Collector of tax certificates and remittance of the proceeds of such sale to the District for the payment of the 2008 Assessment due. The demand for such certificates is in turn dependent upon various factors, which include the interest that can be earned by ownership of such certificates and the value of the land that is the subject of such certificates and which may be subject to sale at the demand of the certificate holder. Therefore, the underlying value 13

18 of the land within the District may affect the demand for such certificates and the successful collection of the Special Assessments. See BOND OWNERS RISKS herein. In the event of a delinquency in the payment of taxes on real property, the Tax Collector is required to attempt to sell tax certificates on such property to the person who pays the delinquent taxes and interest and certain costs and charges relating thereto, and who accepts the lowest interest rate per annum to be borne by the certificates (not to exceed 18%). Delinquent taxes may be paid by a taxpayer prior to the date of sale of a tax certificate by the payment of such taxes, together with interest and all costs and charges relating thereto. Generally, tax certificates are sold by public bid. If there are no bidders at the public sale of tax certificates, the certificate is issued to the County in which the assessed lands are located, at the maximum rate of interest allowed (currently 18%). The Tax Collector does not collect any money if tax certificates are issued to the county. Proceeds from the sale of tax certificates are required to be used to pay taxes (including Special Assessments), interest, costs and charges on the real property described in the certificate. County-held certificates may be purchased and any tax certificate may be redeemed, in whole or in part, by any person at any time before a tax deed is issued or the property is placed on the list of lands available for sale, at a price equal to the face amount of the certificate or portion thereof together with all interest, costs, charges and omitted taxes due. The proceeds of such a redemption are paid to the Tax Collector who transmits to the holder of the certificate such proceeds less service charges, and the certificate is canceled. Any holder, other than the county, of a tax certificate that has not been redeemed has seven years from the date of issuance of the tax certificate during which to act against the land that is the subject of the tax certificate. After an initial period ending two years from April 1 of the year of issuance of a certificate, during which period actions against the land are held in abeyance to allow for sales and redemptions of tax certificates and before the expiration of seven years from the date of issuance, the holder of a certificate may apply for a tax deed to the subject land. The applicant is required to pay to the Tax Collector at the time of application all amounts required to redeem or purchase all other outstanding tax certificates covering the land, plus interest, any omitted taxes or delinquent taxes and interest, and current taxes, if due. If the county holds a tax certificate on property valued at $5,000 or more and has not succeeded in selling it, the county must apply for a tax deed two years after April 1 of the year of issuance. The county pays costs and fees to the Tax Collector but not any amount to redeem any other outstanding certificates covering the land. Thereafter, the property is advertised for public sale. In any such public sale, the holder of the tax certificate, other than the County, who is seeking a tax deed for non-homestead property is deemed to submit a minimum bid equal to the amount required to redeem the tax certificate, charges for the cost of sale, redemption of other tax certificates on the land, and the amount paid by such holder in applying for the tax deed, plus interest thereon. In the case of homestead property, the bid is also deemed to include an amount equal to one-half of the latest assessed value of the homestead. If there are no higher bids, the holder receives title to the land and the amounts paid for the certificate and in applying for a tax deed are credited towards the purchase price. If there are other bids, the holder may enter the bidding. The highest bidder is awarded title to the land. The portion of proceeds of such sale needed to redeem the tax certificate, and all other amounts paid by such person in applying for a tax deed, are forwarded to the holder thereof or credited to such holder if such holder is the successful bidder. Excess proceeds are distributed first to satisfy governmental liens against the land and then to the former title holder of the property (less service charges), lienholders of record, mortgagees of record, vendees of recorded contracts for deeds, and other lienholders and any other person to whom the land was last assessed on the tax roll for the year in which the land was assessed, all as their interests may appear. Except for certain governmental liens and certain restrictive covenants and restrictions, no right, interest, restriction or other covenant survives the issuance of a tax deed. Thus, for example, outstanding mortgages on property subject to a tax deed would be extinguished. On County-held certificates for which there are no bidders at the public sale, Flagler County may at any time within ninety (90) days from the date of offering for public sale purchase the land without further notice or advertising for a statutorily prescribed opening bid. After ninety (90) days have passed, any person or governmental unit may purchase the land by paying the amount of the opening bid. Three years from the date of offering for public sale, unsold lands escheat to the County in which they are located and all tax certificates and liens against the property are canceled and a deed is executed vesting title in the Board of County Commissioners. 14

19 Judicial Proceedings In addition to the sale of tax certificates as a method of enforcing the payment of Special Assessments, Section , Florida Statutes, provides that upon the failure of any property owner to pay the principal of the Special Assessment or the interest thereon, when due, the governing body of the District is authorized to commence legal proceedings for the enforcement of the payment thereof, including commencement of an action in chancery, commencement of a foreclosure proceeding in the same manner as the foreclosure of a real estate mortgage, or commencement of an action under Chapter 173, Florida Statutes, relating to foreclosure of municipal tax and special assessment liens. Any foreclosure proceedings to enforce payment of the Special Assessments will in all likelihood proceed under the provisions of Chapter 173, Florida Statutes, which provides that after the expiration of one year from the date any special assessment or installment thereof becomes due, the District may commence a foreclosure proceeding against the lands upon which the assessments are liens. Such a proceeding is in rem, meaning that it is brought against the land and not against the owner in the Circuit Court where the land is located. In general, after the District commences the suit, there is a period of notice to, and an opportunity for response by, affected persons. Ultimately a hearing will be held and, if the court decides in favor of the District, a judgment will be rendered in the amount of the delinquent Special Assessments and costs of the proceeding. The judgment would also direct sale of the land subject to the delinquent Special Assessments by public bid to the highest bidder, with proceeds of the sale being applied to payment of the delinquent Special Assessments. If no bidder bids at least the amount of the delinquent Special Assessments and applicable costs, the District may bid the whole amount due and obtain title to the land. Enforcement of the obligation to pay Special Assessments and the ability of the Tax Collector to sell tax certificates and ultimately tax deeds, or the ability to foreclose the lien created by the failure to pay Special Assessments, may not be readily available or may be limited as such enforcement is dependent upon judicial actions that are often subject to discretion and delay. For a description of the methodology for the levy of the Special Assessments, please refer to APPENDIX E ASSESSMENT METHODOLOGY herein. Risk Factors BOND OWNERS' RISKS Investment in the 2008 Bonds involves a high degree of investment risk. Certain of these risks are described in the preceding section entitled ENFORCEMENT OF ASSESSMENT COLLECTIONS ; however, certain additional risks are associated with the 2008 Bonds offered hereby. This section does not purport to summarize all risks that may be associated with purchasing or owning the 2008 Bonds and prospective purchasers are advised to read this Limited Offering Memorandum including all appendices hereto in its entirety to identify investment considerations relating to the 2008 Bonds. 1. Until further development takes place on the benefited land within the District and assessable properties are sold to end users, payment of the Special Assessments is substantially dependent upon their timely payment by the Developer, the Landowners or any other landowner. See THE DEVELOPMENT and THE LANDOWNERS AND THE DEVELOPER herein. In the event of the institution of bankruptcy or similar proceedings with respect to the Developer or any subsequent owner of property within the District, delays and impairment could occur in the payment of debt service on the 2008 Bonds as such bankruptcy could negatively impact the ability of: (i) Developer, the Landowners and any other land owner being able to pay the Special Assessments; (ii) the County to sell tax certificates in relation to such Special Assessments, and (iii) the District to foreclose the lien on the Special Assessments. In addition, the remedies available to the Owners of the 2008 Bonds, the Trustee and the District upon an event of default under the Indenture are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, the remedies specified by federal, state and local law and in the Indenture and the 2008 Bonds, including, without limitation, enforcement of the obligation to pay Special Assessments and the ability of the District to foreclose the lien of the Special Assessments, may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the 2008 Bonds (including Bond Counsel s approving opinion) will be qualified as to the enforceability of the various legal instruments by limitations imposed 15

20 by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors enacted before or after such delivery. The inability, either partially or fully, to enforce remedies available respecting the 2008 Bonds could have a material adverse impact on the interest of the Owners thereof. 2. The principal security for the payment of the principal and interest on the 2008 Bonds is the timely collection of the Special Assessments. The Developer expects to proceed in the normal course of business to sell assessable property in the District to homebuilders and end users. Special Assessments do not constitute a personal indebtedness of the owners of the land subject thereto, but are secured by a lien on such land. There is no assurance that the owners will be able to pay the Special Assessments or that they will pay such Special Assessments even though financially able to do so. Beyond legal delays that could result from bankruptcy, the ability of the County to sell tax certificates (to the extent that any portion of the Special Assessments are being collected by the Uniform Method of Collection) will be dependent upon various factors, including the interest rate which can be earned by ownership of such certificates and the value of the land which is the subject of such certificates and which may be subject to sale at the demand of the certificate holder after two years. The determination of the benefits to be received by the land within the District as a result of implementation and development of the 2008 Project is not indicative of the realizable or market value of the land, which value may actually be higher or lower than the assessment of benefits. In other words, the value of the land could potentially be ultimately less than the debt secured by the Special Assessments associated with it. To the extent that the realizable or market value of the land is lower than the assessment of benefits, the ability of the County to sell tax certificates relating to such land may be adversely affected (to the extent that any portion of the Special Assessments are being collected by the Uniform Method of Collection). Such adverse effect could render the District unable to collect Delinquent Assessments, if any, and could negatively impact the ability of the District to make the full or punctual payment of Debt Service on the 2008 Bonds. The payment of the annual Special Assessments and the ability of the Tax Collector to sell tax certificates or the District to foreclose the lien of the unpaid taxes, including the Special Assessments, may be limited by bankruptcy, insolvency, or other laws generally affecting creditors rights or by the laws of the State relating to court foreclosure. Bankruptcy of a property owner will most likely also result in a delay by the Tax Collector or the District in prosecuting court foreclosure proceedings. Such delay would increase the likelihood of a delay or default in payment of and interest on the 2008 Bonds. 3. The District is required to comply with statutory procedures in levying the Special Assessments. Failure of the District to follow these procedures could result in the Special Assessments not being levied or potential future challenges to such levy. See SECURITY FOR AND SOURCE OF PAYMENT OF THE 2008 BONDS herein. 4. The development of the Development may be affected by changes in general economic conditions, fluctuations in the real estate market, catastrophic weather, increases in lending rates and other factors beyond the control of the Developer. In addition, the development of the Development is subject to comprehensive federal, state, and local regulations and future changes to such regulations. Approval is required from various public agencies in connection with, among other things, the design, nature and extent of required improvements, both public and private, and construction of the Development must be in accordance with applicable zoning, land use and environmental regulations for the Development. Although no delays are anticipated, failure to obtain any such approvals in a timely manner could delay or adversely affect the development of the Development, which may negatively impact the Developer s desire or ability to develop the Development as contemplated. No assurance can be given that unknown hazardous materials, protected animals, etc., do not currently exist or may develop in the future whether originating within the Development or from surrounding property, and what effect such may have on the development of the Development. 5. The District has not granted, and may not grant under Florida law, a mortgage or security interest in the Project. Furthermore, the District has not pledged any revenues from the operation of any of the Project as security for, or a source of payment of, the 2008 Bonds. Neither has the District covenanted to establish rates, fees and charges for any of the Project at any specified levels. The 2008 Bonds are payable solely from, and secured solely by, the Series 2008 Pledged Revenues. 6. The willingness and/or ability of an owner of land within the Development to pay the Special Assessments could be affected by the existence of other taxes and assessments imposed upon the property by the District, Flagler County, the City of Bunnell or other governmental entities with jurisdiction over the District. Public entities whose boundaries overlap those of the District, such as Flagler County, the Flagler County School 16

21 District, the City of Bunnell and other taxing authorities, could, without the consent of the owners of the land within the District, impose additional taxes or assessments on the property within the Development. As referenced herein, the District also intends to impose maintenance assessments which will encumber the property burdened by the Special Assessments. Florida law provides a procedure whereby a taxpayer may contest a tax assessment. It is unclear whether this procedure applies to non ad valorem assessments such as the Special Assessments and there are judicial decisions that support both views. Under the procedure, a taxpayer may bring suit to contest a tax assessment if the taxpayer pays the amount of tax that the taxpayer admits to owing, and upon the making of such payment, all procedures for the collection of the unpaid taxes are suspended until the suit is resolved. If it is determined that this procedure applies to non ad valorem assessments such as the Special Assessments, then it is possible that as a result of a challenge to such assessments, the collection of such Special Assessments could be held in abeyance until the challenge is resolved. If a taxpayer disputes all or a portion of the Special Assessments, and pays the balance of ad valorem taxes and non ad valorem assessments which the taxpayer in good faith admits to be owing, this could possibly cause a delay in the collection of the Special Assessments, which could have a significant adverse effect on the ability of the District to make full or punctual payment of the debt service requirements on the 2008 Bonds. Additionally, legislation has been filed for consideration by the Florida legislature during its current session which proposes to amend , Florida Statutes, by adding the following language: The tax collector of the county shall accept any payment consisting of any portion of the total amount of taxes specified in the tax notice by the deadline specified in the tax notice. The District is unable to predict the likelihood of this proposed legislation becoming law or if such legislation becomes law, the effect any such legislation would have on the collection of the Special Assessments. 7. The 2008 Bonds may not constitute a liquid investment, and there is no assurance that a liquid secondary market will exist for the 2008 Bonds in the event a Beneficial Owner thereof determines to solicit purchasers of the 2008 Bonds. Even if a liquid secondary market exists, there can be no assurance as to the price for which the 2008 Bonds may be sold. Such price may be lower than that paid by the current Beneficial Owners of the 2008 Bonds, depending on the progress of the development of the Development, existing market conditions and other factors. 8. In addition to legal delays that could result from bankruptcy, the ability of the District to enforce collection of delinquent Special Assessments will be dependent upon various factors, including the delay inherent in any judicial proceeding to enforce the lien of the Special Assessments and the value of the land which is the subject of such proceedings and which may be subject to sale. See ENFORCEMENT OF ASSESSMENT COLLECTIONS herein. If the District has difficulty in collecting the Special Assessments, the Series 2008 Debt Service Reserve Account could be rapidly depleted and the ability of the District to pay debt service could be materially adversely affected. 9. A slowdown of the process of development of the land within the Development could adversely affect land values. There can be no assurance that land development operations within the Development will not be adversely affected by competition, a deterioration of the real estate market and economic conditions or future local, state and federal governmental policies relating to real estate development, the income tax treatment of real property ownership or the national or global economies. 10. Land development operations, including development of the Development, are subject to comprehensive federal, State and local regulations. Approval for development within the Development is required from various agencies. Failure to obtain any such approval or to satisfy any applicable governmental requirements could adversely affect development within the Development. Approvals that have been obtained for development within the Development are subject to conditions that must be satisfied at various points in time. The failure to satisfy any such approval could adversely affect development within the Development. See THE DEVELOPMENT herein. 11. The value of the land within the Development, the success of the development of the Development and the likelihood of timely payment of principal and interest on the 2008 Bonds could be affected by environmental factors with respect to the land in the District. Should the land be contaminated by hazardous materials, this could materially and adversely affect the value of the land in the Development, which could materially and adversely affect the success of the Development and the likelihood of the timely payment of the 2008 Bonds. The District has not performed, nor has the District requested that there be performed on its behalf, any independent assessment of the environmental conditions within the Development. 17

22 12. The market for the residential and other product planned for the Development is very competitive. 13. Various proposals are mentioned from time to time by members of the Congress of the United States of America and others concerning reform of the internal revenue (tax) laws of the United States. Certain of these proposals, if implemented, could have the effect of diminishing the value of obligations of states and their political subdivisions, such as the 2008 Bonds, by eliminating or changing the tax exempt status of interest on certain of such debt. Whether any of such proposals will ultimately become law, and if so, what effect such proposals could have upon the value of debt such as the 2008 Bonds cannot be predicted. However, it is possible that any such law could have a material and adverse effect upon the value of the 2008 Bonds. The Indenture does not provide for any adjustment to the interest rates borne by the 2008 Bonds in the event of a change in the tax exempt status of the 2008 Bonds. 14. The District may have incomplete information concerning the Development, the Developer and the Landowners. Except to the extent described in this Limited Offering Memorandum under the captions THE DEVELOPMENT and THE LANDOWNERS AND THE DEVELOPER, the District has not been provided information regarding the Developer or the Development and has not undertaken to independently verify or confirm any such information. 15. The 2008 Project is only a portion of the District's capital improvement program. See "THE CAPITAL IMPROVEMENT PLAN AND THE 2008 PROJECT" herein. There can be no assurance, in the event the District does not have sufficient moneys on hand to complete the capital improvement plan, that the District will be able to raise through the issuance of a subsequent bond issue, or otherwise, the moneys necessary to complete the capital improvement plan. Additionally, there can be no assurance that the Developer will have sufficient resources to do so. 16. Owners should note that several mortgage lenders have, in the past, raised legal challenges to the primacy of the liens similar to those of the Special Assessments in relation to the liens of mortgages burdening the same real property. As a condition to the Underwriter s obligation to purchase the 2008 Bonds, all mortgages holding liens on the subject land to the Special Assessments are required to execute documents acknowledging the superiority of the Special Assessments to their mortgage liens. 17. Some of the risk factors described herein, which, if materialized, would result in a delay in the collection of the Special Assessments, may not affect the timely payment of debt service on the 2008 Bonds because of the 2008 Debt Service Reserve Account established by the District for the 2008 Bonds. The ability of the 2008 Debt Service Reserve Account to fund deficiencies caused by delinquent Special Assessments is dependent upon the amount, duration and frequency of such deficiencies. Moneys on deposit in the 2008 Debt Service Reserve Account may be invested in certain obligations permitted under the Indenture. Fluctuations in interest rates and other market factors could affect the amount of moneys available in the 2008 Debt Service Reserve Account to make up deficiencies. 18. Owners should note that although the Indenture contains Debt Service Reserve Requirements for the Series 2008 Debt Service Reserve Account, and a corresponding obligation on the part of the District to replenish the Series 2008 Debt Service Reserve Account to the Debt Service Reserve Requirement, if in fact that account is accessed for any purpose, the District does not have a designated revenue source for replenishing that fund. Moreover, the District will not be permitted to reassess real property then burdened by the Special Assessments in order to provide for the replenishment of the Series 2008 Debt Service Reserve Account. 19. The interest rate borne by the 2008 Bonds is, in general, higher than interest rates borne by other bonds of political subdivisions that do not involve the same degree of risk as investment in the 2008 Bonds. This higher interest rate is intended to compensate investors in the 2008 Bonds for the risk inherent in a purchase of the 2008 Bonds. However, such higher interest rate, in and of themselves, increase the amount of the Special Assessments that the District must levy in order to provide for payments of debt service on the 2008 Bonds, and, in turn, may increase the burden upon owners of lands within the District, thereby possibly increasing the likelihood of non payment or delinquency in payment of such Special Assessments. 20. While the District has represented to the Underwriter that it has selected its District Manager, counsel, District Engineer, Trustee and other professionals within the appropriate due diligence and care, and while 18

23 the foregoing parties have each represented in their respective areas as having the requisite experience to accurately and timely perform the duties assigned to them in such roles, the District does not guaranty any portion of the performance of these parties. 21. As referenced herein, the District may issue additional Bonds to fund future projects. Prospective purchasers of the 2008 Bonds should determine what effect a failure to fund infrastructure for future projects might have on the ultimate viability of the Development and repayment of the 2008 Bonds. Please refer to THE CAPITAL IMPROVEMENT PLAN AND THE 2008 PROJECT herein. 22. The Florida Legislature and the Florida Taxation and Budget Reform Commission are currently meeting. As in the past, there are a number of issues being discussed by both bodies that may ultimately impact community development districts. ESTIMATED SOURCES AND USES OF BOND PROCEEDS Proceeds of the 2008 Bonds are expected to be applied as follows: Sources of Funds Principal Amount of 2008 Bonds $ 8,165,000 Total Sources $ 8,165,000 Use of Funds Deposit to Project Acquisition and Construction Account for $6,291, Project Costs Costs of Issuance (including Underwriter s discount) 273, Deposit to Series 2008 Debt Service Reserve Account 695, Deposit to Series 2008 Capitalized Interest Subaccount (1) 904, Total Uses $8,165, (1) Capitalized interest together with estimated earnings will pay interest on the 2008 Bonds through November 1, [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 19

24 DEBT SERVICE REQUIREMENTS The following table sets forth the scheduled debt service on the 2008 Bonds. Period Ending November 1 Principal Interest Annual Debt Service 2008 $ --- $ 311,290.63* $ 311,290.63* ,581.26* 622,581.26* , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 74, , ** 665,000 25, , Total $ 8,165,000 $ 13,549, $ 21,714, * Capitalized from 2008 Bond proceeds and estimated earnings thereon. Interest on 2008 Bonds is capitalized through November 1, ** Final Maturity May 1, [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 20

25 THE DISTRICT General The District was established by Ordinance No of the City of Bunnell effective on May 15, The District is located within the City of Bunnell (the City ) and encompasses approximately 690 acres of land. The District is an independent unit of local government created by and established in accordance with the Act. The Act was enacted in 1980 to provide a uniform method for the establishment of independent districts to manage and finance basic community development services, including capital infrastructure required for community developments throughout the State of Florida. Among other provisions, the Act gives the District s Board of Supervisors the authority to (a) plan, establish, acquire, construct or reconstruct, enlarge or extend, equip, operate and maintain systems and facilities for: (i) water management and control for lands within the District and to connect any of such facilities with roads and bridges; (ii) water supply, sewer and wastewater management reclamation and re use systems or any combination thereof and to construct and operate connecting intercept or outlet sewers and sewer mains and pipes and water mains, conduits, or pipelines in, along, and under any street, alley, highway, or other public place or ways, and to dispose of any effluent, residue, or other byproducts of such system or sewer system; (iii) District roads equal to or exceeding the applicable specifications of the county in which such district roads are located and street lights; and (iv) with the consent to the exercise of such power by the local general purpose government within the jurisdiction of which the power is to be exercised, parks and facilities for indoor and outdoor recreational uses and security; (b) borrow money and issue bonds of the District; (c) impose and foreclose special assessments liens as provided in the Act; and (d) exercise all other powers, necessary, convenient, incidental or proper in connection with any of the powers or duties of the District stated in the Act. The Act does not empower the District to adopt and enforce any land use plans or zoning ordinances and the Act does not empower the District to grant building permits; these functions are to be performed by general purpose local governments having jurisdiction over the lands within the District. The Act exempts all property owned by the District from levy and sale by virtue of an execution and from judgment liens, but does not limit the right of any owner of lands of the District to pursue any remedy for enforcement of any lien or pledge of the District in connection with its bonds, including the 2008 Bonds. Board of Supervisors The governing body of the District is its Board of Supervisors (the Board ), which is composed of five Supervisors (the Supervisors ). The Act provides that, at a meeting of the landowners held within ninety (90) days of establishment of the District, Supervisors must be elected by the landowners with the two Supervisors receiving the highest number of votes to serve for four years and the remaining Supervisors to serve for a two year term. The Developer, as the majority owner of the lands within the District, determined the composition of the current Board. Three of the five Supervisors are elected to the Board every two years in November. At such election the two Supervisors receiving the highest number of votes are elected to four year terms and the remaining Supervisor is elected to a two year term. Ownership of the land within the District entitles the owner to one vote per acre (with fractions thereof rounded upward to the nearest whole number). For purposes of determining voting interests, platted lots are counted individually and rounded up to the nearest whole acre. Six (6) years after the initial appointment of Supervisors and the year in which there are at least 250 qualified electors in the District, or such earlier time as the Board may decide to exercise its ad valorem taxing power, the Supervisors begin to be elected (as their terms expire) by vote of the qualified electors of the District. A qualified elector is a registered voter, a resident of the District and the State of Florida and a citizen of the United States. At the election where Supervisors are first elected by qualified electors, two Supervisors must be qualified electors and be elected by qualified electors to four year terms. The other Supervisor will be elected by landowners for a four year term. Thereafter, as terms expire, all Supervisors must be qualified electors and are elected to serve staggered four year terms. If there is a vacancy on the Board, the remaining Board members are to fill such vacancy for the unexpired term. 21

26 The Act provides that it shall not be an impermissible conflict of interest under Florida law governing public officials for a Supervisor to be a stockholder, officer or employee of a landowner or an affiliated entity. The current members of the Board and the expiration of the term of each member are set forth below: Name Title Term Expires Nancy Rossman Chairperson November, 2009 Allan Goldberg Vice Chairman November, 2009 William W. Cole, Jr. Assistant Secretary November, 2011 Vince Viscomi Assistant Secretary November, 2011 Thomas Phillips Assistant Treasurer November, 2009 A majority of the members of the Board constitutes a quorum for the purposes of conducting its business and exercising its powers and for all other purposes. Action taken by the District shall be upon a vote of a majority of the members present unless general law or a rule of the District requires a greater number. All meetings of the Board are open to the public under Florida s open meeting or Sunshine law. The District Manager and Other Consultants The Act authorizes the Board to hire a District Manager as the chief administrative official of the District. The Act provides that the District Manager shall have charge and supervision of the works of the District and shall be responsible for (i) preserving and maintaining any improvement or facility constructed or erected pursuant to the provisions of the Act, (ii) maintaining and operating the equipment owned by the District, and (iii) performing such other duties as may be prescribed by the Board. The District has hired Governmental Management Services Central Florida, LLC to serve as district manager to the District (the District Manager ). The District Manager s office is located at 201 East Pine Street, Suite 950, Orlando, FL 32801, telephone number The Act further authorizes the Board to hire such employees and agents as it deems necessary. Thus, the District has employed the services of Hopping Green & Sams, P.A., Tallahassee, Florida, as District Counsel; Bowyer-Singleton & Associates, Inc., as District Engineer; Greenberg Traurig, P.A., Orlando, Florida, as Bond Counsel and Governmental Management Services South Florida, LLC, as financial consultant, to prepare the assessment methodology. THE CAPITAL IMPROVEMENT PLAN AND THE 2008 PROJECT The District has developed a Capital Improvement Plan (the CIP ) for the acquisition and construction of certain infrastructure that will provide special benefit to the District. The infrastructure is intended to serve the entire District and includes stormwater management, potable water, wastewater, a master irrigation system, public roadways, acquisition of certain lands, landscaping and entry features. The District Engineer has estimated the total cost of the District s CIP at $27.3 million. The Engineer s Report, which is attached hereto as Appendix A, has additional information regarding the components of the CIP and the estimated costs. As discussed in the Engineer s Report, the design and engineering for the CIP are subject to finalization and revision as the development of the CIP progresses. The District Engineer has bifurcated the costs of the CIP into two categories referred to as Master Infrastructure and Site Specific Infrastructure. The Master Infrastructure is estimated to cost approximately $4.7 million and includes certain roadway (including certain right-of-way acquisition), landscape and hardscape improvements. The Site Specific Infrastructure is estimated to cost approximately $1.5 million and $21.1 million, respectively for Deer Run and Oak Branch and includes certain roadway, utility, drainage (including certain preservation area acquisition), landscape and hardscape improvements. In order to expedite development of the land within the District, the Developer (hereinafter defined) has commenced construction of the first phase of the CIP which includes all of the Master Infrastructure to serve the District, all of the Site Specific Infrastructure for Deer Run and the first phase of Site Specific Infrastructure for Oak Branch planned for 157 single-family lots (the 2008 Project ). The District Engineer has estimated the cost of the 22

27 2008 Project at $13.4 million. Proceeds of the 2008 Bonds deposited into the Acquisition and Construction Account in the approximate amount of $6.3 million will be utilized to acquire and construct a portion of the 2008 Project (improvements only and exclusive of any land acquisition). Upon the issuance of the 2008 Bonds, the Developer and the District will enter into a completion agreement (the Completion Agreement ) whereby the Developer will agree to complete that portion of the 2008 Project not funded with proceeds of the 2008 Bonds. The status of construction and permitting for the CIP is outlined in the Engineer s Report attached hereto as Appendix A. The District Engineer has indicated that all permits necessary to construct the CIP have either been received or are expected to be received in the ordinary course and will certify to the same upon the issuance of the 2008 Bonds. ASSESSMENT METHODOLOGY The District has previously adopted a Master Assessment Methodology (attached hereto as Appendix E) which allocates the costs and benefits of the District s CIP to all of the land uses within the District assuming the entire CIP is debt financed. Also attached hereto as Appendix E is the Supplemental Assessment Methodology which allocates the 2008 Assessments levied in connection with the 2008 Bonds. THE DEVELOPMENT The following information appearing below under this caption has been furnished by the Developer for inclusion of this Limited Offering Memorandum and, although believed to be reliable, such information has not been independently verified by the District or its counsel; or the Underwriter or its counsel, and no person other than the Developer makes any representation or warranty as to the accuracy or completeness of such information supplied by it. The following information is provided by the Developer and the Landowners as a means for the prospective bondholders to understand the anticipated development plan and risks associated with the Development (as defined below). The Developer s and Landowners' obligations to pay the Series 2008 Special Assessments are no greater than the obligation of any other landowner within the District. The Developer and Landowners are not a guarantor of payment of the Series 2008 Special Assessments, and the recourse for the Developer s and Landowners' failure to pay is limited to their ownership interests in the property. General Deer Run and Oak Branch (collectively, the Development ) are two residential communities situated within the District, which in aggregate consist of approximately 690 acres located within the City of Bunnell (the City ), Flagler County, Florida. The Development is located along the east side of U.S. Highway 1, and approximately one-half mile south of Royal Palms Parkway, and along the north side of State Road 100, less than one-mile west of Belle Terre Parkway. U.S. Highway 1 is a four-lane road, traveling north and south along Florida s east coast. State Road 100, locally known as East Moody Boulevard, is nearing completion of widening from two-lanes to four lanes. Interstate 95 is a major limited access freeway that travels north and south along the east coast of Florida and is located approximately three miles east of the Development, accessible via State Road 100. Further, the Development is situated immediately adjacent to the City of Palm Coast. The current development plan for the lands within the District include 475 single-family homes and 524 townhome units, a clubhouse with a recreational complex, an 18-hole golf course with a clubhouse and 15,000 square feet of commercial space. Consisting of approximately 602 acres, the Oak Branch community ( Oak Branch ) is planned to include 475 single-family units, 274 townhome units, the golf course and clubhouse, the recreational facility and 5,000 square feet of commercial space. Abutting the southeastern portion of Oak Branch, the Deer Run community ( Deer Run ) is planned for 250 townhome units and 10,000 square feet of commercial space situated on approximately eighty-eight acres. Residents within the Development will be able to enjoy Flagler beach located eight miles east of the Development. Daytona International Airport and Flagler County Airport (a general aviation airport) are located approximately thirty miles and two miles, respectively, southeast of the Development. Hospital facilities are in 23

28 close proximity to the Development. Florida Hospital, which opened in 2002, is located one-half mile west of Interstate 95/State Road 100 interchange three miles east of the Development. The primary commercial corridor serving much of Flagler County is Palm Coast Parkway, a four-lane divided roadway situated four miles northeast of the Development which is nearing build out. Palm Coast Parkway runs from U.S. Highway 1 to just before the Intracoastal Waterway. There are a number of shopping centers, banks, restaurants, professional offices and other commercial facilities along Palm Coast Parkway, which are all easily accessible to future residents of the Development. As a result of the build-out of Palm Coast Parkway, State Road 100 is currently developing into the next major commercial corridor serving Flagler County. A new large retail development along State Road 100 known as The Landings at Palm Coast is currently under construction. Located, along the north side of State Road 100 and just east of the Development, this retail center includes a Super Target, Michael s, Linens n Things, Ross, TJ Maxx, and PetSmart. In addition, the Development is situated within five minutes of the Town Center at Palm Coast, a several thousand acre mixed-use development that is intended to serve as the downtown of the City of Palm Coast where more than one million square feet of mixed-use space has been sold, a portion of which is under construction (see THE DEVELOPMENT Competition. ). A 38,000 square foot Publix opened a year ago in PalmCenter at Palm Coast. Land Acquisition/ Development Financing Through assignment of a purchase and sale agreement from one of the members of the Developer, the lands within the Development were purchased in their aggregate for approximately $20 million in January At the time the lands were purchased, certain storm water management and golf course related improvements had previously been completed by a previous owner. The lands composing Oak Branch and Deer Run were acquired by two separate entities known as OB AT FLAGLER, LLC ( OB at Flagler and the Developer ) and OB INVESTORS, LLC ( OB Investors and, together with OB at Flagler, the Landowners ), which are more fully described under the heading THE LANDOWNERS AND THE DEVELOPER. The lands composing the Development were acquired with approximately $16.1 million in loan proceeds from SunTrust Bank and approximately $4 million in cash. Oak Branch Financing On January 17, 2006, OB at Flagler entered into a loan agreement with SunTrust Bank and gave its mortgage note for $14,042,778 (the Initial Oak Branch Mortgage Note ) designated to finance a portion of the land acquisition of the Development. Simultaneously, the Initial Oak Branch Mortgage Note was secured by a $14,042,778 mortgage (the Initial Oak Branch Mortgage ) on the 602 acres composing the Oak Branch portion of the Development. Payable through monthly interest-only payments, it bore a variable rate of interest per annum equal to 2.75% above the 30-day LIBOR Interest Rate and a one-year maturity. Subsequent to the Initial Oak Branch Mortgage Note, OB at Flagler obtained additional financing by giving its mortgage note and mortgage modification with a future advance (the Future Advance ). On June 28, 2006, the Initial Oak Branch Mortgage Note combined with the Future Advance were consolidated into a $15,438, loan designated for purchasing the 602 acres composing the Oak Branch portion of the Development and for certain development costs (the Oak Branch Facility ) which accrues the same interest and is coterminous with the Initial Oak Branch Mortgage Note. The Oak Branch Facility was renewed with a July 17, 2008 maturity. Deer Run Financing On January 17, 2006, the OB Investors entered into a loan agreement with SunTrust Bank and gave its mortgage note for $2,057,222 (the Initial Deer Run Mortgage Note ) designated to finance a portion of the land acquisition of the Development. Simultaneously, the Initial Deer Run Mortgage Note was secured by a $2,057,222 mortgage (the Initial Deer Run Mortgage ) on the eighty-eight acres composing the Deer Run portion of the Development. Payable through monthly interest-only payments, it bore a variable rate of interest per annum equal to 2.75% above the 30-day LIBOR Interest Rate and a one-year maturity. 24

29 Subsequent to the Initial Deer Run Mortgage Note, OB Investors obtained additional financing by giving its mortgage note and mortgage modification with a future advance (the Future Advance ). On June 28, 2006, the Initial Deer Run Mortgage Note combined with the Future Advance were consolidated into a $2,261,702 loan designated for purchasing the eighty-eight acres composing the Deer Run portion of the Development and for certain development costs (the Deer Run Facility ) which accrues interest at the same rate and is coterminous with the Initial Deer Run Mortgage Note. The Deer Run Facility was renewed with a July 17, 2008 maturity. Both the Oak Branch and Deer Run Facilities have cross default provisions to one another. In addition, both facilities are currently being restructured to provide for additional advances for development and two-year extensions to the current maturities. The Developer estimates the total development costs for the Development, exclusive of soft costs, at $32 million. Such costs include the CIP as well as the golf course, clubhouse and recreational facilities which have and are expected to be funded directly by the Landowners. To date, the Landowners have collectively expended approximately $16 million of partner capital for the equity component of the land acquisition and development activities to date. As previously discussed under the heading THE CAPITAL IMPROVEMENT PLAN AND THE 2008 PROJECT, proceeds of the 2008 Bonds deposited in to the Acquisition and Construction Account will be utilized to acquire and construct a portion of the 2008 Project in the approximate amount of $6.8 million. It is currently the intent of the Landowners to fund the remainder of the CIP and other development costs through future advances of the credit facilities described herein and project cashflow. However, the Landowners may request that the District issue one or more additional series of Bonds to fund additional portions of the CIP as more fully described under the heading District Financing Plan. District Financing Plan In addition to the 2008 Bonds, the Developer may request that the District issue additional series of Bonds to fund additional portions of the CIP not funded with the 2008 Bonds. Such request would be dependent upon the comparative interest cost of the additional Bonds financed at such time as development activity for the future phases of Oak Branch was warranted. As currently structured, the Series 2008 Special Assessments levied in connection with the 2008 Bonds are levied over a thirty-year period and are expected to be paid annually by the landowners in the District. In the event that additional series of Bonds are issued, it is expected that the Special Assessments securing such series of Bonds would be levied on the particular future phases of Oak Branch only that would specially benefit from the infrastructure to be funded by such series of Bonds. Further, such Special Assessments would be prepaid no later than a retail buyer taking title to a lot or a home. It is not the intent that the District issue additional series of Bonds secured by assessments levied against either Deer Run, Phase I of Oak Branch, the golf course or the commercial parcels. Development Entitlements/ Permits Oak Branch Entitlements Approximately 510 acres located within the Development were zoned as a restated planned unit development (R-PUD) by the City of Bunnell s City Commission on April 22, 2000 and February 20, Approved on November 22, 2005, an additional approximate ninety-two acres adjacent to the southern portion of the Development were incorporated into the PUD. The combined approximately 602 acres allow for (i) a mix of residential uses not to exceed 749 residential units (gross density of 1.24 units per acre), including single-family and multi-family homes; (ii) approximately four acres of commercial land; (iii) approximately 114 acres designated for an 18-hole golf course and clubhouse; and (iv) approximately 60% of the Development designated for conservation/ open space, which includes the open areas on individual lots, natural wetland areas and the golf course. The PUD also mandates the development of a community center of approximately 2,000 square feet for use by residents of the Development. 25

30 Deer Run Entitlements The Deer Run PUD consists of approximately eighty-eight acres and is zoned PUD and has a land use designation for the development of approximately 300 residential units (although only 250 units are contemplated) and three acres of commercial property. The Developer s proposed engineering plans and the development activity to date are currently in compliance with all provisions of the entitlements granted for the Development. Permits The applicable permits for the entire Development include St. Johns River Water Management District Environmental Resource Permits (SJRWMD), US Army Corps of Engineers Dredge and Fill Permits (ACOE), Florida Department of Environmental Protection Water Distribution Permit and Wastewater Collection Permit, and Florida Department of Transportation Drainage Connection and Driveway and Utility Permit. In addition, certain City approvals are required for actual construction activities. The Supplemental Engineer s Report attached hereto as Appendix A provides a detailed description of the status of permits and approvals. Florida Power and Light will provide underground electrical power service to the Development. Service is complete to the 157 lots in Phase I of Oak Branch. The City has committed to provide water and sewer service to the entire Development and currently has capacity required to do so. Development of a new, larger sanitary forcemain is currently under construction and is scheduled to be completed in conjunction with the 2008 Project. Upon completion of the forcemain, the City will have sufficient infrastructure to provide sewer service to the entire Development. Currently, no additional infrastructure for the provision of water service is required to serve the entire Development. Land Use and Development Plan Currently, four phases in Oak Branch and one phase in Deer Run are planned. Improvements in Deer Run are limited to construction of an access road and attendant utilities from the Oak Branch project to State Road 100, which bisects the Deer Run site and provides access to its developable parcels. The information appearing in the table below illustrates the number of units by phase that is currently planned for the lands within the District. Such information is subject to change. Phase Lot Width Number of Lots Expected Completion Phase I- Oak Branch Q Q08 Phase II- Oak Branch Q Q09 Townhome 83 3Q09 Phase III- Oak Branch Q Q10 Phase IV- Oak Branch Q10 Townhome 191 3Q10 Deer Run Townhome 250 4Q08 Residential Subtotal 999 Commercial 2 26

31 Status of Development Essentially all Master infrastructure, including the majority of the Development s spine road has been completed. The remaining 800 feet of spine road will be completed in conjunction with the development of Deer Run. In addition, site specific infrastructure for Phase I of Oak Branch is substantially complete and platting of the 157 lots in Phase I of Oak Branch is scheduled to occur prior to the end of April Completion of landscaping and entry features is anticipated by May The golf course opened in January 2008 and a temporary golf course clubhouse facility and the parking lot are complete. A permanent 3,500 square foot clubhouse, cartbarn and maintenance facility are currently under construction and scheduled for completion in the third quarter of Construction of an amenity facility, which includes a fitness center, pool, and social rooms, for the exclusive use by Oak Branch residents, is anticipated to commence in mid-2008 with completion anticipated by the end of Initial model home construction is expected to commence in April 2008 upon platting of Phase I of Oak Branch and completion is expected by August Residential Community The Development is anticipated to attract relocating retirees as well as local move-up buyers looking for golfing amenities and the advantages of a master-planned community. While the golf course will be open for public play, 200 annual memberships have been committed to Oak Branch residents. The initial lot purchasers of golf lots will be provided with a free, 5-year Single or 3-year Family membership as part of a house/lot or lot purchase package. Single-family homes within Oak Branch are planned to be situated on lots approximately 50 x 110, 60 x 120, and 75 x 120 in size. The actual size of each lot will vary. Details of the homesites are described in the table below. Base Lot Price* (000 s) Est. Home Square Footage Est. Home & Lot Price (000 s) Number Phase Lot Width of Lots Phase I- Oak Branch 50 $65 1,800-2, $270-$ $92.5 2,500-3, $300-$450 Phase II- Oak Branch 60 $78 1,800-2, $270-$ $92.5 2,500-3, $300-$450 Townhome $56 1,300-2, $220-$250 Phase III- Oak Branch 50 $65 1,800-2, $270-$ $92.5 2,500-3, $300-$450 Phase IV- Oak Branch 50 $65 1,800-2, $270-$400 Townhome $47 1,200-1, Deer Run Townhome $25 1,200-1, $175-$260 Residential Subtotal 999 Commercial 2 N/A *Lot premiums range between $15,000 and $90,000. Model home construction is expected to commence in April 2008 upon platting of Phase I of Oak Branch, and completion is expected by August Phase I home sales are anticipated to commence in the second quarter of

32 Recreational and Lifestyle Amenities Originally designed by Bill Amick and modified by Mike Beebe, the Development includes an 18-hole golf course which opened for play in January The golf facilities are being leased pursuant to a lease agreement (the Lease Agreement ) between OB at Flagler and Grand Reserve Golf, LLC ( Grand Reserve ), a Delaware limited liability company. Pursuant to the Lease Agreement, Grand Reserve will lease from OB at Flagler, the golf course for an annual amount of $258,000 payable monthly commencing on the first day of the term of the Lease Agreement for a period of two years and four months. OB at Flagler and Grand Reserve have also entered into a purchase and sale agreement whereby Grand Reserve has agreed to acquire the golf course, clubhouse and maintenance facility for $3,218,000 (plus any agreed-upon change orders to complete the cartbarn, clubhouse and maintenance facility) at the end of the lease. In the event that the Grand Reserve fails to acquire the aforementioned facilities, ownership of such facilities will revert back to OB at Flagler. Grand Reserve is an affiliated entity of Capstone Golf, a company which currently owns and operates five golf courses in the southeast. Capstone operates the golf facilities by providing the necessary golf equipment, personnel and payment of maintenance during its lease term. Additionally, the Development will also house a 3,400 square foot clubhouse including pro shop, restrooms, commercial kitchen with storage, an office, and an indoor and outdoor dining space comprising 1,500 square feet. The Oak Branch project will also contain an approximate 4,300 square foot amenity yard and fitness center and community pool area for the exclusive use of its residents. It will include a BBQ/ picnic area and will be situated adjacent to a stormwater pond and wetlands as a backdrop. Outside of the District, residents will be able to enjoy all the outdoor opportunities Flagler County provides including nineteen miles of Atlantic Ocean beaches, which are located eight miles east of the Development. Opportunities include boating, water-skiing, fishing, tennis and world-class golf. Marineland, the world s first oceanarium, designed to showcase marine life in its natural habitat and serve as a location for underwater cinematography, is located approximately twelve miles northeast of Deer Run and offers dolphin interaction. Education School age children residing in the Development will attend Bunnell Elementary, Indian Trails Middle School and FPC High School. Although the foregoing information is correct as of the date hereof, the Flagler County School District may change school boundaries from time to time and there is no requirement that students residing in the Development be permitted to attend the schools which are closest to the Development. The Development is also close to several undergraduate and post graduate institutions including Flagler College in St. Augustine, Daytona Beach College and the University of North Florida. Sales/Builder Program The current sales program for the Development calls for the sale of finished lots to builders and individual buyers. The individual buyer effort will be conducted through a co-operative realtor program as well as sales through an on-site sales effort. Sales activity to retail buyers is expected to commence upon completion of platting of Phase I of Oak Branch scheduled for the end of April A 10% lot discount will be offered to initial retail buyers to stimulate sales. As more fully described in the paragraphs below, a builder contract has been entered into with an affiliated entity of one of the members of the Developer. Additional builder contracts are in the process of being negotiated and are expected to be executed following the completion of platting of Phase I of Oak Branch and the entry feature and landscaping. Viscomi Hansard Builders, Inc., (the Builder ) an affiliated entity of one of the members of the Developer, will build models and spec homes on 50 and the 75 lots in Phase I, and it is anticipated they will build the planned townhomes in Phase II. 28

33 Effective March 30, 2008 (the Effective Date ), the Builder entered into two contracts (the Builder Contracts ) for sale and purchase of two lots with a purchase price of $146,000 and $108,000. An initial deposit of 10% of the purchase price was due upon Builder Contracts execution. An additional Damage and Completion Deposit totaling $1,500 is due at closing, scheduled to occur on or before thirty days from the earlier of (i) the Developer receives approval of the subdivision from the City or (ii) the date the City has granted approval for the start of construction of a model home on any lots. Marketing It is expected that the Developer will market the Development through its own marketing campaign which is anticipated to employ a wide variety of media. A temporary sales trailer is currently situated close to the initial entry on U.S. Highway 1. The permanent sales office will conduct business in an office located in the recreational amenity facility upon its completion, which is anticipated by early The Oak Branch portion of the project will be marketed under the name, Grand Reserve and Golf Club. Marketing for the Deer Run residential site, which is expected to be sold in bulk, will begin upon commencement of infrastructure improvements. Projected Absorption Lot sales are expected to commence in April 2008 and home sales are expected to commence in the second quarter of 2008 upon completion of platting for Phase I of Oak Branch. The Developer anticipates that all lots will be sold over a six-year period as illustrated in the table below. Projected Lot Closings Est Est Est Est Est Est Total PHASE I PHASE II Townhomes PHASE III PHASE IV Townhomes Deer Run Townhomes Subtotal Deer Run Commercial Lots 1 1 Oak Branch Commercial Lots 1 1 Fees and Assessments All landowners within the District are subject to annual ad-valorem property taxes, non ad-valorem special assessments and homeowner s association fees, as described in more detail below. The current millage rate for the area of the County where the District is located is mills. Assuming an average home cost of $350,000 with a $25,000 homestead exemption ($325,000 taxable value), the annual advalorem property tax would be approximately $5,973. The Developer has established a homeowner s association (the HOA ) in order to maintain those improvements that will be privately funded and to ensure strict adherence to the architectural guidelines established for the Development. In addition, all landowners within the District are subject to annual operation and maintenance assessments ( O&M Assessments ), which are based upon the District s annual budget for the administration of the 29

34 District and the operation and maintenance of the District-owned infrastructure. The combined HOA fees and O&M Assessments are expected to total less than $500 annually. All landowners within the District are subject to the Series 2008 Special Assessments levied over a thirtyyear period in conjunction with the issuance by the District of its 2008 Bonds. The table below illustrates the annual Series 2008 Special Assessments by product type. Annual Series 2008 Product Special Assessments* Oak Branch Townhome $493 Deer Run Townhome $ $ $ $1,057 Golf Course $1,258 Commercial $0.50 PSF *Net of allowance for early payment and collection costs. Please refer to District Financing Plan for a discussion of additional series of Bonds that may be issued and the corresponding levy of overlapping assessments. Competition There are a handful of large master-planned communities situated on the west side of Interstate 95 that may pose competition to the Development. Grand Landings, located approximately three miles southeast of the Development off Seminole Woods Parkway, is a 2,000-acre master-planned community anticipated to hold 749 homes. Grand Landings is being developed by an affiliated entity of LandMar Group and is planned to feature tennis courts, a clubhouse, resort-style pool and fitness center, all of which are surrounded by an extensive nature trail system. Phase I consists of patio homes starting at $225,000 and custom homes beginning at 2,000 square feet starting in the mid $200,000 s. Many homesites within Grand Landings are situated on lake and preserve sites. Palm Coast Park, located less than ten miles north of the Development, is a 4,776-acre mixed-use development in the City of Palm Coast being developed by Florida Landmark Communities, Inc. Palm Coast Park is planned to include 3,960 residential units, 800,000 square feet of office use, 1,456,800 square feet of retail commercial use, 800,000 square feet of industrial use and 100,000 square feet of institutional use. As of December 31, 2007, 606 of the 3,960 (15%) planned residential units had been sold and closed to Grand Wood Developers, LLC (an affiliated entity of LandMar Group) and LRCF Palm Coast, LLC. In addition, LRCF Palm Coast, LLC also had closed on 20,000 square feet of office space and 20,000 square feet of retail space. The land closings represent the initial takedowns of land for two master-planned communities to be included within Palm Coast Park known as Grand Woods and Sawmill Creek. Neither project has commenced development activities as of yet. PalmCenter at Palm Coast, located approximately two miles east of the Development, is being marketed as the downtown of the City of Palm Coast. With the same developer as Palm Coast Park, and construction having begun in March 2005, PalmCenter at Palm Coast is planned to include 2,923 multi-family residential units, 1,282,100 square feet of office use, 1,549,200 square feet of retail use, 775,000 square feet of non-retail commercial use and 100 assisted living units. As of December 31, 2007, PalmCenter had closed on land for (i) 545 residential units; (ii) 552,043 square feet of office space; (iii) 847,162 square feet of retail space (of which 67,000 square feet is occupied); (iv) 205 lodging units; (v) 118 assisted living units and (vi) 113,072 square feet of non retail commercial space. Horizontal development activity is substantially complete and vertical development activity on more than 500,000 square feet of mixed-use space as well residential product is underway in PalmCenter at Palm Coast. 30

35 Plantation Bay, located approximately nine miles south of the Development, is a golf and country club community being developed by ICI Homes. Planned to house 5,000 homesites, Plantation Bay offers single family homes, estate homes, and townhomes ranging in size from 1,800 to 3,385 square feet with prices between $271,900 and $486,300. This community s amenities include two clubhouses, a 7,000 square foot spa and fitness center, along with ten tennis courts, and three, 18-hole golf courses. THE LANDOWNERS AND THE DEVELOPER OB INVESTORS, LLC, a Florida limited liability company, is the landowner of the eighty-eight acres composing Deer Run. Carn, Inc., ( Carn ) a Florida corporation and Viscomi & Associates, Inc., ( Viscomi ) a Florida corporation hold a 66-2/3% and 33-1/3% membership interest in OB Investors, respectively. OB AT FLAGLER, LLC, a Florida limited liability company, is the landowner of the 602 acres composing Oak Branch and the developer of the entire Development. Waterford Investment Properties, Inc., a Florida corporation ( Waterford ) and Viscomi, hold a 66-2/3% and 33-1/3% membership interest in the Developer, respectively. The shares of Viscomi are held by Vincent Viscomi, a Flagler/Volusia County builder and developer. The shares of Carn and Waterford are held 16.67% each by Nancy Rossman, Paula Rossman and Ruth Rossman and 25% each by Allan Goldberg and William Cole. As previously discussed under the heading THE DEVELOPMENT Land Acquisition/Development Financing, the Landowners have collectively expended approximately $16 million of partner capital for the equity component of the land acquisition and development activities to date. Future capital contributions will be made by Waterford and Carn only. Viscomi currently has no obligation to contribute capital to either OB Investors or OB at Flagler. Below is a brief description of the development experience of Allan Goldberg and William Cole as well as the Rossman Family. C&G Real Estate Group, Inc. C&G Real Estate Group, Inc. ( C&G ) was formed in 1989 by its two principals, William W. Cole, Jr. and Allan Goldberg, as a residential real estate consulting, investment and development firm. C&G commenced business in Miami and its principal activities in South Florida consisted of the following: (i) consulting services on behalf of an investment fund put together by Shearson for high net worth investors to invest in the acquisition and development of large tracts of land. Responsibilities included the acquisition, planning and forecasting for projects in excess of 1,700 acres in Palm Beach County, Florida; (ii) joint ventures with Westbrook Communities, Inc., which involved acquiring, developing and building over 2,000 homes in North Dade and Broward County, Florida; and (iii) co-managing the completion of development for a 1,200 acre DRI site in Broward County (located in and around the Sawgrass Mills Mall). In the early 1990 s, the principals of C&G determined that Central Florida represented the best opportunity for both quality of life and business opportunities. C&G s principals moved to Central Florida in Over the past five years, C&G has concentrated its efforts on larger projects taking advantage of its expertise in permitting, entitlement, procurement, and planning. Emphasis is placed on legal structure, utilization of community development districts, minimizing tax consequences and taking advantage of telecommunication opportunities for revenue sharing. William W. Cole, Jr. graduated with honors from the University of Florida in December 1977 with a Bachelors degree in Accounting. Subsequent to graduating, he worked in the audit department for Arthur Young & Company working primarily on real estate and governmental clients. In 1981, he accepted a position with Miami International Airport as the Chief Accounting Officer and subsequently Controller (Senior Financial position) for the airport, which had assets of approximately $750 million. Primary efforts were directed towards administration of the $50 million annual construction program, issuance and/or refunding of bonds to support the construction program and determination and negotiation of user fees. 31

36 In 1984, Mr. Cole joined AmeriFirst Development Corporation, a $200 million development and building company, as their Controller. Within one year, Mr. Cole became the Chief Financial Officer; concentrating his efforts managing the company s borrowing activities, due diligence of prospective projects and having operating and oversight responsibility for the company s Southeast Florida region, which became its most consistently profitable region. In 1989, Mr. Cole joined Mr. Goldberg to form C&G Real Estate Group, Inc. Since relocating to Central Florida in 1993, Mr. Cole has been actively involved in various committees and councils within Mid-Florida Homebuilder s Association and the State of Florida Department of Community Affairs. Mr. Cole is a member of the politically active Private Business Association of Seminole County. Allan Goldberg graduated from the University of Florida in 1981 with a Bachelors Degree in Accounting. He initially worked for the Big 8 accounting firm of Arthur Young & Co. from 1981 until 1986, when he was promoted to manager of auditing services. In 1986, Mr. Goldberg accepted the position of Vice President/ Manager of Accounting position at AmeriFirst Development Corporation. Reporting to the Mr. Cole, the CFO, he was responsible for all aspects of corporate accounting, financial analysis, and debt management. In 1987, Mr. Goldberg was promoted to Vice President Controller, which added the responsibilities of communicating with the Executive Committee and Board of Directors. In 1989, Mr. Goldberg resigned from AmeriFirst Development and joined Mr. Cole in forming C&G Real Estate Group, Inc. Since moving to Central Florida in 1993, Mr. Goldberg has been active in Mid-Florida Homebuilder s Association- having served on its Board of Directors, with a stint as past Chairman of the Seminole County Governmental Affairs Committee. In addition, he was instrumental in the formation of the Seminole County Development Advisory Board in 1996, and is its past Chairman. Mr. Goldberg is a Past President of the Private Business Association of Seminole County and currently sits on several of its issues committees, primarily focusing on the review of Seminole County operations having to do with Development Review and Stormwater Departments. He additionally is the President of the not-for-profit Hebrew Day School of Central Florida and sits on the Board of Directors of the Jewish Federation of Greater Orlando. Below is a list of residential projects developed by C&G in Central Florida. Project Location Total Lots Marblehead Metrowest Area 147 Butler Bay/ Chaine du Lac Windermere 174 Aloma Woods Seminole County- Oviedo 813 Eagles Pointe Seminole County- Winter Springs 101 Lake Griffin Estates Casselberry 147 Autumn Chase Seminole County- Sanford 130 Buckingham Estates Seminole County- Markham Rd. 313 The Retreat at Wekiva Seminole County- Lake Forest Area 265 Nona Crest Orlando- Lake Nona Area 269 Lost Lake Glen Casselberry 20 Preserve at Soldiers Creek Lake Mary 25 Reserve at Belmere Orange County- Windermere Area 359 La Vina Orlando- Lake Nona Area 547 Nancy Rossman and her family have been involved in the development of single-family and multi-family residential communities, shopping centers and hotels in Central Florida since the mid-1950s. The Rossmans are one of the two founding families of Bel Aire Homes, one of the largest and most successful home building companies in Central Florida, building over 10,000 homes in Central Florida. After the sale of Bel Aire Homes to a publicly traded company, the Rossman family founded Residential Communities of America (RCA), another large singlefamily developer/home builder in Central Florida that developed and built over 5,000 single-family homes from 1977 to

37 below. Among the successful developments acquired, planned and developed by the Rossman family are listed Seminole County, Florida: (i) Tuscawilla, a 3,200 acre planned development, (ii) the Spring Oaks community, and (iii) Escondido condominiums. Pinellas County, Florida: Bay Islands Yacht Club, an 800 unit condominium community. The Rossman Family also has developed and built residential single-family homes and townhomes in Park City, Utah. The majority of the family s development is in Central and North Florida communities, including the communities developed with C&G Real Estate: Belmere Reserve and Braemar in Southwest Orlando and Tributary at New Manchester, a 3,000-acre mixed-use community outside of Atlanta, Georgia. TAX MATTERS The Code includes requirements which the District must continue to meet after the issuance of the 2008 Bonds in order that interest on the 2008 Bonds not be included in gross income for federal income tax purposes. The District s failure to meet these requirements may cause interest on the 2008 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance. The District has covenanted in the Indenture to take the actions required by the Code in order to maintain the exclusion from federal gross income of interest on the 2008 Bonds. In the opinion of Bond Counsel, rendered on the date of issuance of the 2008 Bonds, assuming continuing compliance by the District with the tax covenants referred to above, under existing statutes, regulations, rulings and court decisions, interest on the 2008 Bonds is excluded from gross income for federal income tax purposes. Interest on the 2008 Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, however, interest on the 2008 Bonds is taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax imposed on corporations. Bond Counsel is further of the opinion upon the date of issuance of the 2008 Bonds that the 2008 Bonds and interest thereon are not subject to taxation under the laws of the State of Florida except as to estate taxes and taxes imposed by Chapter 220, Florida Statutes, on interest, income or profits on debt obligations owned by corporations as defined in Chapter 220. Except as described under this heading, Bond Counsel will express no opinion regarding the federal income tax consequences resulting from the ownership of, receipt or accrual of interest on, or disposition of the 2008 Bonds. Prospective purchasers of the 2008 Bonds should be aware that the ownership of the 2008 Bonds may result in other collateral federal tax consequences, including: (i) the denial of a deduction for interest on indebtedness incurred or continued to purchase or carry 2008 Bonds; (ii) the reduction of the loss reserve deduction for property and casualty insurance companies by fifteen percent (15%) of certain items, including the interest on the 2008 Bonds; (iii) the inclusion of interest on the 2008 Bonds in the earnings of certain foreign corporations doing business in the United States for purposes of the branch profits tax; (iv) the inclusion of interest on the 2008 Bonds in passive investment income subject to federal income taxation of certain Subchapter S corporations with Subchapter C earnings and profits at the close of the taxable year; and (v) the inclusion of interest on the 2008 Bonds in the determination of the taxability of certain Social Security and Railroad Retirement benefits to certain recipients of such benefits. Bond Counsel will express no opinion regarding federal tax consequences arising with respect to the 2008 Bonds other than the exclusion from gross income of the interest thereon. The nature and extent of the other tax consequences described under this heading will depend on the particular tax status and situation of each owner of the 2008 Bonds. Prospective purchasers of the 2008 Bonds should consult their own tax advisors as to the impact of these other consequences. No assurance can be given that any future legislation or amendments to the Code, if enacted into law, will not contain proposals which could cause the interest on the 2008 Bonds to be subject directly or indirectly to federal income taxation, adversely affect the market price or marketability of the 2008 Bonds, or otherwise prevent the holders form realizing the full current benefit of the status of the interest thereon. 33

38 DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS Section , Florida Statutes, and the regulations promulgated thereunder (the Disclosure Act ) requires that the District make a full and fair disclosure of any bonds or other debt obligations that it has issued or guaranteed and that are or have been in default as to principal or interest at any time after December 31, The 2008 Bonds will be the first debt issued or guaranteed by the District. VALIDATION On July 9, 2007, the Circuit Court for Flagler County, Florida validated the issuance by the District of not exceeding $40 million in principal amount of its special assessment bonds and the existence and legal authority of the District. The appeal period from such final judgment has expired with no appeal being filed. The 2008 Bonds are included within the validated amount. The District LITIGATION There is no litigation of any nature now pending or, to the knowledge of the District threatened, seeking to restrain or enjoin the issuance, sale, execution or delivery of the 2008 Bonds, or in any way contesting or affecting (i) the validity of the 2008 Bonds or any proceedings of the District taken with respect to the issuance or sale thereof, (ii) the pledge or application of any moneys or security provided for the payment of the 2008 Bonds, (iii) the existence or powers of the District. The Developer and Landowners The Developer and Landowners represent that there is no litigation of any nature now pending or, to their knowledge, threatened, which could reasonably be expected to have a material and adverse effect upon the ability of the Developer to complete the Development as described herein, or materially and adversely affect the ability of the Developer or Landowners to perform their various obligations described in this Limited Offering Memorandum. CONTINUING DISCLOSURE Pursuant to the Securities Exchange Commission Rule 15c2-12(b)(5) (the Rule ), the District, the Developer, the Landowners, the District Manager and the Trustee will enter into a Continuing Disclosure Agreement to provide updates of certain financial information and operating data relating to the District and the Development, and with respect to the District, audited financial statements, all as provided in the Continuing Disclosure Agreement. See APPENDIX D PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT herein for the specific nature of the financial information, operating data and reports to be provided. Failure to comply with the requirement of the Continuing Disclosure Agreement will not result in an Event of Default under the Indenture. The covenants contained in the Indenture with respect to continuing disclosure and in Continuing Disclosure Agreement have been made in order to assist the Underwriter in complying with the Rule. Neither the District nor the Developer nor the Landowners have ever failed to provide continuing disclosure with respect to the aforementioned Rule 15c2-12. UNDERWRITING The Underwriter has agreed, pursuant to a contract with the District, subject to certain conditions, to purchase the 2008 Bonds from the District in a limited public offering at a purchase price of $8,042, (par amount of Bonds less Underwriter s discount of $122,475.00). The Underwriter s obligations are subject to certain conditions precedent and the Underwriter will be obligated to purchase all the 2008 Bonds if any are purchased. The Underwriter intends to offer the 2008 Bonds to accredited investors at the offering price set forth on the cover page of this Limited Offering Memorandum, which may subsequently change without prior notice. The Underwriter may offer and sell the 2008 Bonds to certain dealers (including dealers depositing the 2008 Bonds into investment trusts) at prices lower than the initial offering price and such initial offering price may be changed from time to time by the Underwriter. 34

39 LEGAL MATTERS The 2008 Bonds are offered for delivery when, as and if issued by the District and accepted by the Underwriter, subject to the receipt of the opinion of Greenburg Traurig, P.A., Orlando, Florida, Bond Counsel, as to the validity of the 2008 Bonds and the excludability of interest thereon from gross income for federal income tax purposes. Certain legal matters will be passed upon for the District by its counsel Hopping Green & Sams, P.A., Tallahassee, Florida. The Developer is being represented by Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, P.A., Viera, Florida; the Trustee is being represented by Bryant Miller Olive P.A., Orlando, Florida and the Underwriter is being represented by Akerman Senterfitt, Orlando, Florida. AGREEMENT BY THE STATE Under the Act, the State of Florida pledges to the holders of any bonds issued thereunder, including the 2008 Bonds, that it will not limit or alter the rights of the issuer of such bonds to own, acquire, construct, reconstruct, improve, maintain, operate or furnish the projects subject to the Act or to levy and collect taxes, assessments, rentals, rates, fees, and other charges provided for in the Act and to fulfill the terms of any agreement made with the holders of such bonds and that it will not in any way impair the rights or remedies of such holders. NO FINANCIAL STATEMENTS The activities of the District to the date of this Limited Offering Memorandum have been limited principally to the non-revenue producing activities preliminary to the issuance of the 2008 Bonds. No audited financial statements of the District have been prepared. The District has covenanted in the Continuing Disclosure Agreement attached hereto as APPENDIX D to provide its annual audit commencing with the audit for the District fiscal year ended September 30, 2008, to certain information repositories as described therein. EXPERTS AND CONSULTANTS The references herein to Bowyer-Singleton Associates, Inc. as the District Engineer have been approved by said firm. The Report of the District Engineer prepared by such firm relating to the Project has been included as APPENDIX A attached hereto in reliance upon such firm as an expert in engineering. References to and excerpts herein from such report do not purport to be adequate summaries of such report or complete in all respects. Such report is an integral part of this Limited Offering Memorandum and should be read in its entirety for complete information with respect to the subjects discussed therein. The District Engineer also serves as the Developer s engineer. The references herein to Governmental Management Services South Florida, LLC as Financial Consultant have been approved by said firm. The Assessment Methodology prepared by such firm has been included as APPENDIX E attached hereto in reliance upon such firm as an expert in developing assessment methodologies. References to and excerpts herein from such report do not purport to be adequate summaries of such report or complete in all respects. Such report is an integral part of this Limited Offering Memorandum and should be read in its entirety for complete information with respect to the subjects discussed therein. CONTINGENT AND OTHER FEES The District has retained Bond Counsel, the Underwriter (who has retained Underwriter s Counsel) and the Trustee (who has retained Trustee s Counsel), with respect to the authorization, sale, execution and delivery of the 2008 Bonds. Payment of the fees of certain of such professionals are contingent upon the issuance of the 2008 Bonds. NO RATING OR CREDIT ENHANCEMENT No application for a rating or credit enhancement on the 2008 Bonds has been made. LEGALITY FOR INVESTMENT The Act provides that the 2008 Bonds are legal investments for savings banks, banks, trust companies, insurance companies, executors, administrators, trustees, guardians, and other fiduciaries, and for any board, body, 35

40 agency, instrumentality, county, municipality or other political subdivision of the State, and constitute securities which may be deposited by banks or trust companies as security for deposits of state, county, municipal or other public funds, or by insurance companies as required for voluntary statutory deposits. FORWARD-LOOKING STATEMENTS Statements contained herein that are not purely historical, are forward-looking statements, including statements regarding the District s and the Developer s expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included herein are based on information available on the date hereof, and the District assumes no obligation to update any such forward-looking statements. Such forward-looking statements are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties. Assumptions` related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the District and the Developer. Actual results could differ materially from those discussed in such forward-looking statements and, therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. MISCELLANEOUS Any statements made in this Limited Offering Memorandum involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. Neither this Limited Offering Memorandum nor any statement that may have been made verbally or in writing is to be construed as a contract with the holders of the 2008 Bonds. The information and expression of opinion herein are subject to change without notice and neither the delivery of this Limited Offering Memorandum nor any sale made hereunder is to create, under any circumstances, any implication that there has been no change in the affairs of the District, the Developer, the Project or the Community from the date hereof. However, certain parties to the transaction will, on the closing date of the 2008 Bonds, deliver certificates substantially to the effect that nothing has come to their attention that would lead them to believe that applicable portions of the Limited Offering Memorandum contains an untrue statement of a material fact or omits to state a material fact that should be included herein for the purpose for which the Limited Offering Memorandum is intended to be used, or that is necessary to make the statements contained herein, in light of the circumstances under which they were made, not misleading and to the effect that from the date of the Limited Offering Memorandum to the date of closing of the 2008 Bonds that there has been no material adverse change in the information provided. This Limited Offering Memorandum is submitted in connection with the sale of the securities referred to herein and may not be reproduced or used, as a whole or in part, for any other purpose. The appendices hereof are integral parts of this Limited Offering Memorandum and must be read in their entirety together with all foregoing statements. DEER RUN COMMUNITY DEVELOPMENT DISTRICT BY: /s/ Nancy Rossman Chairperson 36

41 APPENDIX A REPORT OF DISTRICT ENGINEER

42 [THIS PAGE INTENTIONALLY LEFT BLANK]

43 Engineer s Report Deer Run Community Development District Prepared For Board of Supervisors Deer Run Community Development District Prepared By Bowyer-Singleton & Associates, Inc. Revised August 31, 2007 July 26, 2007

44 Engineer s Report Deer Run Community Development District Prepared For Board of Supervisors Deer Run Community Development District Prepared By Bowyer-Singleton & Associates, Inc. Revised August 31, 2007 July 26, Northpoint Parkway, Suite 204 West Palm Beach, Florida (561)

45 ENGINEER S REPORT FOR DEER RUN COMMUNITY DEVELOPMENT DISTRICT TABLE OF CONTENTS SECTIONS 1. INTRODUCTION DISTRICT BOUNDARY AND PROPERTIES SERVED PROPOSED PROJECT INFRASTRUCTURE OPINION OF PROBABLE CONSTRUCTION COSTS GOVERNMENTAL ACTIONS ENGINEER S CERTIFICATION...7 TABLES TABLE 1: LAND USE SUMMARY...1 TABLE 2: OPINION OF PROBABLE COSTS FOR THE PROJECT INFRASTRUCTURE...8 TABLE 3: PERMIT SUMMARY EXHIBITS EXHIBIT A: EXHIBIT B: LOCATION MAPS FINAL DEVELOPMENT PLAN APPENDIX APPENDIX A: LEGAL DESCRIPTION

46 1. INTRODUCTION 1.1 Description of the Community The District consists of two separate and distinct projects known as Deer Run and Oak Branch located in the City of Bunnell, Florida as further described on Exhibit A. The projects are located north of SR 100 (Moody Avenue) and east of US 1. Oak Branch is a Planned Urban Development (PUD) on 602 acres allowing 749 units. Presently, 456 single family and 293 townhome units are planned within Oak Branch. A PUD is planned for the 88-acre Deer Run site providing for approximately 300 residential units clustered on approximately 31 acres of uplands. TABLE 1 Land Use Summary TYPE OF USE Oak Branch Deer Run Total Area Percent Area (acres) Area (acres) (acres) of Total Stormwater % Residential/Commercial % Road Right of Way % Golf Course % Open Space / Common Area % Wetland/Conservation % TOTAL The Deer Run Community Development District (herein called the District ) encompasses the entire +/- 690 gross acres of the Development, and will construct, operate and maintain infrastructure to support the community. The legal description of the District can be seen in Appendix A. The District will construct infrastructure in phases as necessary. Currently, three phases in Oak Branch and one phase in Deer Run, are planned, with a portion of the master infrastructure construction expected to be financed from the proceeds of the sale of the District s proposed special assessment revenue bonds. Improvements in Deer Run are limited to construction of an access road and attendant utilities from the Oak Branch project to SR 100, which bisects the Deer Run site and provides access to its developable parcels. The City requires the road connection as a condition of the Oak Branch approvals. 1.2 Purpose of the Report The District was established for the purpose of financing or acquiring, constructing, maintaining and operating a portion of the infrastructure necessary for the community development within the District. The purpose of this report is to provide a description of the infrastructure improvements to be financed and/or acquired by the District. The District will finance, acquire and/or, construct, operate, and maintain certain components of the infrastructure improvements that are needed to serve the Development. Included as 1

47 part of the infrastructure improvement program is the acquisition of certain real property interests necessary for the construction and operation of the proposed stormwater management system, the rights-of-way, public parks and open space. Portions of the infrastructure improvements have been completed by OB at Flagler, LLC, and will be acquired by the District with proceeds of bonds issued by the District. The current Landowners and Developers will finance and construct the balance of the infrastructure needed for the development that is not financed by the District and is already being constructed or is under contract to construct. The District will construct a boulevard with associated stormwater and certain utilities, bisecting the Deer Run parcel. The District s financial consultant will develop the financing and assessment methodology. 2. DISTRICT BOUNDARY AND PROPERTIES SERVED 2.1 District Boundary The Deer Run Final Development Plan, Exhibit B, identifies the location and boundary of the property included within the District. The District is primarily surrounded by residential land uses, except for portions of the southern boundary of the property, which abuts light industrial uses. Also shown within the District are recreation, roadway, and water management tracts. 2.2 Description of Properties Served The project is located within Sections 2, 3, 11 & 12, Township 12 South, Range 30 East in the City of Bunnell, Florida. Prior to construction, the existing private land within the District consisted of pine flatwoods and wetlands. 2.3 Existing Infrastructure A majority of the developable areas within Oak Branch have been cleared and the stormwater ponds have been completed with the exception of Phase II. Fill generated from the stormwater ponds has been used to contour lands for drainage as part of the stormwater management system and for the roadways in Phases I and III. It is anticipated that sufficient fill exists in the remaining ponds to be excavated to supply required fill to support the stormwater management system for all of Oak Branch and to construct the boulevard through Deer Run. 3. PROPOSED PROJECT INFRASTRUCTURE 3.1 Summary of the Proposed Project Infrastructure The proposed infrastructure improvements to serve the Development s needs are listed in the following categories: 2

48 Storm Drainage Collection conveyance system and Storage Facilities (ponds) Water Distribution and Sanitary Sewer Collection Systems Public Roadway surface pavements Master Irrigation System; Landscaping and Entry Features Under grounding of Electrical Service Located within the Oak Branch project is an 18 hole golf course that is under construction by OB at Flagler, LLC. The golf course will be seeded in May 2007 with an anticipated opening in January The installation of the Phase 1 infrastructure, including completion of the drainage collection system, roadways, onsite gravity sanitary sewer system, and onsite water distribution system, master irrigation system, electrical, landscaping and entry features is anticipated to commence in July A new, larger sanitary forcemain, which will serve the balance of the project s needs, as well as further expansion in the City, will commence prior to Phase II starting along US Highway 1. The road and utilities bisecting the Deer Run Parcel and Phase II of Oak Branch are in the final states of permitting with anticipated construction commencing in late 2007 / early Final engineering of Phase III of Oak Branch will begin when replacement product is needed from Phase I and II or additional product lines are added. The ownership and maintenance responsibilities of the District s proposed infrastructure improvements are set forth below. Proposed Infrastructure Improvements Water Distribution and Sanitary Sewer Collection System Surface Water Management System Ownership Constructed By Maintenance City* CDD City* CDD/Golf Course** CDD/Golf Course CDD/Golf Course On-site and Off-site Wetland Mitigation CDD CDD CDD On-site Transportation Improvements City* CDD City* On-site ROW Landscaping & Maintenance CDD CDD CDD Off-site Transportation Improvements FDOT CDD FDOT Recreation Facilities HOA Developer HOA Irrigation System CDD CDD CDD *City of Bunnell **The portions of the stormwater management ponds that are being acquired by the CDD with bond proceeds will be owned by the CDD. 3

49 3.2 Stormwater Drainage The City of Bunnell and the St. Johns River Water Management District (SJRWMD) regulate the design criteria for District surface water management facilities. Any additional permitting which the District will be involved in will be designed to satisfy criteria of SJRWMD which requires that drainage systems be designed to discharge at a rate less than or equal to the pre-development discharge rate. The District will also adhere to the requirements of SJRWMD, which require all building finished floor elevations be constructed above the anticipated flood elevation for the 100-year, 3- day storm event. Treatment of stormwater will be provided in accordance with the design guidelines for wet detention systems as mandated by the SJRWMD. Stormwater runoff will be collected by curbs and stormwater conveyance surfaces with drainage inlets and an underground storm sewer pipe system conveyed to the detention areas. Approximately 64.1 acres of ponds will be constructed within the completed District. The excavated material will be used for public road sub-base, fill material for drainage requirements and grading of public common area. The District will finance the cost of construction and will provide ongoing maintenance and operation of the stormwater system. 3.3 Public Roads The District will fund and construct the main boulevard through the entire Deer Run CDD, which is a public road. This roadway will consist of a two-lane undivided roadway. The roadway will serve the various land uses within the Development. Construction of the roadway will consist of the asphaltic concrete surface, sidewalks, upgraded signing, and striping, landscaping, lighting and hardscape features. The roadways will be designed and constructed in accordance with the applicable City of Bunnell and Florida Department of Transportation standards as required. Please refer to Exhibit B that depicts the roadway systems within and adjacent to the project. 3.4 Water, Sewer and Reuse The City of Bunnell will provide water and wastewater services for the District. The water and wastewater improvements to be funded by the District are only those necessary to serve the District with the exception of oversizing an off-site forcemain, which is required to be upgraded. The District will be entitled to reimbursement for the capacity in excess of the projects needs by other developers that utilize the offsite sanitary forcemain. The potable water facilities will include both on-site and off-site distribution mains along with necessary valving, fire hydrants and water services to individual lots, recreational facilities, and amenity areas, which will be constructed and funded by 4

50 watermains on US Highway 1 and SR 100 which creates a looped system that will provide improved flow rates and pressures that benefit both the District and the City s overall system. The on-site distribution system is approximately 32,500 linear feet of watermain. The wastewater facilities will include gravity collection mains, collection system pumps stations, and on-site and off-site forcemains, which will be constructed and funded by the District. Off-site forcemain is proposed along US Highway 1 to serve the development. The on-site wastewater system consists of approximately 31,000 linear feet of gravity collection system, 3500 linear feet of on-site force main, and one (1) collection system pump station. Design of the wastewater collection system and the water distribution system for potable water and fire protection is in accordance with the criteria and guidelines of the City of Bunnell and the Florida Department of Environmental Protection. A master irrigation system providing service to public landscaping will be provided within the Oak Branch project. The provided storage pond (aqua range) will be recharged from stormwater runoff and groundwater flow into the aqua range with augmentation from reclaimed water from the City of Bunnell. The District s residential lots and common areas will also utilize reclaimed water for its irrigation needs as well as the golf course. A 12 inch re-use watermain will be extended from U.S. 1 to the aqua range (approximately 5,350 feet) to ensure the aqua range maintains an adequate supply volume of reclaimed water which is required by the City of Bunnell. 3.4 Landscaping and Entry Features Landscaping and other improvements at entry features, within the public common areas of the development, will be provided for the projects. The landscaping will consist of sod, annual flowers, shrubs, ground cover, and trees. The costs of overall project related landscaping inside the projects will be at the expense of the District. 3.5 Underground Electrical Service Florida Power and Light will provide the underground electrical service. The service will include the primary and secondary systems to serve the various land uses and street lighting. Those costs, which are required to be paid by the project, will be funded through the District. 3.6 Recreation Facility The approved development plan currently includes a recreation facility for exclusive use of Oak Branch residents, including a clubhouse and pool, which will be funded by the Developer. 5

51 4. OPINION OF PROBABLE CONSTRUCTION COSTS Table 2 presents a summary of the costs for the project infrastructure including drainage, roadways, water, sewer and reuse, landscaping, entry features, and under grounding of electrical service. The costs in Table 2 are derived from estimates of land appraisals and expected quantities of infrastructure multiplied by unit costs typical in the area of the District. Included within these costs are technical services consisting of planning, land surveying, engineering, environmental permitting, soils and material testing related to such infrastructure. These services are necessary for the design, permitting and construction contract management for the project infrastructure. The costs are exclusive of legal, administrative, financing, operations or maintenance services necessary to finance, construct, and operate the infrastructure proposed by the CDD. 5. GOVERNMENTAL ACTIONS 1 The District is entirely within the City of Bunnell. The Oak Branch project was originally approved as an R-PUD in 2001 and amended in November of 2005 to add in the Phase II parcel consisting of approximately 88 acres. The Army Corps of Engineers (ACOE) and St. John s River Water Management District (SJRWMD) permits have been issued for all of Oak Branch except Phase II. All Florida Department of Environmental Protection (FDEP), Florida Department of Transportation (FDOT) and City of Bunnell final engineering approvals were previously obtained for Oak Branch with the exception of Phase II. The R-PUD amendment in 2005 allowed considerably more density and the engineering plans, FDEP and FDOT permits are being modified. Construction permit approvals for Phase 1 were completed in August Final Plat approval is anticipated by the end of Approvals for mass grading and the construction of the stormwater system have been obtained for Oak Branch (excluding Phase II) and those improvements are underway. No difficulties are anticipated in obtaining these approvals. Relative to the Deer Run project, the City and the Developer have agreed that an R-PUD will be the best vehicle to obtain approvals for the desired entitlements. A formal submittal will be made in June or July District improvements to this project are limited to the boulevard and associated utilities, which need to be installed in conjunction with the road construction, which bi-sects the site. The ACOE and SJRWMD permits are in process with permits anticipated to be received within six months. The preliminary plat was approved on May 15, 2007, which identifies the 1 Revised on August 31,

52 roadway corridor, by the City of Bunnell. Final engineering is being reviewed by the City. No difficulties are anticipated in obtaining all necessary permits. The District was established pursuant to City of Bunnell Ordinance No on May 15, ENGINEER S CERTIFICATION It is our opinion that that improvements proposed are fair and reasonable, and that the District funded improvements are assessable improvements within the meaning of Chapter 190, F.S. We have no reason to believe that the project cannot be constructed at the cost described in this report. We expect certain of the improvements for all phases as described in this report to be constructed with Bond proceeds. We believe that the District will be well served by the improvements discussed in this report. I hereby certify that the foregoing is a true and correct copy of the engineer s report for Deer Run Community Development District. Reinardo Malave, P.E. Florida Registration No

53 DEER RUN COMMUNITY DEVELOPMENT DISTRICT OPINION OF PROBABLE COSTS FOR THE PROJECT INFRASTRUCTURE TABLE 2 Description Oak Branch Deer Run Master Improvements Total Stormwater Management $10,447,720 $460,822 $10,908,542 Roadways (including off-site) $2,977,936 $0 $3,466,414 $6,444,350 Water, Sanitary and Re-use Systems $6,007,779 $871,542 $6,879,321 Landscaping & Entrance Features $995,632 $0 $1,260,981 $2,256,613 Underground Electrical System $703,574 $178,331 $881,905 Subtotal Insfrastructure Costs $21,132,641 $1,510,695 $4,727,395 $27,370,732 Revision Notes: 1. Revised per Board Meeting - combined Oak Branch into one column, updated % contingency. 2. Revised reduced contingency due to contractor invoices, reduced landscaping. 8

54 DEER RUN COMMUNITY DEVELOPMENT DISTRICT PERMIT SUMMARY TABLE 3 Agency Permit No. Oak Branch PHASE 1 Approval Date USACOE St. John s River Water Management District (SJRWMD) St. John s River Water Management District (SJRWMD) Florida Department of Environmental Protection (FDEP) Florida Department of Transportation (FDOT) Florida Department of Transportation (FDOT) Dredge and Fill Environmental Resource Permit Water Use Permit (Irrigation) NOI/NPDES FLR10CN Drainage Connection & Driveway Utility Permit Florida Department of Environmental Protection (FDEP) 1 Florida Department of Environmental Protection (FDEP) 1 General (Water) Individual (Wastewater) DS DWC Oak Branch PHASE 2 USACOE Dredge and Fill St. John s River Water Management District (SJRWMD) Florida Department of Environmental Protection (FDEP) Florida Department of Environmental Protection (FDEP) Environmental Resource Permit NOI/NPDES General (Water) 9

55 Florida Department of Environmental Protection (FDEP) General (Wastewater) Deer Run USACOE St. John s River Water Management District (SJRWMD) Florida Department of Environmental Protection (FDEP) Florida Department of Environmental Protection (FDEP) Florida Department of Environmental Protection (FDEP) Dredge and Fill Environmental Resource Permit NOI/NPDES General (Water) General (Wastewater) 1 Revised August 31,

56 Exhibit A Location Maps

57 Royal Palms Rymfire County Road Exit 284 Seminole Woods Citation Airport Pritchard Belle Terre Berke Whiteview Deer Run CDD City of Bunnell Location Map County Road 205 (407) Miles Data Source: ESRI, Flagler County GIS

58 1 E Moody Blvd (407) Deer Run CDD City of Bunnell Aerial Location Map ,600 2,400 Feet Data Source: Aerials Express Feb 2007, Flagler County GIS

59 Exhibit B Final Development Plan

60

61 Appendix A Legal Description

62

63

64

65 Supplemental Engineer s Report For The 2008 Improvements Deer Run Community Development District Prepared For Board of Supervisors Deer Run Community Development District Prepared By Bowyer-Singleton & Associates, Inc. April 8, 2008

66 Supplemental Engineer s Report For the 2008 Improvements Deer Run Community Development District Prepared For Board of Supervisors Deer Run Community Development District Prepared By Bowyer-Singleton & Associates, Inc. April 8, South Magnolia Avenue Orlando, Florida (407)