$15,795,000 $1,000,000

Transcription

1 LIMITED OFFERING MEMORANDUM DATED MAY 20, 2014 NEW ISSUE BOOK-ENTRY-ONLY NOT RATED In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and continuing compliance with certain covenants, interest on the Series 2014A-1 Bonds is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. Interest on the Series 2014A-3 Bonds is included in gross income for federal income tax purposes. For a more complete description, see TAX MATTERS herein. $15,795,000 $1,000,000 PUBLIC FINANCE AUTHORITY PUBLIC FINANCE AUTHORITY TAX-EXEMPT CHARTER SCHOOL SENIOR REVENUE BONDS TAXABLE CHARTER SCHOOL SENIOR REVENUE BONDS (VERTEX I, LLC PROJECTS) (VERTEX I, LLC PROJECTS) SERIES 2014A-1 SERIES 2014A-3 Dated: Date of Delivery Due: As shown on inside cover The Public Finance Authority Tax-Exempt Charter School Senior Revenue Bonds (Vertex I, LLC Projects) Series 2014A-1 (the Series 2014A-1 Bonds ) and the Public Finance Authority Taxable Charter School Senior Revenue Bonds (Vertex I, LLC Projects) Series 2014A-3 (the Series 2014A-3 Bonds and together with the Series 2014A-1 Bonds, the Senior Series 2014A Bonds ) will be issued by the Authority in fully registered form in denominations, initially, of $25,000 and multiples of $5,000 in excess thereof (as described herein). Principal and interest payments on the Senior Series 2014A Bonds will be made by U.S. Bank National Association, as trustee, to the Bondholders as of the Regular Record Date and The Depository Trust Company, New York, New York, will act as securities depository for the Senior Series 2014A Bonds. The Senior Series 2014A Bonds will be issued in book-entry-only form and purchasers of the Senior Series 2014A Bonds will not receive certificates evidencing their ownership interests in the Senior Series 2014A Bonds. Interest on the Senior Series 2014A Bonds, at the rates set forth on the inside front cover, is payable semi-annually in arrears, on May 1 and November 1 of each year, commencing on November 1, Capitalized terms used herein, and not otherwise defined, have the respective meanings set forth in APPENDIX E DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS. MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, PRICES, AND CUSIPS ARE SHOWN ON INSIDE COVER. The Senior Series 2014A Bonds will be issued by the Authority pursuant to a Master Trust Indenture as supplemented by a First Supplemental Trust Indenture, each dated as of May 1, 2014 and each by and between the Authority and the Trustee (collectively, the Indenture ). The Authority will loan the proceeds of the Senior Series 2014A Bonds to Vertex I, LLC, a Utah limited liability company (the Borrower ) pursuant to a Master Loan Agreement as supplemented by a First Supplemental Loan Agreement, each dated as of May 1, 2014 and each by and between the Authority and the Borrower (collectively, the Loan Agreement ), for the purposes of (i) financing a portion of the costs of the acquisition, construction, reconstruction, renovation and/or equipping, as applicable, of three separate charter school educational facilities (each a Project and collectively, the Series 2014A Projects ), (ii) funding certain reserves and capitalized interest accounts, and (iii) paying costs of issuance of the Senior Series 2014A Bonds. The Authority is expected to issue, simultaneously with the issuance of the Senior Series 2014A Bonds, its Tax-Exempt Charter School Subordinate Revenue Bonds (Vertex I, LLC Projects) Series 2014A-2 (the Subordinate Bonds ) pursuant to the Indenture and loan the proceeds thereof to the Borrower to finance a portion of the costs of the Series 2014A Projects pursuant to the Loan Agreement. The Subordinate Bonds are subordinate in payment and security to the Senior Series 2014A Bonds. The Subordinate Bonds are not being offered by this Limited Offering Memorandum. The Senior Series 2014A Bonds are subject to optional, mandatory and mandatory sinking fund redemption and purchase in lieu of redemption prior to maturity as set forth herein. Under the terms of the Indenture and the Loan Agreement, any notice, request, consent, direction, waiver, approval, agreement, or other action of the Senior Bondholder Representative shall constitute and have the same effect as a notice, request, consent, direction, waiver, approval, agreement, or other action of the Holders and beneficial owners of the Senior Series 2014A Bonds, and, as long as there is a Senior Bondholder Representative with respect to the Senior Series 2014A Bonds, notices shall be given to such Senior Bondholder Representative and not to the Holders (except that the Trustee may send routine balancing and payment processing notices to DTC as such time as DTC is the Holder of the Senior Series 2014A Bonds) or to the beneficial owners represented by such Senior Bondholder Representative. The initial Senior Bondholder Representative is Hamlin Capital Management, LLC. The Senior Series 2014A Bonds constitute limited obligations of the Authority and except to the extent payable from Senior Series 2014A Bond proceeds and investment income, are payable solely from certain payments, revenues and other amounts derived by the Authority pursuant to the Loan Agreement. The Senior Series 2014A Bonds are secured solely by the Trust Estate, which is limited to (i) the Loan Agreement, including the rights of the Authority under and pursuant to the Loan Agreement, including the Notes, except for the Unassigned Rights and other than the rights of the Authority to perform certain discretionary acts as reserved in the Loan Agreement, (ii) all Funds (except the Rebate Fund and except as otherwise set forth in the Indenture) created under the Indenture, and (iii) any and all interests in real or personal property specifically mortgaged, pledged or hypothecated by the Authority in favor of the Trustee. The Series 2014A Projects will be owned by the Borrower and each Project will be leased to a separate charter school entity (the Charter Schools ) pursuant to three separate lease agreements (the Leases ). Under the Loan Agreement, the Borrower will be required to make loan payments from Pledged Revenues (as defined herein) in amounts sufficient to pay debt service on the Senior Series 2014A Bonds, plus certain other payments. Payments to be received by the Borrower from the Charter Schools under the Leases will be the Borrower s sole expected source of Pledged Revenues. Loan payments required to be made by the Borrower under the Loan Agreement constitute general obligations of the Borrower. In addition, Vertex Nonprofit Organization, a Utah non-profit corporation and sole member of the Borrower ( Vertex ) will fully and unconditionally guarantee the Borrower s payment obligations under the Loan Agreement and the performance by the Borrower of its obligations under the Borrower Documents. Furthermore, Vertex will pledge and grant a security interest in its membership interest in the Borrower to the Trustee in order to secure the Borrower s obligations under the Loan Agreement. THE SENIOR SERIES 2014A BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM FUNDS PLEDGED FOR THEIR PAYMENT IN ACCORDANCE WITH THE INDENTURE AND, EXCEPT FROM SUCH SOURCE, NONE OF THE AUTHORITY, ANY AUTHORITY MEMBER, THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE SENIOR SERIES 2014A BONDS SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST THEREON OR ANY COSTS INCIDENTAL THERETO. THE SENIOR SERIES 2014A BONDS DO NOT, DIRECTLY, INDIRECTLY OR CONTINGENTLY, OBLIGATE, IN ANY MANNER, ANY AUTHORITY MEMBER, THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE SENIOR SERIES 2014A BONDS TO LEVY ANY TAX OR TO MAKE ANY APPROPRIATION FOR PAYMENT OF THE SENIOR SERIES 2014A BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF ANY AUTHORITY MEMBER, THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE SENIOR SERIES 2014A BONDS, NOR THE FAITH AND CREDIT OF THE AUTHORITY, SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON, THE SENIOR SERIES 2014A BONDS OR ANY COSTS INCIDENTAL THERETO. THE AUTHORITY HAS NO TAXING POWER. This cover page contains certain information for quick reference only. It is not a summary of this issue. Purchase of the Senior Series 2014A Bonds involves a high degree of risk and the Senior Series 2014A Bonds are a speculative investment. Investors must read this entire Limited Offering Memorandum to obtain information essential to the making of an informed investment decision, and should give particular attention to the material under the caption RISK FACTORS. The Senior Series 2014A Bonds may only be purchased by and transferred to a Qualified Institutional Buyer as defined in Rule 144A promulgated under the Securities Act of 1933, as amended, or to an accredited investor within the meaning of Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended. On the closing date of the Senior Series 2014A Bonds, the Senior Bondholder Representative will be required to execute an investor letter in the form attached hereto as APPENDIX H. The Senior Series 2014A Bonds are offered when, as, and if issued by the Authority subject to the approval of legality and certain other matters by Kutak Rock LLP, as Bond Counsel to the Authority and by von Briesen & Roper, s.c., as counsel to the Authority. Certain legal matters will be passed upon for the Underwriter by its counsel, Ballard Spahr LLP, Salt Lake City, Utah, and for the Borrower, American Leadership Academy and CAFA by their counsel Kirton McConkie, PC, Lehi, Utah and for ACE Academy by its counsel David R. Hostetler, Esq., Chapel Hill, North Carolina. It is expected that the Senior Series 2014A Bonds will be available for delivery through the facilities of DTC on or about May 21, 2014, against payment therefore.

2 MATURITY SCHEDULE $15,795,000 PUBLIC FINANCE AUTHORITY Tax-Exempt Charter School Senior Revenue Bonds (Vertex I, LLC Projects) Series 2014A-1 $15,795, % Senior Series A-1 Term Bond due May 1, 2019 Yield: 6.50% Price: % CUSIP (1) AS1 $1,000,000 PUBLIC FINANCE AUTHORITY Taxable Charter School Senior Revenue Bonds (Vertex I, LLC Projects) Series 2014A-3 $1,000, % Senior Series A-3 Term Bond due May 1, 2019 Yield: 8.75% Price: % CUSIP (1) AT9 (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein are provided for convenience of reference only. Neither the Authority nor the Underwriter assumes any responsibility for the accuracy of these CUSIP data..

3 Board of Directors of Vertex Nonprofit Organization, Borrower s Sole Member Jared Haddock Mark T. Morley Shane Wasden Edwin Ballard Borrower Counsel Kirton McConkie, PC Lehi, Utah Authority Counsel von Briesen & Roper, s.c. Milwaukee, Wisconsin Underwriter D.A. Davidson & Co. Denver, Colorado Counsel to the Underwriter Ballard Spahr LLP Salt Lake City, Utah Trustee and Paying Agent U.S. Bank National Association, Salt Lake City, Utah Bond Counsel to the Authority Kutak Rock LLP Denver, Colorado American Leadership Academy and CAFA Counsel Kirton McConkie, PC Lehi, Utah ACE Academy Counsel David R. Hostetler, Esq. Chapel Hill, North Carolina

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5 TABLE OF CONTENTS INTRODUCTION... 1 RISK FACTORS... 7 General... 7 Repayment of Senior Series 2014A Bonds at Maturity... 7 Dependence on State Payments... 7 Prior Pledge of State Payments... 7 Revocation of Charter... 8 Changes to Charter Schools Act; State Aid Payments Subject to Annual Appropriation... 9 Future Changes in Laws... 9 Factors Associated With Education... 9 Budget; Reliance on Projections Competition for Students Foreclosure Delays and Deficiency; Limited Use of Series 2014A Projects Damage or Destruction of the Series 2014A Projects No Real Estate Appraisal Environmental Regulation Construction Costs; Completion of the Series 2014A Projects Potential Effects of Bankruptcy Covenant to Maintain Tax-Exempt Status of the Series 2014A-1 Bonds Additional Bonds; Limitations on Incurrence of Additional Indebtedness Enforcement of Remedies Secondary Market Failure to Provide Ongoing Disclosure Key Management THE SENIOR SERIES 2014A BONDS Description of the Bonds Purchase Restrictions Investment Grade Notice and Denomination Changes Prior Redemption Borrower Covenants Sources and Uses of Funds Security for the Senior Series 2014A Bonds Book-Entry-Only System Debt Service Requirements SUBORDINATE LOANS THE AUTHORITY THE BORROWER General THE GUARANTOR General LEGAL MATTERS Pending and Threatened Litigation TAX MATTERS Series 2014A-1 Bonds Tax-Exempt Bonds Series 2014A-3 Bonds Taxable Bonds Changes in Federal and State Tax Law MISCELLANEOUS Underwriting Registration of Senior Series 2014A Bonds i

6 Interest of Certain Persons Named in this Limited Offering Memorandum Additional Information Limited Offering Memorandum Certification APPENDIX A APPENDIX B CHARTER SCHOOLS IN ARIZONA AND NORTH CAROLINA THE BORROWER, THE CHARTER SCHOOLS AND THE SERIES 2014A PROJECTS APPENDIX C AUDITED FINANCIAL STATEMENTS OF AMERICAN LEADERSHIP ACADEMY AND CAFA FOR THE FISCAL YEARS ENDED JUNE 30, 2013 AND 2012 APPENDIX D APPENDIX E APPENDIX F APPENDIX G APPENDIX H APPENDIX I APPENDIX J FIVE YEAR BUDGET PROJECTIONS FOR THE CHARTER SCHOOLS DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS FORM OF BOND COUNSEL OPINION FORM OF CONTINUING DISCLOSURE AGREEMENTS FORM OF INVESTOR LETTER ADDITIONAL INFORMATION ABOUT THE EB-5 PROGRAM SUMMARY OF CERTAIN PROVISIONS OF THE LEASES ii

7 Notice to Investors of the Senior Series 2014A Bonds Purchase of the Senior Series 2014A Bonds involves a high degree of risk and the Senior Series 2014A Bonds are a speculative investment. By its purchase of the Senior Series 2014A Bonds or any interest therein, each purchaser will have acknowledged, represented, warranted, and agreed with and to the Authority, the Underwriter and the Trustee as follows: (a) The purchaser will be deemed to have acknowledged that the Senior Series 2014A Bonds are limited obligations of the Authority payable solely from funds pledged for their payment in accordance with the Indenture and, except from such source, none of the Authority, any Authority Member, the State of Wisconsin or any political subdivision thereof or any political subdivision approving the issuance of the Senior Series 2014A Bonds shall be obligated to pay the principal of, premium, if any, or interest thereon or any costs incidental thereto. The purchaser will be deemed to have acknowledged that neither the Authority nor any Authority Member or any of its or their respective past, present and future directors, board members, governing members, trustees, commissioners, elected or appointed officials, officers, employees, attorneys, agents and advisors (including counsel and financial advisors) take any responsibility for, and the purchaser is not relying upon any of such parties, with respect to information appearing anywhere in the Limited Offering Memorandum, other than those statements relating to the Authority set forth under the captions INTRODUCTION The Authority, THE AUTHORITY and LEGAL MATTERS Pending and Threatened Litigation No Proceedings Against the Authority, and that none of such parties have participated in the preparation of the Limited Offering Memorandum. (b) In addition to its receipt of the Limited Offering Memorandum, the purchaser will be deemed to have acknowledged that it has received information from the Borrower and the Charter Schools relating to: (i) the sources of repayment of the Senior Series 2014A Bonds; (ii) the Series 2014A Projects; (iii) the Borrower and the Charter Schools (including financial and operating data); and (iv) such other material matters relating to the Senior Series 2014A Bonds as the purchaser deemed relevant. The purchaser will be deemed to have acknowledged that it had the opportunity to ask questions of, and request additional information from, the Borrower and the Charter Schools regarding the information provided to it and any other matters that the undersigned considered to be relevant to the purchaser s decision to purchase the Senior Series 2014A Bonds. The purchaser will be deemed to have acknowledged that it understands and agrees that neither the Authority nor any Authority Member or any of its or their respective past, present and future directors, board members, governing members, trustees, commissioners, elected or appointed officials, officers, employees, attorneys, agents and advisers (including counsel and financial advisers) have any responsibility for the accuracy or completeness of the information supplied to it or any other information that the purchaser has received or relied upon in making its decision to invest in the Senior Series 2014A Bonds. (c) The purchaser will be deemed to have acknowledged that it has reviewed and has made its decision to invest in the Senior Series 2014A Bonds based solely on its review of the information provided by the Borrower and the Charter Schools. The purchaser will be deemed to have acknowledged that it understands that the Senior Series 2014A Bonds are a speculative investment; that there is a high degree of risk in investing in the Senior Series 2014A Bonds; and that the purchaser is capable of suffering a loss of the entirety of its investment which is represented by the Senior Series 2014A Bonds. The purchaser will be deemed to have acknowledged that it can bear the economic risk associated with a purchase of high risk securities such as the Senior Series 2014A Bonds and it has such knowledge and experience in business and financial matters, including the analysis of a participation in the purchase of similar investments, iii

8 so as to be capable of evaluating the merits and risks of an investment in the Senior Series 2014A Bonds on the basis of the information and review described herein. (d) The purchaser will be deemed to have acknowledged that the Senior Series 2014A Bonds will be issued in Authorized Denominations. No dealer, salesman or other person has been authorized to give any information or to make any representation, other than the information contained in this Limited Offering Memorandum, in connection with the offering of the Senior Series 2014A Bonds, and, if given or made, such information or representation must not be relied upon as having been authorized by the Authority or the Underwriter. The information in this Limited Offering Memorandum is subject to change without notice, and neither the delivery of this Limited Offering Memorandum nor any sale hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the Borrower or any of the Charter Schools since the date hereof. This Limited Offering Memorandum does not constitute an offer or solicitation in any jurisdiction in which such offer or solicitation is not authorized, or in which any person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. The Underwriter has provided the following sentence for inclusion within this Limited Offering Memorandum. The Underwriter has reviewed the information in this Limited Offering Memorandum in accordance with, and as part of, its responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Investors must be willing and able to conduct an independent investigation of the risks attendant to ownership of the Senior Series 2014A Bonds, including their own evaluation of the prospects for development within the areas the Charter Schools serve. Neither the contents of this Limited Offering Memorandum nor any prior or subsequent communications from the Authority or any of its officers, directors, employees or agents constitute legal, tax, accounting or regulatory advice. Before purchasing, prospective investors should consult with their own legal counsel and business and tax advisors to determine the consequences of an investment in the Bonds and should make an independent evaluation of the investment. Neither the Securities and Exchange Commission nor any securities regulatory authority of any state has approved or disapproved the Senior Series 2014A Bonds or this Limited Offering Memorandum. Any representation to the contrary is unlawful. iv

9 INTRODUCTION The purpose of this Limited Offering Memorandum is to provide certain information concerning the issuance and sale by Public Finance Authority (together with its successors and assigns, the Authority ) of its $15,795,000 aggregate principal amount of Tax-Exempt Charter School Senior Revenue Bonds (Vertex I, LLC Projects) Series 2014A-1 (the Series 2014A-1 Bonds ) and its $1,000,000 aggregate principal amount of Taxable Charter School Senior Revenue Bonds (Vertex I, LLC Projects) Series 2014A-3 (the Series 2014A-3 Bonds and together with the Series 2014A-1 Bonds, the Senior Series 2014A Bonds ). The Senior Series 2014A Bonds are being issued pursuant to a Master Trust Indenture as supplemented by a First Supplemental Trust Indenture, each dated as of May 1, 2014, and each by and between the Authority and the Trustee (together, the Indenture ) and the proceeds of the Senior Series 2014A Bonds are being loaned by the Authority to the Borrower pursuant to a Master Loan Agreement as supplemented by a First Supplemental Loan Agreement, each dated as of May 1, 2014, and each by and between the Authority and the Borrower (together, the Loan Agreement ). Capitalized terms used but not defined in this Limited Offering Memorandum have the meanings assigned to them in APPENDIX E hereto. The offering of the Senior Series 2014A Bonds is made only by way of this Limited Offering Memorandum, which supersedes any other information or materials used in connection with the offer or sale of the Senior Series 2014A Bonds. This Limited Offering Memorandum speaks only as of its date, and the information contained herein is subject to change. The Authority is expected to issue, simultaneously with the issuance of the Senior Series 2014A Bonds, its $4,975,000 Tax-Exempt Charter School Subordinate Revenue Bonds (Vertex I, LLC Projects) Series 2014A-2 (the Subordinate Bonds ) pursuant to the Indenture and to loan the proceeds thereof to the Borrower pursuant to the Loan Agreement. The Subordinate Bonds are subordinate in payment and security to the Senior Series 2014A Bonds. The Subordinate Bonds are not being offered by this Limited Offering Memorandum. This Limited Offering Memorandum contains statements relating to future results that are forward looking statements as defined in the Private Litigation Reform Act of When used in this Limited Offering Memorandum, the words estimate, intend, expect and similar expressions identify forward looking statements. Any forward looking statement is subject to uncertainty and risks that could cause actual results to differ, possibly materially, from those contemplated in such forward looking statements. Inevitably, some assumptions used to develop forward looking statements will not be realized or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward looking statements and actual results; those differences could be material. The following introductory material is only a brief description of, and is qualified by, the more complete information contained throughout this Limited Offering Memorandum. A full review should be made of the entire Limited Offering Memorandum and the documents summarized or described herein. Purpose of the Issue... The proceeds from the sale of the Senior Series 2014A Bonds will be loaned to Vertex I, LLC, a Utah limited liability company (the Borrower ), pursuant to the terms of the Loan Agreement. Proceeds of the Senior Series 2014A Bonds will be used to (i) finance a portion of the costs of the acquisition, construction, reconstruction, renovation, and/or equipping, as applicable, of three separate charter school facilities located at (A) the southeast corner of Warner Road and Recker Road in Mesa, Arizona (the CAFA Project ), (B) 7807 Caldwell Road in Harrisburg, North Carolina (the ACE Project ), and (C) 4380 North Hunt Highway in Florence, Arizona (the ALA Project, the ACE Project, the CAFA Project and the ALA Project are each referred to as a Project and are collectively referred to herein as, the Series 2014A 1

10 Projects ) each to be owned by the Borrower and leased to three separate charter school entities, (ii) funding certain reserves and capitalized interest accounts, and (iii) paying costs of issuance of the Senior Series 2014A Bonds. For a description of the Series 2014A Projects, see APPENDIX B THE BORROWER, THE CHARTER SCHOOLS AND THE SERIES 2014A PROJECTS. The Authority... Pursuant to Sections , and of the Wisconsin Statutes (the Act ), the Authority is a unit of government and a body corporate and politic separate and distinct from, and independent of, the State of Wisconsin and the Authority Members (as hereinafter defined). The Authority was established by local governments, primarily for local governments, for the public purpose of providing local governments a means to efficiently and reliably finance projects that benefit local governments, nonprofit organizations, and other eligible private borrowers in the State of Wisconsin and throughout the country. See THE AUTHORITY. The Borrower... Vertex I, LLC is a Utah limited liability company originally formed on March 24, 2014 and its sole member is Vertex Nonprofit Organization, a Utah nonprofit corporation and an organization described in Section 501(c)(3) of the Code ( Vertex ). The Borrower, by itself or through an affiliate entity acquires, develops and leases, with an option to purchase, charter school facilities to public charter schools. The Borrower focuses the majority of its resources and investments on charter school organizations serving high growth areas or areas with low-income student populations and communities. The Borrower currently has no subsidiaries. See APPENDIX B THE BORROWER, THE CHARTER SCHOOLS AND THE SERIES 2014A PROJECT. The Charter Schools... Each of the Series 2014A Projects will be owned by the Borrower and leased to one of the three following charter school entities: (i) A.C.E. Academy, a North Carolina nonprofit corporation ( ACE Academy ), (ii) American Leadership Academy, Inc., an Arizona nonprofit corporation and an organization described in Section 501(c)(3) of the Code ( American Leadership Academy ), and (iii) CAFA, Inc., an Arizona nonprofit corporation and an organization described in Section 501(c)(3) of the Code ( CAFA and together with ACE Academy and American Leadership Academy the Charter Schools ). See APPENDIX B THE BORROWER, THE CHARTER SCHOOLS AND THE SERIES 2014A PROJECT. Security... The Senior Series 2014A Bonds are limited obligations of the Authority as described under Limited Obligations below. Under the Loan Agreement, the Charter School is obligated unconditionally to pay amounts sufficient to provide for the payment of the principal of, premium, if any, and interest on the Senior Series 2014A Bonds. The Senior Series 2014A Bonds are secured solely by the Trust Estate, which is limited to (i) the Loan Agreement, including the rights of the Authority under and pursuant to the Loan Agreement, including the Notes, except for the Unassigned Rights and other than the rights of the Authority to 2

11 perform certain discretionary acts as reserved in the Loan Agreement, (ii) all Funds (except the Rebate Fund and except as otherwise set forth in the Indenture) created under the Indenture, and (iii) any and all interests in real or personal property specifically mortgaged, pledged or hypothecated by the Authority in favor of the Trustee. Payments to be received by the Borrower from the Charter Schools under the Leases (as hereinafter defined) will be the Borrower s sole expected source of Pledged Revenues. As additional security, the Borrower will also execute for the benefit of the Authority one Deed of Trust and Assignment of Rents with Security Agreement and Financing Statement on each of the Series 2014A Projects (collectively, the Deeds of Trust ). See THE SENIOR SERIES 2014A BONDS Security for the Senior Series 2014A Bonds. In addition, Vertex will fully and unconditionally guarantee the Borrower s payment obligations under the Loan Agreement and the performance by the Borrower of its obligations under the Borrower Documents pursuant to the terms of a Guaranty dated as of the closing date of the Senior Series 2014A Bonds (the Guaranty ). Vertex will also pledge and grant a security interest in its membership interest in the Borrower to the Trustee pursuant to a Pledge Agreement between Vertex and the Trustee (the Pledge Agreement ) in order to secure the Borrower s obligations under the Loan Agreement. Upon issuance of the Senior Series 2014A Bonds, Bond proceeds in the amount of $1,183, will be deposited into the Senior Reserve Fund. See APPENDIX E DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF BOND DOCUMENTS. Limited Obligations... The Senior Series 2014A Bonds are limited obligations of the Authority payable solely from funds pledged for their payment in accordance with the Indenture and, except from such source, none of the Authority, any Authority Member, the State of Wisconsin or any political subdivision thereof or any political subdivision approving the issuance of the Senior Series 2014A Bonds shall be obligated to pay the principal of, premium, if any, or interest thereon or any costs incidental thereto The Senior Series 2014A Bonds do not, directly, indirectly or contingently, obligate, in any manner, any Authority Member, the State of Wisconsin or any political subdivision or any political subdivision approving the issuance of the Senior Series 2014A Bonds to levy any tax or to make any appropriation for payment of the principal of, premium, if any, or interest on Senior Series 2014A Bonds or any costs incidental thereto. Neither the faith and credit nor the taxing power of any Authority Member, the State of Wisconsin or any political subdivision thereof or any political subdivision approving the issuance of the Senior Series 2014A Bonds, nor the faith and credit of the Authority, shall be pledged to the payment of the principal of, premium, if any, or interest on, the Senior Series 2014A Bonds or any costs incidental thereto. The Authority has no taxing power. See THE SENIOR SERIES 2014A BONDS Security for the Senior Series 2014A Bonds. 3

12 Risk Factors... Purchase of the Senior Series 2014A Bonds involves a high degree of risk and the Senior Series 2014A Bonds are a speculative investment. A prospective purchaser is advised to read this entire Limited Offering Memorandum and the Appendices attached hereto in their entirety, particularly the section entitled RISK FACTORS herein, for a discussion of certain risk factors, which should be considered in connection with an investment in the Senior Series 2014A Bonds. Purchase Restrictions... The Senior Series 2014A Bonds may only be purchased by and transferred to (i) accredited investors as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the Securities Act ), or (b) qualified institutional buyers as defined in Rule 144A under the Securities Act. On the Closing Date, the Senior Bondholder Representative will be required to execute a letter in substantially the form attached hereto as APPENDIX H. See THE SENIOR SERIES 2014A BONDS Purchase Restrictions. Additionally, see Notice to Investors of the Senior Series 2014A Bonds which follows the cover page to this Limited Offering Memorandum. Prior Redemption... The Senior Series 2014A Bonds are subject to optional, mandatory and mandatory sinking fund redemption and purchase in lieu of redemption prior to maturity. The terms and provisions regarding such prior redemption are set forth in THE SENIOR SERIES 2014A BONDS Prior Redemption. Exchange and Transfer... While the Senior Series 2014A Bonds remain in book-entry-only form, transfer of ownership by beneficial owners (as defined by the rules of DTC, defined below) may be made as described under the caption THE BONDS Book-Entry-Only System. Payment Provisions... The Senior Series 2014A Bonds mature on the dates and bear interest (computed on the basis of a 360-day year of twelve 30-day months) at the rates set forth on the inside cover page hereof; provided however, that during the occurrence and continuance of an Event of Default under the Indenture, the interest rate on the Series 2014A-1 Bonds shall be increased to 8.5% per annum and the interest rate on the Series 2014A-3 Bonds shall be increased to 11.75% per annum. Interest on the Senior Series 2014A Bonds is payable semiannually on May 1 and November 1 of each year, commencing on November 1, Payments for the principal of and interest on the Senior Series 2014A Bonds will be made as described under the caption THE SENIOR SERIES 2014A BONDS Book Entry Only System. Registration and Denominations... The Senior Series 2014A Bonds are issued in fully registered form in denominations of $25,000 and multiples of $5,000 in excess thereof. If, however, the Trustee receives an Investment Grade Notice, in the future, such minimum denominations will be reduced to $5,000 or any multiple thereof. 4

13 Tax Status... In the opinion of Kutak Rock, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and continuing compliance with certain covenants, interest on the Series 2014A-1 Bonds is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. Interest on the Series 2014A-3 Bonds is included in gross income for federal income tax purposes. For a more complete description, see TAX MATTERS herein. Continuing Disclosure Undertaking... Pursuant to the requirements of Securities and Exchange Commission Rule 15c2-12 (17 CFR Part 240, c2-12) (the Rule ), the Borrower and the Charter Schools have agreed for the benefit of the Registered Owners and Beneficial Owners of the Senior Series 2014A Bonds to provide certain financial information, other operating data and notices of material events. See APPENDIX G FORM OF CONTINUING DISCLOSURE AGREEMENTS. Authority for Issuance... The Senior Series 2014A Bonds are being issued pursuant to (a) the Act; (b) a resolution adopted by the governing body of the Authority (the Resolution ); and (c) the Indenture. Delivery Information... The Senior Series 2014A Bonds are offered when, as, and if issued by the Authority and accepted by the Underwriter, subject to prior sale and the approving legal opinion of Bond Counsel to the Authority and certain other conditions. It is expected that the Senior Series 2014A Bonds will be available for delivery through the facilities of DTC on or about May 16, 2014, against payment therefor. Book-Entry-Only Registration... The Senior Series 2014A Bonds will be originally issued only to a Securities Depository for use in a book-entry system and while the Senior Series 2014A Bonds are held by a Securities Depository in a book-entry system: (i) such Senior Series 2014A Bonds shall be registered in the name of the Securities Depository or its nominee, as Holder, and immobilized, in the custody of the Securities Depository; (ii) there will be a single Senior Series 2014A Bond representing each maturity of each series; and (iii) such Senior Series 2014A Bonds will not be transferable or exchangeable, except for transfer to another Securities Depository or another nominee of a Securities Depository and in exchange for any Senior Series 2014A Bonds so transferred, or in exchange of a Senior Series 2014A Bond in book-entry form for a Senior Series 2014A Bond in book-entry form in an amount equal to the unmatured and unredeemed principal amount of, and bearing interest at the rate or rates then in effect and maturing on the same date as the Senior Series 2014A Bond being exchanged, without further action by the Authority. The owners of book-entry interests in the Senior Series 2014A Bonds shall not have any right to receive Senior Series 2014A Bonds in the form of physical certificates. The Authority may, with the consent of the Senior Bondholder Representative, terminate its 5

14 relationship with the then Securities Depository with respect to the Senior Series 2014A Bonds at any time. See under the caption THE SENIOR SERIES 2014A BONDS Book Entry Only System for a discussion of the operating procedures of the DTC system with respect to payments, registration, transfers, notices, and other matters. Financial Statements... The audited financial statements of American Leadership Academy and CAFA for the fiscal years ended June 30, 2013 and 2012 are attached hereto as APPENDIX C. No audited financial statements are available for the Borrower, Vertex or ACE Academy as the Borrower, Vertex and ACE Academy are start-up companies that were recently formed and have a limited operating history. Five Year Budget Projections The Five Year Budget Projections for the Borrower and each Charter School are attached to this Limited Offering Memorandum as APPENDIX D and are projections of the future financial performance of the Borrower and each Charter School based upon certain assumptions made by the Borrower and each Charter School and contained therein. The Five Year Budget Projections have been prepared and provided solely by the Borrower and each Charter School and have not been independently verified by any other party. No assurances can be given that the operations of the Borrower and each Charter School will equal or exceed the projections set forth in the Five Year Budget Projections. Agents and Advisors... Kutak Rock LLP has acted as Bond Counsel to the Authority. Certain legal matters will be passed on for the Authority by its counsel, von Briesen & Roper, s.c., for the Borrower, American Leadership Academy and CAFA by its counsel, Kirton McConkie, PC, Lehi, Utah and for ACE Academy by David R. Hostetler, Esq., Chapel Hill, North Carolina. D.A. Davidson & Co. will serve as the Underwriter for the Senior Series 2014A Bonds. See MISCELLANEOUS Underwriting. Counsel to the Underwriter is Ballard Spahr LLP, Salt Lake City, Utah. U.S. Bank National Association, Salt Lake City, Utah will serve as the Trustee for the Senior Series 2014A Bonds. Certain fees that are payable by the Borrower with respect to the Senior Series 2014A Bonds to various counsel, the Underwriter, and the Trustee are contingent upon the issuance and delivery of the Senior Series 2014A Bonds. Additional Information... The summaries of or references to constitutional provisions, statutes, resolutions, agreements, contracts, financial statements, reports, publications and other documents or compilations of data or information set forth in this Limited Offering Memorandum do not purport to be complete statements of the provisions of the items summarized or referred to and are qualified in their entirety by the actual provisions of such items, copies of which are either publicly available or available upon request and the payment of a reasonable copying, mailing and handling charge from D.A. Davidson & Co. at 1600 Broadway, Suite 1100, Denver, Colorado 80202, (303)

15 RISK FACTORS General The Senior Series 2014A Bonds are limited obligations of the Authority. They are secured by and payable solely from the Trust Estate, which includes funds payable to the Authority by the Borrower under the terms and conditions of the Loan Agreement and as otherwise described herein. Repayment of Senior Series 2014A Bonds at Maturity Unless the Senior Series 2014A Bonds are redeemed prior to maturity in accordance with the terms of the Indenture, the Borrower will be required to make a balloon payment on the maturity date of the Senior Series 2014A Bonds. Unless the Borrower is able to refinance the Series 2014A Projects at or prior to maturity the Borrower will not likely have funds sufficient to make such balloon payment on the maturity date and will default on its payment obligations under the Loan Agreement. There is no assurance that the Borrower will be able to refinance any or all of the Series 2014A Projects necessary to pay the Senior Series 2014A Bonds at maturity. Dependence on State Payments Payments to be received by the Borrower from the Charter Schools under the Leases will be the Borrower s sole expected source of income with which to pay debt service on the Senior Series 2014A Bonds. The Borrower and the Charter Schools do not have any taxing authority and are substantially dependent upon the States of Arizona and North Carolina, respectively, (the States ) to continue to provide funding for public education. The obligation of the respective States to make State Payments or otherwise provide funds to the Charter Schools is conditioned upon the availability of funds appropriated or allocated for the payment of such obligation. If funds are not allocated and available for the continuance of a charter school contract, the charter school contract each Charter School has with its respective State may be terminated by the Arizona State Charter School Board (the ASCSB ) or the North Carolina State Board of Education ( NCSBE ), as applicable, at the end of the period for which funds are available. No liability shall accrue to the ASCSB or the NCSBE in such event, and the States shall not be obligated or liable for any future payments or any damages as a result of such termination. In certain circumstances, the State of Arizona also may withhold a portion of the payments otherwise due a charter school if the charter school does not comply with applicable State laws and regulations. In the event a State was to withhold the payment of moneys from a Charter School for any reason even a reason that is ultimately determined to be invalid or unlawful it is possible that the Charter School would be forced to cease operations. Prior Pledge of State Payments American Leadership Academy and CAFA have borrowed moneys and each has outstanding loans with lenders other than the Authority (the Prior Lenders ) in order to secure financing for projects other than the Series 2014A Projects (the Prior Financings ). In connection with such Prior Financings, American Leadership Academy and CAFA have directed the Arizona State Treasurer, and the Arizona State Treasurer has agreed, to deposit all of such Charter Schools State Payments, including the State Payments to be made in connection with the ALA Project and the CAFA Project, as applicable, into accounts held by or on behalf of the Prior Lenders. As such, in the event there is an insufficiency of State Payments to pay debt service on the Prior Financings, American Leadership Academy and CAFA may not have sufficient revenues to make payments under their respective Leases to allow the Borrower to pay debt service on the Senior Series 2014A Bonds. In addition, poor performance at American Leadership Academy s or CAFA s campuses other than the ALA Project and the CAFA Project could adversely affect American Leadership Academy and CAFA s ability to make payment under the Leases sufficient to allow the Borrower to pay debt service on the Senior Series 2014A Bonds. 7

16 In connection with the issuance of the Senior Series 2014A Bonds, American Leadership Academy and CAFA will each deliver a Payment Directive to its respective Prior Lender pursuant to which such Prior Lender will acknowledge and agree to deliver any State Payments remaining after the payment of debt service on the Prior Financings to the Trustee in order to make rent payments on behalf of American Leadership Academy and CAFA under their respective Leases. ACE Academy has not granted a prior security interest in the State Payments it expects to receive in connection with the ACE Project. Within thirty days following the issuance of the Senior Series 2014A Bonds, ACE Academy will enter into an Escrow Agreement with the banking institution with which it deposits its State Payments (the Bank ), pursuant to which the Bank will agree to grant the Trustee the ability to direct the disposition of funds in all accounts in which such State Payments are deposited without further consent by ACE Academy upon receipt by the Bank of a notice from the Trustee to that effect. Furthermore, nothing in the documents being entered into by the Charter Schools in connection with the issuance of the Senior Series 2014A Bonds prohibits the Charter Schools from incurring additional indebtedness and/or pledging their State Payments to any lenders in the future. If the Charter Schools incur additional indebtedness and/or pledge their State Payments to any lender during such time as the Senior Series 2014A Bonds remain outstanding and there is an insufficiency of State Payments to pay debt service on the Senior Series 2014A Bonds or any additional indebtedness and/or future financings secured by the State Payments, the Charter Schools may not have sufficient revenues to make payments under their respective Leases to allow the Borrower to pay debt service on the Senior Series 2014A Bonds. Revocation of Charter Charter contracts with the ASCSB are granted for a period of 15 years from the first day of the fiscal year as specified in the charter contract and are renewable for successive periods of 20 years. Initial charter contracts with NCSBE are granted for a period not to exceed 10 years and may be renewed for subsequent periods not to exceed 10 years each. Unless renewed and extended in the future each of the Charter Schools charter contracts will expire at the following times, which in CAFA s case will be prior to the maturity of the Senior Series 2014A Bonds: SCHOOL EXPIRATION DATE OF CHARTER CONTRACT ACE Academy June 30, 2019 American Leadership Academy June 30, 2032 CAFA May 30, 2017 In addition, ASCSB or NCSBE, as applicable, may elect to revoke a charter contract upon the failure of the charter school to meet academic standards and/or a breach of one or more provisions of the charter contract. See EXHIBIT B THE BORROWER, THE CHARTER SCHOOLS AND THE SERIES 2014A PROJECT. Both ASCSB and NCSBE are required to review the charter contracts every five years and may revoke charter school contracts if a determination is made that the applicable Charter School has breached one or more provisions of the Charter School Agreement. See EXHIBIT A CHARTER SCHOOLS IN ARIZONA and NORTH CAROLINA. While none of the Charter Schools anticipates any non-renewal or revocation of its charter contract, there can be no assurance that ASCSB or NCSBE, as applicable, will renew the charter contracts. 8

17 Changes to Charter Schools Act; State Aid Payments Subject to Annual Appropriation The State Legislatures of Arizona and North Carolina have amended their States charter school laws a number of times since they were first enacted. Past and future amendments to such charter school laws may adversely affect the Charter Schools in various ways, including without limitation, by withholding a percentage of the State Payments if any of the Charter Schools is deemed not to be in compliance with its charter contract, its applicable charter school laws, or State and federal laws; by decreasing the charter term from 10 years to a term less than 10 years (in the case of North Carolina); by requiring a State body to make an assessment of effectiveness every year; by limiting the number of students for which State funds are available; by mandating new facilities or programs that may increase costs beyond projections; by reducing the maximum amount payable by the State for students enrolled by the Charter Schools; by revising the relative responsibilities between public schools and the State for financing schools (including charter schools); or by eliminating the authority for State-supported charter schools. In addition, the State Legislatures of both Arizona and North Carolina must appropriate funds for public education including district schools and charter schools each year, and it may not appropriate sufficient funds to enable the Charter Schools to make lease payments sufficient to allow the Borrower to pay debt service on the Senior Series 2014A Bonds and meet budgeted expenses. Similarly, the State allocation per student may be reduced or may not keep pace with expenses such that the aggregate State Payments to the Charter Schools are inadequate to allow the Charter Schools to make lease payments sufficient to allow the Borrower to pay debt service on the Senior Series 2014A Bonds and to meet budgeted expenses. If the State Payments are insufficient, the Charter Schools may be unable to make the lease payments in an amount sufficient to enable the Borrower to make Loan Payments as and when required. Changes in regulatory enforcement or administrative procedures, whether related to charter schools or business in general, may also adversely affect the Charter Schools, and such changes may be material. By way of example, in a 2006 clarification of Arizona law, the Superior Court of Arizona held that, after permitting a mandatory period of 90 days to correct problems associated with a notice to revoke a charter contract, the ASCSB has the authority, within its administrative guidelines, to revoke a charter contract even if the charter school has corrected the problems giving rise to the notice to revoke. Similar or different changes in regulatory enforcement or administrative procedures could materially adversely impact charter schools, including the Charter Schools. Future Changes in Laws Various State and federal constitutional provisions, laws and regulations apply to the operations of the Charter Schools, the financial interests of the Charter Schools and the security for the Senior Series 2014A Bonds. There is no assurance that there will not be any change in such constitutional provisions, laws or regulations, or judicial or administrative interpretations thereof, which would have a material effect, directly or indirectly, on the operations of the Charter Schools, the financial interests of the Charter Schools or the security for the Senior Series 2014A Bonds. Factors Associated With Education There are a number of factors affecting schools in general, including the Charter Schools, that could have an adverse effect on the Charter Schools financial position and their ability to make the lease payments required under the Leases. These factors include, but are not limited to, the ability to attract and retain a sufficient number of students; increasing costs of compliance with federal or State regulatory laws or regulations, including, without limitation, laws or regulations concerning environmental quality, work safety and accommodating persons with disabilities; any unionization of the Charter Schools work force with consequent impact on wage scales and operating costs of the Charter Schools; changes in 9

18 existing statutes pertaining to the powers of the Charter Schools and legislation or regulations which may affect program funding. The Charter Schools cannot assess or predict the ultimate effect of these factors on their operations or financial results of operations. Budget; Reliance on Projections The Charter Schools budgets for the fiscal year ending June 30, 2013 and the projections of future revenues and expenses contained in APPENDIX D FIVE YEAR BUDGET PROJECTIONS OF THE CHARTER SCHOOLS herein were prepared by the Charter Schools and have not been independently verified by any other party. The projections are forward-looking statements and are subject to the general qualifications and limitations described under INTRODUCTION, above. Neither the Underwriter nor the Authority has independently verified such projections, and makes no representations nor gives any assurances that such projections, or the assumptions underlying them, are complete or correct. The projections are derived from the Charter Schools assumptions about future student enrollment, revenues and expenses. There can be no assurance that the actual enrollment and revenues and expenses for the Charter School will be consistent with the assumptions underlying such projections. Further, no guarantee can be made that such projections of revenues and expenses will correspond with the results actually achieved in the future, because there is no assurance that actual events will correspond with the assumptions made by the Charter Schools. Actual operating results may be affected by many factors, including, but not limited to, the inability of the Charter Schools to complete construction of their school building (if applicable), increased costs, lower than anticipated revenues (as a result of insufficient enrollment, reduced State Payments, or otherwise), employee relations, changes in applicable government regulation, changes in demographic trends, changes in education competition and changes in State or local economic conditions. Refer to APPENDIX B THE BORROWER, THE CHARTER SCHOOLS AND THE SERIES 2014A PROJECTS, to review certain information relevant to the projections and to consider the various factors that could cause actual results to differ significantly from projected results. Refer to INTRODUCTION, above, for qualifications and limitations applicable to forward-looking statements. Competition for Students Each of the Charter Schools is located within a public school district in which the majority of the Charter School s students reside. See APPENDIX B THE BORROWER, THE CHARTER SCHOOLS AND THE SERIES 2014A PROJECTS Enrollment Service Area. There can be no assurance that the Charter Schools will attract and retain the number of students that are needed to produce the revenues that are necessary to make lease payments in amounts sufficient to enable the Borrower to pay the debt service on the Senior Series 2014A Bonds. Foreclosure Delays and Deficiency; Limited Use of Series 2014A Projects Should Pledged Revenues be insufficient to pay the principal of and interest on the Senior Series 2014A Bonds, the Trustee may seek to foreclose on or sell the property securing the Senior Series 2014A Bonds. However, no assurance can be given that the value of the Series 2014A Projects at the time of such foreclosure or sale would be sufficient to meet all remaining principal and interest payments on the Senior Series 2014A Bonds. In addition, the time necessary to institute and complete such proceedings could substantially delay receipt of funds from a foreclosure or sale. There could also be delays in regaining possession of the Series 2014A Projects from the respective Charter Schools in the event of any default or dispute under the Loan Agreement. The Series 2014A Projects to be owned by the Borrower and leased to the Charter Schools may be composed of special purpose facilities which are not suitable for industrial or commercial use; consequently, it may be difficult to find a buyer or lessee for such facilities if it was necessary for the 10

19 Borrower raise funds by selling any of its assets in order to repay its indebtedness. The ALA Project is located in an area zoned as a planned unit development which allows for large scale, mixed use development (such as master planned communities) which includes use as schools and churches within residential areas and retail centers in appropriate, high traffic areas. The ACE Project is located in an area which may be used for mixed use development which would allow the ACE Project to be used for, among other things, a school, a neighborhood retail center, a community recreation center or a commercial development. The CAFA Project is located in an area which has been zoned as a community commercial district which allows for use of the CAFA Project as a school or for retail, office, service or entertainment uses under 50,000 square feet. Damage or Destruction of the Series 2014A Projects The Loan Agreement requires that the Series 2014A Projects be insured against certain risks. There can be no assurance that the amount of insurance required to be obtained with respect to the Series 2014A Projects will be adequate or that the cause of any damage or destruction to the Series 2014A Projects will be as a result of a risk which is insured. Further, there can be no assurance of the ongoing creditworthiness of the insurance companies with which the Charter Schools obtain insurance policies or the interest of the States to allow for charter schools, such as the Charter Schools, to continue to participate in the property and casualty pool of their respective State. No Real Estate Appraisal American Leadership Academy engaged BDO Consulting (the Appraiser ) to conduct an appraisal dated January 8, 2014 (the ALA Appraisal ). The ALA Appraisal states that it is the opinion of the Appraiser that the leased fee interest of the subject property in its completed condition and as of January 8, 2014 is $7,200,000. No real estate appraisal of the ACE Project or the CAFA Project has been performed in connection with the issuance of the Senior Series 2014A Bonds. The value of the Borrower s property and the Series 2014A Projects at any given time will be directly affected by market and financial conditions which are not in the control of the parties involved in this transaction. There is nothing associated with the Series 2014A Projects that would suggest that their value would remain stable or would increase if the general values of property in the Charter Schools community were to decline. In the event of a foreclosure, under the Deeds of Trust, the value of the Series 2014A Projects in such event cannot presently be determined and no assurance can be given that the value of the Series 2014A Projects at the time of such foreclosure or sale would be sufficient to meet all remaining principal and interest payments on the Senior Series 2014A Bonds. The Series 2014A Projects will require ongoing capital repairs and improvements to maintain their market value and, although, the Borrower and the Charter Schools intend to maintain the Series 2014A Projects in good condition, no assurance can be given that either the Borrower or the Charter Schools will have sufficient revenue to maintain a regular capital improvements program for the Series 2014A Projects in the future. Environmental Regulation The Series 2014A Projects are subject to various federal, State and local laws and regulations governing health and the environment. In general, these laws and regulations could result in liability to the owner of the Series 2014A Projects (and to any beneficiary of a deed of trust on the Series 2014A Projects, particularly following any sale or foreclosure proceeding) for remediating adverse environmental conditions on or relating to the Series 2014A Projects, whether arising from preexisting conditions or conditions arising as a result of the activities conducted in connection with the ownership and operation of the Series 2014A Projects. 11

20 Costs incurred by the Borrower or the Charter Schools with respect to environmental remediation or liability could adversely impact its financial condition and its ability to own and operate the Series 2014A Projects. Certain environmental costs might be the responsibility of the Borrower, but such costs might be a factor in the Borrower s decision concerning the continuation of the Loan Agreement. If excessive costs are incurred by the Borrower or the Charter Schools in connection with remediating environmental problems or from liability to third parties, such costs could make it impractical for the Loan Agreement to be continued pursuant to its current terms or such costs could make it more difficult to successfully relet the Series 2014A Projects if the Loan Agreement were not continued. Partner Engineering and Science, Inc. ( Partner Engineering ) prepared Phase I Environmental Site Assessment Reports on ACE Academy s charter school facilities (dated January 24, 2014) and on American Leadership Academy s charter school facilities (dated February 26, 2014). Vann Engineering, Inc. ( Vann Engineering ) prepared a Phase I Environmental Site Assessment dated November 18, 2013 on CAFA s charter school facilities. All such Phase I Assessments were performed in conformance with the scope and limitations of ASTM Practice E and revealed no evidence of recognized environmental conditions in connection with each Project s land. This Limited Offering Memorandum summarizes only the conclusions contained in the Phase I Assessments. Potential investors are encouraged to review the Phase I Assessments in their entirety for additional information, including, without limitation, the scope and limitations of the assessment and potential issues or concerns identified in the Phase I Assessments. A copy of the Phase I Assessments may be obtained from either the Underwriter or the Borrower. Construction Costs; Completion of the Series 2014A Projects The Series 2014A Projects includes, among other things, financing the costs of the construction of the ACE Project and the CAFA Project and the acquisition of the ALA Project which was completed in With respect to the CAFA Project, the Borrower has entered into a Development Agreement with American Charter Development, LLC, a Utah limited liability company ( ACD ) dated as of the closing date of the Senior Series 2014A Bonds pursuant to which ACD has agreed to develop the CAFA Project. ACD, in turn, has entered into a Standard Form Agreement Between Owner and Contractor with M-13 Construction, Inc. that contains a guaranteed maximum price equal to $7,883,283 (meant to represent the maximum cost to the Borrower for completion of the CAFA Project. With respect to the ACE Project, ACD has entered into a Standard Form Agreement Between Owner and Contractor with M-13 Construction, Inc. (which will be assigned to the Borrower on or prior to the closing date of the Senior Series 2014A Bonds) that contains a guaranteed maximum price equal to $1,402,353 (meant to represent the maximum cost to the Borrower for completion of the ACE Project. Payment and performance bonds are expected to be provided by the contractors for the ACE Project and CAFA Project upon the issuance of the Senior Series 2014A Bonds. Although the construction contracts as set forth above are in place, if current plans produce a construction cost that exceeds the amount available to pay such costs, the building plans may have to be modified by the Borrower to lower the construction costs to an amount not exceeding the amount deposited into the Project Fund for that purpose. Compliance with city building requirements and environmental regulators, availability of skilled construction trade labor and volatile availability and cost of building materials may also impact the cost of construction. No assurance can be given that the school facilities will be completed on time or for the amount deposited into the Project Fund for such purpose. As additional security for the Borrower, the Borrower will also be granted the option, pursuant to the terms of a Put Option Agreement, to require Michael T. Morely and/or ACD to purchase the Series 2014A Projects to avoid a default under the Loan Agreement. There can be no assurances that ACD and/or Michael T. Morely will have sufficient funds to purchase one or more of the Series 2014A Projects from the Borrower upon exercise of such option. Failure of ACD and/or Michael T. Morely to purchase 12

21 one or more of the Series 2014A Projects as set forth above could adversely affect the Borrower s ability to pay debt service on the Senior Series 2014A Bonds. Potential Effects of Bankruptcy If the Borrower or any of the Charter Schools were to file a petition for relief (or if a petition were filed against such entity as debtor) under the United States Bankruptcy Code, 11 U.S.C. 101 et seq., as amended, or other similar laws that protect creditors, the filing could operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the property of the debtor. If the bankruptcy court so ordered, the debtor s property and revenues could be used for the benefit of the debtor despite the claims of its creditors (including the registered owners of the Senior Series 2014A Bonds). In a bankruptcy proceeding, the debtor could file a plan for the adjustment of its debts which modifies the rights of creditors generally or the rights of any class of creditors, secured or unsecured (including the registered owners of the Senior Series 2014A Bonds). The plan, when confirmed by the court, binds all creditors who had notice or knowledge of the plan and discharges all claims against the debtor provided for in the plan. No plan may be confirmed unless, among other conditions, the plan is in the best interest of creditors, is feasible and has been accepted by each class of claims impaired thereunder. Each class of claims has accepted the plan if at least two thirds in dollar amount and more than one half in number of the allowed claims of the class that are voted with respect to the plan are cast in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly. Covenant to Maintain Tax-Exempt Status of the Series 2014A-1 Bonds The excludability from gross income for federal income taxation purposes of the interest on the Series 2014A-1 Bonds is based on the continuing compliance by the Trustee, the Borrower, the Charter Schools and the Authority with certain covenants contained in the Indenture, the Loan Agreement, the Tax Regulatory Agreement, dated as of the date of delivery of the Senior Series 2014A Bonds (the Tax Certificate ), among the Authority, the Borrower, Vertex and the Trustee, certificates from the Charter Schools and certain other documents delivered in connection with the issuance of the Senior Series 2014A Bonds. These covenants relate generally to restrictions on the use of the Series 2014A Projects financed with proceeds of the Senior Series 2014A Bonds, restrictions on use of such Series 2014A Projects by organizations other than the Borrower and the Charter Schools, arbitrage limitations, and rebate of certain excess investment earnings, if any, to the federal government. In addition, the Borrower and the Charter Schools have covenanted to maintain their status as a tax-exempt organization under Section 501(c)(3) of the Code, or a governmental entity, as applicable. Failure to comply with such covenants could cause interest on the Series 2014A-1 Bonds to become subject to federal income taxation retroactive to the date of issuance of the Series 2014A-1 Bonds. Additional Bonds; Limitations on Incurrence of Additional Indebtedness The Authority has the right to issue additional Senior Bonds under the Indenture that will be equally and ratably secured on a parity basis with the Senior Series 2014A Bonds. The Borrower may not incur any other additional Indebtedness that is secured by the Pledged Revenues on a parity or senior basis to the Senior Series 2014A Bonds without the prior written consent of the Senior Bondholder Representative. The Borrower expects to incur additional Indebtedness in the near future. Subject to the prior written consent of the Senior Bondholder Representative, it is anticipated that the Authority will issue additional Senior Bonds under the Master Indenture and loan the proceeds thereof to the Borrower for the purpose of financing the costs of the acquisition, construction, reconstruction, renovation and/or 13

22 equipping, as applicable, of four additional charter school educational facilities. Such additional Senior Bonds are expected to be equally and ratably secured on a parity basis with the Senior Series 2014A Bonds. Enforcement of Remedies The remedies available to the Trustee, the Senior Bondholder Representative or the registered owners of the Bonds upon an Event of Default under the Indenture or the Loan Agreement 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 provided in the Indenture and the Loan Agreement may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Senior Series 2014A Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by the valid exercise of the sovereign powers of the State of Wisconsin and the constitutional powers of the United States of America, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. Secondary Market There is no guarantee that a secondary trading market will develop for the Senior Series 2014A Bonds. Consequently, prospective bond purchasers should be prepared to hold their Senior Series 2014A Bonds to maturity or prior redemption. Subject to applicable securities laws and prevailing market conditions, the Underwriter intends, but is not obligated, to make a market in the Senior Series 2014A Bonds. Failure to Provide Ongoing Disclosure The Borrower and the Charter Schools have agreed to enter into the Continuing Disclosure Agreements pursuant to Rule 15c2-12 (as such terms are defined herein). Failure to comply with the Continuing Disclosure Agreements and Rule 15c2-12 may adversely affect the liquidity of the Senior Series 2014A Bonds and their market price in the secondary market. As of the date hereof, American Leadership Academy is the only entity benefitting from the issuance of the Senior Series 2014A Bonds that has continuing disclosure obligations. American Leadership Academy has certified that it has never failed to comply in all material respects with any previous undertakings required by Rule 15c2-12. Key Management The creation of, and the philosophy of teaching in, charter schools generally initially may reflect the vision and commitment of a few key persons on the board of directors and/or the upper management of the charter school ( Key Directors/Managers ). Loss of such Key Directors/Managers, and the Charter Schools inability to find comparable qualified replacements, could adversely affect any of the Charter Schools and Borrower s operations or financial results. Description of the Bonds THE SENIOR SERIES 2014A BONDS The Senior Series 2014A Bonds will be dated their date of delivery, will be issued in the aggregate principal amounts and will bear interest at the rates and will mature on the dates, subject to redemption as described below and as set forth on the inside front cover hereof; provided however, that during the occurrence and continuation of an Event of Default, interest on the Series 2014A-1 Bonds shall be increased to 8.5% per annum and interest on the Series 2014A-3 Bonds shall be increased to 11.75% per annum. 14

23 The Senior Series 2014A Bonds will be issuable, initially, in denominations of $25,000 and multiples of $5,000 in excess thereof (provided, however, that upon receipt by the Trustee of an Investment Grade Notice, such minimum denominations shall be $5,000 or any multiple thereof). The Senior Series 2014A Bonds shall bear interest from their day of delivery to maturity at the rates per annum set forth on the inside front cover hereof, such interest computed on the basis of a 360-day year composed of twelve 30-day months and payable semi-annually May 1 and November 1 of each year, with the first interest payment to be made on November 1, 2014 (each an Interest Payment Date ), by check or draft mailed to the registered owners of the Senior Series 2014A Bonds as of the Regular Record Date, as defined below, except that Senior Series 2014A Bonds which are issued upon registration of transfer, exchange or other replacement shall bear interest from the most recent Interest Payment Date to which interest has been paid (or duly provided for), or if no interest has been paid, from the date of the Senior Series 2014A Bonds. Subject to the provisions of the Indenture, Bond Service Charges shall be payable in lawful money of the United States of America without deduction for the services of the Trustee or any Paying Agent. Subject to the provisions of the Indenture, (i) the principal of and any premium on the Senior Series 2014A Bonds shall be payable when due to a Holder upon presentation and surrender of such Senior Series 2014A Bond at the principal corporate trust office of the Trustee or at the office, designated by the Trustee, of any Paying Agent; and (ii) interest on any Senior Series 2014A Bond shall be paid on each Interest Payment Date by check or draft which the Trustee shall cause to be mailed on that date to the Person in whose name the Senior Series 2014A Bond (or one or more Predecessor Bonds) is registered at the close of business on the Regular Record Date applicable to that Interest Payment Date on the Register at the address appearing therein; provided, however, that if any Holder of $1,000,000 or more of principal amount of Senior Series 2014A Bonds requests in writing at least 20 days prior to the applicable Interest Payment Date that moneys in payment of interest be transferred to it by Federal Reserve wire or other electronic method and simultaneously provides to the Trustee the information necessary to permit such a transfer, the Trustee shall make transfer in the method requested. If and to the extent, however, that the Authority shall fail to make payment or provision for payment of interest on any Senior Series 2014A Bond on any Interest Payment Date, that interest shall cease to be payable to the Person who was the Holder of that Senior Series 2014A Bond (or of one or more Predecessor Bonds) as of the applicable Regular Record Date. Except as otherwise provided in the Indenture, when moneys become available for payment of the interest, (i) the Trustee shall, establish a Special Record Date for the payment of that interest which shall be not more than 15 nor fewer than 10 days prior to the date of the proposed payment; and (ii) the Trustee shall cause notice of the proposed payment and of the Special Record Date to be mailed by first-class mail, postage prepaid, to the Senior Bondholder Representative and each Holder as it appears on the Registrar not fewer than 10 days prior to the Special Record Date and, thereafter, the interest shall be payable to the Persons who are Holders of the Senior Series 2014A Bonds (or their respective Predecessor Bonds) at the close of business on the Special Record Date. Purchase Restrictions The Senior Series 2014A Bonds may only be purchased by and transferred to (i) accredited investors as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933 as amended (the Securities Act ) or (ii) Qualified Institutional Buyers as defined in Rule 144A under the Securities Act. Investment Grade Notice and Denomination Changes Upon receipt by the Trustee of an Investment Grade Notice, the denominations for the Senior Series 2014A Bonds will be reduced to $5,000 or any multiple thereof. An Investment Grade Notice is defined in the Indenture as a certification to the Trustee from the applicable rating agency that the 15

24 applicable Senior Series 2014A Bonds carry an unenhanced rating of at least Baa2, BBB or BBB, respectively, by Moody s Investors Service, Standard & Poor s Rating Services or Fitch, Inc. Prior Redemption Optional Redemption. The Series 2014A-1 Bonds are subject to optional redemption prior to maturity, at the option of the Borrower, in whole or in part, and if in part by lot or in such manner as directed by the Borrower with the consent of the Senior Bondholder Representative with the understanding that the Borrower shall be entitled to redeem Bonds on a Project by Project basis, on any date from the date of issuance thereof to May 1, 2016, at a redemption price equal to the principal amount to be redeemed, plus accrued interest, if any, plus a redemption premium of 1% of the principal amount thereof being redeemed. The Series 2014A-1 Bonds are subject to optional redemption prior to their maturity, at the option of the Borrower, in whole or in part, and if in part by lot or in such manner as directed by the Borrower with the consent of the Senior Bondholder Representative with the understanding that the Borrower shall be entitled to redeem Bonds on a Project by Project basis on May 1, 2016 and on any date thereafter, at a redemption price equal to the principal amount to be redeemed, plus accrued interest, if any. Notwithstanding the foregoing, following a Determination of Taxability, the Series 2014A-1 Bonds shall not be subject to optional redemption but shall be subject to mandatory redemption as set forth in the section entitled Redemption Upon a Determination of Taxability below. The Series 2014A-3 Bonds are subject to optional redemption prior to their maturity, at the option of the Borrower, in whole or in part, and if in part by lot or in such manner as directed by the Borrower with the consent of the Senior Bondholder Representative with the understanding that the Borrower shall be entitled to redeem Bonds on a Project by Project basis, on any date at a redemption price equal to the principal amount to be redeemed, plus accrued interest, if any. Notwithstanding the foregoing, following a Determination of Taxability, the Series 2014A-3 Bonds shall not be subject to optional redemption but shall be subject to mandatory redemption as set forth in the section entitled Redemption Upon a Determination of Taxability below. Mandatory Sinking Fund Redemption of Bonds. The Series 2014A-1 Bonds are not subject to mandatory sinking fund redemption. The Series 2014A-3 Bonds are subject to mandatory sinking fund redemption at a redemption price equal to the principal amount thereof, plus accrued interest, if any, without redemption premium. The Series 2014A-3 Bonds will be redeemed on the following dates and in the following amounts: Redemption Dates (May 1) *Maturity Date Principal to be Redeemed 2015 $5, $25, $30, $90, * $850,000 The principal amount of Series 2014A-3 Bonds required to be redeemed on any particular date shall be reduced by an amount equal to the par value of any such Series 2014A-3 Bonds that are redeemed at the Borrower s option as directed by the Borrower at the time of such optional redemption, with the consent of the Senior Bondholder Representative, with the express intent to allow the Borrower to optionally redeem all or a portion of an Issue of Senior Series 2014A Bonds that is allocable to a particular Series 2014A Project on a project-by-project basis, rather than on an Issue-by-Issue basis. The remaining principal amount of Series 2014A-3 Bonds shall be paid upon presentation and surrender at or 16

25 after their final respective maturity on May 1, 2019, unless otherwise sooner redeemed as provided herein. Redemption Upon a Determination of Taxability. Upon the occurrence of a Determination of Taxability, the Senior Series 2014A Bonds are subject to mandatory redemption in whole at a redemption price equal to 105% of the Outstanding principal amount thereof, plus any interest accrued to the redemption date, at the earliest practicable date selected by the Trustee, after consultation with the Borrower, but in no event later than 45 days following receipt by the Trustee of notice of the Determination of Taxability. Within five Business Days after receipt by the Trustee of written notice of a Determination of Taxability, the Trustee shall give written notice thereof to the Senior Bondholder Representative and to all holders of the Subordinate Bonds then Outstanding and shall also give written notice to the Borrower and the Authority. No Subordinate Bonds will be redeemed upon a Determination of Taxability until all of the Senior Series 2014A Bonds subject to redemption on the same date or any earlier date have first been redeemed (except from moneys in the Subordinate Reserve Fund, the Liquidity Fund or the Subordinate Holdback Fund). A Determination of Taxability is defined in the Indenture as the occurrence of any of the following: (a) the Trustee receives written notice from the Borrower, supported by an opinion of Bond Counsel, that interest on the Series 2014A-1 Bonds and/or the Subordinate Bonds is includable in the gross income of holders thereof for federal income tax purposes; or (b) the Internal Revenue Service shall claim in writing that interest on the Series 2014A-1 Bonds and/or Subordinate Bonds is includable in the gross income of holders thereof for federal income tax purposes; provided, that such a claim shall not be deemed a Determination of Taxability unless the Borrower is afforded reasonable opportunity (at the Borrower s sole expense and for a period not to exceed six months unless extended by the Senior Bondholder Representative) to pursue any judicial or administrative remedy available to the Borrower with respect to such claim. Redemption Upon a Change in Control. Upon the occurrence of: (i) the death or disability of Michael T. Morley, or the cessation of performance by Michael T. Morley of his duties for any Guarantor that he is performing as of the issuance date of the Subordinate Bonds; (ii) a change in the control of the Borrower or any Guarantor, other than a migratory merger or a restructuring that does not materially affect the ultimate beneficial ownership of the Borrower or any Guarantor, respectively; or (iii) a change in the 501(c)(3) exempt purposes of Vertex, all Senior Series 2014A Bonds and the Subordinate Bonds are subject to mandatory redemption at the election of the beneficial owners of the Subordinate Bonds with the consent of the Senior Bondholder Representative, in whole, at a redemption price equal to the price that would be due if the Borrower had exercised its optional redemption rights to cause a redemption on such redemption date. The redemption date shall be the earliest practicable date selected by the Trustee. No Subordinate Bonds will be redeemed upon a redemption upon a change in control as described in this section until all of the Senior Series 2014A Bonds subject to redemption on the same date or any earlier date have first been redeemed (except from moneys in the Subordinate Reserve Fund, the Liquidity Fund or the Subordinate Holdback Fund). Redemption Upon Exercise of Purchase Option. Upon a Charter School s exercise of its purchase option under its Lease with respect to a Series 2014A Project, the Related Senior Bonds and Related Subordinate Bonds, if any, are subject to mandatory redemption at a redemption price equal to the redemption price that would be applicable if the Borrower had exercised its optional redemption rights to cause a redemption on the redemption date (which shall be deemed the date such purchase price is paid or the earliest practicable date thereafter selected by the Trustee with the consent of the Senior Bondholder 17

26 Representative). The proceeds of the exercise of the purchase option will be applied as set forth in the Indenture. No Related Subordinate Bonds will be redeemed upon the exercise of a Charter School s purchase option until all of the Related Senior Series 2014A Bonds subject to redemption on the same date or any earlier date have first been redeemed (except from moneys in the Subordinate Reserve Fund, the Liquidity Fund or the Subordinate Holdback Fund). Mandatory Redemption Upon the Occurrence of Certain Events. Unless waived by the Senior Bondholder Representative, the Senior Series 2014A Bonds allocable to a particular Series 2014A Project are subject to mandatory redemption in whole or in part from the Net Proceeds of any insurance policy or condemnation award with respect to such Series 2014A Project, at a redemption price equal to the price that would be due if the Borrower had optionally redeemed such Senior Series 2014A Bonds, upon the occurrence of any of the following events, as evidenced by the written notice provided pursuant to the Loan Agreement (at the earliest practicable date selected by the Trustee): (a) The Series 2014A Project shall have been damaged or destroyed in whole or in part to such extent that, (i) the Series 2014A Project cannot reasonably be restored within a period of six consecutive months to the condition thereof immediately preceding such damage or destruction, or (ii) the Borrower or its lessee are thereby prevented from carrying on its normal operations for a period of six consecutive months, or (iii) the cost of restoration thereof would exceed the Net Proceeds of insurance carried thereon; or (b) Title to, or the temporary use of, all or any substantial part of the Series 2014A Project shall have been taken under the exercise of the power of eminent domain by any governmental authority, or person, firm or corporation acting under governmental authority or because of a defect in title. No Related Subordinate Bonds will be redeemed upon the occurrence of the events set forth in this section until all of the Related Senior Series 2014A Bonds subject to redemption on the same date or any earlier date have first been redeemed (except from moneys in the Subordinate Reserve Fund, the Liquidity Fund or the Subordinate Holdback Fund). Purchase in Lieu of Redemption. At any time the Senior Series 2014A Bonds are subject to redemption, the Borrower may direct the Trustee to purchase such Senior Series 2014A Bonds which would otherwise be subject to redemption from money available for such redemption under the Indenture or other money provided to the Trustee by the Borrower and deposited by the Trustee in a separate account under the Indenture to be established by the Trustee at such time and such Senior Series 2014A Bonds shall be cancelled upon purchase. The purchase price of such Senior Series 2014A Bonds shall be determined by the Borrower and the Senior Bondholder Representative. Written notice of such election must be given to the Trustee not less than five (5) Business Days prior to the date the Trustee must send notice of redemption. Unless otherwise directed by the Senior Bondholder Representative, any purchase of a portion of Senior Series 2014A Bonds pursuant to this Section shall be considered to have satisfied, in whole or in part, the sinking fund payment requirements in inverse order of such requirements as set forth in the Indenture on a Project by Project basis (i.e., to the extent that the subject Senior Series 2014A Bonds are allocable to a particular Series 2014A Project, they will only be applied to the sinking fund payment requirements in respect of such Senior Series 2014A Bonds unless otherwise directed by the Senior Bondholder Representative). Once purchased, such portions of the Senior Series 2014A Bonds shall be delivered to the Trustee and cancelled. 18

27 Borrower Covenants Rating Covenants. The Borrower shall, at its sole cost and expense, apply to any rating agency selected by the Senior Bondholder Representative for a credit rating for the Senior Series 2014A Bonds upon the written request of the Senior Bondholder Representative. Debt Service Coverage Ratio Covenant. The Borrower must achieve net income available for debt service of not less than 1.20x maximum annual debt service, calculated on a fiscal year basis and reported in the annual audited financials (the Debt Coverage Ratio ). The failure to satisfy such Debt Service Coverage Ratio test will not constitute an Event of Default under the Loan Agreement but will require the employment of a management consultant acceptable to the Senior Bondholder Representative unless waived by the Senior Bondholder Representative. The failure to achieve a Debt Service Coverage Ratio of at least 1.00x will constitute an Event of Default under the Loan Agreement unless waived by the Senior Bondholder Representative. Enrollment Projection Covenant. The Borrower will provide or cause the Charter Schools with respect to the Series 2014A Projects to provide to the Senior Bondholder Representative and the Trustee quarterly enrollment statistics with respect to such Charter Schools within 15 days of the end of each fiscal quarter, as well as projections for each such Charter School for the next two fiscal years on an annual basis on or before the one year anniversary date of the Issuance Date. In addition, the Borrower agrees to ensure that the Charter Schools will meet the enrollment projections attached as an exhibit to the Loan Agreement which matches the enrollment projections set forth in the Five Year Budget Projections for the Charter Schools attached hereto as Appendix D (the Projections ). In the event that the actual enrollment varies negatively from the Projections by 10% or more with respect to any Series 2014A Project for two consecutive years, the Borrower will require the applicable Charter School to engage a consultant selected by the Borrower and approved by the Senior Bondholder Representative to advise with respect to changes required to meet the Projections. Subject to the provisions of the Loan Agreement, failure to meet enrollment projections is an Event of Default unless cured within 90 days; provided that that Borrower or any Guarantor may cure the Event of Default by making any monthly lease payment shortfall on behalf of the applicable Charter School. In addition, subject to the provisions of the Loan Agreement, unless waived by the Senior Bondholder Representative, the failure of the Classics and Four Arts Project to achieve an average daily membership ( ADM ) of 407 on the 100 th day of the fiscal year (as reported to the Arizona Department of Education) and 572 on the 100 th day of the fiscal year, shall be an Event of Default (for avoidance of doubt the Charter School must fail to meet both conditions for the Event of Default to be triggered); provided if ADM is no longer being used by the state, rather than using ADM, the failure to achieve actual enrollment of 420 students on December 1, 2014 and 590 students on December 1, 2015 will be an Event of Default (for avoidance of doubt the Charter School must fail to meet both conditions for the Event of Default to be triggered). Failure to meet the Projections is an Event of Default under the Loan Agreement unless cured within 90 days; provided that the Borrower or the Guarantor may cure the Event of Default by making any monthly lease payment shortfall on behalf of the applicable Charter School. Asset Transfer. The Borrower shall not transfer any of its assets except for (a) the transfer of assets having a market value of not more than $10,000 in any one Fiscal Year without consideration therefor; (b) the transfer of assets for fair market value consideration as determined by a third party appraiser or other qualified professional, as determined by the Senior Bondholder Representative; or (c) transfer satisfying the revenue test described in the next sentence. The revenue test shall be deemed satisfied if the Borrower delivers to the Trustee (i) an auditor s certificate, reasonably satisfactory to the Senior Bondholder Representative, demonstrating that the Debt Service Coverage Ratio requirement set forth in the subsection entitled Debt Service Coverage Ratio Covenant above would be satisfied if such additional indebtedness, transfer, merger or other action (an Event ) had occurred on the first day of the most recent Fiscal Year based on audited financial statements; or (ii) a consultant s report, reasonably 19

28 satisfactory to the Senior Bondholder Representative, demonstrating projected Debt Service Coverage Ratio for two Fiscal Years following the Event is 1.30x. Management. The Borrower will not permit a Charter School with respect to a Series 2014A Project to terminate, amend or modify any management agreement (each a Management Agreement ) for such Series 2014A Project without the prior written consent of the Senior Bondholder Representative. Any fees payable by the Borrower or a Charter School under a Management Agreement will be subordinate to the payments owed by the Borrower under the Loan Agreement or the applicable Charter School under the Lease. Construction Monitoring. The Borrower will engage Hartman Construction LLP (the Construction Monitor ) in order to review all construction contracts and monitor construction of each of the Series 2014A Projects and to provide information with respect to such contracts and construction to the Borrower and the Senior Bondholder Representative. No disbursements from the portion of the Project Fund allocable to any Series 2014A Project will be made without the prior approval of the Construction Monitor. All fees and expenses of the Construction Monitor will be promptly paid by the Borrower. Execution of Account Control Agreements. The Borrower covenants that within 30 days of the Issuance Date it will cause the Charter School relating to the ACE Academy Series 2014A Project to enter into one or more account control agreements acceptable to the Senior Bondholder Representative and Trustee giving the Trustee control over such Charter School s bank accounts, or make other arrangements satisfactory to the Senior Bondholder Representative and the Trustee in lieu thereof. Sources and Uses of Funds. table. The approximate sources of funds and the expected uses of funds are shown in the following Sources of Funds Par Amount of Series 2014A-1 Bonds (less original issue $15,728, discount) Par Amount of Series 2014A-3 Bonds $1,000, Par Amount of Subordinate Bonds $4,975, EB-5 Subordinate Debt $3,500, (Less Underwriting Discount) $(167,950.00) Total $25,035, Uses of Funds Deposit to Project Fund and Other Project Costs $21,607, Deposit to Senior Reserve Fund $1,183, Deposit to Capitalized Interest Fund for Senior Series $323, A Bonds Deposit to Cost of Issuance Fund $1,223, Deposit to Subordinate Reserve Fund $497, Deposit to Capitalized Interest Fund for Subordinate Bonds $199, Total $25,035, Source: The Underwriter 20

29 Security for the Senior Series 2014A Bonds The description and summaries of the documents set forth below and in the Appendices attached hereto do not purport to be comprehensive or definitive and reference is made to each document for the complete details of all terms and conditions. The Leases. ACE Academy and CAFA have each entered into a Lease Agreement with ACD prior to the date hereof and American Leadership Academy has entered into a Lease Agreement with ALA Anthem Investments, LLC, a Utah limited liability company (each a Lease and collectively, the Leases ). Each of the Leases will be assigned to the Borrower on or prior to the issuance of the Senior Series 2014A Bonds. Pursuant to the Leases, each of the Charter Schools is required to make monthly rent payments to the Borrower. In addition, each of the Leases requires the Charter School to pay all taxes, utility fees and charges and insurance premiums associated with its respective Project. Payment received by the Borrower from the Charter Schools under the Leases will be the Borrower s sole expected source of Pledged Revenues. The Borrower has projected that payments received from the Charter Schols under the Leases will be sufficient to pay debt service on the Senior Series 2014A Bonds except upon maturity of the Senior Series 2014A Bonds at which time the Borrower expects to refinance the Series 2014A Projects. See APPENDIX J SUMMARY OF CERTAIN PROVISIONS OF THE LEASES and APPENDIX D FIVE YEAR BUDGET PROJECTIONS FOR THE CHARTER SCHOOLS. The Loan Agreement. Under the Loan Agreement, the Authority agrees to issue the Senior Series 2014A Bonds and to lend the proceeds thereof to the Borrower to finance or refinance the acquisition, construction and equipping of the Series 2014A Projects and the Borrower is obligated unconditionally to repay the loan in amounts sufficient to provide for the timely payment of the principal of, premium, if any, and interest on the Senior Series 2014A Bonds when due and to perform certain other obligations set forth therein. Among other things, the Borrower will covenant not to grant any liens on all or any portion of the Series 2014A Projects or the Pledged Revenues except to the extent permitted under the Loan Agreement and Permitted Encumbrances. To secure the payment of the Bond Service Charges with respect to the Senior Series 2014A Bonds, the Authority will assign to the Trustee the Trust Estate, including the Authority s rights under and interest in the Loan Agreement (except the Unassigned Authority s Rights) and the Funds (except for the Rebate Fund and except as otherwise set forth in the Indenture) and certain of its rights and interests in the Loan Agreement, Series 2014A Notes and Deed of Trust including certain of its rights to receive certain payments thereunder to the Trustee for the benefit of the registered owners of the Senior Series 2014A Bonds under the Indenture. To secure the Borrower s performance of its obligations under the Loan Agreement, the Borrower shall, in connection with the issuance of the Senior Series 2014A Bonds, execute and deliver to the Trustee, concurrently with the issuance of the Senior Series 2014A Bonds, the Series 2014A Notes in a form substantially similar to the form of Series 2014A Notes attached to the Loan Agreement and meeting the requirements set forth in the Loan Agreement. The Borrower will also grant to the Trustee a deed of trust on each of the Series 2014 Projects, subject to Permitted Encumbrances to secure the Borrower s obligations under the Loan Agreement. See RISK FACTORS for a discussion of certain limitations on the enforceability of the security for the Senior Series 2014A Bonds. See APPENDIX E DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS. Liens on Pledged Revenues or Series 2014A Projects. Under the Loan Agreement, the Borrower covenants that it will not grant any Liens on all or any portion of the Series 2014A Projects or the Pledged Revenues except to the extent permitted under the Loan Agreement and Permitted Encumbrances. Pledged Revenues are defined in the Indenture as the revenues the Borrower derives from the Series 2014A Projects. 21

30 The Indenture. The Senior Series 2014A Bonds and any other Senior Bonds issued pursuant to the Indenture will in all respects be equally and ratably secured thereby, without preference, priority or distinction on account of the date or dates or the actual time or times of the issue or maturity of such Senior Bonds, so that the Senior Series 2014A Bonds and all other Senior Bonds at any time issued and Outstanding under the Indenture will have the same right, lien and preference under and by virtue of the Indenture, and shall all be equally and ratably secured thereby, except as otherwise expressly provided in the Indenture. The Senior Series 2014A Bonds will constitute special, limited obligations of the Authority payable solely from the receipts and revenues specifically pledged therefor under the Indenture. No payment shall be made on any Subordinate Bonds, including the Series 2014A-2 Bonds (except from the Subordinate Reserve Fund, the Liquidity Fund or the Subordinate Holdback Account) while there are any due but unpaid amounts owed on the Senior Series 2014A Bonds and any other Senior Bonds. The Indenture provides that the Senior Series 2014A Bonds shall be limited obligations of the Authority payable solely from funds pledged for their payment in accordance with the Indenture and, except from such source, none of the Authority, any Member, the State of Wisconsin or any political subdivision thereof or any political subdivision approving the issuance of the Senior Series 2014A Bonds will be obligated to pay the principal of, premium, if any, or interest thereon or costs incidental thereto. The Senior Series 2014A Bonds do not directly, indirectly or contingently, obligate, in any manner, any Member, the State of Wisconsin or any political subdivision thereof or any political subdivision approving the issuance of the Senior Series 2014A Bonds to levy any tax or to make any appropriation for payment of the Senior Series 2014A Bonds. Neither the faith and credit nor the taxing power of any Member, the State of Wisconsin or any political subdivision thereof or any political subdivision approving the issuance of the Senior Series 2014A Bonds, nor the faith and credit of the Authority, shall be pledged to the payment of the principal of, premium, if any, or interest on, the Senior Series 2014A Bonds or any costs incidental thereto. The Authority has no taxing power. See APPENDIX E DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS. The Deed of Trust. The Borrower will deliver to the Title Company, to be held in trust for the benefit of the Trustee, the Deeds of Trust. Under each Deed of Trust, the Borrower will assign to the Trustee its right to receive rents from the Series 2014A Projects and the Borrower will grant a security interest in all leases and rents with respect to the Series 2014A Projects. The Deeds of Trust may be subject to certain Permitted Encumbrances as described in the Deed of Trust. Upon the redemption in full of all Bonds relating to a Series 2014A Project, the related Deed of Trust shall be released. See APPENDIX E DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS. Acceleration. Upon the occurrence of any Event of Default pursuant to the Indenture, payment of the principal of and accrued interest on the Senior Series 2014A Bonds then Outstanding may be accelerated, subject to certain provisions of the Indenture. See RISK FACTORS herein and APPENDIX E DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS The Indenture - Acceleration. Senior Reserve Fund. The Indenture provides for the creation of the Senior Reserve Fund in the custody of the Trustee which Senior Reserve Fund is to be used (except as otherwise provided in the Indenture), with the consent of the Senior Bondholder Representative, solely and exclusively for the payment of Bond Service Charges on the Senior Series 2014A Bonds and any other Senior Bonds in the event that moneys in the Bond Fund are insufficient on any Interest Payment Date to pay the principal of, premium, if any, and interest to be paid on the Senior Series 2014A Bonds or any other Senior Bonds on that Interest Payment Date. A draw on the Senior Reserve Fund which is not waived by the Senior Bondholder Representative is an Event of Default under the Indenture. 22

31 Limited Obligations. The Senior Series 2014A Bonds are limited obligations of the Authority payable solely from and secured by (a) a pledge of certain rights of the Authority under and pursuant to the Loan Agreement, including the Series 2014A Notes; and (b) a pledge of the Trust Estate, including the Funds, other than the Rebate Fund, except as otherwise set forth in the Indenture. In addition, the Loan Payments required by the Borrower under the Loan Agreement are a general obligation of the Borrower payable from all available resources of the Borrower. Book-Entry-Only System The information in this section concerning The Depository Trust Company ( DTC ) and DTC s book-entry-only system has been obtained from DTC, and the Authority and the Underwriter take no responsibility for the accuracy thereof. DTC will act as securities depository for the Senior Series 2014A Bonds. The Senior Series 2014A Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered certificate will be issued for each maturity of each series of the Senior Series 2014A Bonds, as set forth on the inside cover page hereof, each in the aggregate principal amount of each maturity of each series of the Series 2014A Bonds and deposited with 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 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company of DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of the Senior Series 2014A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Senior Series 2014A Bonds on DTC s records. The ownership interest of each actual purchaser of each Senior Series 2014A Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Senior Series 2014A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Senior Series 2014A Bonds, except in the event that use of the book-entry system for the Senior Series 2014A Bonds is discontinued. 23

32 To facilitate subsequent transfers, all Senior Series 2014A 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 Senior Series 2014A 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 Senior Series 2014A Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Senior Series 2014A 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 the Senior Series 2014A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Senior Series 2014A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Senior Series 2014A Bond documents. For example, Beneficial Owners of the Senior Series 2014A Bonds may wish to ascertain that the nominee holding the Senior Series 2014A 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 Senior Series 2014A Bonds within an issue 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 Senior Series 2014A Bonds unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority 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 Senior Series 2014A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds and distributions on the Senior Series 2014A 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 Authority or Paying Agent, on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners are 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, Paying Agent, or Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and distributions to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Paying Agent, and 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. DTC may discontinue providing its services as depository with respect to the Senior Series 2014A Bonds at any time by giving reasonable notice to the Authority or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Senior Series 2014A Bond certificates are required to be printed and delivered. 24

33 The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Senior Series 2014A Bond certificates will be printed and delivered to DTC. (Remainder of page intentionally left blank.) 25

34 Debt Service Requirements Bonds. Set forth in the following table are the annual debt service requirements for Senior Series 2014A TABLE I Debt Service Requirements Period Ending May 1, of the Year Principal Interest Annual Debt Service 2015 $5,000 $1,037, $1,042, $25,000 $1,097, $1,122, $30,000 $1,095, $1,125, $90,000 $1,093, $1,183, * $16,645,000 $1,085, $17,730, *Maturity Date $16,795,000 $5,409, $22,204, Subordinate Bonds SUBORDINATE LOANS The Authority is expected to issue, simultaneously with the issuance of the Senior Series 2014A Bonds, its Subordinate Bonds in the aggregate principal amount of $4,975,000 pursuant to the terms of the Indenture. Proceeds of the Subordinate Bonds will be loaned to the Borrower to finance a portion of the costs of the acquisition, construction, reconstruction, renovation, and/or equipping, as applicable, of the CAFA Project and the ACE Project. The Subordinate Bonds are subordinate in payment and security to the Senior Series 2014A Bonds. The Subordinate Bonds are not being offered by this Limited Offering Memorandum. EB-5 Subordinate Loans In connection with the financing of the Series 2014A Projects, American Leadership Academy has received subordinate financing under the EB-5 Immigrant Investor Program to finance a portion of the costs of the acquisition, construction, reconstruction, renovation, and/or equipping, as applicable, of the ALA Campus. On August 11, 2012 EFA-ALA Anthem Charter Holdings, LP, an Arizona limited partnership (the new commercial enterprise or NCE ) operating under the sponsorship of Green Card Fund, LLC, a designated regional center, loaned $3,500,000 of EB-5 investor funding it raised (the ALA EB-5 Funds ) to ALA Anthem Investments, LLC, a Utah limited liability company ( ALA Anthem ). The ALA EB-5 Funds are comprised of investments made by seven different EB-5 investors each in the amount of approximately $500,000. ALA Anthem, in turn, assigned its obligations under the loan documents evidencing the loan of the ALA EB-5 Funds to Vertex pursuant to a Loan Assignment and Assumption Agreement dated as of March 10, The ALA EB-5 Funds have been expended on ALA Project costs prior to the closing date of the Senior Series 2014A Bonds. The loan of the ALA EB-5 Funds is an unsecured loan and payment on such loan will be subordinate to the payment on the Senior Series 2014A Bonds. Interest only payments are expected to be made on the ALA EB-5 Funds loan, but no principal payments will be made until after the Senior Series 2014A Bonds are paid in full. 26

35 For additional information about the EB-5 Program please see APPENDIX-J ADDITIONAL INFORMATION ABOUT THE EB-5 PROGRAM. Formation and Governance THE AUTHORITY In early 2010, both houses of the Wisconsin Legislature passed 2009 Wisconsin Act 205 which was signed into law by the Governor on April 21, Act 205 added Section to the Wisconsin Statutes providing the authority for two or more political subdivisions to create a commission to issue bonds under that Section. Before an agreement for the creation of such a commission could take effect, the Act required that such agreement be submitted to the Wisconsin Attorney General to determine whether the agreement is in proper form and compatible with the laws of the State of Wisconsin. The Authority was formed upon execution of a Joint Powers Agreement Relating to the Authority dated as of June 30, 2010, as amended by an Amended and Restated Joint Exercise of Powers Agreement Relating to the Public Finance Authority, dated September 28, 2010 (as so amended and restated, and as may be further amended and restated from time to time, the Joint Powers Agreement ), among Adams County, Wisconsin, Bayfield County, Wisconsin, Marathon County, Wisconsin, Waupaca County, Wisconsin and the City of Lancaster, Wisconsin (each an Authority Member and, collectively, the Authority Members ). The Joint Powers Agreement was approved by the Attorney General on September 30, The Act provides that only one commission may be formed thereunder. Pursuant to the Act, the Authority is a unit of government and a body corporate and politic separate and distinct from, and independent of, the State of Wisconsin and the Authority Members. The Authority was established by local governments, primarily for local governments, for the public purpose of providing local governments a means to efficiently and reliably finance projects that benefit local governments, nonprofit organizations, and other eligible private borrowers in the State of Wisconsin and throughout the country. Powers Under the Act, the Authority has all of the powers necessary or convenient to any of the purposes of the Act, including the power to issue bonds, notes or other obligations or refunding obligations to finance or refinance a project, make loans to, lease property from or to enter into agreements with a participant or other entity in connection with financing a project. The proceeds of bonds issued by the Authority may be used for a project in Wisconsin or any other state or territory of the United States and, outside the United States if a participating borrower is incorporated and maintains its principal place of business in, the United States or its territories. The Act defines project as any capital improvement, purchase of receivables, property, assets, commodities, bonds or other revenue streams or related assets, working capital program, or liability or other insurance program, located within or outside Wisconsin. Local Approval Received Under Section (11)(a) of the Act and Section 4 of the Joint Powers Agreement, financing for all capital improvement projects, outside the State, requires approval from the governing body or highest-ranking executive or administrator of at least one political subdivision within whose boundaries the capital improvement project is located. In satisfaction of this requirement, the Board of Supervisors of Pinal County, Arizona, the Board of Supervisors of Maricopa County, Arizona, and the Board of County Commissioners for the County of Cabarrus, North Carolina have approved the issuance of the Senior Series 2014A Bonds for the purpose of financing the applicable Series 2014A Projects. 27

36 TEFRA Approvals Received The governing body of the Authority and the governing body of the jurisdiction (the Projects Jurisdictions ) in which the Qualified Property to be financed with such Bond proceeds is located must hold a hearing pursuant to Section 147(f) of the Internal Revenue Code of 1986, as amended (the Code ). The Projects Jurisdictions have each held a public hearing following appropriate notice, as follows: the Board of Supervisors of Pinal County, Arizona held a public hearing on February 19, 2014, the Board of Supervisors of Maricopa County, Arizona held a public hearing on February 19, 2014, and the Board of County Commissioners For the County of Cabarrus, North Carolina held a public hearing on February 17, In addition, the issuance of the Senior Series 2014A Bonds was approved on behalf of the Authority by an appropriate elected official of Marathon County, a Member of the Authority duly authorized to give such approval on behalf of the Authority after appropriate notice and a public hearing as required by Section 147(f) of the Code was held on February 17, State Pledge Section (12) of the Act provides that the State pledges to and agrees with the Bondholders, and persons that enter into contracts with a commission under Section , that the State will not limit, impair, or alter the rights and powers vested in a commission by Section before the commission has met and discharged the Senior Series 2014A Bonds and any interest due on the Senior Series 2014A Bonds and has fully performed its contracts, unless adequate provision is made by law for the protection of the Bondholders or those entering into contracts with the Authority. Board of Directors The Board of Directors of the Authority (the Board ) consists of seven directors (each a Director and collectively, the Directors ), a majority of which are required to be public officials or current or former employees of a political subdivision located in the State of Wisconsin. The Directors serve staggered three-year terms. The Directors are selected by majority vote of the Board based upon nomination from the organization that nominated the predecessor Director. Four Directors are nominated by the Wisconsin Counties Association, and one Director is nominated from each of the National League of Cities, the National Association of Counties and the League of Wisconsin Municipalities. Directors and alternate Directors may be removed and replaced at any time by the Board upon recommendation of the applicable organization that nominated such Director. As of the date of this Limited Offering Memorandum there is one vacant Board seat (representing the nominee of the National League of Cities). The current incumbent Directors are: Name Title Term Expires Position William Kacvinsky Chair 06/01/15 Bayfield County, Wisconsin, Board Chair Jerome Wehrle Vice Chair 06/01/15 Mayor, City of Lancaster, Wisconsin Heidi Dombrowski Treasurer 06/01/14 Waupaca County, Wisconsin, Finance Director John West Secretary 06/01/14 Adams County, Wisconsin, Supervisor Del Twidt Member 06/01/14 Buffalo County, Wisconsin Board Chair Michael Gillespie Member 06/01/17 Former Chair, Madison County, Alabama Board of Commissioners Special Limited Obligations THE SENIOR SERIES 2014A BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM FUNDS PLEDGED FOR THEIR PAYMENT IN 28

37 ACCORDANCE WITH THE INDENTURE AND, EXCEPT FROM SUCH SOURCE, NONE OF THE AUTHORITY, ANY AUTHORITY MEMBER, THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE SENIOR SERIES 2014A BONDS SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST THEREON OR ANY COSTS INCIDENTAL THERETO. THE SENIOR SERIES 2014A BONDS DO NOT, DIRECTLY, INDIRECTLY OR CONTINGENTLY, OBLIGATE, IN ANY MANNER, ANY AUTHORITY MEMBER, THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE SENIOR SERIES 2014A BONDS TO LEVY ANY TAX OR TO MAKE ANY APPROPRIATION FOR PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE SENIOR SERIES 2014A BONDS OR ANY COSTS INCIDENTAL THERETO. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF ANY AUTHORITY MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE SENIOR SERIES 2014A BONDS, NOR THE FAITH AND CREDIT OF THE AUTHORITY, SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON, THE SENIOR SERIES 2014A BONDS OR ANY COSTS INCIDENTAL THERETO. THE AUTHORITY HAS NO TAXING POWER. Other Obligations The Authority has in the past and expects from time to time in the future to sell and deliver obligations other than the Senior Series 2014A Bonds, which other obligations are and will be secured by instruments separate and apart from the Indenture and the Senior Series 2014A Bonds. The holders of such obligations of the Authority will have no claim on the security for the Senior Series 2014A Bonds, and the owners of the Senior Series 2014A Bonds will have no claim on the security for such other obligations issued by the Authority. Limited Involvement The Authority has not reviewed any appraisal for any portion of any Series 2014A Project or any feasibility study or other financial analysis of any Series 2014A Project and has not undertaken to review or approve expenditures for any Series 2014A Project, to supervise the construction of any Series 2014A Project, or to obtain any financial statements of the Borrower. The Authority has not reviewed this Limited Offering Memorandum and is not responsible for any information contained herein except for the information under this caption, under information relating to the Authority in the Introduction and under the caption LEGAL MATTERS Pending and Threatened Litigation No Proceedings Against the Authority. Authority Contact The Authority may be contacted at: Mr. Jon Penkower, Public Finance Authority, c/o the Wisconsin Counties Association, 22 E. Mifflin Street, Suite 900, Madison, Wisconsin, 53703; Phone: (888) , Ext. 864; Disclosure Regarding Litigation Affecting the Senior Series 2014A Bonds To the knowledge of the Authority, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public board or body, pending against the Authority seeking to restrain or enjoin the sale or issuance of the Senior Series 2014A Bonds, or in any way contesting or affecting any proceedings of the Authority taken concerning the sale thereof, the pledge or application of any moneys or security provided for the payment of the Senior Series 2014A Bonds, the validity or enforceability of the documents executed by the Authority in connection with the Senior Series 29

38 2014A Bonds, the completeness or accuracy of this Limited Offering Memorandum or the existence or powers of the Authority relating to the sale of the Senior Series 2014A Bonds. General THE BORROWER Vertex I, LLC, a Utah limited liability company was originally formed in 2014, under the laws of the State of Utah. The sole member of the Borrower is Vertex, a Utah nonprofit corporation originally incorporated in June, 2011 under the name of Harmony Non-Profit Organization, Inc. Vertex received a determination letter from the Internal Revenue Service dated September 28, 2011 indicating that it is an organization described in Section 501(c)(3) of the Code The Borrower is requesting that the Authority issue the Senior Series 2014A Bonds and loan the proceeds thereof to the Borrower (the Loan ) to assist in financing a portion of the costs of the acquisition, construction, reconstruction, renovation and/or equipping, as applicable, of three separate charter school facilities to be owned by the Borrower and leased to three separate charter school entities. As security for the Loan, the Borrower will grant a first-priority lien on all of the Borrower s Pledged Revenues and a first-priority mortgage lien on the Series 2014A Projects. The Series 2014A Projects For additional information on the Borrower, the Charter Schools and the Series 2014A Projects see APPENDIX B THE BORROWER, THE CHARTER SCHOOLS AND THE SERIES 2014A PROJECTS. THE GUARANTOR General Vertex will fully and unconditionally guarantee to the Trustee, the Borrower s payment obligations under the Loan Agreement and the performance by the Borrower of its obligations under the Borrower Documents pursuant to a Guaranty dated as of the closing date of the Senior Series 2014A Bonds. In addition, Vertex will pledge and grant a security interest in its membership interest in the Borrower to the Trustee pursuant to the Pledge Agreement in order to secure the Borrower s obligations under the Loan Agreement. Vertex was originally incorporated in 2011 under the laws of the State of Utah as a nonprofit corporation under the name of Harmony Non-Profit Organization, Inc. In 2013, its name was changed to Vertex Nonprofit Organization. On September 28, 2011, Vertex received a determination letter from the Internal Revenue Service stating that it is an organization described in Section 501(c)(3) of the Code. Vertex s board of directors must consist of between three and five directors. Currently, the board of directors of Vertex consists of four members, Jared Haddock, as Chairman, Mark T. Morley, Shane Wasden and Edwin Ballard. Vertex develops and leases, with an option to purchase, charter school facilities to public charter schools. Vertex focuses the majority of its resources and investments on charter school organizations serving high growth areas or areas with low-income student populations and communities. 30

39 LEGAL MATTERS The issuance, sale and delivery of the Senior Series 2014A Bonds by the Authority is subject to the receipt by the Authority of an approving opinion of Kutak Rock LLP, Bond Counsel to the Authority, the proposed form of which is set forth in APPENDIX F FORM OF BOND COUNSEL OPINION. Certain legal matters will be passed upon for the Authority by its counsel, von Briesen & Roper, s.c., for the Borrower, CAFA and American Leadership Academy by their counsel, Kirton McConkie PC and for ACE Academy by its counsel, David R. Hostetler, Esq. The various legal opinions to be delivered concurrently with the delivery of the Senior Series 2014A Bonds will speak only as of their date of delivery and will be qualified in certain customary respects, including as to the enforceability of the various legal instruments by limitations imposed by state and federal law affecting remedies and by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, the application of equitable principles and the exercise of judicial discretion in appropriate cases. The legal opinions express the professional judgment of counsel rendering them, but are not binding on any court or other governmental agency and are not guarantees of a particular result. Pending and Threatened Litigation No Proceedings Against the Borrower or the Charter Schools. In connection with the issuance of the Senior Series 2014A Bonds, the Borrower and the Charter Schools will deliver a certificate which will state that, as of the date of issuance of the Senior Series 2014A Bonds, there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court, public board or body pending, or to the best of its knowledge, threatened against or affecting the Borrower or the Charter Schools, as applicable, wherein an unfavorable decision, ruling or finding would adversely affect the transactions contemplated by the Indenture, the Loan Agreement, the Leases or this Limited Offering Memorandum, the validity and enforceability of the Indenture, the Loan Agreement, the Leases or the Senior Series 2014A Bonds or the operations (financial or otherwise) of each Charter School. No Proceedings Against the Authority. There is not now pending or, to the knowledge of the Authority, threatened, any litigation restraining or enjoining the issuance or delivery of the Senior Series 2014A Bonds or questioning or affecting the validity of the Senior Series 2014A Bonds or the proceedings or authority under which they are to be issued. There is no litigation pending or, to the Authority s knowledge, threatened which in any manner questions the right of the Authority to enter into the Loan Agreement with the Borrower or to issue and secure the Senior Series 2014A Bonds in the manner provided in the Indenture. Series 2014A-1 Bonds Tax-Exempt Bonds TAX MATTERS In General. In the opinion of Kutak Rock LLP, Bond Counsel, to be delivered at the time of original issuance of the Series 2014A-1 Bonds, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2014A-1 Bonds is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. The opinions described in the preceding sentence assume the accuracy of certain representations and continuing compliance by the Borrower and others with covenants designed to satisfy the requirements of the Code that must be met subsequent to the issuance of the Series 2014A-1 Bonds. Failure to comply with such requirements could cause interest on the Series 2014A-1 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2014A-1 Bonds. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2014A-1 Bonds. 31

40 Notwithstanding Bond Counsel s opinion that interest on the Series 2014A-1 Bonds is not a specific preference item for purposes of the federal alternative minimum tax, such interest will be included in adjusted current earnings of certain corporations, and such corporations are required to include in the calculation of alternative minimum taxable income 75% of the excess of such corporation s adjusted current earnings over their alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). The accrual or receipt of interest on the Series 2014A-1 Bonds may otherwise affect the federal income tax liability of the owners of the Series 2014A-1 Bonds. The extent of these other tax consequences will depend upon such owner s particular tax status and other items of income or deduction. Bond Counsel has expressed no opinion regarding any such consequences. Purchasers of the Series 2014A-1 Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of social security or railroad retirement benefits, taxpayers otherwise entitled to claim the earned income credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, should consult their tax advisors as to the tax consequences of purchasing or owning the Series 2014A-1 Bonds. Tax Treatment of Original Issue Discount. The Series 2014A-1 Bonds that have an original yield above their respective interest rates, as shown on the inside front cover of this Limited Offering Memorandum (collectively, the Discount Bonds ) are being sold at an original issue discount. The difference between the initial public offering prices of such Discount Bonds and their stated amounts to be paid at maturity constitutes original issue discount treated in the same manner for federal income tax purposes as interest, as described above. The amount of original issue discount which is treated as having accrued with respect to such Discount Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption or payment at maturity). Amounts received upon disposition of such Discount Bond which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days which are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such Discount Bond for a particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such Discount Bond (determined by compounding at the close of each accrual period); and (ii) the amount which would have been the tax basis of such Discount Bond at the beginning of the particular accrual period if held by the original purchaser; (b) less the amount of any interest payable for such Discount Bond during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts which have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual compounding dates, original issue discount which would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. Owners of Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. Tax Treatment of Original Issue Premium. The Series 2014A-1 Bonds that have an original yield below their respective interest rates, as shown on the inside front cover of this Limited Offering Memorandum (collectively, the Premium Bonds ) are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond s term using constant yield principles, based on the purchaser s yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to 32

41 the call date, based on the purchaser s yield to the call date and giving effect to any call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser s basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser s basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult with their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. Backup Withholding. As a result of the enactment of the Tax Increase Prevention and Reconciliation Act of 2005, interest on tax-exempt obligations, such as the Series 2014A-1 Bonds, is subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments made to any bondholder who fails to provide certain required information including an accurate taxpayer identification number to any person required to collect such information pursuant to Section 6049 of the Code. The reporting requirement does not in and of itself affect or alter the excludability of interest on the Series 2014A-1 Bonds from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations. Series 2014A-3 Bonds Taxable Bonds General Matters. Bond Counsel is of the opinion that interest on the Series 2014A-3 Bonds is included in gross income for federal income tax purposes. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2014A-3 Bonds. The following is a summary of certain anticipated federal income tax consequences of the purchase, ownership and disposition of the Series 2014A-3 Bonds under the Code and the Regulations, and the judicial and administrative rulings and court decisions now in effect, all of which are subject to change or possible differing interpretations. The summary does not purport to address all aspects of federal income taxation that may affect particular investors in light of their individual circumstances, nor certain types of investors subject to special treatment under the federal income tax laws. Potential purchasers of the Series 2014A-3 Bonds should consult their own tax advisors in determining the federal, state or local tax consequences to them of the purchase, holding and disposition of the Series 2014A-3 Bonds. In general, interest paid on the Series 2014A-3 Bonds, original issue discount, if any, and market discount, if any, will be treated as ordinary income to the owners of the Series 2014A-3 Bonds, and principal payments (excluding the portion of such payments, if any, characterized as original issue discount or accrued market discount) will be treated as a return of capital. Original Issue Discount. If the Series 2014A-3 Bonds are deemed to be issued with original issue discount, Section 1272 of the Code requires the current ratable inclusion in income of original issue discount greater than a specified de minimis amount using a constant yield method of accounting. In general, original issue discount is calculated, with regard to any accrual period, by applying the instrument s yield to its adjusted issue price at the beginning of the accrual period, reduced by any qualified stated interest allocable to the period. The aggregate original issue discount allocable to an accrual period is allocated to each day included in such period. The holder of a debt instrument must include in income the sum of the daily portions of original issue discount attributable to the number of days he owned the instrument. The legislative history of the original issue discount provisions indicates that the calculation and accrual of original issue discount should be based on the prepayment assumptions used by the parties in pricing the transaction. 33

42 Owners of Series 2014A-3 Bonds purchased at a discount should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning such Series 2014A-3 Bonds. Bond Premium. An investor that acquires a Series 2014A-3 Bond for a cost greater than its remaining stated redemption price at maturity and holds such bond as a capital asset will be considered to have purchased such bond at a premium and, subject to prior election permitted by Section 171(c) of the Code, may generally amortize such premium under the constant yield method. Except as may be provided by regulation, amortized premium will be allocated among, and treated as an offset to, interest payments. The basis reduction requirements of Section 1016(a)(5) of the Code apply to amortizable bond premium that reduces interest payments under Section 171 of the Code. Bond premium is generally amortized over the bond s term using constant yield principles, based on the purchaser s yield to maturity. Investors of any Series 2014A-3 Bond purchased with a bond premium should consult their own tax advisors as to the effect of such bond premium with respect to their own tax situation and as to the treatment of bond premium for state tax purposes. Market Discount. An investor that acquires a Series 2014A-3 Bond for a price less than the adjusted issue price of such bond (or an investor who purchases a Series 2014A-3 Bond in the initial offering at a price less than the issue price) may be subject to the market discount rules of Sections 1276 through 1278 of the Code. Under these sections and the principles applied by the Regulations, market discount means (a) in the case of a Series 2014A-3 Bond originally issued at a discount, the amount by which the issue price of such bond, increased by all accrued original issue discount (as if held since the issue date), exceeds the initial tax basis of the owner therein, less any prior payments that did not constitute payments of qualified stated interest; and (b) in the case of a Series 2014A-3 Bond not originally issued at a discount, the amount by which the stated redemption price of such bond at maturity exceeds the initial tax basis of the owner therein. Under Section 1276 of the Code, the owner of such a Series 2014A-3 Bond will generally be required (i) to allocate each principal payment to accrued market discount not previously included in income and, upon sale or other disposition of the bond, to recognize the gain on such sale or disposition as ordinary income to the extent of such cumulative amount of accrued market discount as of the date of sale or other disposition of such a bond; or (ii) to elect to include such market discount in income currently as it accrues on all market discount instruments acquired by such owner on or after the first day of the taxable year to which such election applies. The Code authorizes the Treasury Department to issue regulations providing for the method for accruing market discount on debt instruments the principal of which is payable in more than one installment. Until such time as regulations are issued by the Treasury Department, certain rules described in the legislative history will apply. Under those rules, market discount will be included in income either (a) on a constant interest basis; or (b) in proportion to the accrual of stated interest or, in the case of a Series 2014A-3 Bond with original issue discount, in proportion to the accrual of original issue discount. An owner of a Series 2014A-3 Bond that acquired such bond at a market discount also may be required to defer, until the maturity date of such bond or its earlier disposition in a taxable transaction, the deduction of a portion of the amount of interest that the owner paid or accrued during the taxable year on indebtedness incurred or maintained to purchase or carry such bond in excess of the aggregate amount of interest (including original issue discount) includable in such owner s gross income for the taxable year with respect to such bond. The amount of such net interest expense deferred in a taxable year may not exceed the amount of market discount accrued on the Series 2014A-3 Bond for the days during the taxable year on which the owner held such bond and, in general, would be deductible when such market discount is includable in income. The amount of any remaining deferred deduction is to be taken into account in the taxable year in which the Series 2014A-3 Bond matures or is disposed of in a taxable transaction. In the case of a disposition in which gain or loss is not recognized in whole or in part, any remaining deferred deduction will be allowed to the extent gain is recognized on the disposition. This 34

43 deferral rule does not apply if the owner elects to include such market discount in income currently as it accrues on all market discount obligations acquired by such owner in that taxable year or thereafter. Attention is called to the fact that Treasury regulations implementing the market discount rules have not yet been issued. Therefore, investors should consult their own tax advisors regarding the application of these rules as well as the advisability of making any of the elections with respect thereto. Unearned Income Medicare Contribution Tax. Pursuant to Section 1411 of the Code, as enacted by the Health Care and Education Reconciliation Act of 2010, an additional tax is imposed on individuals beginning January 1, The additional tax is 3.8% of the lesser of (i) net investment income (defined as gross income from interest, dividends, net gain from disposition of property not used in a trade or business, and certain other listed items of gross income), or (ii) the excess of modified adjusted gross income of the individual over $200,000 for unmarried individuals ($250,000 for married couples filing a joint return and a surviving spouse). Holders of the Series 2014A-3 Bonds should consult with their tax advisor concerning this additional tax as it may apply to interest earned on the Series 2014A-3 Bonds as well as gain on the sale of a Series 2014A-3 Bond. Sales or Other Dispositions. If an owner of a Series 2014A-3 Bond sells the bond, such person will recognize gain or loss equal to the difference between the amount realized on such sale and such owner s basis in such bond. Ordinarily, such gain or loss will be treated as a capital gain or loss. If the terms of a Series 2014A-3 Bond were materially modified, in certain circumstances, a new debt obligation would be deemed created and exchanged for the prior obligation in a taxable transaction. Among the modifications that may be treated as material are those that relate to redemption provisions and, in the case of a nonrecourse obligation, those which involve the substitution of collateral. Each potential owner of a Series 2014A-3 Bond should consult its own tax advisor concerning the circumstances in which such bond would be deemed reissued and the likely effects, if any, of such reissuance. Defeasance. The legal defeasance of the Series 2014A-3 Bonds may result in a deemed sale or exchange of such bonds under certain circumstances. Owners of such Series 2014A-3 Bonds should consult their tax advisors as to the federal income tax consequences of such a defeasance. Backup Withholding. An owner of a Series 2014A-3 Bond may be subject to backup withholding at the applicable rate determined by statute with respect to interest paid with respect to the Series 2014A-3 Bonds, if such owner, upon issuance of the Series 2014A-3 Bonds, fails to provide to any person required to collect such information pursuant to Section 6049 of the Code with such owner s taxpayer identification number, furnishes an incorrect taxpayer identification number, fails to report interest, dividends or other reportable payments (as defined in the Code) properly, or, under certain circumstances, fails to provide such persons with a certified statement, under penalty of perjury, that such owner is not subject to backup withholding. Foreign Investors. An owner of a Series 2014A-3 Bond that is not a United States person (as defined below) and is not subject to federal income tax as a result of any direct or indirect connection to the United States of America in addition to its ownership of a Series 2014A-3 Bond will generally not be subject to United States income or withholding tax in respect of a payment on a Series 2014A-3 Bond, provided that the owner complies to the extent necessary with certain identification requirements (including delivery of a statement, signed by the owner under penalties of perjury, certifying that such owner is not a United States person and providing the name and address of such owner). For this purpose the term United States person means a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States of America or any political subdivision thereof, or an estate or trust whose income from sources within the United States of America is includable in gross income for United States of America income tax purposes regardless of its connection with the conduct of a trade or business within the United States of America. 35

44 Except as explained in the preceding paragraph and subject to the provisions of any applicable tax treaty, a 30% United States withholding tax will apply to interest paid and original issue discount accruing on Series 2014A-3 Bonds owned by foreign investors. In those instances in which payments of interest on the Series 2014A-3 Bonds continue to be subject to withholding, special rules apply with respect to the withholding of tax on payments of interest on, or the sale or exchange of Series 2014A-3 Bonds having original issue discount and held by foreign investors. Potential investors that are foreign persons should consult their own tax advisors regarding the specific tax consequences to them of owning a Series 2014A-3 Bond. Tax-Exempt Investors. In general, an entity that is exempt from federal income tax under the provisions of Section 501 of the Code is subject to tax on its unrelated business taxable income. An unrelated trade or business is any trade or business that is not substantially related to the purpose that forms the basis for such entity s exemption. However, under the provisions of Section 512 of the Code, interest may be excluded from the calculation of unrelated business taxable income unless the obligation that gave rise to such interest is subject to acquisition indebtedness. Therefore, except to the extent any owner of a Series 2014A-3 Bond incurs acquisition indebtedness with respect to such bond, interest paid or accrued with respect to such owner may be excluded by such tax-exempt owner from the calculation of unrelated business taxable income. Each potential tax-exempt holder of a Series 2014A-3 Bond is urged to consult its own tax advisor regarding the application of these provisions. ERISA Considerations. The Employee Retirement Income Security Act of 1974, as amended ( ERISA ), imposes certain requirements on employee benefit plans (as defined in Section 3(3) of ERISA) subject to ERISA, including entities such as collective investment funds and separate accounts whose underlying assets include the assets of such plans (collectively, ERISA Plans ) and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA s general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that an ERISA Plan s investments be made in accordance with the documents governing the ERISA Plan. The prudence of any investment by an ERISA Plan in the Series 2014A-3 Bonds must be determined by the responsible fiduciary of the ERISA Plan by taking into account the ERISA Plan s particular circumstances and all of the facts and circumstances of the investment. Government and non-electing church plans are generally not subject to ERISA. However, such plans may be subject to similar or other restrictions under state or local law. In addition, ERISA and the Code generally prohibit certain transactions between an ERISA Plan or a qualified employee benefit plan under the Code and persons who, with respect to that plan, are fiduciaries or other parties in interest within the meaning of ERISA or disqualified persons within the meaning of the Code. In the absence of an applicable statutory, class or administrative exemption, transactions between an ERISA Plan and a party in interest with respect to an ERISA Plan, including the acquisition by one from the other of the Series 2014A-3 Bonds could be viewed as violating those prohibitions. In addition, Section 4975 of the Code prohibits transactions between certain tax-favored vehicles such as Individual Retirement Accounts and disqualified persons. Section 503 of the Code includes similar restrictions with respect to governmental and church plans. In this regard, the Borrower or any dealer of the Series 2014A-3 Bonds might be considered or might become a party in interest within the meaning of ERISA or a disqualified person within the meaning of the Code, with respect to an ERISA Plan or a plan or arrangement subject to Sections 4975 or 503 of the Code. Prohibited transactions within the meaning of ERISA and the Code may arise if the Series 2014A-3 Bonds are acquired by such plans or arrangements with respect to which the Borrower or any dealer is a party in interest or disqualified person. In all events, fiduciaries of ERISA Plans and plans or arrangements subject to the above sections of the Code, in consultation with their advisors, should carefully consider the impact of ERISA and the Code on an investment in the Series 2014A-3 Bonds. The sale of the Series 2014A-3 Bonds to a plan is in no respect a representation by the Borrower or the Underwriter that such an investment meets the 36

45 relevant legal requirements with respect to benefit plans generally or any particular plan. Any plan proposing to invest in the Series 2014A-3 Bonds should consult with its counsel to confirm that such investment is permitted under the plan documents and will not result in a non-exempt prohibited transaction and will satisfy the other requirements of ERISA, the Code and other applicable law. Changes in Federal and State Tax Law From time to time, there are legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to above or adversely affect the market value of the Senior Series 2014A Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value of the Senior Series 2014A Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Senior Series 2014A Bonds or the market value thereof would be impacted thereby. Purchasers of the Senior Series 2014A Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Senior Series 2014A Bonds and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives or litigation. A form of the proposed opinion of Bond Counsel to the Authority is attached as APPENDIX F FORM OF BOND COUNSEL OPINION. Underwriting MISCELLANEOUS The Senior Series 2014A Bonds are being sold by the Authority at an underwriting discount of $167, to the Underwriter pursuant to a bond purchase agreement entered into by and among the Underwriter, the Borrower, the Charter Schools and the Authority. Expenses associated with the issuance of the Senior Series 2014A Bonds are being paid by the Borrower from proceeds of the Senior Series 2014A Bonds. The right of the Underwriter to receive compensation in connection with the Senior Series 2014A Bonds is contingent upon the actual sale and delivery of the Senior Series 2014A Bonds. The Underwriter has initially offered the Senior Series 2014A Bonds to the public at the prices or yields set forth on the inside cover page of this Limited Offering Memorandum, plus accrued interest from the date of the Senior Series 2014A Bonds. Such prices or yields may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other investment banking firms in offering the Senior Series 2014A Bonds to the public. Registration of Senior Series 2014A Bonds Registration or qualification of the offer and sale of the Senior Series 2014A Bonds (as distinguished from registration of the ownership of the Senior Series 2014A Bonds) is not required under the federal Securities Act of 1933, as amended. THE UNDERWRITER ASSUMES NO RESPONSIBILITY FOR QUALIFICATION OR REGISTRATION OF THE SENIOR SERIES 2014A BONDS FOR SALE UNDER THE SECURITIES LAWS OF ANY JURISDICTION IN WHICH THE BONDS MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED. 37

46 Interest of Certain Persons Named in this Limited Offering Memorandum The fees to be paid to Bond Counsel, counsel to the Borrower, counsel to the Charter Schools, the Underwriter, counsel to the Underwriter and the Trustee are contingent upon the sale and delivery of the Senior Series 2014A Bonds. Additional Information Copies of constitutional provisions, statutes, resolutions, agreements, contracts, financial statements, reports, publications and other documents or compilations of data or information summarized or referred to herein are available as described in INTRODUCTION Additional Information. Limited Offering Memorandum Certification The preparation of this Limited Offering Memorandum and its distribution have been authorized by the Borrower and the Charter Schools. This Limited Offering Memorandum is not to be construed as an agreement or contract between the Borrower or the Charter Schools and any purchaser, owner or holder of any Senior Series 2014A Bond. [The Remainder of This Page Left Intentionally Blank] 38

47 VERTEX I, LLC, a Utah limited liability company By AMERICAN LEADERSHIP ACADEMY, INC., an Arizona nonprofit corporation By CAFA, INC., an Arizona nonprofit corporation By A.C.E. ACADEMY, a North Carolina nonprofit corporation By [Signature Page to Limited Offering Memorandum Vertex] S-1

48 (This page intentionally left blank.)

49 APPENDIX A CHARTER SCHOOLS IN ARIZONA AND NORTH CAROLINA

50 ARIZONA Charter School Finance APPENDIX A CHARTER SCHOOLS IN ARIZONA AND NORTH CAROLINA General According to the Fiscal Year Annual Report of the Arizona Superintendent of Public Instruction, dated January 8, 2014, the student Average Daily Membership ( ADM ) in Arizona charter schools has increased from 83,606 in the school year to 140,906 in the school year. During the school year, charter school students comprised slightly more than 13.4 percent of the State s public school enrollment. State Funding The following table shows historical levels of State allocation for charter schools. See BONDHOLDERS RISKS Changes in Law; Annual Appropriation; Inadequate State Payments. The information has been obtained from information provided by the Arizona State Department of Education. State Allocation Fiscal Year Base Level (1) Additional Assistance (2) K $2, $1, $1, , , , , , , , , , , , , , , , , (3) 1, (4) 1, (4) , (3) 1, (5) 1, (5) , (3) 1, (6) 1, (6) , , (7) 1, (7) (1) The base level amount is not a per pupil payment; charter schools receive this amount multiplied by an adjusted student count as described in State Payments Calculation below. In 2000, Arizona voters approved Proposition 301, which requires the State Legislature to increase the base level or other components of the revenue control limit by 2 percent beginning with fiscal year For fiscal year and each fiscal year thereafter, the State Legislature is required to increase the base level or other components of the revenue control limit by a minimum growth rate of either 2 percent or the change in the GDP price deflator, as defined in Arizona Revised Statutes Section , from the second preceding calendar year to the calendar year immediately preceding the budget year, whichever is less, except that the base level shall never be reduced below the base level established for fiscal year , which was $2, (2) Additional Assistance, which can be spent by the charter school for any purpose, is paid on a per pupil basis. The amount of Additional Assistance is statutorily prescribed as a set amount, which may only be changed through the legislative process. See Arizona Revised Statutes Section B.4. (3) Because the State Legislature did not increase the base level support for three fiscal years as required by Proposition 301, several school districts, the Arizona Education Association, the Arizona School Boards Association and others filed suit against the State seeking a declaratory judgment that Proposition 301 (now Arizona Revised Statutes Section ) requires the State Legislature to annually adjust the base level support for inflation. The case ultimately was heard by the Arizona Supreme Court, which held in September 2013 that Proposition 301 is protected by the Voter Protection Act provisions of the Arizona Constitution and that the State Legislature must make the annual inflation adjustment to the base level support. It is unclear at this time how, if at all, this decision will affect the State Legislature s ability to make other changes to K-12 education funding. (4) The State budget for included a lump sum reduction of $10 million in the Additional Assistance funding for charter schools. (5) The State budget for included a lump sum reduction of $ million in the Additional Assistance funding for charter schools. (6) The State budget for included a lump sum reduction of $ million in the Additional Assistance funding for charter schools. (7) The State budget for includes a lump sum reduction of $ million in the Additional Assistance funding for charter schools. A-1

51 Charter schools and traditional public schools operated by school districts ( District Schools ) are paid based on the number of students educated. The Arizona Department of Education ( ADE ) adjusts the payments based upon the number and type of students attending each school. Charter schools receive payments based upon current-year student count, and, in general, District Schools receive payments based on a prior year student count. Both types of schools have the same fiscal year, July 1 to June 30. The formulas used to calculate actual per-pupil funding are very similar for both charter schools and District Schools. However, charter schools have two additional student reporting requirements. Charter schools project student attendance each June for their first three monthly payments, and then an actual counting of students occurs periodically thereafter, as described below, to enable the ADE to adjust their remaining monthly payments to reflect a current-year student count. Charter schools must report enrollment figures (absences, new enrollments, withdrawals, changes in grade, etc.) in electronic form through ADE s Student Accountability Information System ( SAIS ) within 20 days after the first day of the school year and no less frequently than every 20 school days thereafter. In addition, charter schools must report September enrollment outside the SAIS reporting during a pre-determined week in September. This headcount enables the ADE to adjust payments made in August, September and October that had been based on the June projected enrollment, to a current-year headcount. The November payments to charter schools reflect these adjustments. Fortieth and onehundredth day ADM counts are calculated by SAIS. These counts are available to the public on the Internet at Adjustments are made for each reporting requirement so that each one-twelfth monthly apportionment reflects the most accurate student count possible. If a school s enrollment goes down, it may not receive a payment one month or it may receive a reduced payment. If a school s enrollment increases, it will receive a larger payment during one or more subsequent months so that the school receives accurate funding amounts by the end of the fiscal year. Charter schools also submit a year-end enrollment form. Charter schools also complete a 200-day ADM calculation if they are providing at least 200 days of instruction. (Schools conducting at least 200 days of instruction can have 5 percent added to their base equalization amount.) Payment adjustments made as a result of the 200-day count will be made in the following September or October. A charter school that elects to provide two hundred days of instruction must obtain approval from the department of education before the beginning of the fiscal year that the charter school is planning on offering instruction for 200 days. Charter School Monthly Payments Month (a) Percent of Annual Revenue Paid Payment Determination (typical) August 1/12 June estimates September 1/12 July estimates October 1/12 August estimates November 1/12 September headcount December 1/12 September headcount January 1/12 40th day count February 1/12 40th day count March 1/12 40th day count April 1/12 100th day count May 1/12 100th day count June 1/12 100th day count June 1/12 100th day count (a) Payments for August through May are made on the first business day of the month and for June are made on the first business day and the last business day of the month, respectively. A-2

52 Charter schools generally submit special education census numbers in December and February of each year, similar to District Schools. Because a school receives additional money for each special education student and this money is part of the monthly apportionments, the charter school forecasts special education enrollment in June, and payment adjustments as a result of the two official census counts are made in January and March. Calculating State Funding Charter schools calculate their base support level similarly to District Schools. Both types of public schools use a similar worksheet for determining base support level and a weighted student count. This means that both charter schools and District Schools receive the same amount of funding for a hearing impaired child or a K-3 grade student, or if they serve less than 99 students. Funding also is weighted based on the size of the school. The major differences in revenue calculations between charter schools and District Schools are found in the area of capital, or for charter schools, in Additional Assistance. Charter schools and District Schools were put on distinctly separate paths for the calculation of capital assistance with the 1998 passage of Students FIRST legislation in the State. Students FIRST resulted in the payment of approximately $ new dollars per child to charter schools in lieu of capital assistance. Students FIRST also gave charter schools increased flexibility in how they spend their money, essentially making their money fungible. Beginning in fiscal year , charter schools receive per pupil Additional Assistance equal to the amounts set forth under State Allocation above. This Additional Assistance funding for charter schools consolidates amounts previously paid for capital outlay revenue limit, capital levy revenue limit, transportation and capital assistance. Charter school revenue may be spent in any manner that a charter school deems appropriate; charter school revenue does not come with categorical strings. Prior to Students FIRST, and still in District Schools, revenue was generated based on categories of funding, and revenue generally only could be spent within those categories. State Payments Calculation The principal revenue source of the Borrower will be lease payments made by the Charter Schools to the Borrower from State Payments paid to the Charter Schools as set forth above. The funds received from the State are paid on a per pupil basis and are generated by enrollment, with adjustments in payments made during each year based on designated dates for counting students enrolled. The actual amount for that year is determined by adding the amount of the statutorily set base support level and the Additional Assistance for such year and requires a number of formula driven calculations using the Uniform System of Financial Records for Charter Schools ( USFRCS ), which is regulated by the State Auditor General. For example, for each fiscal year, the ADE uses the following methodology to determine the amount of State payments a charter school will receive based on the 40th or 100th day student count: (a) The 40th (or 100th day, as applicable) ADM actual student count is utilized as the official student count for calculation purposes ( Student Count ). (b) A Support Level Weight is calculated for each charter school depending on the grade level and the Student Count. (c) The Student Count is then multiplied by the Support Level Weight to determine the Weighted Student Count, and Add-Ons to the Weighted Student Count are then calculated. A-3

53 (Add-Ons are formula driven calculations reflecting generally the number of children with disabilities or limited English proficiency in the student body population.) The Weighted Student Count plus Add-Ons is multiplied by the base level amount to determine the Base Support Level. (d) To the Base Support Level, the applicable Additional Assistance is added, which is derived by multiplying the Student Count by a specific statutory amount, depending on the grade level. (e) A charter school receives as State payments the sum of the Base Support Level (as calculated in (c) above) and the Additional Assistance (as calculated in (d) above), plus certain minor positive adjustments for audit costs, or if the charter school offered 200 days of instruction. A charter school s State payments also could be reduced for moneys received by the charter school from federal or State agencies for basic maintenance and operation of the charter school. Federal Funding Non-profit charter school students are treated similarly to other public school students for the purpose of eligibility for federal entitlement programs. These federal programs include School-to-Work, Migrant Education, Special Education and traditional Title I. Charter schools, regardless of their sponsoring entity (discussed in this APPENDIX A under Key Elements in the Charter School Statute ), apply directly to the State or the federal department of education for these types of programs, depending on which entity administers the program. Eligibility in income-sensitive programs is determined by eligibility for the National School Lunch Program. All charter schools collect this information each fall, and new schools receive their federal money the following May. Following the first year of operation, charter schools may use the prior year s count to project program eligibility, and actual count adjustments are made each May. Revenue Sources Charter schools must categorize their revenue and expenditures by source either federal, State, local or intermediate. Charter schools receive the majority of their funding from the State s General Fund. According to the fiscal year Annual Report of the Superintendent of Public Instruction, charter schools received percent of their revenue from the State, 9.02 percent from federal sources, 7.59 percent from local sources and 0.07 percent from intermediate sources during the school year. Classroom Site Fund/Instructional Improvement Fund In June 2000, the State Legislature enacted Arizona Revised Statutes Section , which created the Classroom Site Fund ( CSF ) to provide funding to school districts and charter schools for designated purposes. The CSF is funded, in part, by funds from a 0.60 percent sales tax for educational purposes that was authorized by voters at a statewide election in November 2000 to be levied and collected until June 30, The ADE administers the CSF and allocates CSF funds to District Schools and charter schools based on student count and other factors specified by statute. A school district governing board or charter school must spend moneys from the CSF for use at the school site and may not supplant existing school site funding with revenues from the fund. Each school district or charter school must allocate funding from the CSF according to statutory parameters as follows: 40 percent of the funds must be used for teacher compensation increases based on performance and employment related expenses. A-4

54 40 percent of the funds must be used for maintenance and operations purposes, which are defined as class size reduction, teacher compensation increases, Arizona Instrument to Measure Standards ( AIMS ) intervention programs, teacher development, dropout prevention programs, and teacher liability insurance premiums. 20 percent of the funds must be used for teacher base salary increases and employment related expenses. To determine the maintenance and operations purposes for which CSF funds will be allocated, school district governing boards and charter schools must request from the school s principal each school s priority for such an allocation. The statute further requires that the district governing board or charter school shall allocate the CSF moneys to include, wherever possible, the priorities identified by the principals of the schools while assuring that the funds maximize classroom opportunities and conform to the expenditures. In addition to the funds provided by Arizona Revised Statutes Section , the Arizona State Legislature enacted Arizona Revised Statutes Section to provide an additional fund entitled the Instructional Improvement Fund (the IIF ), which is not subject to appropriation. The ADE pays the moneys in the IIF to District Schools and charter schools. Each District School and charter school may use up to 50 percent of its IIF moneys for teacher compensation increases and class size reduction in accordance with the CSF allocations. The balance of the IIF moneys must be utilized for drop-out prevention programs and instructional improvement programs including programs to develop minimum reading skills for students by the end of third grade. IIF moneys are paid at varying intervals through the same process as the payment of the CSF moneys. In calculating funds available to the Borrower to meet its obligations with respect to the Loan Agreement, it has been assumed that any revenues received by American Leadership Academy and CAFA from the CSF or IIF will be fully offset by statutorily allowable expenses and will not be available to make lease payments due under the Leases. Under their respective statutes, neither CSF nor IIF revenues may be pledged as Pledged Revenues. Key Elements in the Charter School Statutes Definition of Charter School (A.R.S. Sections and ) A charter school is a public school established by contract with its sponsor to provide a learning environment that will improve pupil achievement. Charter schools provide additional academic choices for parents and pupils. Charter schools may consist of new schools or all or any portion of an existing school. Charter schools are public schools that serve as alternatives to traditional public schools, and charter schools are not subject to the requirements of Article XI, Section 1 of the State Constitution (relating to the establishment and maintenance of a general and uniform public school system) or Chapter 16 of Title 15, Arizona Revised Statutes (relating to school capital finance and certain minimum school facility adequacy standards). Arizona State Board for Charter Schools (A.R.S. Section ) The ASBCS has been established and consists of members specified by law representing specific bodies or constituencies. The ASBCS exercises general supervision over charter schools sponsored by the ASBCS, recommends legislation pertaining to charter schools, grants charter status to qualifying applicants, adopts rules and policies governing school operations, and undertakes related administrative matters. A-5

55 Applicants for Charter Schools (A.R.S. Section B) The applicant of a charter school may be a public body, a private person or a private organization. Sponsors of Charter Schools and Performance Framework (A.R.S. Sections C and R) The sponsor of a charter school may be a school district governing board, the State Board of Education, the ASBCS, a university under the jurisdiction of the Arizona Board of Regents, a community college district with enrollment of more than 15,000 full-time equivalent students or a group of community college districts with a combined enrollment of more than 15,000 full-time equivalent students. The sponsor of a charter school shall have oversight and administrative responsibility for the charter schools that it sponsors. In implementing its oversight and administrative responsibilities, the sponsor shall ground its actions in evidence of the charter holder s performance in accordance with the performance framework adopted by the sponsor. The performance framework shall include: (1) the academic performance expectations of the charter school and the measurement of sufficient progress toward the academic performance expectations; (2) the operational expectations of the charter school, including adherence to all applicable laws and obligations of the charter contract; and (3) intervention and improvement policies. The Charter Application (A.R.S. Section A) The charter application shall include a detailed educational plan, a detailed business plan, a detailed operational plan and any other materials required by the sponsor. Charter School Requirements (A.R.S. Section E) A charter school shall ensure that it is in compliance with federal, State and local rules, regulations and statutes pertaining to health, safety, civil rights and insurance; that it is nonsectarian in its programs, admission policies and employment practices and all other operations; that it provides a comprehensive education program of instruction for at least a kindergarten or any grade between one and twelve, but may emphasize a specific learning philosophy or style or certain subject area; that it is subject to certain financial requirements, including the USFRCS, Procurement Rules and Audit Requirements, unless exempt; that it provides for a governing body for the charter school that is responsible for the policy decisions of the charter school; that it is in compliance with all federal and state laws relating to the education of children with disabilities; and that it designs a method to measure pupil progress toward pupil outcomes adopted by the State Board of Education, and the completion of an Annual Report Card. A charter school is exempt from all statutes and rules pertaining to schools, governing boards and school districts except as provided in Arizona Revised Statutes Section et seq. or its charter. Pupil Admission Requirements (A.R.S. Section ) A charter school shall enroll all eligible pupils who submit a timely application, unless the number of applications exceeds the capacity of a program, class, grade level or building. A charter school shall give enrollment preference to pupils returning to the charter school in the second or any subsequent year of its operation and to siblings of pupils already enrolled in the charter school. A charter school that is sponsored by a school district governing board shall give enrollment preference to eligible pupils who reside within the boundaries of the school district where the charter school is physically located. A charter school may give enrollment preference to and reserve capacity for pupils who are children of employees of the school, employees of the charter holder, members of the governing body of the school A-6

56 or directors, officers, partners or board members of the charter holder or a pupil who attended another charter school or the siblings of that pupil if the charter school previously attended by the pupil has the identical charter holder, board and governing board membership as the enrolling charter school. If remaining capacity is insufficient to enroll all pupils who submit a timely application, the charter school shall select pupils through an equitable selection process such as a lottery except that preference shall be given to siblings of a pupil selected through an equitable selection process such as a lottery. A charter school shall not limit admission based on ethnicity, national origin, gender, income level, disabling condition, proficiency in the English language or athletic ability. A charter school may limit admission to pupils within a given age group or grade level. A charter school may provide instruction to pupils of a single gender with the approval of the sponsor of the charter school. A charter school shall admit pupils who reside in the attendance area of a school or who reside in a school district that is under a court order of desegregation or that is a party to an agreement with the United States Department of Education office for civil rights directed toward remediating alleged or proven racial discrimination unless notice is received from the resident school that the admission would violate the court order or agreement. If a charter school admits a pupil after notice is received that the admission would constitute such a violation, the charter school is not allowed to include in its student count the pupils wrongfully admitted. A charter school may refuse to admit any pupil who has been expelled from another educational institution or who is in the process of being expelled from another educational institution. Budgeting (A.R.S. Sections and ) Charter schools must prepare a proposed budget each fiscal year on budget forms prescribed by the Office of the State Auditor General and the ADE, which include all information required by Arizona Revised Statutes. The charter school budget forms are reviewed annually and revised for legislative and other changes. The forms are issued in a USFRCS Memorandum with detailed instructions on preparing and adopting the budget. A charter school must submit the proposed budget in electronic form to the State Superintendent of Public Instruction no later than July 5 of each year or no later than the date of publication of notice of the public hearing and board meeting. The proposed budget must be kept on file at the school and made available to the public upon request. The governing board of a charter school is required to hold a public hearing to present the proposed budget to the public and a special board meeting to adopt the budget. The board must prepare a notice of public hearing and special board meeting. The notice must fix a time for the meeting, not later than July 15, and designate a public place to hold the hearing and meeting. The governing board of a charter school must transmit a copy of its proposed budget or the summary of the proposed budget and a notice of the public hearing to the ADE for posting on the ADE website no later than ten days before the hearing and meeting. If the charter school maintains a website, the charter school governing board shall post on its website a copy of the proposed budget or the summary of the proposed budget and a notice of the public hearing. A-7

57 The governing board must publish a notice of public hearing and special board meeting in a newspaper of general circulation no later than ten days prior to the hearing and meeting. The governing board must file a publisher s affidavit of publication with the State Superintendent of Public Instruction within 30 days after publication. The governing board members shall hold the public hearing at the time and place designated in the notice. The purpose of the public hearing is to present the proposed budget publicly to all those present at the hearing. Any person may request the governing board to explain the budget or any item therein and may protest the inclusion of any item in the proposed budget. Immediately following the public hearing, the president of the governing board shall call to order the special board meeting to adopt the proposed budget. The budget must be recorded in the board minutes. The governing board must submit the adopted budget to the State Superintendent of Public Instruction no later than July 18. Charter schools may revise their adopted budgets during the fiscal year, provided all revisions are completed by May 15. If a charter school has overestimated its student count, it must revise its budget before May 15. If a charter school has underestimated its student count it may revise its budget before May 15. If a school receives federal or State grants, or other miscellaneous receipts that were not included in its adopted budget, the charter school may revise its adopted budget to include the additional moneys received. Vacant Buildings and Used Equipment (A.R.S. Section ) The ADE, in conjunction with the Arizona Department of Administration, shall annually publish a list of vacant and unused buildings or portions of buildings that are owned by the State or by school districts in the State that may be suitable for the operation of a charter school. A school district may sell used equipment to a charter school before the school district attempts to sell or dispose of the equipment by other means. Charter Term; Nonrenewal or Revocation of a Charter (A.R.S. Sections I and J) The charter is effective for 15 years from the first day of the fiscal year as specified in the charter. At least 15 months before expiration of the charter, the charter school may apply for renewal of its charter. A sponsor shall give written notice of its intent not to renew the charter school s request for renewal to the charter school at least 12 months before the expiration of the charter. The sponsor shall make data used in making renewal decisions available to the charter school and the public and shall provide a public report summarizing the evidence basis for each decision. The sponsor may deny the request for renewal if, in its judgment, the charter holder has failed to do any of the following: (a) meet or make sufficient progress toward the academic performance expectations set forth in the performance framework; (b) meet the operational performance expectations set forth in the performance framework or any improvement plans; (c) complete the obligations of the charter contract; or (d) comply with Article 8 of Title 15 of the Arizona Revised Statutes (relating to operation of charter schools) or any provision of law from which the charter school is not exempt. A sponsor shall review a charter at five year intervals using a performance framework adopted by the sponsor and may revoke a charter at any time if the charter school breaches one or more provisions of its charter or if the sponsor determines that the charter holder has failed to do any of the following: (a) meet or make sufficient progress toward the academic performance expectations set forth in the performance framework; (b) meet the operational performance expectations set forth in the performance framework or any improvement plans; (c) complete the obligations of the charter contract; or (d) comply with Article 8 of Title 15 of the Arizona Revised Statutes (relating to operation of charter schools) or any provision of law from which the charter school is A-8

58 not exempt. At least 60 days before the effective date of the proposed revocation, the sponsor shall give written notice to the operator of the charter school of its intent to revoke the charter. Notice of the sponsor s intent to revoke the charter shall be delivered personally to the operator of the charter school or sent by certified mail, return receipt requested, to the address of the charter school. The notice shall incorporate a statement of reasons for the proposed revocation of the charter. The sponsor shall allow the charter school at least 60 days to correct the problems associated with the reasons for the proposed revocation of the charter. The final determination of whether to revoke the charter shall be made at a public hearing called for such purpose. After renewal of the charter at the end of the 15-year period described above, the charter may be renewed for successive periods of 20 years. Charter Amendment (A.R.S. Section G) The charter contract of a charter school may be changed at the request of the governing body of the charter school and on the approval of the sponsor. Charter schools that are sponsored by the Arizona State Board of Education or the ASBCS can change their charters through an amendment or a notification of change process. A charter school may submit an amendment request to the ASBCS accompanied by a copy of the action of the charter school s governing board approving the amendment. Charter contracts must be amended for the following changes: Change in legal status, ownership or name of the operating entity Changes in instructional methodology and/or delivery that affects the emphasis, program of instruction or mission Changes in grade levels served Changes to school mission/description Changes in the school calendar involving the number of days of instruction USFRCS exceptions (This change will not be granted to schools sponsored by the Arizona State Board of Education.) Procurement exceptions (This change will not be granted to schools sponsored by the Arizona State Board of Education.) A charter school cannot implement action described by a notification of change until representatives of both parties sign the notification. The president of the sponsor or the president s designee may require in his or her sole discretion that a notification be submitted to the ASBCS for approval. The following charter contract provisions may be changed through the notification process: Name, address and phone number of school contact as identified in the contract Signing authority for the school or corporation A-9

59 Changes in directors of the corporate entity or members or manager of a limited liability company Changes in governing board members Change in school name Changes in school location (changes of site and/or adding sites) Changes in student enrollment capacity School Accountability; Failing Schools (A.R.S. Section ) School performance will be evaluated and publicly reported in an annual achievement profile by the ADE based upon certain data sets including, for schools offering grades kindergarten through eight, the Arizona Measure of Academic Progress ( MAP ), the AIMS test and the English language learners test and, for schools offering grades nine through twelve, the AIMS test, dropout rates, graduation rates and the English language learners test. Each school will be classified using a letter grade system. Each letter grade will correlate to a specific performance level, as follows: a letter grade of A indicates excellent performance; B indicates above-average performance; C indicates an average performance; D indicates below-average performance; and F indicates a failing level of performance. The School Accountability Statute requires schools with a letter grade of D or F to take certain remedial measures. These school classifications are made available to the public. School Report Cards (A.R.S. Section ) Each charter school shall distribute an annual report card that contains at least the following information: 1. A description of the school s regular, magnet and special instructional programs. 2. A description of the current academic goals of the school. 3. A summary of the results achieved by pupils enrolled at the school during the prior three school years as measured by the AIMS test and the nationally standardized norm-referenced achievement test as designated by the Arizona State Board of Education and a summary of the pupil progress on an ongoing and annual basis, showing the trends in gain or loss in pupil achievement over time in reading, language arts and mathematics for all years in which pupils are enrolled in the school district for an entire school year and for which this information is available and a summary of the pupil progress for pupils not enrolled in a district for an entire school year. 4. The school s current expenditures per pupil for classroom supplies, classroom instruction excluding classroom supplies, administration, support services-students, and all other support services and operations. The current expenditures per pupil by school shall include allocation of the district-wide expenditures to each school, as provided by the district. The report shall include a comparison of the school to the stated amount for a similar type of district. The method of calculating these per pupil amounts and the allocation of expenditures shall be as prescribed in the uniform system of financial records. 5. The attendance rate of pupils enrolled at the school as reflected in the school s average daily membership. A-10

60 6. The number of incidents that occurred on the school grounds, at school bus stops, on school buses and at school-sponsored events and that required the contact of local, State or federal law enforcement. 7. The percentage of pupils who have either graduated to the next grade level or graduated from high school. 8. A description of the social services available at the school site. 9. The school calendar including the length of the school day and hours of operations. 10. The total number of pupils enrolled at the school during the previous school year. 11. The transportation services available. 12. A description of the responsibilities of parents of children enrolled at the school. 13. A description of the responsibilities of the school to the parents of the children enrolled at the school including dates the report cards are delivered to the home. exists. 14. A description of the composition and duties of the school council if such a school council 15. For the most recent year available, the average current expenditure per pupil for administrative functions compared to the predicted average current expenditure per pupil for administrative functions according to an analysis of administrative cost data by the joint legislative budget committee staff. 16. If the school provides instruction to pupils in kindergarten programs and grades one through three, the ratio of pupils to teachers in each classroom where instruction is provided in kindergarten programs and grades one through three. 17. The average class size per grade level for all grade levels kindergarten through grade eight. For the purposes of this paragraph average class size means the weighted average of each class. The ADE shall develop a standardized report card and shall modify the standardized report card as necessary on an annual basis. The ADE shall distribute to each school in the State a copy of the standardized report card that includes the required test scores for each school. Additional copies of the standardized report card shall be available on request. After each charter school has completed the report card distributed to it by the ADE, the charter school shall send a copy of the report card to the ADE. The ADE shall prepare an annual report that contains the report card from each charter school in the State. Such report is available to the public on the ADE s website at under the AZ School Report Cards link. The charter school shall distribute report cards to parents of pupils enrolled at the school, no later than the last day of school of each fiscal year, and shall present a summary of the contents of the report cards at an annual public meeting held at the school. The school shall give notice at least two weeks before the public meeting that clearly states the purposes, time and place of the meeting. Charter Schools Stimulus Fund (A.R.S. Section ) A-11

61 The charter schools stimulus fund is established for the purpose of providing financial support to charter school applicants and charter schools for start-up costs and costs associated with renovating or remodeling existing buildings and structures. The fund consists of monies appropriated by the State Legislature and grants, gifts, devises and donations from any public or private source. The ADE shall administer the fund. NORTH CAROLINA CHARTER SCHOOL FINANCE General. In 1996, the North Carolina General Assembly enacted the Charter School Act, North Carolina General Statutes 115C A et. seq., as a means of authorizing teachers, parents, pupils and community members to establish and maintain charter schools. Charter schools are public schools that are operated independently of existing public schools pursuant to a charter granted by the State Board of Education. During the school year, there were 108 charter schools in the State and the total Average Daily Membership ( ADM ) for charter schools in the State was 48, State and Local Funds. In North Carolina, the State is primarily responsible for the supervision, administration and funding of the State s public school system. The general cost of operating the system of public schools is paid from the State s General Fund rather than locally levied ad valorem property taxes. State appropriations are allotted in accordance with various formulae, primarily based upon ADM. The State pays a substantial portion of current operating expenses such as salaries of teachers, and other staff, instructional supplies, textbooks and transportation. These current operating expenditures are supplemented by the counties. Counties are generally responsible for capital improvements, plant maintenance, insurance and energy costs. The State has also assisted counties in their responsibility for capital outlay expenditures. General Fund appropriations for public schools in fiscal year comprised 37.3% of the State s General Fund budget. 2 Because school funding is a large part of the General Fund spending, it is affected by significant changes in General Fund revenues. The following table shows the amount of tax revenue and non-tax revenue (excluding federal and departmental receipts) reported in the General Fund in each fiscal year through with the annual percentage increases/decreases for each of such fiscal years: 1 Source: North Carolina Department of Public Instruction Facts and Figures Average Daily Membership is the sum of the number of days in membership for all non-violating students in individual local school administrative units and charter schools, divided by the number of school days in the month. 2 Source: North Carolina Department of Public Instruction Division of School Business Highlights of the North Carolina Public School Budget February A-12

62 FISCAL YEAR TAX AND NON-TAX REVENUE TAX AND NON-TAX REVENUE PERCENT INCREASE/(DECREASE) FROM PREVIOUS YEAR $17,978, $20,006, % $20,596, % $20,558,271 (0.19)% $21,571, % Source: Office of the State Controller and the State s Comprehensive Annual Financial Reports (GAAP basis). Charter schools receive funding based on the average per pupil allocation in the local education agency from which a student comes. One hundred and eight charter schools were operating in the State in the school year. The following shows public school expenditure figures for North Carolina public schools for the previous three years: EXPENDITURES Current Expense Expenditures State $7,599,573,456 $7,277,494,587 $7,336,220,568 Federal 1,675,408,103 1,909,891,466 1,807,709,323 Local 2,683,319,426 2,675,887,290 2,707,251,434 Total $11,958,300,985 $11,863,273,343 $11,851,181,325 Per Pupil Expenditure in Average Daily Membership State $5,361 $5,162 $5,232 Federal 1,182 1,355 1,289 Local 1,893 1,898 1,931 Total $8,436 $8,414 $8,451 Source: North Carolina Department of Public Instruction Facts and Figures for fiscal years shown. The State Board of Education allocates funds to each charter school based on the school s ADM and the dollars per ADM of the local education agency in which the school is located. Except with respect to allocations for children with disabilities and children with limited English proficiency, each charter school generally receives an allocation in an amount equal to the average per pupil allocation for ADM from the local school administrative unit allotments in which the charter school is located for each child attending the charter school. Each charter school receives an additional amount for each child with disabilities and each child with limited English proficiency. 1 1 N.C. Gen. Stat. 115C H A-13

63 A charter school s allotment of State funds, calculated based on an initial ADM estimate, 1 is received by the charter school in three installments. The first installment, equal to 34% of the State allotment, is received by July of each year. After the first month of school, the charter school must report actual ADM for the month. The charter school s State allotment will be recalculated based on the actual ADM. If the charter school s actual ADM is lower than the ADM estimate, the charter school s State allotments will be decreased. If the charter school s ADM is increased, within the permitted limit, after the first month, the allotments will be increased. The second installment is received after the first month ADM is reported by the charter school. If the State allocation is recalculated due to an increased ADM, the second installment will be in an amount so that, together with the first installment, the charter school has received 68% of the revised State allotment. The final 32% of the State allotment is received in the third installment prior to March The local school administrative unit in which a child resides (in this case, primarily Cabarrus County) must transfer to the charter school an amount equal to the per pupil local current expense appropriation for that local school administrative unit for the fiscal year. The amount transferred that consists of revenue derived from supplemental taxes will be transferred only to a charter school located in the tax district for which these taxes are levied and in which the student resides. The charter school sends a bill to the county in which the student resides. 3 Federal Funds. The North Carolina Department of Public Instruction receives funds from many federal grants from the United States Department of Education and disburses them to individual schools and districts. Many of these grants are allotted according to prescribed formulas established by law and require the charter schools to submit relevant information in order to receive funds (e.g., the number of students eligible for free lunch). Examples of such federal grants include the Child Nutrition Program, Language Acquisition, IDEA Title VI-B Handicapped and ESEA Title I. Charter schools may also apply for competitive federal grants. KEY ELEMENTS IN THE CHARTER SCHOOL STATUTES The following is intended as a summary of certain provisions of the North Carolina General Statutes. This summary is not intended to be definitive and is qualified in its entirety by reference to each of the relevant statutes. Purpose of Charter Schools (North Carolina General Statutes 115C A). Charter schools are public schools that operate independently of existing schools as a means to (1) improve student learning; (2) increase learning opportunities for all students, with special emphasis on expanded learning experiences for students who are identified as at risk of academic failure or academically gifted; (3) encourage the use of different and innovative teaching methods; (4) create new professional opportunities for teachers, including the opportunities to be responsible for the learning program at the school site; (5) 1 The initial ADM estimate is based on the higher of the prior year s actual first two months of ADM or the current year s projected first two months of ADM. A new charter school s estimated ADM will be calculated based on projected enrollment information submitted by the charter school. The State Board of Education will use this information to calculate a Planning Allotment (preliminary allotment for tentative allocation purposes only). Funding for existing charter schools is based on the dollars per ADM of the local school administrative unit in which the school is located. Funding for new charter schools is based on the dollars per ADM of the local school administrative unit in which the student is or would be currently enrolled. Source: North Carolina Department of Public Instruction Financial Guide for Charter Schools revised June Source: North Carolina Department of Public Instruction Financial Guide for Charter Schools revised June Source: North Carolina Department of Public Instruction Financial Guide for Charter Schools revised June A-14

64 provide parents and students with expanded choices in the types of educational opportunities that are available within the public school system; and (6) hold such schools accountable for meeting measurable student achievement results, and provide the schools with a method to change from rule-based to performance-based accountability systems. Establishing a Charter School (North Carolina General Statutes 115C B). Any person, group of persons, or nonprofit corporation may apply to establish a charter school. If the applicant seeks to convert a public school to a charter school, the application must include a statement signed by a majority of the teachers and instructional support personnel currently employed at the school indicating that they favor the conversion and evidence that a significant number of parents of children enrolled in the school favor conversion. A charter school application must contain at least the following information: (a) A description of a program that implements one or more of the purposes in North Carolina General Statutes 115C A. (b) A description of student achievement goals for the school s educational program and the method of demonstrating that students have attained the skills and knowledge specified for those student achievement goals. (c) The governance structure of the school including the names of the proposed initial members of the board of directors of the nonprofit, tax-exempt corporation and the process to be followed by the school to ensure parental involvement. (d) (e) The local school administrative unit in which the school will be located. Admission policies and procedures. (f) A proposed budget for the school and evidence that the financial plan for the school is economically sound. (g) Requirements and procedures for program and financial audits. (h) A description of how the school will comply with North Carolina General Statutes 115C F. (i) Types and amounts of insurance coverage, including bonding insurance for the principal officers of the school, to be obtained by the charter school. (j) (k) The term of the charter. The qualifications required for individuals employed by the school. (l) The procedures by which students can be excluded from the charter school and returned to a public school. (m) The number of students to be served, which number shall be at least 65, and the minimum number of teachers to be employed at the school, which number shall be at least three. However, the charter school may serve fewer than 65 students or A-15

65 employ fewer than three teachers if the application contains a compelling reason, such as the school would serve a geographically remote and small student population. (n) Information regarding the facilities to be used by the school and the manner in which administrative services of the school are to be provided. The applicant must submit the application to a chartering entity for preliminary approval. A chartering entity may be (1) the local board of education for the local school administrative unit in which the school will be located, (2) the board of trustees of a constituent institution of The University of North Carolina or (3) the State Board of Education. The State Board of Education has the final approval of the charter school application. Unless the applicant obtains preliminary approval from the local board of education for the local school administrative unit in which the school will be located, the applicant must provide a copy of its application to such school board. The State Board of Education will consider any information received from such local school board and consider the impact on the local school administrative unit s ability to provide a sound basic education to its students when determining whether to approve a charter school. Approval Limitations, Charter Term and Reviews (North Carolina General Statutes 115C D). Effective as of July 1, 2011, the North Carolina Legislature repealed the cap which previously stated that the State Board of Education may not authorize more than five charter schools per year in one local school administrative unit and may not authorize more than 100 charter schools statewide. Consequently, the State Board of Education may grant final approval of an application for a charter school, regardless of the number of existing or proposed charter schools in the State or in a local administrative unit, if it finds that the application meets the requirements set out in North Carolina General Statutes 115C D or adopted by the State Board of Education and that granting the application would achieve one or more of the purposes, set forth in the following paragraph. Charter schools are public schools that operate independently of existing schools as a means to (1) improve student learning; (2) increase learning opportunities for all students, with special emphasis on expanded learning experiences for students who are identified as at risk of academic failure or academically gifted; (3) encourage the use of different and innovative teaching methods; (4) create new professional opportunities for teachers, including the opportunities to be responsible for the learning program at the school site; (5) provide parents and students with expanded choices in the types of educational opportunities that are available within the public school system; and (6) hold such schools accountable for meeting measurable student achievement results, and provide the schools with a method to change from rule-based to performance-based accountability systems. (North Carolina General Statutes 115C A) The State Board of Education may grant initial charters for a period not to exceed 10 years and may renew the charter, upon request of the chartering entity, for subsequent periods not to exceed 10 years each. The State Board of Education will review the operations of each charter school at least once every five years to ensure the school is meeting its expected academic, financial and governance standards. Material Revision of Charter Application and Enrollment Growth (North Carolina General Statutes 115C D). A-16

66 A charter school may not materially revise the provisions of its charter application unless the revisions are approved by the State Board of Education. Increases in a charter school s enrollment, after the second year, are not considered material revisions and do not require approval of the State Board of Education as long as the annual increase is (i) by up to 20% of the school s previous year s enrollment or (ii) in accordance with planned growth as authorized in the charter. Other enrollment growth will be considered a material revision of the charter application and the State Board of Education may approve such growth greater than 20% only if it finds: (1) the actual enrollment of the charter school is within 10% of its maximum authorized enrollment; (2) the charter has commitments for 90% of the requested maximum growth; (3) the charter school is not currently identified as low-performing; (4) the charter school meets generally accepted standards of fiscal management; and (5) it is otherwise appropriate to approve the enrollment growth. Charter School Operation (North Carolina General Statutes 115C E). A charter school approved by the State will be a public school within the local school administrative unit in which it is located and will be accountable to the State Board of Education for ensuring compliance with applicable laws and the provisions of their charters. A charter school must be operated by a private nonprofit corporation that must have received federal tax-exempt status no later than 24 months following final approval of the application. The board of directors of a charter school will decide matters related to the operation of the school, including budgeting, curriculum and operating procedures. A charter school must operate under the written charter signed by the State Board of Education and the applicant. The charter will incorporate the information provided in the application, as modified during the charter approval process and any terms and conditions imposed on the charter school by the State Board of Education. No other terms may be imposed on the charter school as a condition for receipt of local funds and the charter school is not required to enter into any other contract. Except as otherwise provided in Part 6 of Chapter 115C of the North Carolina General Statutes, a charter school is exempt from statutes and rules applicable to a local board of education or local school administrative unit. Teacher Qualifications (North Carolina General Statutes 115C F). The charter school s board of directors will employ and contract with teachers. At least 50% of these teachers in grades kindergarten through 5 must hold teacher licenses. All teachers who are teaching in the core subject areas of mathematics, science, social studies and language arts must be college graduates. Instructional Program (North Carolina General Statutes 115C F). The school shall provide instruction each year for at least 185 days. If the State Board of Education finds that it will enhance student performance to do so, the State Board of Education may grant a charter school a waiver to use up to five of these instructional days as teacher workdays. The school must design its programs to at least meet the student performance standards adopted by the State Board of Education and the student performance standards contained in the charter. The school must conduct the student assessments required for charter schools by the State Board of Education. The school is subject to and shall comply with Article 9 of Chapters 115C of the General Statutes and The Individuals with Disabilities Education Improvements Act, 20 U.S.C., 1400, et. seq. (2004), as amended. The school is subject to and must comply with the Article 27 of Chapter 115C of the North Carolina General Statutes, A-17

67 concerning management and placement of disruptive students, except that a charter school may also exclude a student from the charter school and return that student to another school in the local school administrative unit in accordance with the terms of its charter. Admission Requirements (North Carolina General Statutes. 115C F). Any child who is qualified under the laws of the State for admission to a public school is qualified for admission to a charter school. No local board of education may require any student enrolled in the local school administrative unit to attend a charter school. Admission to a charter school may not be determined according to the school attendance area in which a student resides, except that any local school administrative unit in which a public school converts to a charter school must give admission preference to students who reside within the former attendance area of that school. Admission to a charter school may not be determined according to the local school administrative unit in which the student resides. A charter school may not discriminate against any student on the basis of ethnicity, national origin, gender or disability. Except as otherwise provided by law or the mission of the school as set out in the charter, the school may not limit admission to students on the basis of intellectual ability, measures of achievement or aptitude, athletic ability, disability, race, creed, gender, national origin, religion or ancestry. Enrollment preferences may be given to siblings of currently enrolled students and the children of the school s principal, teachers and teacher assistants. During each period of enrollment, the charter school must enroll an eligible student who submits a timely application, unless the number of applications exceeds the capacity of a program, class, grade level or building. In this case, students must be accepted by lot. Once enrolled, students are not required to reapply in subsequent enrollment periods. General Requirements (North Carolina General Statutes 115C F). A charter school shall be nonsectarian in its programs, admission policies, employment practices, and all other operations and shall not charge tuition or fees, except that a charter school may charge any fees that are charged by the local school administrative unit in which the charter school is located. A charter school shall not be affiliated with a nonpublic sectarian school or a religious institution. A charter school must meet the same health and safety requirements required of a local school administrative unit. The board of directors of a charter school must obtain at least the amount of and types of liability insurance required by the State Board of Education in its charter. A charter school is subject to the financial audits, the audit procedures and the audit requirements adopted by the State Board of Education for charter schools. The charter school must comply with the reporting requirements established by the State Board of Education in the Uniform Education Reporting System. The charter school must report at least annually to the chartering entity and the State Board of Education the information required by the chartering entity or the State Board of Education. A charter school must develop a transportation plan so that transportation is not a barrier to any student who resides in the local school administrative unit in which the school is located. Use of State Funds (North Carolina General Statutes 115C H). Funds allocated by the State Board of Education may be used to enter into operational and financing leases for real property or mobile classroom units for use as school facilities for charter schools A-18

68 and may be used for payments on loans made to charter schools for facilities, equipment or operations. However, State funds may not be used to obtain any other interest in real property or mobile classroom units. No indebtedness of any kind incurred or created by the charter school will constitute an indebtedness of the State or its political subdivisions, and no indebtedness of the charter school will involve or be secured by the faith, credit, or taxing power of the State or its political subdivisions. Every contract or lease into which a charter school enters must include the previous sentence. A charter school also may own land and buildings it obtains through non-state sources. Assets (North Carolina General Statutes 115C F). On dissolution of the charter school or on the nonrenewal of the charter, all net assets of the charter school purchased with public funds will be deemed the property of the local school administrative unit in which the charter school is located. Causes for nonrenewal or termination (North Carolina General Statutes 115C G). The State Board of Education may terminate, not renew, or seek applicants to assume the charter through a competitive bid process established by the State Board upon any of the following grounds: (1) failure to meet the requirements for student performance contained in the charter; (2) failure to meet generally accepted standards of fiscal management; (3) violations of law; (4) material violation of any of the conditions, standards or procedures set forth in the charter; (5) two-thirds of the faculty and instructional support personnel at the school request that the charter be terminated or not renewed; or (6) other good cause identified. The State Board of Education shall adopt criteria for adequate performance by a charter school and shall identify charter schools with inadequate performance. The criteria shall include a requirement that a charter school which demonstrates no growth in student performance and has annual performance composites below sixty percent (60%) in any two years in a three-year period is inadequate. If a charter school is inadequate in the first five years of the charter, the charter school shall develop a strategic plan to meet specific goals for student performance that are consistent with State Board of Education criteria and the mission approved in the charter school. The strategic plan shall be reviewed and approved by the State Board of Education. The State Board of Education is authorized to terminate or not renew a charter for failure to demonstrate improvement under the strategic plan. If a charter school is inadequate and has had a charter for more than five years, the State Board of Education is authorized to terminate, not renew, or seek applicants to assume the charter through a competitive bid process established by the State Board of Education. A-19

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70 APPENDIX B THE BORROWER, THE CHARTER SCHOOLS AND THE SERIES 2014A PROJECTS

71 APPENDIX B THE BORROWER, THE CHARTER SCHOOLS AND THE SERIES 2014A PROJECTS The Borrower General Vertex Nonprofit Organization ( Vertex ) is the sole member of the Borrower. Vertex (Utah Entity No.: ) was originally incorporated in 2011, under the laws of Utah as a non-profit corporation, under the name of Harmony Non-Profit Organization, Inc. In 2013, its name was changed to Vertex Nonprofit Organization. By a determination letter from the Internal Revenue Service (the IRS ) addressed to Vertex dated September 28, 2011, Vertex is an organization described in Section 501(c)(3) of the Code. Vertex files a separate IRS Form 990 tax return. Vertex, by itself or through a subsidiary or an affiliate entity, acquires, develops, and leases, with an option to purchase, charter school facilities to public charter schools. Vertex focuses the majority of its resources and investments on charter school organizations serving high growth areas or areas with low-income student populations and communities. Currently Vertex has only one subsidiary, which is the Borrower. The governing Board of Directors of Vertex must consist of at least three (3) directors, but not more than five (5) members. Currently, the Board of Directors consists of the following four members: Mark T. Morley, President Mr. Morley is an attorney active in the charter school movement, assisting charter schools with acquiring physical facilities and consulting with schools in management practices and various legal issues. Jared Hadcock, Vice President Mr. Haddock has been actively involved in several nonprofit organizations specifically dedicated to enhancing the education of the youth of today. He is currently involved in enhancing the international education of students through offering interactive and hands on educational experiences to students traveling from the United States to Australia. Shane Wasden, Secretary Mr. Wasden is obtaining his doctorate in Education Administration (expected in May of 2014) and has been involved in administration at Brigham Young University, Idaho. Edwin Ballard, Treasurer Mr. Ballard has successfully started multiple businesses, thereby creating jobs, and continues to demonstrate sound business practices The Charter Schools Each of the Series 2014A Projects will be owned by the Borrower and leased to one of the three following charter school entities: (i) A.C.E. Academy, a North Carolina nonprofit corporation ( ACE Academy ); (ii) American Leadership Academy, Inc., an Arizona nonprofit corporation and an organization described in Section 501(c)(3) of the Code ( American Leadership Academy ); and (iii) CAFA, Inc., an Arizona nonprofit corporation and an organization described in Section 501(c)(3) of the Code ( CAFA and together with ACE Academy and American Leadership Academy, the Charter Schools ). Further information regarding the Charter Schools is provided below: B-1

72 A.C.E. ACADEMY A.C.E. Academy ( ACE Academy ) is a North Carolina nonprofit corporation and a public charter school of the State of North Carolina (the State ). ACE Academy was chartered by the North Carolina Department of Public Instruction, North Carolina Office of Charter Schools ( NCOCS ) in January ACE Academy is organized pursuant to N.C. GEN. STAT. 115C A et. seq. (the North Carolina Charter School Act ). ACE Academy submitted its Form 1023 to the IRS on May 10, 2013 requesting official recognition from the IRS to be designated an organization described in Section 501(c)(3) of the Code. The IRS has not yet provided the 501(c)(3) designation letter, but ACE Academy anticipates receiving this letter in the near future. ACE Academy is a public charter school currently authorized to serve up to 450 students in grades K-8 and will begin its charter school operations beginning in the school year. In the school year, ACE Academy will limit its enrollment to 300 students in grades K-5. In the school year, ACE Academy plans to increase its enrollment to 350 students and add grade 6; in the school year, ACE Academy plans to increase its enrollment again to 400 students and add grade 7; and in the school year, ACE Academy intends to increase its enrollment to full capacity of 450 students and add grade 8. This gradual enrollment will increase until the school reaches the total 750 enrollment cap. ACE Academy will use a portion of the proceeds of the Senior Series 2014A Bonds for the following purposes: (i) to finance the acquisition and construction of its school facilities located at 7807 Caldwell Road, in Harrisburg, North Carolina (the ACE Project ), (ii) to fund certain reserve and capital interest accounts; and (iii) to pay certain costs associated with the issuance of the Senior Series 2014A Bonds. On January 9, 2014 NCOCS approved ACE Academy s charter application and ACE Academy has begun in earnest preparing for its first school year. NCOCS issued to ACE Academy its charter agreement (the Charter Agreement ) on May 9, 2014, and ACE Academy executed the Charter Agreement on May 12, The Charter Agreement is a license permitting ACE Academy to operate the ACE Project as a charter school. The Charter Agreement automatically renews each year unless terminated by NCOCS or ACE Academy s Governing Board pursuant to the North Carolina Charter School Act. ACE Academy will begin operations in the school year with approximately 300 total students in grades K-5. While enrollment is ongoing ACE Academy currently has the following students enrolled in grades K-5: Fall Enrollment Grade Students K Total: 174 ACE Academy is authorized to provide education for up to 450 students. In , ACE Academy expects to enroll no more than 300 students with an eventual enrollment growth to meet 450 students in ten years. ACE Academy projects enrollment to reach 750 students by the school year. B-2

73 Mission Statement The Mission of ACE Academy is to equip students from all backgrounds to succeed in the college and career of their choice by driving academic excellence, developing strong character, and instilling an entrepreneurial mindset. The School Model ACE Academy was developed by Laila Minott, Shawn Smalls, and Shannon Martin who have been providing educational services throughout Cabarrus County and other school districts for ten years. Because of that experience, Smalls, Minott, and Martin understand, appreciate, and respect the value of education. Developing a charter school in Cabarrus County has been a passion for all three. Smalls, Minott, and Martin are the founding members of ACE Academy and have recruited all the members of ACE Academy s Board of Trustees (the Board ) by matching their skills, interests, experience, knowledge, and commitment based on the needs of the Board. The three members sought out a diverse Board that included individuals that have community affiliations, education experience, and ability to create business partnerships that will lead to ACE Academy s operational success and sustainability. By networking and asking colleagues for referrals, Smalls, Minott, and Martin pursued thought-provoking individuals that bring prestige and advocacy to the mission of ACE Academy. The programs at ACE Academy will emphasize school culture, entrepreneurship integration, low student to teacher ratios (20:1 on average), flexible and supportive structural systems, project-based learning, and increased student talk. Educational Program: ACE Academy s basic learning environment includes the following: School Culture Freiberg and Stein (1999), prominent education researchers, described school culture as the heart, soul, and essence of the school that draws teachers and students to love and want to be a part of it. ACE Academy will develop a school culture that integrates this research. ACE Academy will create traditions and ceremonies that are aligned with its mission and goals that include: (1) students identifying themselves by their college graduation year (e.g., Class of 2020); (2) teachers posting diplomas and paraphernalia of their alma maters; (3) students identifying entrepreneurs they admire and posting their biographies; (4) school walls with ACE Academy's mission, vision, inspiring quotes, and pictures of students and staff; and (5) classical music played throughout the halls and entrances. Entrepreneurship Integration Schools that offer entrepreneurship-integrated curricula stimulate learning, improve academic performance, increase interest in attending college, improve dropout rates, and promote self-sufficiency (Network for Teaching Entrepreneurship, 2010). ACE Academy will prepare K-8 grade students to learn the principles of entrepreneurship. Daily lesson plans, reading, and entrepreneurship projects will allow students to retain subject matter, make better decisions, think critically and creatively, and display their talents. ACE Academy will also integrate Junior Achievement programs that promote and develop lifelong entrepreneurship skills through inclusion in innovative business partnerships which can be brought back to the classroom for further discussion and development. ACE Academy believes there is a business aspect involved in every career pathway. ACE Academy s teachers will work to connect business concepts within the core curriculum. Activities, simulation, and projects will give students an applied hands-on experience that ensures students have a B-3

74 solid grounding in economic, personal finance, and entrepreneurship concepts. This instructional program is designed to enhance the core curriculum and to give teachers, curriculum directors, and trainers the tools needed to effectively teach entrepreneurial concepts. Teachers will integrate business skills, ethics, and business practice into the core curriculum by focusing on four areas of business: management and leadership, sales and marketing, finance and economy, and Social Entrepreneurship. These four areas will give ACE Academy a foundation for integration but will not limit curricular adaptation and integration as the business world changes in our global economy. ACE Academy believes it is never too early to teach a child about the business world around them or to instill in them an entrepreneurial spirit that will help them excel in future careers. ACE Academy is not a business school; rather, it is a school with a business culture and emphasis. Low Student-to-Teacher Ratios ACE Academy believes low student to teacher ratios contributes to preparing students and recognizes that students need many opportunities to interact with their teacher. One researcher has found that, [i]n comparison with students in larger classes, various studies suggest that students enrolled in small classes tend to interact more with their teachers, exhibit more pro-social behavior, and have higher achievement scores. (Kosiewicz, 2008) The class sizes at ACE Academy will be 20:1 or less, and class sizes in mathematics, English language arts (ELA), and technology will be about 10:1. K-2 grade classes will be structured to less than 15 students and 3-8 grade class sizes to less than 20 students. Flexible and Supportive Structural Systems Flexible and supportive structural systems support student learning, programming, and staffing. Researchers Copp & Smith (2010) have shown that, Quality use of time does not only mean perfecting a system that meets operational needs; it is important to audit how time contributes to or limits learning. ACE Academy students experience minute classes, an extended day (after school program), six weekend module workshops throughout the year, and take courses in three semesters running from August to the beginning of June. The semesters allow more time for the students to take more courses, but it also gives them a chance to focus on fewer subjects at one time. Project-Based Learning Project-based learning experiences support student centered learning by engaging students in indepth projects developed around a question in which students investigate, acquire new knowledge through inquiry, and develop critical thinking skills. At ACE Academy, students are expected to direct their learning by engaging in several business development projects that span their entire K-8 experience. Increased Student Talk ACE Academy supports more paired work, rather than groups of three or more. This is so students can increase their talk time (which is the closest thing to thought) and in effect, reduce teacher talk time. In traditional schooling, the teacher does most of the talking, and consequently, most of the learning. One research student (Zemelman et al., p.13, 1993) notes that when teachers enforce the standard of silence, they are in a very real sense making learning illegal. Research-based Model and On-going Evaluation ACE Academy will use a research-based curriculum that aligns with North Carolina standards to best meet the needs of the targeted population. The curriculum is consistent with college preparedness expectations of the North Carolina Department of Education and will allow for a smooth transition for B-4

75 ACE Academy students to high school. The curriculum will include Fountas and Pinnell for Language Arts and Houghton Mifflin for Math, Science, and Social Studies in grades K-8. ACE Academy will systematically evaluate student performance goals and objectives to ensure all students regardless of backgrounds are achieving high academic performance. ACE Academy will examine the results of pre-assessments administered at the beginning of the school year to determine individual performance goals and learning plans to guide instructors. Adaptation of and adherence to the learning plans will ensure all students meet the state standards. Teachers will promote learning with innovative instructional strategies that address ACE Academy s diverse population and the learning style of each student. Facilities and the Project ACE Academy s facilities will be located at 7807 Caldwell Road in Harrisburg, North Carolina. Acquisition and improvements on the ACE Project will be done in phases. The first phase will be to acquire an existing building of approximately 42,500 sq. ft. to become the permanent site for ACE Academy. Required on and offsite improvements will be made to accommodate ACE Academy s first year enrollment. It is projected that only 17,000-19,000 square feet of the total building will be built out the first year (the First Phase ). The First Phase is anticipated to cost approximately $2,956,845 and will be financed in part from the proceeds of the Senior Series 2014A Bonds. ACE Academy expects to open in August, 2014 with approximately 300 total students enrolled in grades K-5. ACE Academy has been approved to serve up to 450 students in grades K-8 and plans to seek approval to serve up to 750 students in the future. Starting after year 1, and in subsequent years, additional space will be built out to accommodate increased interest and anticipated increased enrollment (the Second Phase ). This Second Phase is estimated to cost an additional $1,773,155 and will complete the entire build out to ACE Academy s facilities. Additional revenues will be procured to complete the Second Phase, including increased funding from North Carolina based on higher enrollment, and also possibly EB-5 funding. Proceeds from the Senior Series 2014A Bonds will not be used in financing the Second Phase and will only be used to complete the First Phase which is sufficient to accommodate ACE Academy s needs for the school year. Any additional funding for the Second Phase will be subject to the terms and conditions of the Loan Agreement. The ACE Project was previously identified as a suitable site by ACE Academy and ACD. ACD has placed the property under contract for $1.3MM and will assign the contract to the Borrower prior to closing. ACD has already advanced the funds necessary for site evaluation, planning and applications, and design for construction of the desired facilities. The existing building onsite was built in 2007 on speculation of a sale. The building was never sold or leased and has been vacant since completion. Construction plans are being completed currently and the permitting process is in progress for the renovation of the new classroom building, which will accommodate up to 300 students after phase one and a maximum of 450 students when completely built out. Construction is anticipated to begin May 2014 with a completion date of July 25, 2014 in time for the school year. Permits and Approvals In mid-april 2014, the City of Harrisburg, North Carolina provided minor comments on the civil engineering plans for ACE Academy s facilities. The engineer made changes pursuant to those comments and resubmitted the plans for final approval. Plans have been submitted for the full building permit and the architect anticipates receiving the full building permit by June 11, The contractor is B-5

76 able to proceed with demolition, framing, plumbing and mechanical work while the permit process moves forward. ACD anticipates construction to be completed by July 25, Enrollment ACE Academy s enrollment is currently limited to 450 by its Charter Agreement. Once a student is enrolled, that student, unless the student leaves, does not need to reapply for admission. The following table sets forth ACE Academy s projected enrollment by grade level for certain school years. Projected Enrollment by Grade Level Grade K Service Area Totals: The ACE Project is located in Harrisburg, Cabarrus County, North Carolina. ACE Academy is a North Carolina charter school open to any students that want to attend. The majority of students are anticipated to be located in Cabarrus County, and to live within a 10 mile radius, or within 15 to 20 minutes driving time, from ACE Academy s location in Harrisburg, North Carolina. Students from areas outside of Cabarrus County are also anticipated. The student population is expected to be smaller than a traditional elementary school and more diverse than the neighboring boundary schools. ACE Academy will target students that reflect the diversity of the surrounding communities in terms of ethnicity, gender, and socioeconomic status. They will equip students from all backgrounds to succeed in the college and career of their choice by driving academic excellence, developing strong character, and instilling an entrepreneurial mindset. Competing Schools ACE Academy is within three miles of one traditional elementary school and one traditional middle school in the Cabarrus School District. There are no K-8 charter schools within the same threemile radius. All of these schools have been in existence prior to ACE Academy s authorization. ACE Academy has a unique program of instruction and culture not available in any of the competing schools. B-6

77 ACE Academy s personalized, rigorous, and supportive academic program is difficult for traditional district elementary and middle schools to compete with, unless a student is interested in the athletic or activity side of the high school experience. ACE Academy views its competition within the area of the ACE Project to include the following schools: Charter Schools: 1. Carolina International School, Grades K-10, 509 student enrollment Traditional Public Schools: 1. Reedy Creek Elementary School, Grades K-5, 799 student enrollment 2. Hickory Ridge Middle, Grades 6-8, 836 student enrollment 3. Harrisburg Elementary, Grades K-5, 893 student enrollment 4. University Meadows Elementary, Grades K-5, 681 student enrollment 5. Stoney Creek Elementary School, Grades K-5, 788 student enrollment 6. Pitts School Road Elementary, Grades K-5, 989 student enrollment The Charter Agreement ACE Academy will operate under a Charter Agreement (the Charter Agreement ) between the Charter School and NCOCS. Under North Carolina law, the Charter Agreement is renewed annually if ACE Academy remains in compliance with the provisions of the North Carolina Charter School Act. NCOCS continually monitors ACE Academy, and NCOCS is responsible for oversight of ACE Academy s fiscal management and academic performance. NCOCS has the authority to terminate ACE Academy s charter for failure to comply with the terms of the charter agreement or for other good cause. N.C. GEN. STAT. 115C G(a)(4), (6). Such good cause may include any of the following: (i) violation of the Charter Agreement; (ii) any violation of state, federal or local laws, ordinances or rules or regulations; (iii) failure to adhere to generally accepted accounting principles; or (iv) any conditions which threaten the health, safety, or welfare of the students or staff of ACE Academy or the general public. ACE Academy is held accountable to performance outcomes and measures. Furthermore, charter schools such as ACE Academy are expected to be responsive and accountable to students, staff, parents, and the community. ACE Academy believes that it will be in substantial compliance with all contractual provisions and requirements of the Charter Agreement, as well as all relevant laws, ordinances, and regulations. ACE Academy is not under review by any agency with respect to its operations and has not received any notice of noncompliance from any agency which would affect its ability to enter into the transactions contemplated by the Senior Series 2014A Bonds or the Loan Agreement including the purchase of the ACE Project. Governance and Administration ACE Academy is a nonprofit corporation organized under the North Carolina Nonprofit Corporations Act and is governed by its Board. Under ACE Academy s Bylaws, the Board must consist of no less than five members. The Board holds regularly scheduled board meetings, typically once a month, in compliance with North Carolina law. There are currently ten members of the Board. B-7

78 Board of Directors The following individuals constitute the current members of the Board: Adolphe Thorpe, Board Chair Mr. Thorpe owns an H&R Block and brings expertise in fiscal operations, business and project management, tax liabilities, accounting procedures, financial planning, budget development, finance reporting, accrual and business forecasting. Additionally, he has extensive experience in IT project management, technology, systems, and facility/ground management. Shawn Smalls, Founding Member and Board Vice Chair Mr. Smalls is the CEO of Academic Achievers/S&L Consultants, a 10-year old educational firm that provides enrichment and tutorial programs for school districts, after school programs and community based organizations. Mr. Smalls expertise in sales, marketing, organizational management has proven to be an asset. Additionally, he has 10-years experience in successful strategic business planning and fiscal operations which includes developing start-ups, conducting extensive sales and marketing, and teaching culturally, racially, and socio-economically diverse populations. He also possesses a strong background in business analysis, market research, business reports, organizational performance evaluation, long-term business relationship development, revenue gaining, and technology solutions development. Ofelia Amador, Board Treasurer Ms. Amador has extensive experience in commercial banking, small business relations, financial planning, fiscal operations and profit management. Additionally, she has the ability to build lasting customer relationships while soliciting and developing profitable relationships for businesses. She has direct experience in managing business accounts with annual revenue up to 50 million. As the treasurer, she will develop procurement processes and manage/evaluate school financial reports monthly. Shannon Martin, Founding Member and Board Secretary Ms. Martin is a manager and supervisor for several educational after-school and summer programs for kindergarten through 12 th grade students. As a program director, she has experience in curriculum development, program management and human resources. Ms. Martin s administrative skills help produce results through strategic planning, implementation, coordination and program policy. She has knowledge of LEA student goals and direct experience constructing program goals and objectives to be in line with state and district contracts. Ms. Martin is skilled in staff evaluations, team leadership and motivation while assessing, examining and coordinating professional development needs. Additionally, she is proficient in collecting, analyzing and disseminating student data for compliance with LEA monthly reporting. Laila Minott, Founding Member Ms. Minott is the director and co-owner of Academic Achievers/S&L Consultants LLC., a 10-year old educational consulting firm that focuses on increasing student academic performance through tutoring, entrepreneurship and enrichment programs. As a coowner, Ms. Minott s experience includes grant writing, Title I reporting, fiscal operations, staff development, program management, leadership, team building, professional development, instructional experience, mentoring, managing and large staff supervision, employee training manual construction, proposal and procedure writing, and public relations. Mike Minter, Board Member Mr. Minter is a retired football player, business owner and head coach at Campbell University. He serves his community through the Harvey Gantt Center, Youth Development Initiatives, the YMCA of Greater Charlotte, and Cabarrus County Education Foundation. Additionally, he is a Board Advisor to Charlotte Parent University. Mr. Minter will assist in developing ACE Academy s public image and develop relationships with stake holders, community leaders and business leaders. B-8

79 David Hands, Board Member Mr. Hands is an attorney with extensive legal knowledge and understanding of charter school law. He is an entrepreneur that operates a private six person law firm specializing in several areas of law and has been an adjunct professor at the Charlotte School of Law. Mr. Hands has experience in higher education and will assist in the development of standards for leadership and effective and efficient teaching strategies, and will cultivate sound school and board policies. Cameo Goodwin, Board Member Ms. Goodwin is a full time student with an associate s degree in Psychology, a mother, a mentor and a volunteer for schools and youth programs. She understands the needs of families and children. Ms. Goodwin s advocacy work and commitment to her own sons learning experience has given her keen insight to the individual learning styles of children. Additionally, as a mother, Ms. Goodwin has PTA experience and will build and support ACE Academy s PTA program. Christina Kirk, Board Member Ms. Kirk has a degree in chemical engineering and has utilized her math and science skills to teach and tutor students for numerous years. As a mother of two, she has volunteered on school fundraising projects, served the PTA and has organizational, supervisory and instructional experience that benefits ACE Academy. Dawn Hammond, Board Member Ms. Hammond has volunteered at elementary school, home schooled her children as well as served as a PTO member/mediator for parent and teacher communication. She has also assisted in raising funds for school projects and increased her children s grade point average by 25% with collaboration methods from teachers. Ms. Hammond is a member of the school improvement team; a teacher/child advocate; a tutor; and a curriculum creator for church youth groups. Additionally, she has experience in the care of autistic and disabled adults/children and has assisted in developing plan of action programs and intervention plan. Administration Laila Minott (Executive Director, Principal) and Shannon Martin (Assistant Director, Assistant Principal) constitute ACE Academy s current school administration. Their biographies are included above. Business Management ACE Academy has contracted with GPS Solutions to provide certain consulting services including bookkeeping, financial projections, human resources assistance, state-reporting requirement assistance, systems development, and other business services for ACE Academy. Under the parties agreement, ACE Academy has the right to terminate the agreement for a material breach by providing 30- days written notice. Any additional business management requirements are handled by ACE Academy s administrative staff. Additional services will be contracted for in the event outsourcing becomes necessary. Accounting Auditing and tax preparation services are provided to ACE Academy by independent third parties. Davis and Davis, CPA, has been retained by ACE Academy to serve as its independent auditor. B-9

80 Charter School Employees and Labor Relations In order to provide the variety of services required by law, ACE Academy currently has 22.5 employees, including one principal, one assistant principal, 15 full-time teachers, two paraprofessionals, one guidance counselor, and two and a half support staff for the school year. Employee Benefit Based on experience and qualifications, ACE Academy offers its employees compensation that includes health insurance, benefits through the North Carolina Teachers and State Employees Retirement System, and 401(k) contribution. Labor Relations Teachers are employed by ACE Academy pursuant to annually renewable assignments established by the Board. All teachers are required to meet North Carolina required standards for employment as teachers. The faculty, administration and Board have a very strong working relationship through collaboration with respect to, among others, curriculum development, salary structures, school calendar, policy development, and benefits. The teachers are all active participants in the development and addition of new courses and programs. They work closely with ACE Academy s administration on the school s accreditation processes to improve and refine the school. ACE Academy considers its relations with the teachers as excellent. Budgeting, Purchasing, and Accounting Principles In general, ACE Academy follows North Carolina Department of Public Instruction s guidelines with respect to budgeting, accounting and auditing public school districts and the requirements of the North Carolina Charter School Act. ACE Academy s Board administers the financial affairs of ACE Academy and is responsible for implementing proper accounting controls. With respect to budgeting, ACE Academy s Principal prepares a proposed budget that is presented to the Board in May of each year. Once adopted, the budget can be amended by subsequent Board action. The Board may approve reductions in appropriations upon recommendation of the Principal, but increases in appropriations require a public hearing. Control of the budget is exercised at the program level. ACE Academy maintains several funds, each of which is considered a separate accounting entity. Under the Charter Agreement, ACE Academy is required to conduct an annual financial audit. ACE Academy has approved the engagement of Davis and Davis, CPA (Certified Public Accountants), as its auditor. No Litigation No action, suit proceeding, or investigation at law or in equity, before or by any court, any governmental agency, or any public board or body is pending or, to the best of the ACE Academy s knowledge, threatened, affecting the validity of the Lease, the Indenture, the Loan Agreement, or the Senior Series 2014A Bonds or contesting the corporate existence or powers of ACE Academy. There is presently no material litigation pending or, to the best of its officers knowledge, overtly threatened against ACE Academy. B-10

81 AMERICAN LEADERSHIP ACADEMY ANTHEM American Leadership Academy, Inc. ( American Leadership Academy ) is an Arizona nonprofit corporation and a public charter school of the State of Arizona (the State ). American Leadership Academy was founded in 2009 and currently operates five separate campuses under its charter. It anticipates opening up its 6 th campus (the Anthem Charter School ) for the school year at 4380 North Hunt Highway in Florence, Arizona. American Leadership Academy is organized pursuant to the Title 15, Chapter 1, Article 8 of Arizona Revised Statutes (the Arizona Charter Schools Act ) and received a determination letter on October 6, 2011 from the Internal Revenue Service designating it a 501(c)(3) organization. The Anthem Charter School is a public charter school for students in grades K-6. American Leadership Academy will use a portion of the proceeds of the Senior Series 2014A Bonds for the following purposes: (i) to finance acquisition and construction of the Anthem Charter School facilities; (ii) to fund certain reserve and capital interest accounts; and (iii) to pay certain costs associated with the issuance of the Senior Series 2014A Bonds. American Leadership Academy operates under a Renewal Charter Contract (the Charter Agreement ), dated December 15, 2011 between American Leadership Academy and the Arizona State Board for Charter Schools (the State Board ). The term of the Charter Agreement goes until June 30, 2032, unless terminated by the State Board or American Leadership Academy s Board of Trustees (the Board ) pursuant to the Arizona Charter Schools Act. American Leadership Academy began operations in the 2009 school year with 180 total students in grades K-6 on one campus. Today, American Leadership Academy operates five campuses, educates students in grades K-12, and has over 3,000 students. American Leadership Academy currently has the following students enrolled in grades K-12: Fall Enrollment Grade Students K Total: 3,138 B-11

82 While enrollment is ongoing, American Leadership Academy currently has the following students enrolled in grades K-6 at the Anthem Charter School campus for the school year: Grade Students K Total: 306 American Leadership Academy has been approved to serve up to 500 students in grades K-6 at its Anthem Charter School campus in the school year and beyond. Educational services will be provided by American Leadership Academy at its Anthem Charter School campus beginning with the school year. Mission Statement The 7 Habits of Highly Effective People American Leadership Academy s mission is to help students achieve three goals: (1) the obtainment of academic excellence, (2) the demonstration of moral character, and (3) the fulfillment of civic responsibilities. The daily implementation of the Stephen R. Covey s ( Mr. Covey ) The 7 Habits of Highly Effective People facilitates American Leadership Academy s students pursuit of these goals. Mr. Covey s book was published in Since that time, it has sold more than 15 million copies worldwide and has become a must-read for business professionals. As the name implies, the book highlights 7 habits that, if applied, lead to greater personal effectiveness and interpersonal leadership. The application of the habits begins with the mastery of self or the private victory. In this phase, students learn to take responsibility for their own success, make goals, and prioritize. As students continue to master themselves, they also begin to learn the principles of successful interpersonal relationships as they progress to what Covey calls the public victory. In the public victory, students learn to adopt an abundance mindset in which all parties can win, improve communication through seeking understanding, and how the combined efforts of a group can be greater than the sum of individual contributions. Finally, Covey teaches balance and continual renewal through effective down time and recreation. These principles take on a transformative power when applied in the school setting. As students learn the principles of the personal victory, they begin to take accountability for their own learning, set personal and academic goals, and prioritize their time to ensure they can achieve their goals. As they embrace the principles taught in the public victory, they begin to actively think of ways to provide for the mutual benefit of themselves and others. They learn that by seeking to understand the thoughts and intents of others, they can improve communication and facilitate mutual understanding. Additionally, they learn that they are more effective when they work together than when they work alone. Finally, students learn to maintain balance as they engage in uplifting and edifying recreational activities. By virtue of learning these important principles, students naturally fulfill the mission of American Leadership Academy. B-12

83 The School Model American Leadership Academy sees its rapid growth as the natural outcome of providing an educational experience parents desire for their children. American Leadership Academy differentiates itself from other schools by focusing on leadership, a skill set that many students lack in today s society. To help develop leadership skills in it students, American Leadership Academy utilizes the Leader in Me program set forth in Mr. Covey s 7 Habits of Highly Effective People. These principles have been preached in the business arena for over two decades and have been proven to successfully help individuals develop genuine leadership capacity. In 2012, the American Leadership Academy s Gilbert campus became the 23rd school in the world to be recognized as a Leader in Me Lighthouse School. With over 800 schools currently using the program, this was a great honor. As a Lighthouse School, American Leadership Academy s Gilbert campus stands as an example to schools around the world on how to effectively instill leadership skills in students. American Leadership Academy has also worked with AdvancEd (NCA CASI) to become accredited in grades Full accreditation status was granted in 2011 permitting high school students to transfer between schools and to college without loss of credits. Facilities and the Project The Anthem Charter School is located on the northwest corner of Hunt Highway and East Franklin Road in Florence, Pinal County, Arizona. The site is 6.52 acres. The facility was constructed in 2013 and has been vacant since that time. American Leadership Academy intended to begin operations at the Anthem Charter School campus in the school year, but due to delays in the timely approval of the facility by the State of Arizona, American Leadership Academy was unable to open at that time. The Anthem Charter School campus has remained vacant since, but American Leadership Academy intends to begin operations at the Anthem Charter School campus in the school year. American Leadership Academy is current on all rent payments for this new facility. The Anthem Charter School facility will provide sufficient space for its students. The building is an approximately 31,356 square feet, one story structure. The space includes classrooms, an art room, science labs with secure material and equipment storage, administrative offices, a library, and a cafeteria/mix-use space. Even though the building does not possess any kind of sustainable design (LEED) certification, it is still designed with a very efficient building envelope (walls-roofing-high performance windows), and an energy efficient mechanical system and high efficiency lighting. Enrollment Enrollment at Anthem Charter School is currently limited to 500 by the Charter Agreement. Once a student is enrolled, that student, unless the student leaves, does not need to reapply for admission. The following table sets forth Anthem Charter School s projected enrollment by grade level for certain school years. B-13

84 Projected Enrollment by Grade Level Grade K Totals: Service Area The Anthem Charter School campus is located in Pinal County, Arizona. Anthem Charter School is a state charter school open to students that want to attend. It is anticipated that the majority of students will be located in Pinal County, including cities such as Florence, Coolidge, and San Tan Valley. The target population includes students from the Florence and Coolidge school districts. Competing Schools There are ten comprehensive K-6 schools in the Florence and Coolidge school districts. There are also three K-6 charter schools within a 15-mile radius of Anthem Charter School. However, it is important to note that charter and traditional public schools operate under the State Board. The State Board grants new charters to fill new needs, relieve overcrowding to regular school districts, and to offer additional options to parents, not to create zero-sum competition among schools. Recent reports from the Arizona Department of Education regarding existing schools in the market area suggest that the area is in need of additional education services. The Charter Agreement American Leadership Academy operates under its Charter Agreement. The State Board approved operation of the Anthem Charter School on December 9, 2013 with school to begin in the school year. The term of the Charter Agreement is from July 1, 2012 to June 30, The State Board continually monitors American Leadership Academy, and the State Board is responsible for oversight of American Leadership Academy s fiscal management and academic performance. According to the Charter Agreement, the State Board may revoke or not renew the Charter for any material breach of the Charter and/or violation of state, federal or local laws, ordinances or rules or regulations; or for conditions which threaten the health, safety, or welfare of the students or staff of [American Leadership Academy] or of the general public. Pursuant to the Arizona Charter Schools Act, no termination of the Charter Agreement can take place for a minimum of ninety (90) days to allow American Leadership Academy an opportunity to cure any alleged breach of its Charter Agreement. Arizona charter legislation allows and B-14

85 even requires flexibility to encourage the development and use of new, different, or alternative teaching methods, forms of measuring student learning and achievement, and educational visions and goals. In exchange, American Leadership Academy is held accountable to performance outcomes and measures. Furthermore, charter schools such as American Leadership Academy are expected to be responsive and accountable to students, staff, parents, and the community. American Leadership Academy believes that it is in substantial compliance with all contractual provisions and requirements of the Charter Agreement, as well as all relevant laws, ordinances, and regulations. American Leadership Academy is not under review by any agency with respect to its operations and has not received any notice of noncompliance from any agency which would affect its ability to enter into the transactions contemplated by the Bonds or the Loan Agreement including the purchase of the Anthem Charter School campus. Governance and Administration American Leadership Academy is a nonprofit corporation organized under the Arizona Nonprofit Corporations Act. American Leadership Academy is governed by a Board of Trustees (the Board ). Under American Leadership Academy s Bylaws, the Board must consist of no less than five members. The Board holds regularly scheduled board meetings, typically once a month, in compliance with Arizona law. There are currently six members serving on the Board. The following individuals constitute the current members of the Board: Glenn L. Way, Board Chair Mr. Way served as a state legislator in the state of Utah and has served in many Utah-state educational department capacities. While in the Utah legislature Mr. Way became a proponent of the parental choice charter schools offer and was particularly intrigued by the emphasis charter schools place on parental and community involvement. Consequently, Mr. Way helped guide and direct the charter school movement in the state of Utah when he helped craft the legislative structure for that state s charter school system and became a member of the American Legislative Exchange Council ( ALEC ), a national task force for state legislators from every state tasked with the goal of creating model school choice legislation. Later, Mr. Way became Vice Chairman of ALEC. Remaining committed to the charter school movement after leaving the Utah legislature, Mr. Way identified the absence of state funding for the development and construction of charter school facilities and developed a lease/purchase program to assist charter schools in securing quality facilities. In addition, Mr. Way has served on several charter school boards and has founded charter schools in Utah and in Arizona. Paul Sinclair, Board Vice-Chair Mr. Sinclair serves as the Superintendent of Schools for all schools operated by American Leadership Academy and has served as the principal of the Gilbert Campus since its establishment in Prior to joining American Leadership Academy, Mr. Sinclair was a successful entrepreneur and small business owner for nearly two decades. Mr. Sinclair holds an associate of applied science degree in automotive technology and a Bachelor of Arts degree in Spanish from the University of Nevada, Las Vegas, and is a graduate of the HVAC program from Utah Valley University. Jeremy Christensen, Board Secretary/Treasurer Mr. Christensen has worked in the construction industry for six years where he built a successful career as a project manager with a construction development company and later served as a residential and commercial real estate appraiser. Mr. Christensen was introduced to Mr. Way in 2008 at which time he started consulting on real estate and mortgage investment options for charter schools in the state of Utah. In early 2009, Mr. Christensen B-15

86 joined Mr. Way and the other board members to organize American Leadership Academy and establish its Gilbert campus. Mr. Christensen now owns and operates a charter school finance consulting company and assists charter schools in the state of Arizona for financing of facilities and offers demographic studies to lenders and investment groups for charter school locations. Richard Moss, Board Member Mr. Moss has a substantial history in construction, civil service, and education. Mr. Moss has served as a construction project manager for several private organizations since 1994 and as a political campaign manager from Mr. Moss is a member of the Council of Educational Facility Planners International, National Association of Home Inspectors, American Society of Home Inspectors, and the Environmental Solutions Association. Mr. Moss received an honorable discharge from the United States Air Force and has completed Covey Leadership Training. In 2006 he was elected to the Utah State Board of Education where he served as the vice chair of the law and policy committee. In 2006, he co-authored the charter application for Noah Webster Academy and has developed charter school facilities and provided counsel to charter school operators with respect to choice of curriculum and preparation of applications for new charter contracts since Deryk Dees, Board Member Mr. Dees graduated from Red Mountain High School in Mesa, Arizona in 1996 and earned his Bachelor of Science in history from Brigham Young University in In addition, Mr. Dees earned a Master of Education degree in psychology from Northern Arizona University in December Mark Boyd, Board Member Mr. Boyd brings to American Leadership Academy a long history in business management and development with a background in adult education, marketing and risk management. Mr. Boyd began his career in 1989 with Florida Marketing International as the director of training and meeting development in the computer industry. He worked with Apple and Microsoft in computer training and continuing education. Mr. Boyd has earned several professional certifications including Certified Meeting Professional, Computer Systems Education Technician, Workplace Safety Professional, Sandler Sales Institute accreditation, and Insurance Risk and Loss Prevention Management. Mr. Boyd served as Vice President of Business Development for In Source Consulting Services for over fifteen years focusing on education in business in the areas of risk management and employee health and safety. Mr. Boyd currently works as a commercial business consultant with LeBarron & Carroll in the area of risk management, loss prevention and commercial insurance strategies for public and private corporations and businesses. Administration The following individuals constitute American Leadership Academy s current school administration for the Anthem Charter School, and administrators for American Leadership Academy generally: Arch Archunde, Executive Director Mr. Archunde has been with American Leadership Academy for 4 years. He started as an assistant director at the Gilbert campus, opened the San Tan Valley Campus as director their inaugural year, and is currently serving as the Executive Director for the district as well as the principal for the High School in Queen Creek. Mr. Archunde is a graduate of Brigham Young University and the father of 6 children, 4 of whom currently attend American Leadership Academy. He and his wife, Amber, are dedicated both personally and professionally to the vision of the school, especially as it pertains to partnering with parents and strengthening the community. Gordon Ray, Principal of Anthem Campus Mr. Ray is an experienced and accomplished educator with over 14 years of experience. In that time, he has served in various roles including teacher, coach, athletic director, and administrator. He has a master s degree in educational leadership from Northern Arizona University, a bachelor's degree in Elementary Education from Rocky Mountain College B-16

87 in Billings, Montana, and will begin working on his doctorate in organizational leadership with Grand Canyon University in July. Mr. Ray has been nominated for the Disney Teacher of the Year award in 2002 and Mr. Ray has also been recognized by the Chandler Education Association receiving the Shooting Star yearly educator award in 2003, 2004, 2005 and He is also the recipient of the Spirit of the Grizzly award from Northridge High School in Colorado in Stuart Enkey, Vice-Principal of Anthem Campus Prior to his position at Anthem Campus, Mr. Enkey was a Seventh Grade history teacher at American Leadership Academy s Queen Creek High School. Prior to teaching for American Leadership Academy, he worked as a teacher s assistant and tutor at Southern Virginia University for three years. He graduated with distinction and honors from Southern Virginia University with a major in history and minor in family and child development. Mr. Enkey taught English at the elementary level in China and Paraguay. He has also worked in social work, crisis intervention, abuse counseling, and was once a marine. In the military he learned leadership, service and patriotism; traits he is eager to pass on to his students. Mr. Enkey is also the recipient of the J. Golden Kimball Service Award and is a Marshall Scholar. Rodney Richins, Financial Officer Mr. Richins has been with American Leadership Academy since January Prior to joining the school, he was the financial controller for Isola Industries from 2006 to 2014 where he provided P&L statements, inventory, asset management, and purchasing control to a $46 million dollar facility. Prior to working with Isola, Mr. Richins worked as an accountant for Graham Packaging Company from 2004 to 2006, and with Arthur Anderson from 2000 to He earned his B.S. from Arizona State University. Jeremy Christensen, Business Manager Mr. Christensen serves as the Business Manager for the school. He joined American Leadership Academy in 2009 after having graduated from Brigham Young University with a degree in human development and a minor in business with particular interest in leadership and organizational behavior. Since joining American Leadership Academy, Mr. Christensen has worked to standardize all operations of American Leadership Academy through the development of manuals and handbooks. He continues to help the school improve by evaluating instructional performance, organizing, and providing professional development opportunities. Mr. Christensen assists the school with all aspects of operation, including administration, discipline, employee management, and curriculum. Becky Erickson, Superintendent of Curriculum Ms. Erickson graduated summa cum laude from Millikan University with a teaching certificate in secondary education and a bachelor of arts degree in mathematics. She worked in the IT Industry where she had a successful 25-year career with large corporations such as Morton Thiokol, Apple, Hewlett-Packard, and Sun Microsystems. Ms. Erickson returned to the classroom in 2009 to teach all levels of high school math for the American Leadership Academy. She was appointed as the administrative liaison for the Board to the entire high school program. Accounting. Auditing and tax preparation services are provided to American Leadership Academy by independent third parties. Joel D. Huber, CPA, P.C., has been retained by American Leadership Academy to serve as its independent auditor. Charter School Employees and Labor Relations American Leadership Academy currently employs the following number of full-time employees per campus: Gilbert Elementary (49), Queen Creek High School (82), Queen Creek Elementary (48), San Tan Valley Elementary (48), and Mesa Elementary (34). The school also employs 43 full-time personnel for its administrative offices, including grounds maintenance and transportation. B-17

88 Employee Benefit. Based on experience and qualifications, American Leadership Academy offers its employees compensation that includes health insurance, benefits through the Arizona State Retirement System, and 401(k) contribution of up to 6% Labor Relations Teachers are employed by American Leadership Academy pursuant to annually renewable assignments established by the Board. All teachers are required to meet Arizona s required standards for employment as teachers. The faculty, administration and Board have a very strong working relationship through collaboration with respect to, among others, curriculum development, salary structures, school calendar, policy development, and benefits. The teachers are all active participants in the development and addition of new courses and programs. They work closely with the American Leadership Academy administration on the school s accreditation processes to improve and refine the school. American Leadership Academy considers its relations with the teachers as excellent. Academic and Achievement Indicators Starting in , American Leadership Academy undertook an aggressive plan to improve student performance. This plan included changing the school's math curriculum and increasing teacher accountability through regular assessments and data analysis. The result of this effort was a dramatic increase in performance which propelled the organization s four elementary campuses to become A rated schools through the Arizona Department of Education. American Leadership Academy continues to build upon this success by further implementing the principles that led to its success in The following charter sets forth American Leadership Academy s 2011, 2012, and 2013 scores on the Arizona Instrument to Measure Standards ( AIMS ) administered by the Arizona Department of Education: Subject Reading (Grades 3-6) 84% 80.75% 87.5% 3 79% 82% 93% 4 79% 71% 81% 5 93% 87% 91% 6 85% 83% 85% Math (Grades 3-6) 62.25% 58.25% 75.25% 3 68% 72% 82% 4 56% 51% 70% 5 69% 60% 76% 6 56% 50% 73% B-18

89 Budgeting, Purchasing, and Accounting Principles In general, American Leadership Academy follows the Arizona State Office of Education s guidelines with respect to budgeting, accounting and auditing public school districts and the requirements of the Arizona Charter Schools Act. The Board administers the financial affairs of American Leadership Academy and is responsible for implementing proper accounting controls. With respect to budgeting, American Leadership Academy s Principal prepares a proposed budget that is presented to the Board in May of each year. Once adopted, the budget can be amended by subsequent Board action. The Board may approve reductions in appropriations upon recommendation of the Principal, but increases in appropriations require a public hearing. Control of the budget is exercised at the program level. American Leadership Academy maintains several funds, each of which is considered a separate accounting entity. Under the Charter Agreement, American Leadership Academy is required to conduct an annual financial audit. American Leadership Academy has approved the engagement of Joel D. Huber, CPA, P.C. (Certified Public Accountants), as its auditor. No Litigation No action, suit proceeding, or investigation at law or in equity, before or by any court, any governmental agency, or any public board or body is pending or, to the best of American Leadership Academy s knowledge, threatened, affecting the validity of the Lease, the Indenture, the Loan Agreement, or the Senior Series 2014A Bonds or contesting the corporate existence or powers of American Leadership Academy. There is presently no material litigation pending or, to the best of its officers knowledge, overtly threatened against American Leadership Academy. B-19

90 CAFA, INC. d/b/a LEARNING FOUNDATION AND PERFORMING ARTS GILBERT General CAFA, Inc. d/b/a Learning Foundation and Performing Arts (the CAFA ) is an Arizona nonprofit corporation and a public charter school of the State of Arizona (the State ). CAFA founded its first K-12 school in Since that time, CAFA has opened three more schools. CAFA s high school and district offices will be moved from its current location to a new structure located at the southeast corner of Warner and Recker Road in Gilbert, Arizona (the Gilbert Charter School ). CAFA is organized pursuant to the Arizona Charter Schools Act. CAFA is a 501(c)(3) organization and received a determination letter on June 21, 2005 from the Internal Revenue Service providing such designation. The Gilbert Charter School is a public charter school for students in grades CAFA will use a portion of the proceeds of the Senior Series 2014A Bonds for the following purposes: (i) to finance acquisition and construction of the Gilbert Charter School facilities; (ii) to fund certain reserve and capital interest accounts; and (iii) to pay certain costs associated with the issuance of the Senior Series 2014A Bonds. CAFA operates under a Transfer Contract Charter Site (the Charter Agreement ), dated June 3, 2009 between CAFA and the State Board. This agreement has been amended to accommodate increased enrollment. Specifically, CAFA was originally authorized at a cap of 400 students at its Gilbert Charter School campus. On July 1, 2011, the State Board authorized an increase to CAFA s enrollment cap to 450 students at the high school campus. On July 17, 2013, the State Board again authorized an increased cap of 1,000 students at the high school campus beginning the school year. Arizona does not require charter schools to fill the full enrollment cap. Historically, CAFA kept its Gilbert Charter School campus enrollment under 200 students because of limited space. With the construction of its new facilities, however, CAFA plans to increase enrollment to 700 students in school year, 800 students in the and school years, and 1,000 students each year moving forward. The gradual increase gives the school adequate time to adjust to increased enrollment. As of April 23, 2014 CAFA had 222 students enrolled for the school year as set forth in the table below. Fall Enrollments Grade Students Total: 222 As of May 13, 2014, enrollment for the school year has increased to 240 students. CAFA anticipates enrollment to increase substantially as construction moves further along and the summer draws to a close. In addition, CAFA plans to advertise heavily and then host an open house when the Gilbert Charter School facility is completed. B-20

91 Mission Statement CAFA encourages students to achieve scholarly learning and inspiring performing arts that embrace the entire community. The School Model CAFA established its first K-12 grade school in July of 2003 with a vision to provide a wellrounded, rigorous academic environment combined with a dynamic performing arts program that exposes each child, K-12, to the arts. A school was needed to give students without financial means a chance to experience areas of the performing arts that might be overlooked in other school curriculums. Since that time, CAFA has opened three more schools. CAFA s performing arts program was designed to provide a means for students who love the fine arts to be productive citizens in the community. Courses in musical theater and drama have opened the door for their students to have opportunities to perform in local productions in the area. Research has shown that students who receive an arts-integrated curriculum academically out-perform students who do not receive an arts-integrated curriculum. Combining the arts with core classes produces students with a creative and higher order of thinking in all areas. CAFA sets high standards in order to prepare its students to become lifelong learners who lead productive and successful lives. To this end, CAFA strives to take its students to the highest level of personal academic achievement and fine arts accomplishment by basing its instructional system on research, standards, and best practice in both areas. Through curriculum and methods of delivery in academic content areas, CAFA imparts the academic skills that will be required of its students for success in life. Through its curriculum in fine arts, it will impart self-esteem, self-discipline, cooperation, selfmotivation and social skills necessary for success in life. Facilities and the Project CAFA s new Gilbert Charter School campus facility will be used for its high school and district offices and will be built out at once. The proposed building will be 62,000 sq. ft. featuring a state-of-theart auditorium to support the school s main emphasis of performing arts. The site is approximately 6.92 acres. This will be the permanent site for CAFA s 7-12 program in Gilbert. Required on and offsite improvements will be made to accommodate a maximum enrollment of 800 students. The estimated total project cost is $7,883,283 which will be financed in part from the proceeds of the Senior Series 2014A Bonds. CAFA will open its Gilbert Charter School campus with only 700 total students in the school year to accommodate the transition. As of May 13, 2014 there were approximately 240 students enrolled in grades 7-12 at the Gilbert Charter School campus. Permits and Approvals Following its comment and review period, CAFA s final plans for its facilities were submitted to Gilbert city offices on May 7, 2014, and the building permit is expected on or about the date of issuance of the Senior Series 2014A Bonds. Vertical construction will begin immediately thereafter and is expected to conclude by no later than August 10, Grading, setting of some steel, and some concrete pouring have already commenced to the extent permissible under the approved grading permit. Enrollment B-21

92 As explained above, enrollment at the Gilbert Charter School campus is currently internally limited to 800 students, with an enrollment cap of 1,000 students from the Charter Agreement. Once a student is enrolled by CAFA, that student, unless the student leaves, does not need to reapply for admission. The following tables set forth historical and projected enrollment at the Gilbert Charter School campus by grade level for certain school years. Historic Enrollment by Grade Level* Grade Totals: * Historic enrollment is based on the official enrollment count used by the State of Arizona to fund CAFA taken on approximately October 1 of each year. Projected Enrollment by Grade Level Grade Retention Rates Totals: Service Area Of CAFA s student enrolled in any given year, 90% on average return for subsequent enrollment. Within the 5 miles surrounding the proposed new facility in Gilbert, Arizona is an established community with more than 76,000 households estimated in 2013 (an estimated growth of 7.04% since B-22

93 2010). The number of households is anticipated to grow over the next 10 years to approximately 99,446 households. The current population for ages 5-17 (grades K-12) is 53,807 and about 18 percent of those live within a two-mile radius of the site. Not only does the current population and demographics support the school, its sister school (grades K-6) across the street is currently serving around 350 students, which will serve as a feeder to the new middle-high school. CAFA s current middle-high school that will be moving into the new site is educating 221 students. These demographics support CAFA s primary demographics and support the operator s mission. The campus location is positioned well to capitalize on the large population. The site is close to freeway access of Interstate Route 202. This area will continue to be highly populated and will continue to grow with adequate infill real estate available. Competing Schools CAFA is within four miles of three junior high schools and four high schools in the local school district. There are also three 7-12 charter schools within the same four-mile radius. CAFA has a unique program of instruction and culture not available in any of the competing schools. The State Board grants new charters and increases existing charter enrollment to fill new needs, relieve overcrowding to regular school districts, and to offer additional options to parents, not to create zero-sum competition among schools. CAFA views its competition within the area of the new facilities to include the following schools: Charter Schools: 1. San Tan Learning School 2. American Leadership Academy 3. Desert Hills High School Traditional Public Schools: 1. Highland High School 2. Gilbert High School 3. Williamsfield High School 4. Gilbert Class Academy High School 5. Canyon Valley Junior High School 6. Gilbert Junior High School 7. Cooley Middle School The Charter Agreement CAFA operates under its Charter Agreement. The State Board approved operation of the Gilbert Charter School on May 11, The Charter Agreement is renewed annually if the Charter School remains in compliance with the provisions of the Arizona Charter Schools Act. The Charter Agreement has remained the same but for three approvals from the State Board to increase its enrollment (see supra). The State Board continually monitors CAFA, and the State Board is responsible for oversight of the Charter School s fiscal management and academic performance. The State Board may unilaterally terminate the charter at any time for any violation by the Charter School of: (i) the Charter Agreement; (ii) State, federal or local laws, ordinances or rules or regulations; or (iii) for conditions which threaten the health, safety, or welfare of the students or staff of CAFA or the general public. Pursuant to the Arizona Charter Schools Act, no termination of the Charter Agreement can take place for a minimum of B-23

94 ninety (90) days to allow CAFA an opportunity to cure any alleged breach of its Charter Agreement. Arizona charter legislation allows and even requires flexibility to encourage the development and use of new, different, or alternative teaching methods, forms of measuring student learning and achievement, and educational visions and goals. In exchange, CAFA is held accountable to performance outcomes and measures. Furthermore, charter schools such as CAFA are expected to be responsive and accountable to students, staff, parents, and the community. CAFA believes that it is in substantial compliance with all contractual provisions and requirements of the Charter Agreement, as well as all relevant laws, ordinances, and regulations. CAFA is not under review by any agency with respect to its operations and has not received any notice of noncompliance from any agency which would affect its ability to enter into the transactions contemplated by the Senior Series 2014A Bonds, the Lease, or the Loan Agreement including the purchase of the Gilbert Charter School campus. Governance and Administration CAFA is a nonprofit corporation organized under the Arizona Nonprofit Corporations Act. CAFA is governed by a Board of Directors (the Board ). Under CAFA s Bylaws, the Board must consist of no less than seven members. The Board holds regularly scheduled board meetings, typically once a month, in compliance with Arizona law. There are currently ten members serving on the Board. The following individuals constitute the current members of the Board as of April 2014: Evelyn Taylor, Board President Ms. Taylor has had over 11-years experience in Arizona Charter School development, administration, and operation. She is the current executive director of the entire CAFA program. Ms. Taylor possesses the knowledge and expertise to meet the programmatic and individual needs of students and school organization and expert matters as research based practices and data, and business/financial goals. Ms. Taylor brings to CAFA over 30-years of experience in business management. She is well-known and has a reputation for running efficient and effective charter schools. Tracey Butcher, Board Vice President Ms. Butcher has over 10-years experience in Arizona charter school data management, and state reporting. She has worked for CAFA since 2005 as the director of attendance and records, and also the IT Director. Ms. Butcher has further handled payroll and reporting compliance for CAFA. Prior to working for CAFA, Ms. Butcher worked with Pearson Digital Learning as an IT support professional, and with Life School College Preparatory as an assistant office manager. Kent Taylor, Board Treasurer Mr. Taylor has a BA in Business Management with 19-years experience in management and human resources. Mr. Taylor is a skilled mediator and extremely knowledgeable in the area of employment, benefits, and recruitment. His prior work experience spanned almost 10-years in a managerial role for Mothers work, Inc.; Draper s and Damon s; Stage Stores, Inc.; all retail clothing chain stores. Linda Wright, Board Secretary Ms. Wright has an Associate s Degree in art with over 7 years of experience in adverting and 10 years experience in Arizona Charter School administration and office management. Ms. Wright works as an assistant to Ms. Taylor at CAFA. She has held this position since Prior to that time, Ms. Wright was a teacher s aide at Life School College Preparatory in Gilbert, Arizona where she worked from 1979 to B-24

95 Julie Nikki Triggs, Board Member Ms. Triggs is currently working on a Master s Degree in education and possesses over 4-years experience in elementary and middle grade elementary education. She has worked as the site director for CAFA since Prior to being the site director, she was a teacher for the school for three years. She also worked from 2000 to 2003 as a teacher at Integrity Education Center, a charter school in Scottsdale, Arizona. Jeannine Rucker, Board Member Ms. Rucker brings 10-years experience as a teacher in elementary education. She is the principal for CAFA s Mesa campus and has held that position since Prior to coming to CAFA, Ms. Rucker was a teacher and then an assistant principal at educational institutions in Mesa, Arizona, such as Franklin High School, Franklin Arts Academy, and Sequoia Charter School. Brenda Roberts, Board Member Ms. Roberts has over 25-years experience in administration of school and district offices, including over five years with CAFA. She has considerable knowledge of school district board policy and Arizona statute. Ms. Roberts works for the school in performing bookkeeping, monitoring, and accreditation. Prior to coming to CAFA, Ms. Roberts worked as an administrative assistant for Yavapai County School District and Humboldt Unified School District. Before starting her career in education, she was a production distribution analyst at Motorola Inc. from 1975 to Michael Rehm, Board Member Mr. Rehm has extensive experience in education. He worked from 2002 to 2010 with Leona Group, LLC, a management company that assists schools. In 2010, Mr. Rehm began serving as the director of curriculum and instruction at CAFA s Gilbert Charter School. Shirley D. Ortega, Board Member Ms. Ortega also has extensive experience and knowledge in public education. She currently works as the assistant principal at Willcox High School, and was a teacher from 2007 to 2010 at that same school before being made principal. Prior to coming to Willcox, Ms. Ortega worked with Valley Union High School in Elfrida, Arizona, where she served as a mathematics teacher. Ms. Ortega has a Master s Degree in Education Administration from Grand Canyon University, and a Master s Degree of Arts in Higher Education from University of Arizona. Robert Lee Kim Villa, Board Member Mr. Villa has a Bachelor s of Arts in Education from Arizona State University and a Master s of Educational Leadership from Northern Arizona University. He has worked for the Leona Group, LLC and has served as school administrator for various schools, including West Phoenix High School, South Pointe High School, Desert Hills High School, and Tempe Accelerated High School. Administration Evelyn Taylor (Executive Director), Robert Lee Kim Villa (Principal for Gilbert Charter School), Michael Rehm (Curriculum Director for Gilbert Charter School) and Kent Taylor (Business Manager) constitute CAFA s current school administration at the Gilbert Charter School campus. Their biographies are included above. Accounting. Auditing and tax preparation services are provided to CAFA by independent third parties. LaVoie & Co., PC has been retained to serve as the independent auditor for CAFA. B-25

96 Charter School Employees and Labor Relations In order to provide the variety of services required by law, CAFA currently has 106 employees, including six district directors, four principals, four assistant principals, 62 full-time teachers, four parttime teachers, and 26 support staff. Of these employees, 31 work exclusively at the Gilbert Charter School. Labor Relations Teachers are employed by CAFA pursuant to annually renewable assignments established by the Board. All teachers are required to meet Arizona s required standards for employment as teachers. The faculty, administration and Board have a very strong working relationship through collaboration with respect to, among others, curriculum development, salary structures, school calendar, policy development, and benefits. The teachers are all active participants in the development and addition of new courses and programs. They work closely with CAFA s administration on the school s accreditation processes to improve and refine the school. CAFA considers its relations with the teachers as excellent. Academic and Achievement Indicators CAFA s academic profile stems from two components: content area proficiency and a culture of achievement. Content area proficiency is measured both in the classroom and through standardized testing. Until recently, a substantial component of the high school graduation requirements included highstakes AIMS test administered to sophomores. Between 2010 and 2013, pass rates on these tests increased from 58% to 92% in reading, and from 33% to 56% in math. CAFA anticipates higher scores than ever in math for 2014, and 2013 reading scores indicated a 97% pass rate. When letter grades were introduced, growth rates, a measure of the overall increase in students scores, were also factored into academic achievement. Within two years the combination of pass rates and a 60% growth rate earned the school an A rating from the state. These scores would not be possible without a culture that supports academic achievement. CAFA s National Honor Society, founded in 2012, earned a Presidential Volunteer Service Award during the year of its inception. Numerous awards have been earned at the state level for science fair projects in both the junior and senior high school. The number of students as a percentage of the senior class who enter college has increased both in the aggregate and in the percentage of students accepted to four year universities. This year almost 25% of graduating seniors will be attending a 4-year university immediately after high school. An additional one-third will be entering community colleges. This is an increase from a 10% university bound population just two years earlier. Future plans to increase achievement in support of rigorous Common Core and College and Career Ready standards include adding a strong project-based, service learning component to the curriculum. Students will learn practical skills and increase their critical thinking as they plan and execute community based service projects throughout the year. This is supported by research which indicates student centered project-based learning is highly correlated with not only higher test scores but increased success in both college and careers.. Budgeting, Purchasing, and Accounting Principles In general, CAFA follows the Arizona State Office of Education s guidelines with respect to budgeting, accounting and auditing public school districts and the requirements of the Arizona Charter Schools Act. The Board administers the financial affairs of CAFA and is responsible for implementing proper accounting controls. B-26

97 With respect to budgeting, CAFA s Principal prepares a proposed budget that is presented to the Board in May of each year. Once adopted, the budget can be amended by subsequent Board action. The Board may approve reductions in appropriations upon recommendation of the Principal, but increases in appropriations require a public hearing. Control of the budget is exercised at the program level. CAFA maintains several funds, each of which is considered a separate accounting entity. Under the Charter Agreement, CAFA is required to conduct an annual financial audit. CAFA has approved the engagement of LaVoie & Co., PC (Certified Public Accountants), as its auditor. No Litigation No action, suit proceeding, or investigation at law or in equity, before or by any court, any governmental agency, or any public board or body is pending or, to the best of CAFA s knowledge, threatened, affecting the validity of the Lease, the Indenture, the Loan Agreement, or the Senior Series 2014A Bonds or contesting the corporate existence or powers of CAFA. There is presently no material litigation pending or, to the best of its officers knowledge, overtly threatened against CAFA. B-27

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99 APPENDIX C AUDITED FINANCIAL STATEMENTS OF AMERICAN LEADERSHIP ACADEMY AND CAFA FOR THE FISCAL YEARS ENDED JUNE 30, 2013 AND 2012

100 AMERICAN LEADERSHIP ACADEMY AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2012

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102 AMERICAN LEADERSHIP ACADEMY, INC. FINANCIAL STATEMENTS (WITH INDEPENDENT AUDITOR'S REPORT) AS OF JUNE 30, 2012 AND FOR THE YEAR THEN ENDED

103 AMERICAN LEADERSHIP ACADEMY, INC. FINANCIAL STATEMENTS JUNE 30, C O N T E N T S - PAGE INDEPENDENT AUDITOR'S REPORT FINANCIAL STATEMENTS: STATEMENT OF FINANCIAL POSITION STATEMENT OF ACTIVITIES STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS SPECIAL AUDIT REPORT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

104 Joel D. Huber, CPA, P.C. Certified Public Accountant 3048 East Baseline Road, Suite 116 Mesa, Arizona PHONE: (480) FAX: (866) Member of the American Institute of Certified Public Accountants Member of the Arizona Society of CPA s The Board of Directors American Leadership Academy, Inc. Gilbert, Arizona INDEPENDENT AUDITOR'S REPORT I have audited the accompanying statement of financial position of American Leadership Academy, Inc. (an Arizona nonprofit corporation) as of June 30, 2012, and the related statements of activities and cash flows for the year then ended. These financial statements are the responsibility of the School's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with United States generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Leadership Academy, Inc. as of June 30, 2012, and the results of its operations and its cash flows for the year then ended in conformity with United States generally accepted accounting principles. In accordance with United States Government Auditing Standards, I have also issued a report dated November 13, 2012, on my consideration of American Leadership Academy, Inc. s internal control over financial reporting and my tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of my testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with United States Government Auditing Standards and should be considered in assessing the results of my audit. Joel D. Huber, CPA, P.C. November 13,

105 AMERICAN LEADERSHIP ACADEMY, INC. STATEMENT OF FINANCIAL POSITION JUNE 30, 2012 Assets: Current Assets Cash Bond operating reserve (restricted) Prepaid expenses Employee advances and other current assets Total Current Assets Property and equipment, net of accumulated depreciation of $ 323,424 Other Assets Bond debt service reserve Deposits Note receivable Total Assets Liabilities and net assets: Current Liabilities Accounts payable Credit cards Line of credit Accrued expenses Current portion of notes payable Total Current Liabilities $ $ $ 458, , ,926 26,385 1,015,630 11,095, ,860 3,200 9,388 13,076, ,836 13,405 60, ,008 38, ,594 Notes payable long-term protion San Tan bonds payable - A bonds San Tan bonds payable - B bonds Total Liabilities Net Assets: Unrestricted Temporarily Restricted Total Net Assets Total Net Assets and Liabilities $ 80,227 10,664, ,025 11,765,871 1,310, ,310,369 13,076,240 See accompanying notes to the financial statements 2

106 AMERICAN LEADERSHIP ACADEMY, INC. STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012 Unrestricted Temporarily Restricted Total Revenues, Gains, and Other Support: Equalization and governmental revenues Contributions Other $ 6,918, , ,590 $ 0 $ 6,918, , ,590 Total Revenues, Gains, and Other Support 7,349, ,349,263 Expenses and Losses: Program services Instruction and operation Supporting services Administration 6,657, ,197 6,657, ,197 Total Expenses 7,048, ,048,162 Increase (decrease) in net assets 301, ,101 Net Assets (deficit) at beginning of year 1,009,268 1,009,268 Net Assets (deficit) at end of year $ 1,310,369 $ 0 $ 1,310,369 See accompanying notes to the financial statements 3

107 AMERICAN LEADERSHIP ACADEMY, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2012 Cash flows from operating activities: Change in net assets Adjustments to reconcile change in net assets to cash provided by operating activities: Depreciation Increase in prepaid expenses Decrease in employee advances, deposits and other current assets Increase in accounts payable and accrued expenses Increase in credit cards Increase in line of credit Net cash provided by operating activities $ 301, ,893 (240,926) 26, ,897 13,405 60, ,807 Cash flows from investing activities: Purchase of property and equipment Net cash used by investing activities (10,480,225) (10,480,225) Cash flows from financing activities: Proceeds from notes payable Principal payments on notes payable Funding of bond operating reserve Funding of bond debt service reserve Proceeds from series A bonds Proceeds from series B bonds Net cash provided by financing activities 138,021 (21,731) (289,349) (952,860) 10,664, ,025 9,992,131 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ 63, , ,970 Supplemental disclosures of cash flow information: Interest paid Income tax paid $ $ 404,817 0 See accompanying notes to the financial statements 4

108 AMERICAN LEADERSHIP ACADEMY, INC., NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 1 - ORGANIZATION American Leadership Academy, Inc. (School) is an Arizona not-for-profit corporation organized in 2009 to establish and operate a charter school which offers a strong academic foundation focusing on personal achievement and mastery; a recognition and appreciation for America s freedoms, history, and world contributions; and reverence for life cultivated through exposure to science, arts, service, and agriculture. The School operates under a Charter Contract with the Arizona State Board of Education which mandates policy and operational guidelines. During the fiscal year ending June 30, 2012, the School provided educational services to students in the kindergarten through twelfth grades in Gilbert, Arizona and was funded primarily through state equalization assistance. The School is exempt from Federal and Arizona income taxes on its exempt function income under Section 501 (c) (3) of the Internal Revenue Code. The School does not receive any non-exempt income and is not a private foundation. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING Assets, liabilities, support, revenues, and expenses are recognized using the accrual basis of accounting. RECOGNITION OF DONOR RESTRICTED SUPPORT Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donorrestricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. PROPERTY AND EQUIPMENT Land, buildings, and improvements with a cost of $3,000 or more and vehicles, furniture, and equipment with both a cost of $3,000 or more and an estimated life of one year or more are capitalized. Assets are stated at cost or fair market value at date of gift if contributed. Donations of property and equipment are recorded as support at their estimated fair values. Such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. Absent donor stipulations regarding how long those donated assets must be maintained, the School reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The School reclassifies temporarily restricted net assets to unrestricted net assets at that time. Depreciation of vehicles, furniture and equipment is provided on a straight-line basis over the estimated useful lives of the respective assets, ranging from 3 to 10 years. Buildings and improvements are amortized over 15 to 30 years. DONATIONS Donated services are recognized only if the services received either create or enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. A number of volunteers have made contributions of their time to the School to help with programs, provide clerical support, and assist with general maintenance. The value of this contributed time is not reflected in the financial statements since it does not meet the recognition criteria. 5

109 AMERICAN LEADERSHIP ACADEMY, INC., NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) USE OF ESTIMATES Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. CASH EQUIVALENTS For the purposes of the statement of cash flows, American Leadership Academy, Inc. considers cash operating bank accounts, money market accounts and cash on hand to be cash or cash equivalents. NOTE 3 - PROPERTY AND EQUIPMENT The following classes of property and equipment are reflected in the accompanying financial statements at June 30, 2012: Land, building and improvements $ 10,241,919 Furniture, equipment and other 1,010,203 Vehicles 166,464 11,418,586 Less Accumulated Depreciation (323,424) $ 11,095,162 Depreciation expense for the year ended June 30, 2012 was $247,893. NOTE 4 - NOTES PAYABLE The School is obligated under four notes payable. One for a telephone system that carries a balance at June 30, 2012 of $8,235, The other three notes are all for vehicle purchases. At June 30, 2012 the respective balance of each was, $9,530, $20,722 and $80,085. The estimated future minimum payments at June 30, 2012 are as follows: Year ending June 30: 2013 $ 44, , , , and thereafter 15,929 Total payments payable 133,886 Less: interest (15,314) Present value of note payable $ 118,572 Interest expense associated with the note totaled $2,560 for the year ended June 30,

110 AMERICAN LEADERSHIP ACADEMY, INC., NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 5 - BONDS PAYABLE In December 2011, to obtain capital for purchasing and building facilities for current and future students, the School entered into two bond agreements. The A bond series carried a debt balance at June 30, 2012 of $10,664,025 and the B bond series carried a debt balance at June 30, 2012 of $454,025. The bond agreements require the School to carry a bond operating reserve and a bond debt service reserve, at June 30, 2012 the balances, respectively, were $289,349 and $952,860. Monthly payments for the bond debt service begain in March 2012 and continue through July Interest only payments are required until July 2017, when yearly principal payments start in addition to the continued monthly interest payments. The estimated future minimum payments at June 30, 2012 are as follows: Year ending June 30: 2013 $ 812, , , , and thereafter 26,268,966 Total payments payable 29,520,662 Less: interest (18,402,612) Bond debt payable $ 11,118,050 Interest expense associated with the bonds totaled $397,429 for the year ended June 30, NOTE 6 - LEASE COMMITMENTS The School has operating leases for use of the facilities at certain locations. The leases will each expire in approximately 20 years, around 2031 or shortly thereafter. Lease expenses for the year ended June 30, 2012 were $1,162,928. The future minimum payments required under the lease terms are: For the Year Ended June 30, Operating Leases 2013 $ 3,361, ,499, ,632, ,738, ,847, and thereafter 67,258,082 Total minimum lease payments $ 85,338,318 7

111 NOTE 7 - ECONOMIC DEPENDENCY AMERICAN LEADERSHIP ACADEMY, INC., NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 American Leadership Academy, Inc. receives a substantial amount of its support from a government contract. A significant reduction in the level of support from this source may have a material effect on the School s continuing operations. NOTE 8 - FAIR VALUES OF FINANCIAL INSTRUMENTS Unless otherwise indicated, the fair values of all reported assets and liabilities which represent financial instruments (none of which are held for trading purposes) approximate the carrying values of such amounts. NOTE 9 - PENSION PLAN The School participates in the State of Arizona Retirement System. Total contributions to the plan during the year ended June 30, 2012 were $112,982. NOTE 10 - CONCENTRATION OF CREDIT RISK The School places its cash with high quality credit institutions. At times, such cash may be in excess of Federal Depository Insurance Corporation (FDIC) insurance limits. 8

112 SPECIAL AUDIT REPORT

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114 Joel D. Huber, CPA, P.C. Certified Public Accountant 3048 East Baseline Road, Suite 116 Mesa, Arizona PHONE: (480) FAX: (866) Member of the American Institute of Certified Public Accountants Member of the Arizona Society of CPA s REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors American Leadership Academy, Inc. Gilbert, Arizona I have audited the financial statements of American Leadership Academy, Inc. as of and for the year ended June 30, 2012, and have issued my report thereon dated November 13, I conducted my audit in accordance with United States generally accepted auditing standards and the standards applicable to financial audits contained in United States Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing my audit, I considered American Leadership Academy, Inc. s internal control over financial reporting as a basis for designing my auditing procedures for the purpose of expressing my opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of American Leadership Academy, Inc. s internal control over financial reporting. Accordingly, I do not express an opinion on the effectiveness of the Company s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. My consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. I did not identify any deficiencies in internal control over financial reporting that I consider to be a material weakness, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether American Leadership Academy, Inc. s financial statements are free of material misstatement, I performed tests of its compliance with certain provisions of laws, regulations, contracts, and grants agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of my audit and, accordingly, I do not express such an opinion. The results of my tests disclosed no instances of noncompliance that are required to be reported under United States Government Auditing Standards. 9

115 This report is intended for the information and use of the Board of Directors, Management, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Joel D. Huber, CPA, P.C. November 13, 2012 Joel D. Huber, CPA, P.C. Certified Public Accountant 10

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