OFFICIAL STATEMENT DATED JANUARY 24, 2013

Transcription

1 OFFICIAL STATEMENT DATED JANUARY 24, 2013 NEW ISSUE - BOOK-ENTRY ONLY RATED: BB+ (See RATING herein) In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming continuing compliance with certain covenants, interest on the Series 2013 Bonds is excluded from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel is further of the opinion that the interest on the Series 2013 Bonds is excluded from State of Arizona personal income taxation. For a more complete description, see TAX MATTERS herein. $44,365,000 THE INDUSTRIAL DEVELOPMENT AUTHORITY OF THE COUNTY OF PIMA EDUCATION FACILITY REVENUE AND REFUNDING BONDS (EDKEY CHARTER SCHOOLS PROJECT) SERIES 2013 Dated: Date of Delivery Due: See Inside Cover The Industrial Development Authority of the County of Pima (the Issuer ), a nonprofit corporation designated as a political subdivision of the State of Arizona (the State ), is issuing its Education Facility Revenue and Refunding Bonds (Edkey Charter Schools Project), Series 2013, in the aggregate principal amount of $44,365,000 (the Series 2013 Bonds ), pursuant to an Indenture of Trust, dated as of January 1, 2013 (the Indenture ), between the Issuer and BOKF, NA dba Bank of Arizona, as trustee (the Trustee ). The proceeds of the Series 2013 Bonds will be loaned (the Loan ) to six, separate Arizona limited liability companies (each a Series 2013 Borrower and collectively, the Series 2013 Borrowers ), the sole member of each of which is Edkey, Inc. (the Corporation ), an Arizona nonprofit corporation, pursuant to six Loan Agreements, each dated as of January 1, 2013 (the Series 2013 Loan Agreements ), between each of the Series 2013 Borrowers and the Issuer, and used to: (i) refinance the acquisition, construction, improvement, renovation and equipping of certain existing charter school facilities through the refunding of certain outstanding bonds, (ii) finance the acquisition, construction, improvement, renovation and equipping of other charter school facilities, (ii) fund any required reserves, (iv) pay capitalized interest on the Series 2013 Bonds and (v) pay certain expenses relating to the issuance of the Series 2013 Bonds (the Series 2013 Project ). The Series 2013 Bonds will be payable from the moneys held for the payment thereof by the Trustee under the Indenture, including amounts held in a debt service reserve fund and Loan Payments (as defined herein) to be made by the Series 2013 Borrower(s) under the Series 2013 Loan Agreements. The Series 2013 Bonds will be secured by an assignment and pledge of (i) amounts payable pursuant to the Series 2013 Loan Agreements, (ii) the Series 2013 Deed of Trust (as defined herein) in favor of the Trustee, as beneficiary, and the title company, as trustee thereunder, subject to certain Permitted Encumbrances (as defined herein), and (iii) certain funds created in the Indenture. As security for the Series 2013 Borrowers obligations under the Series 2013 Loan Agreements, the Corporation will execute Obligation No. 1, dated the date of issuance of the Series 2013 Bonds ( Obligation No. 1 ) in favor of the Bond Trustee, pursuant to a Master Trust Indenture, dated as of January 1, 2013 (the Original Master Indenture ), between the Corporation, as the initial member of an obligated group (the Obligated Group ) and BOKF, NA dba Bank of Arizona, as master trustee (the Master Trustee ), as supplemented by the Supplemental Master Trust Indenture Number One, dated as of January 1, 2013 (together with the Original Master Indenture, the Master Indenture ), between Edkey and the Master Trustee. Under the Master Indenture, each Obligated Group Member (as defined herein) will grant to the Master Trustee a security interest in its Gross Receipts (as defined herein). The Series 2013 Borrowers sole source of funds to make Loan Payments will be the payments made by the Corporation pursuant to Obligation No. 1. See DESCRIPTION OF THE SERIES 2013 BONDS and SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2013 BONDS herein. Interest on the Series 2013 Bonds will accrue from the date of delivery thereof and will be payable on the first calendar day of each month, commencing March 1, The Series 2013 Bonds will be issued as fully registered bonds and in the denomination of $5,000 and any integral multiples of $5,000 in excess thereof with a minimum purchase of $10,000, and will initially be registered in the name of Cede & Co., as registered owner and nominee for the Depository Trust Company, New York, New York ( DTC ). Purchases of the Series 2013 Bonds will be made in book-entry form only. Purchasers of beneficial interests will not receive certificates representing their interest in the Series 2013 Bonds. Payments of principal of and premium, if any, and interest on the Series 2013 Bonds will be made directly to DTC or its nominee, Cede & Co., so long as DTC or Cede & Co. is the registered owner of the Series 2013 Bonds. Disbursement of such payment to DTC s Participants (as defined herein) is the responsibility of DTC and disbursement of such payments to the Beneficial Owners (as defined herein) is the responsibility of the Participants, as more fully described herein. See APPENDIX H -- BOOK-ENTRY ONLY SYSTEM. THE SERIES 2013 BONDS, PREMIUM, IF ANY, AND THE INTEREST THEREON ARE SPECIAL LIMITED OBLIGATIONS OF THE ISSUER PAYABLE EXCLUSIVELY FROM THE TRUST ESTATE. THE SERIES 2013 BONDS DO NOT CONSTITUTE A DEBT OR A LOAN OF CREDIT OR A PLEDGE OF THE FULL FAITH AND CREDIT OR TAXING POWER OF THE ISSUER, PIMA COUNTY, ARIZONA OR OF THE STATE OF ARIZONA, OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY ARIZONA CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION, AND SHALL NEVER CONSTITUTE NOR GIVE RISE TO A PECUNIARY LIABILITY OF PIMA COUNTY, ARIZONA OR THE STATE OF ARIZONA. THE SERIES 2013 BONDS SHALL NOT CONSTITUTE, DIRECTLY OR INDIRECTLY, OR CONTINGENTLY OBLIGATE OR OTHERWISE CONSTITUTE A GENERAL OBLIGATION OF OR A CHARGE AGAINST THE GENERAL CREDIT OF THE ISSUER, BUT SHALL BE SPECIAL LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE SOURCES DESCRIBED IN THE INDENTURE, AND NOT OTHERWISE. THE ISSUER HAS NO TAXING POWER. NO RECOURSE SHALL BE HAD FOR THE PAYMENT OF THE PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THE SERIES 2013 BONDS AGAINST ANY PAST, PRESENT OR FUTURE OFFICER, DIRECTOR, COUNSEL, ADVISOR, OR AGENT OF THE ISSUER, OR ANY SUCCESSOR TO THE ISSUER, AS SUCH, EITHER DIRECTLY OR THROUGH THE ISSUER OR ANY SUCCESSOR TO THE ISSUER, PURSUANT TO ANY RULE OF LAW OR EQUITY, STATUTE OR CONSTITUTION OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR PENALTY OR OTHERWISE, AND ALL SUCH LIABILITY OF ANY SUCH OFFICERS, DIRECTORS, COUNSEL, ADVISORS OR AGENTS, AS SUCH, IS EXPRESSLY WAIVED AND RELEASED AS A CONDITION OF AND CONSIDERATION FOR THE EXECUTION AND ISSUANCE OF THE SERIES 2013 BONDS. Investment in the Series 2013 Bonds involves a high degree of risk and is speculative in nature. See BONDHOLDERS RISKS herein. Anyone considering investing in the Series 2013 Bonds should carefully examine this Official Statement, including the Appendices hereto. This cover page contains certain information for general reference only. It is not a summary of this issue. The Series 2013 Bonds are offered when, as and if issued by the Issuer and received and accepted by the underwriters identified below (together, the Underwriter ) and subject to the approval of legality by Kutak Rock LLP, Scottsdale, Arizona, Bond Counsel. Certain legal matters will be passed upon by Russo, Russo & Slania, P.C., Tucson, Arizona, as Issuer s counsel, by Buchalter Nemer, Scottsdale, Arizona, as Series 2013 Borrowers and the Corporation s counsel, by Kutak Rock LLP, Scottsdale, Arizona, as Issuer s disclosure counsel and by John T. Lynch, Jr., Phoenix, Arizona, as counsel to and solely for the benefit of the Underwriters. It is expected that the Series 2013 Bonds in book-entry form will be available for delivery against payment therefor on or about January 24, 2013.

2 $44,365,000 The Industrial Development Authority of the County of Pima Education Facility Revenue and Refunding Bonds (Edkey Charter Schools Project), Series 2013 MATURITY SCHEDULE Maturity Date Principal Amount Interest Rate Yield Price CUSIP * July 1, 2018 $1,630, % 4.000% M NQ6 July 1, 2019 $585, % 4.100% M NV5 July 1, 2020 $610, % 4.200% M NW3 July 1, 2023 $2,005, % 5.000% M NR4 July 1, 2025 $1,510, % 5.200% M NX1 July 1, 2033 $8,050, % 5.500% M NS2 July 1, 2035 $2,665, % 5.900% M NY9 July 1, 2043 $14,315, % 6.050% M NT0 July 1, 2048 $12,995, % 6.100% M NU7 * CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright(c) 2013 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Global Services. CUSIP numbers are provided for convenience of reference only. None of the Issuer, the Borrower, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers. i

3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2013 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. No dealer, broker, salesperson or other person has been authorized by the Issuer, the Series 2013 Borrowers, Edkey or the Underwriter to give any information or to make any representation with respect to the Series 2013 Bonds other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy and there shall not be any offer, solicitation, sale or delivery of the Series 2013 Bonds by any person in any jurisdiction in which it is unlawful for such person to make an offer, solicitation, sale or delivery. The descriptions of the documents in the Official Statement are summaries thereof and reference is made to the actual documents for a complete understanding of the contents of such documents. The Trustee assumes no responsibility for this Official Statement and has not reviewed or undertaken to verify any information contained herein. The order and placement of materials in this Official Statement, including the Appendices, are not deemed to be a determination of relevance, materiality or importance, and this Official Statement, including the Appendices, must be considered in its entirety. The offering of the Series 2013 Bonds is made only by means of this entire Official Statement. THE INFORMATION SET FORTH HEREIN HAS BEEN OBTAINED FROM THE ISSUER, THE SERIES 2013 BORROWERS, THE CORPORATION AND OTHER SOURCES THAT ARE BELIEVED TO BE RELIABLE, BUT IT IS NOT GUARANTEED AS TO ACCURACY AND COMPLETENESS, AND IS NOT TO BE CONSTRUED AS A REPRESENTATION BY THE UNDERWRITER OR BY THE ISSUER (EXCEPT FOR INFORMATION FURNISHED BY THE ISSUER UNDER THE CAPTIONS ISSUER AND LITIGATION AS IT RELATES TO THE ISSUER). THE INFORMATION AND EXPRESSIONS OF OPINION HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE AND NEITHER THE DELIVERY OF THIS OFFICIAL STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE THE IMPLICATION THAT THERE HAS BEEN NO CHANGE IN ANY OF THE INFORMATION SET FORTH HEREIN SINCE THE DATE HEREOF. THE CORPORATION HAS AGREED, HOWEVER, TO SUPPLEMENT AND/OR AMEND THIS OFFICIAL STATEMENT WHENEVER NECESSARY TO KEEP THE INFORMATION HEREIN ACCURATE AND NOT MISLEADING. OTHER THAN WITH RESPECT TO INFORMATION CONCERNING THE ISSUER UNDER THE CAPTIONS ISSUER AND LITIGATION AS IT RELATES TO THE ISSUER, NONE OF THE INFORMATION IN THIS OFFICIAL STATEMENT HAS BEEN SUPPLIED OR VERIFIED BY THE ISSUER AND THE ISSUER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO: (I) THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION; (II) THE VALIDITY OF THE SERIES 2013 BONDS; OR (III) THE TAX STATUS OF THE INTEREST ON THE SERIES 2013 BONDS. The Corporation has covenanted to provide continuing disclosure as described in this Official Statement in APPENDIX G FORM OF CONTINUING DISCLOSURE UNDERTAKING, pursuant to Rule 15c2-12 of the Securities and Exchange Commission. The Issuer has not, and will not, undertake any responsibilities to provide continuing disclosure with respect to the Series 2013 Bonds and will have no liability to owners of the Series 2013 Bonds with respect to any such disclosures. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of its responsibilities to investors pursuant to federal securities law as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information, except for the information provided by the Underwriter under the captions UNDERWRITING, SOURCES AND USES OF FUNDS and DEBT SERVICE REQUIREMENTS ON SERIES 2013 BONDS. The Series 2013 Bonds have not been registered under the Securities Act of 1933, as amended, and the Indenture has not been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon exemptions contained in each. ii

4 [THIS PAGE INTENTIONALLY LEFT BLANK]

5 TABLE OF CONTENTS INTRODUCTION... 1 General... 1 Debt Service Reserve Fund... 3 The Corporation Pledge of State Funds... 3 Restrictions on Purchaser and Transfer... 4 Forward-Looking Statement... 4 Miscellaneous... 4 Bondholders Risks... 5 ISSUER... 5 SERIES 2013 BORROWERS... 5 THE CORPORATION... 6 PROGRAM ADMINISTRATOR... 6 General... 6 Duties... 6 Continuous Service... 6 Assignment of Administration Obligations... 6 DESCRIPTION OF THE SERIES 2013 BONDS... 6 Interest, Maturity, Payment... 6 Investor Suitability Standards and Transferability... 7 Redemption of Series 2013 Bonds Prior to Maturity... 7 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2013 BONDS General Indenture Series 2013 Loan Agreement Series 2013 Deed of Trust; Assignment of Leases and Rents The Master Trust Indenture and the Obligated Group SOURCES AND USES OF FUNDS THE SERIES 2013 PROJECT MATHEMATICAL VERIFICATION THE CONSTRUCTION ADMINISTRATOR Assignment of Administration Obligations Termination Construction Administrator s Experience DEBT SERVICE REQUIREMENTS ON SERIES 2013 BONDS BONDHOLDERS RISKS General Revocation, Non-Renewal or Expiration of Charter No Taxing Authority/Dependence on State Payments Changes in State of Arizona Law; Annual Appropriation; Inadequate State Payments State of Arizona Budget Key Management Reliance on Projections Income and Property Tax Exemption Economic and Other Factors Factors Associated with Education... 23

6 Other Schools/Competition for Students Construction Costs and Completion of the Series 2013 Facilities Risks of Real Estate Investment Debt Service Reserve Fund Taxation of the Series 2013 Bonds Additional Bonds Incurrence of Additional Indebtedness Non-Recourse Debt Legal Opinions Cancellation of Contracts Inability or Delay in Liquidating the Series 2013 Facilities at an Adequate Sale Price Potential Effects of Bankruptcy Enforcement of Remedies Bond Audits Secondary Market TAX MATTERS In General Backup Withholding Changes in Federal Tax Law RATING UNDERWRITING LEGAL MATTERS LITIGATION RELATIONSHIPS AMONG PARTIES CONTINUING DISCLOSURE CONSOLIDATED FINANCIAL STATEMENTS MISCELLANEOUS APPENDIX A THE CORPORATION APPENDIX B CONSOLIDATED FINANCIAL STATEMENTS APPENDIX C CHARTER SCHOOLS IN ARIZONA APPENDIX D SUMMARIES OF FINANCING DOCUMENTS APPENDIX E THE CORPORATION S BUDGET PROJECTIONS APPENDIX F PROPOSED FORM OF BOND COUNSEL OPINION APPENDIX G FORM OF CONTINUING DISCLOSURE UNDERTAKING APPENDIX H BOOK ENTRY ONLY SYSTEM APPENDIX I FORM OF INVESTOR LETTER

7 THE INDUSTRIAL DEVELOPMENT AUTHORITY OF THE COUNTY OF PIMA $44,365,000 EDUCATION FACILITY REVENUE AND REFUNDING BONDS (EDKEY CHARTER SCHOOLS PROJECT) SERIES 2013 INTRODUCTION The following is a brief introduction as to certain matters discussed elsewhere in this Official Statement and is qualified in its entirety as to such matters by such discussion and the text of the actual documents described or referenced. Any capitalized term not otherwise defined herein is used with the meaning assigned in APPENDIX D SUMMARIES OF FINANCING DOCUMENTS, or in the Indenture of Trust, to be dated as of January 1, 2013 (the Indenture ), between The Industrial Development Authority of the County of Pima (the Issuer ), and BOKF, NA dba Bank of Arizona, as trustee (the Trustee ), the six Loan Agreements, each to be dated as of January 1, 2013 (each a Series 2013 Loan Agreement known individually as the AHA Camp Verde Loan Agreement, the Show Low Loan Agreement, the CFA Loan Agreement, the AHA Cottonwood Loan Agreement, the ACAA North 28 th Loan Agreement and the Sequoia Pathway Loan Agreement and collectively, the Series 2013 Loan Agreements ), between the Issuer and 132 General Crook Trail, LLC (the AHA Camp Verde Borrower ), 982 Full House, LLC (the Show Low Borrower ), 1648 S. 16 th Street, LLC (the CFA Borrower ), 2030 E. Cherry Street, LLC (the AHA Cottonwood Borrower ), N. 28 th Avenue, LLC (the ACAA North 28 th Borrower ) and N. Porter, LLC (the Sequoia Pathway Borrower and collectively, with the AHA Camp Verde Borrower, the Show Low Borrower, the CFA Borrower, the AHA Cottonwood Borrower, and the ACAA North 28 th Borrower, the Series 2013 Borrowers and each individually, a Series 2013 Borrower ), the sole member of each of which is Edkey, Inc., an Arizona nonprofit corporation (the Corporation ), the Master Indenture (as defined herein), or any other document with respect to which the term is used. Definitions contained in the text hereof are for ease of reference only and are qualified in their entirety by the definitions in APPENDIX D SUMMARIES OF FINANCING DOCUMENTS, or the documents with respect to which such terms relate. The Appendices hereto are an integral part of this Official Statement and each potential investor should review the Appendices in their entirety. General This Official Statement, including the cover page, the inside cover, this introductory statement and the Appendices attached hereto (this Official Statement ), is furnished in connection with the offering of The Industrial Development Authority of the County of Pima Education Facility Revenue and Refunding Bonds (Edkey Charter Schools Project), Series 2013, in the aggregate principal amount of $44,365,000 (the Series 2013 Bonds ). The Series 2013 Bonds were authorized by a resolution adopted by the Board of Directors of the Issuer on October 19, 2012, and the Constitution and laws of the State of Arizona (the State ), particularly the Industrial Development Financing Act, comprised of Title 35, Chapter 5 of the Arizona Revised Statutes (the Act ) and will be issued under the Indenture. The proceeds of the Series 2013 Bonds will be loaned (the Loan ) to the Series 2013 Borrowers pursuant to the Series 2013 Loan Agreements. The Series 2013 Borrowers will use the proceeds of the Series 2013 Bonds to: (i) refinance the costs of acquiring, constructing, improving, renovating and equipping charter school facilities located at (A) North Porter Road in Maricopa, Arizona (the Sequoia Pathway Facilities ), through the refunding of the Issuer s Education Facility Revenue Bonds (Sequoia Pathway Academy Project) Series 2010 (the Series 2010 Bonds ), (B) 1648 S. 16th Street in Phoenix, Arizona (the CFA Facilities through the refunding of the Issuer s Education Facility Revenue Bonds (Children First Academy Project) Series 2012 (the Children First Bonds ) and (C) 2030 East Cherry Street in Cottonwood, Arizona (the AHA Cottonwood Facilities and, together with the Sequoia Pathway Facilities and the CFA Facilities, the Refinanced Facilities ), through the refunding of a portion of The Industrial Development Authority of the County of Maricopa Education Revenue Bonds (Arizona Charter School Project I) Series 2000A (the Series 2000 Bonds and, together with the Series 2010 Bonds and the Children First Bonds, the Prior Bonds ); (ii) financing the acquisition, construction, improvement, renovation and equipping of charter school facilities at (A) the Refinanced Facilities, (B) 132 General Crook Trail, Camp Verde, Arizona (the AHA Camp Verde Facilities ), (C) North 28 th Avenue in Phoenix, Arizona (the ACAA North 28th Facilities ), (D) 2820 West Kelton Lane in Phoenix, Arizona (the ACAA Kelton Facilities ), (E) 1460 South Horne in Mesa, Arizona (the Horne Facilities ) and (F) 982 Full House Lane in Show Low, Arizona (the Village Facilities and together with the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the ACAA Kelton Facilities, the Horne Facilities and the Refinanced Facilities, the Series 2013 Facilities ); (ii) fund any required reserves, (iv) pay capitalized interest on the Series 2013 Bonds and (v) pay certain expenses relating to the issuance of the Series 2013 Bonds (collectively, the Series 2013 Project ). Each Series 2013 Borrower s repayment

8 obligation under its Series 2013 Loan Agreement will be evidenced by a promissory note executed by such Series 2013 Borrower (each a Series 2013 Note known individually as the Series 2013 AHA Camp Verde Borrower Promissory Note, the Series 2013 Show Low Borrower Promissory Note, the Series 2013 CFA Borrower Promissory Note, the Series 2013 AHA Cottonwood Borrower Promissory Note, the ACAA North 28 th Promissory Note and the Sequoia Pathway Promissory Note and collectively, the Series 2013 Notes ). The AHA Camp Verde Borrower will own the AHA Camp Verde Facilities. To secure its obligations under the Series 2013 AHA Camp Verde Borrower Promissory Note, the AHA Camp Verde Borrower will deliver a Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing, dated as of January 1, 2013, for the benefit of the Trustee as beneficiary thereunder (the AHA Camp Verde Deed of Trust ). The CFA Borrower will own the CFA Facilities. To secure its obligations under the Series 2013 CFA Borrower Promissory Note, the CFA Borrower will deliver a Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing, dated as of January 1, 2013, for the benefit of the Trustee as beneficiary thereunder (the CFA Deed of Trust ). The AHA Cottonwood Borrower will own the AHA Cottonwood Facilities upon the refunding of a portion of the Series 2000A Bonds issued pursuant to the Indenture of Trust, dated as of March 1, 2000 (the Series 2000A Indenture ), between The Industrial Development Authority of the County of Maricopa and The Bank of New York Mellon Trust Company, N.A., as successor-in-interest to Bank One Trust Company, N.A., as trustee (the Series 2000A Trustee ). Pursuant to the Series 2000A Indenture, the Series 2000A Trustee may require a forty-five (45) day notice of prepayment. If the Series 2000A Trustee does not waive the forty-five (45) day notice requirement, the portion of the Series 2013 Bond Proceeds to be used for the acquisition of the AHA Cottonwood Facilities will remain on deposit in the Project Fund under the Indenture and the Master Trustee will have a subordinate lien on the State Payments with respect to the American Heritage Academy Charter School Contract. Upon the refunding of a portion of the Series 2000A Bonds, the Master Trustee will have a senior lien on such State Payments and the AHA Cottonwood Borrower will deliver a Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing, for the benefit of the Trustee as beneficiary thereunder (the AHA Cottonwood Deed of Trust ) to secure its obligations under the Series 2013 AHA Cottonwood Borrower Promissory Note. With respect to the ACAA North 28 th Facilities, the Corporation currently leases a portion of such ACAA North 28 th Facilities pursuant to a lease dated December 30, 2011 (the ACAA Lease ) by and between the Corporation and CWSP-I-B, LLC, a Delaware limited liability company ( Crown ). The ACAA Lease contains an Option to Purchase Real Property (the ACAA Option ) whereby the Corporation was granted the option to purchase ACAA North 28 th Facilities, subject to the terms of a Purchase and Sale Agreement negotiated in connection with the ACAA Lease. Upon the issuance of the Series 2013 Bonds, the Corporation will exercise the ACAA Option to purchase the ACAA N. 28th Facilities. See APPENDIX A THE CORPORATION. Because the Corporation must provide at least 150 days notice of its intent to exercise its option to purchase the ACAA North 28 th Facilities under the Option Agreement, the acquisition of the ACAA North 28 th Facilities will occur by June of 2013, approximately 150 days following the Bond Closing. To secure the ACAA North 28th Borrower s obligations under the ACAA North 28 th Borrower Promissory Note, the ACAA North 28 th Borrower will, upon the acquisition of the ACAA North 28 th Facilities, deliver a Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing, for the benefit of the Trustee as beneficiary thereunder (the ACAA North 28th Deed of Trust ). Until the ACAA North 28th Facilities are acquired, the portion of the Series 2013 Bond Proceeds to be used for the acquisition of the ACAA North 28th Facilities will remain on deposit in the Project Fund under the Indenture. The Sequoia Pathway Borrower will own the Sequoia Pathway Facilities. To secure its obligations under the Series 2013 Sequoia Pathway Borrower Promissory Note, the Sequoia Pathway Borrower will deliver a Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing, dated as of January 1, 2013, for the benefit of the Trustee as beneficiary thereunder (the Sequoia Pathway Deed of Trust ). The Show Low Borrower will not own any of the Series 2013 Facilities and its obligations under the Series 2013 Show Low Borrower Promissory Note will be unsecured. The proceeds from its portion of the Loan will be used at the ACAA Kelton Facilities, the Horne Facilities and the Village Facilities, all of which are owned by the Corporation. As security for all of the Series 2013 Borrowers obligations under the Series 2013 Loan Agreements, the Corporation will execute Obligation No. 1 in the same principal amount as the aggregate principal amount of the Series 2013 Bonds, dated the date of issuance of the Series 2013 Bonds ( Obligation No. 1 ) in favor of the Bond Trustee. Obligation No. 1 will be issued pursuant to the Master Trust Indenture, dated as of January 1, 2013 (the Original Master Indenture ), between the Corporation, as the initial member of an obligated group (the Obligated Group ) and the Master Trustee, as supplemented by the First Supplemental Master Trust Indenture, dated as of January 1, 2013 (together with the Original Master Indenture, the Master Indenture ), between the Corporation and the Master Trustee. To secure its obligations under Obligation No.1, the Corporation will deliver a Corporation Second Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing on each of the ACAA Kelton Facilities, the Horne Facilities and the Village Facilities, each dated as of January 1, 2013, and for the benefit of the Master Trustee, as beneficiary thereunder (each a Corporation Second Deed of Trust and collectively, the Corporation Second Deeds of Trust ). The Corporation has previously delivered a Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of June 1, 2006 (the Corporation First Deed of Trust ), on the ACAA Kelton Facilities, the Horne Facilities and the 2

9 Village Facilities to secure its repayment obligations under a promissory note related to the repayment of the Issuer s Education Facility Revenue Bonds (Choice Education and Development Corporation Project) Series 2006 (the Series 2006 Bonds ). The Series 2013 Bonds, together with any Additional Bonds issued on a parity therewith pursuant to the Indenture (collectively, the Bonds ), are special limited obligations of the Issuer payable exclusively from the Trust Estate pledged, assigned and mortgaged to the Trustee pursuant to the Indenture. The Trust Estate includes: (i) the rights, title and interests of the Issuer under the Series 2013 Loan Agreements (except for Issuer s Unassigned Rights); (ii) Obligation No. 1; (iii) the rights, title and interests of the Issuer in the Series 2013 Project (except the Issuer s Unassigned Rights), subject to Permitted Encumbrances; (iv) the Revenues and all rights, title and interests of the Issuer in the Series 2013 Borrower Pledged Revenues, subject to Permitted Encumbrances (except the Issuer s Unassigned Rights); (v) the rights, title and interests of the Issuer and each Series 2013 Borrower under the Series 2013 Notes and the Series 2013 Deed of Trust; (vi) all Funds held by the Trustee pursuant to the Indenture (except amounts on deposit in the Cost of Issuance Fund, the Tax and Insurance Escrow Fund and the Rebate Fund), subject to the exceptions as provided in the Indenture; and (vii) any and all other interests in real or personal property of every name and nature from time to time hereafter by delivery or by writing of any kind specifically mortgaged, pledged or hypothecated. Debt Service Reserve Fund The Indenture creates a Debt Service Reserve Fund that is required to have a balance therein equal to the Debt Service Reserve Fund Requirement. On the Bond Closing, proceeds of the Series 2013 Bonds in an amount equal to $3,088, will be deposited in the Debt Service Reserve Fund. Moneys in the Debt Service Reserve Fund may be used for, among other things, the payment of debt service on the Series 2013 Bonds, if moneys in the Bond Fund and amounts received from the Master Trustee from payments under the Master Indenture are insufficient. There is no guarantee that the Debt Service Reserve Fund will be available to pay debt service on the Series 2013 Bonds. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2013 BONDS Debt Service Reserve Fund herein and APPENDIX D SUMMARIES OF FINANCING DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE OF TRUST Debt Service Reserve Fund. The Corporation Pledge of State Funds The Corporation holds nine charter school contracts (the Charter School Contracts ) with the Arizona State Board for Charter Schools (the ASBCS ) known as the American Heritage Academy Charter School Contract, the Arizona Conservatory for Arts and Academics Charter School Contract, the Learning Crossroads Basic Academy Charter School Contract, the Pathfinder Academy Charter School Contract, the Sequoia Charter Schools Charter School Contract, the Sequoia Ranch Charter School Contract, the Sequoia Redwood Academy Charter School Contract, the Sequoia School for the Deaf and Hard of Hearing Charter School Contract and the Sequoia Village Charter School Contract (each as defined in APPENDIX A ). The Corporation operates the fifteen charter schools pursuant to the Charter School Contracts. Gross Receipts (as defined herein) of the Corporation will include, among other revenues, State Payments received by the Corporation under the Charter School Contracts. As additional security for the Loan Payments and, in turn, the Series 2013 Bonds, the Corporation will irrevocably direct the State Treasurer to make State Payments with respect to the American Heritage Academy Charter School Contract, the Sequoia Ranch Charter School Contract and the Sequoia Redwood Academy Charter School Contract (the Senior Lien Charter School Contracts ) directly to the Master Trustee as long as any of the Series 2013 Borrowers obligations under the Series 2013 Loan Agreements remain outstanding. With respect to the American Heritage Academy Charter School Contract, the related State Payments are currently pledged to pay the principal of, premium, if any, and interest on the Series 2000A Bonds under the Series 2000A Indenture. In connection with the refunding of the AHA Cottonwood s portion of the Series 2000A Bonds, the Series 2000A Trustee may require a forty-five (45) day notice of prepayment pursuant to the Series 2000A Indenture. If the Series 2000A Trustee does not waive the forty-five (45) day notice requirement, the portion of the Series 2013 Bond Proceeds to be used for the acquisition of the AHA Cottonwood Facilities will remain on deposit in the Project Fund under the Indenture and the Master Trustee will have a subordinate lien on the State Payments with respect to the American Heritage Academy Charter School Contract. Upon the refunding of a portion of the Series 2000A Bonds, the Master Trustee will have a senior lien on such State Payments and the AHA Cottonwood Borrower will deliver a Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing, for the benefit of the Trustee as beneficiary thereunder (the AHA Cottonwood Deed of Trust ) to secure its obligations under the Series 2013 AHA Cottonwood Borrower Promissory Note. The State Payments with respect to the Pathfinder Academy Charter School Contract will not be assigned directly to the Master Trustee, but will be available as Gross Receipts of the Corporation. The State Payments with 3

10 respect to the Arizona Conservatory for Arts and Academics Charter School Contracts, the Learning Cross Roads Basic Academy Charter School Contract, the Sequoia Charter Schools Charter School Contract, the Sequoia School for the Deaf and Hard of Hearing Charter School Contract and the Sequoia Village Charter School Contract (the Subordinate Lien Charter School Contracts ) have been assigned to the bond trustee for the Series 2006 Bonds and are pledged on a senior basis to the repayment of the outstanding Series 2006 Bonds. The Corporation will instruct the bond trustee for the Series 2006 Bonds to pay any State Payments received with respect to the Subordinate Lien Charter School Contracts and not required to make any payments related to the Series 2006 Bonds, directly to the Master Trustee. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2013 BONDS The Master Trust Indenture and the Obligated Group Pledge of State Payments herein, APPENDIX A THE CORPORATION, APPENDIX C CHARTER SCHOOLS IN ARIZONA and APPENDIX D SUMMARIES OF FINANCING DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE. The Learning Crossroads Basic Academy Charter will expire on June 30, The students currently enrolled at the Horne Facilities under the Learning Crossroads Basic Academy Charter Contract will be enrolled under the Sequoia Charter Schools Charter School Contract at the commencement of the school year. See APPENDIX A THE CORPORATION THE CHARTER SCHOOL CONTRACTS. Restrictions on Purchaser and Transfer The Series 2013 Bonds may be purchased only by a purchaser meeting the criteria in the Investor Letter set forth in Appendix I attached hereto (the Investor Letter ). The Series 2013 bonds will also only be transferable only as described in the Investor Letter. See DESCRIPTION OF THE SERIES 2013 BONDS Investor Suitability Standards and Transferability herein. Forward-Looking Statement This Official Statement contains certain statements that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended. All statements other than statements of historical facts included in this Official Statement, including without limitation statements that use terminology such as estimate, expect, intend, anticipate, believe, may, will, continue and similar expressions, are forward-looking statements. These forward-looking statements include, among other things, the discussions related to the Corporation s operation of the charter schools and the Series 2013 Facilities and expectations regarding student enrollment, future operations, revenues, capital resources and expenditures for capital projects. Although the Corporation believes that the assumptions upon which the forward-looking statements contained in this Official Statement are based are reasonable, any of the assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions also could be incorrect. All phases of the operations of the Corporation involve risks and uncertainties, many of which are outside the control of the Corporation and any one of which, or a combination of which, could materially affect the results of the Corporation s operations and whether the forward-looking statements ultimately prove to be correct. Factors that could cause actual results to differ from those expected include, but are not limited to, general economic conditions such as inflation and interest rates, both nationally and in the areas of the State where the Series 2013 Facilities are located; changes in general business regulation that could adversely impact the Corporation s operations; unanticipated delays in completion of the Series 2013 Facilities and/or unanticipated cost overruns; the willingness of the State to fund charter school operations at present or increased levels; competitive conditions within the Corporation s markets, including the acceptance of the education services offered by Edkey; lower enrollments than projected; unanticipated expenses; the capabilities of the Corporation s management; changes in government regulation of the education industry or in the State charter school statute; future claims for accidents or other torts at the Series 2013 Facilities and the extent of insurance coverage for such claims; and other risks discussed in this Official Statement. Important factors that could cause actual results to differ materially from the Corporation s expectations ( cautionary statements ) are disclosed in this Official Statement including in conjunction with the forward-looking statements included in this Official Statement, under BONDHOLDERS RISKS and in APPENDIX A - THE CORPORATION herein and APPENDIX B CONSOLIDATED FINANCIAL STATEMENTS. The realization of future revenues is dependent upon, among other things, the matters described in the foregoing paragraph and future changes in economic and other conditions that are unpredictable and cannot be determined at this time. See BONDHOLDERS RISKS herein. The Underwriter makes no representation as to the accuracy of the Projections contained herein or as to the assumptions on which the Projections are based. Miscellaneous This Official Statement (including the Appendices hereto) contains descriptions of, among other matters, the Indenture, the Series 2013 Loan Agreements, the Series 2013 Deed of Trust, the Master Indenture, the Issuer, the Series 2013 Borrowers, the Corporation, the Series 2013 Facilities and the Series 2013 Bonds. Such descriptions and 4

11 information do not purport to be comprehensive or definitive. All references to documents described herein are qualified in their entirety by reference to such documents, copies of which are available for inspection at the designated corporate trust office of the Trustee. Bondholders Risks Certain risks associated with an investment in the Series 2013 Bonds are discussed under BONDHOLDERS RISKS. ISSUER The Issuer is organized under the Act and, in accordance with the terms thereof, is a nonprofit corporation designated a political subdivision of the State. The Issuer has no taxing power and does not have the power to pledge the general credit or taxing powers of Pima County (the County ), the State or any political subdivision thereof. The Issuer is not pledging its general credit for the Series 2013 Bonds. The business and affairs of the Issuer are managed by a Board of Directors appointed by the Board of Supervisors of the County. The five members of its Board of Directors serve staggered terms of six years each. The Issuer is empowered to issue its bonds to provide funds for the financing or refinancing of the costs of the acquisition, construction, improvement, rehabilitation or equipping of a project, as defined in the Act, including charter school facilities. The Issuer has all the requisite authority to issue the Series 2013 Bonds, lend the proceeds to the Series 2013 Borrowers, and enter into and perform all of its obligations pursuant to the Series 2013 Loan Agreements and the Indenture. The Issuer does not employ any staff to carry out its limited functions; it contracts with independent third parties to do so. The Issuer does not, and will not in the future, monitor the financial condition of the Series 2013 Borrowers or the Corporation, the operation of the Series 2013 Facilities or the Series 2013 Project or otherwise monitor payment of the Series 2013 Bonds or compliance with the documents relating thereto. The responsibility for the operation of the Series 2013 Facilities and the Series 2013 Project will rest entirely with the Series 2013 Borrowers and the Corporation. The Series 2013 Bonds and the interest thereon are special limited obligations of the Issuer. No recourse shall be had for the payment of the principal of, premium, if any, or interest on any of the Series 2013 Bonds or for any claim based thereon or upon any obligation, covenant or agreement in the Indenture or the Series 2013 Loan Agreements against any past, present, or future officer, director, counsel, financial advisor, or agent of the Issuer, or of any successor to the Issuer, under any rule of law or equity, statute, or Constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such officers, directors, counsel, financial advisor or agent, as such, has been expressly waived as a condition of and in consideration for the execution of the Indenture and the issuance of the Series 2013 Bonds. Under the financing contemplated hereby, the Issuer has no material obligations with respect to the Series 2013 Bonds or the Series 2013 Project after the issuance of the Series 2013 Bonds since the Trustee will have primary responsibility to enforce compliance with the Indenture and the Series 2013 Loan Agreements. All payments made pursuant to the Series 2013 Loan Agreements will be made by the Series 2013 Borrowers to the Trustee for disbursement to the owners of the Series 2013 Bonds. Except for monies from the Trust Estate, none of the revenues to pay the Series 2013 Bonds will come from the Issuer and therefore the Issuer s financial information and status are irrelevant to any investment decision with respect to the Series 2013 Bonds. As a result, no information regarding the Issuer will be provided as any continuing disclosure requirement relating to the Series 2013 Bonds. Neither the Issuer nor its independent contractors have furnished, reviewed, investigated or verified the information contained in this Official Statement, except for the information under ISSUER and LITIGATION as it relates to the Issuer. SERIES 2013 BORROWERS Each is an Arizona limited liability company formed by the Corporation, its sole member, for the purpose of financing the Series 2013 Project. The Series 2013 Borrowers do not employ any staff to carry out any functions; their operations are controlled by the Corporation and their management is reserved to the Corporation. The Corporation will provide all necessary administrative services to the Series 2013 Borrowers. 5

12 The Series 2013 Borrowers have no operating history, no historical earnings, no significant assets other than their respective portion of the Series 2013 Facilities and no significant liabilities other than the Series 2013 Bonds or those liabilities associated with the Series 2013 Project. The Series 2013 Borrowers are wholly dependent upon payments from the Corporation under the Master Indenture or from funds made available under the Indenture to meet its obligations under the Series 2013 Loan Agreements and the Series 2013 Notes. See APPENDIX A THE CORPORATION. THE CORPORATION The Corporation was incorporated as a Delaware nonprofit corporation on March 18, 2002 under the name of Choice Education and Development Corporation ( Choice ) and has been determined by the Internal Revenue Service to be an organization described in Section 501(c)(3) of the Code. On June 24, 2011, the Corporation domesticated as an Arizona nonprofit corporation by filing articles of domestication with the Arizona Corporation Commission. Articles of Merger and Amendment with Edkey, Inc., an Arizona nonprofit corporation ( Edkey ) which was also determined by the Internal Revenue Service to be an organization described in Section 501(c)(3) of the Code whereby Edkey merged with and into the Corporation became effective on June 30, 2012 (the Merger ). As part of the merger, the Corporation changed its corporate name to Edkey, Inc. See APPENDIX A THE CORPORATION. On November 1, 2012, the Corporation and American Heritage Academy, Inc. filed articles of merger with the Arizona Corporation Commission whereby American Heritage Academy, Inc. merged into the Corporation which merger was effective December 31, See APPENDIX A THE CORPORATION. General PROGRAM ADMINISTRATOR The Corporation will enter into a Program Administration Agreement dated as of January 1, 2013 (the Program Administration Agreement ), with Community Investment Corporation in its capacity as program administrator (the Program Administrator ), for the benefit of the Trustee and each Series 2013 Borrowers. The Program Administrator will have certain disclosure assistance duties to the Corporation. The Program Administrator is an Arizona nonprofit corporation which has a governing board composed of three members, two of whom must be members of the board of directors of the Issuer. Duties The Program Administrator will be responsible for (i) reviewing the documentation relating to the construction of the Series 2013 Facilities for compliance with the requirements and conditions precedent set forth in the Indenture, the Series 2013 Loan Agreements and the Master Indenture prior to approving draw requests for funds and (ii) assisting the Corporation and the Series 2013 Borrowers with the disclosure and information reporting requirements as set forth in the Indenture, the Series 2013 Loan Agreements, the Master Indenture and the Continuing Disclosure Undertaking. Continuous Service The Program Administrator shall perform its duties until the principal of, premium, if any, and interest on the Series 2013 Bonds have been paid in full or such administration duties are terminated. Assignment of Administration Obligations The Program Administrator may, with the prior written consent of the Issuer and the Corporation, assign all of its administration rights and obligations to another qualified Program Administrator who must assume the administration obligations set forth in the Program Administration Agreement for the same Program Administrator s Fee. Interest, Maturity, Payment DESCRIPTION OF THE SERIES 2013 BONDS The Series 2013 Bonds will be issuable as fully registered bonds without coupons, in denominations of $5,000 and any integral multiples of $5,000 in excess thereof with a minimum purchase of $10,000. The Series 2013 Bonds will mature on the date and in the amount set forth on the cover of this Official Statement, subject to redemption prior to 6

13 maturity, and will bear interest until paid at the rate provided on the cover page of this Official Statement, payable on the first calendar day of each month (each an Interest Payment Date ), commencing on March 1, Interest on the Series 2013 Bonds is computed on the basis of a 360-day year comprised of twelve 30-day months. The principal of, interest on and premium, if any, on the Series 2013 Bonds shall be payable when due by wire of the Trustee to The Depository Trust Company, New York, New York ( DTC ), which will in turn remit such principal, interest and premium, if any, to Participants (as defined in APPENDIX H hereto), which Participants will in turn remit such principal, interest and premium, if any, to the Beneficial Owners (as defined in APPENDIX G hereto) of the Series 2013 Bonds as described herein. See APPENDIX H BOOK-ENTRY ONLY SYSTEM. In the event the Series 2013 Bonds are not registered in the name of Cede & Co., as nominee of DTC, or another eligible depository as described below, the principal of and premium, if any, on each Series 2013 Bond will be payable only at the designated corporate trust office of the Trustee, as described in the Indenture. Payment of interest on the Series 2013 Bonds will be paid by check or draft mailed on each Interest Payment Date by the Trustee to the Registered Owners of record appearing on the registration books kept by the Trustee as of the applicable Regular Record Date preceding each Interest Payment Date, or upon written request, as provided in the Indenture, of any Registered Owner of at least $500,000 in aggregate principal amount of Series 2013 Bonds Outstanding, by wire transfer on each Interest Payment Date to the account designated by such registered owner to the Trustee in writing at least ten Business Days prior to the Regular Record Date for any interest payment. Any such interest not timely paid or provided for shall be payable at the close of business on a Special Record Date. The Registered Owner of any Series 2013 Bond will be the person or persons in whose name or names Series 2013 Bond is registered on the registration books kept for that purpose by the Trustee in accordance with the terms of the Indenture. Investor Suitability Standards and Transferability The Series 2013 Bonds may be purchased only by a purchaser meeting the criteria in part A of the Investor Letter set forth in Appendix I attached hereto. An executed Investor Letter must be provided in connection with investment in the Series 2013 Bonds by any prospective investors prior to such investment in the initial sale and delivery of the Series 2013 Bonds. The Series 2013 Bonds will only be transferable as described in part B of the Investor Letter. Any owner of any Series 2013 Bond by its acceptance of a Series 2013 Bond agrees that it will not transfer such Series 2013 Bond to a person other than as described in part B of the Investor Letter. See APPENDIX D SUMMARIES OF FINANCING DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE OF TRUST Transfer of Series 2013 Bonds. Redemption of Series 2013 Bonds Prior to Maturity Optional Redemption The Series 2013 Bonds are subject to redemption at the option of the Issuer (which option shall be exercised upon the written direction of any Series 2013 Borrower from prepayment of its Series 2013 Note) in whole or in part on any date commencing July 1, 2020, at their principal amount plus accrued interest to the date fixed for redemption, at a redemption price expressed as a percentage of the principal amount to be redeemed as follows: Redemption Date Premium July 1, 2020 through June 30, % July 1, 2021 through June 30, % July 1, 2022 and thereafter 100% Mandatory Sinking Fund Redemption The Series 2013 Bonds maturing July 1, 2018, are subject to mandatory sinking fund redemption at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date from amounts on deposit in the Bond Fund on the redemption dates and in the principal amounts as follows: 7

14 Series 2013 Term Bond Maturing July 1, Maturity Date Period Ending (July 1) Annual Principal 2016 $520, , ,000 The Series 2013 Bonds maturing July 1, 2023, are subject to mandatory sinking fund redemption at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date from amounts on deposit in the Bond Fund on the redemption dates and in the principal amounts as follows: Series 2013 Term Bond Maturing July 1, Maturity Date Period Ending (July 1) Annual Principal 2021 $635, , ,000 The Series 2013 Bonds maturing July 1, 2025, are subject to mandatory sinking fund redemption at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date from amounts on deposit in the Bond Fund on the redemption dates and in the principal amounts as follows: Series 2013 Term Bond Maturing July 1, Maturity Date Period Ending (July 1) Annual Principal 2024 $735, ,000 The Series 2013 Bonds maturing July 1, 2033, are subject to mandatory sinking fund redemption at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date from amounts on deposit in the Bond Fund on the redemption dates and in the principal amounts as follows: Series 2013 Term Bond Maturing July 1, Maturity Date Period Ending (July 1) Annual Principal 2026 $815, , , , ,025, ,090, ,155, ,220,000 8

15 The Series 2013 Bonds maturing July 1, 2035, are subject to mandatory sinking fund redemption at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date from amounts on deposit in the Bond Fund on the redemption dates and in the principal amounts as follows: Series 2013 Term Bond Maturing July 1, Maturity Date Period Ending (July 1) Annual Principal 2034 $1,295, ,370,000 The Series 2013 Bonds maturing July 1, 2043, are subject to mandatory sinking fund redemption at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date from amounts on deposit in the Bond Fund on the redemption dates and in the principal amounts as follows: Series 2013 Term Bond Maturing July 1, Maturity Date Period Ending (July 1) Annual Principal 2036 $1,445, ,535, ,625, ,725, ,825, ,935, ,050, ,175,000 The Series 2013 Bonds maturing July 1, 2048, are subject to mandatory sinking fund redemption at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date from amounts on deposit in the Bond Fund on the redemption dates and in the principal amounts as follows: Series 2013 Term Bond Maturing July 1, Maturity Date Period Ending (July 1) Annual Principal 2044 $2,305, ,445, ,590, ,745, ,910,000 Extraordinary Redemption The Series 2013 Bonds are subject to extraordinary redemption at the expense of the applicable Series 2013 Borrower from Net Proceeds of any insurance policy or condemnation award in excess of $125,000 (plus the CPI Adjustment) if at any time its portion of the Series 2013 Facilities shall have been damaged or destroyed or taken in condemnation proceedings to the extent provided in its Series 2013 Loan Agreement. If so called pursuant to the Indenture, the Series 2013 Bonds are callable on any Interest Payment Date, in whole or in part, from and to the extent of funds on deposit under the Indenture and available for this purpose, at a redemption price equal to the principal amount to be redeemed plus accrued interest on the redemption date. 9

16 Redemption Upon Default under Loan Agreement The Series 2013 Bonds are subject to extraordinary redemption as soon as is practicable following the Trustee s receipt of notice of an uncured default under one or more Series 2013 Loan Agreements in an amount equal to the outstanding principal amount of the defaulting Series 2013 Borrower s Series 2013 Note plus accrued interest to the redemption date, first from amounts received from the foreclosure or nonjudicial sale of the defaulting Series 2013 Borrower s portion of the Series 2013 Facilities and enforcement of the security interest in the defaulting Series 2013 Borrower s Pledged Revenues, second from amounts provided under the Obligation No. 1 and third from amounts on deposit in the Debt Service Reserve Fund. In such event, the Series 2013 Bonds shall be called as set forth in Partial Redemption of the Series 2013 Bonds below. Mandatory Redemption Upon Determination of Taxability The Series 2013 Bonds are subject to mandatory redemption as a whole at the principal amount thereof, plus accrued interest thereon to the date of redemption, plus 3% premium, upon the occurrence of a Determination of Taxability related to such Series 2013 Bonds; provided, however, that the Trustee shall not redeem Series 2013 Bonds unless the Trustee shall have on deposit funds in the amount sufficient to pay the principal amount of and the redemption premium on, plus accrued interest on, the Series 2013 Bonds to be redeemed to the date of such redemption. The redemption date shall be the earliest practicable date selected by the Trustee, after consultation with the Series 2013 Borrowers and the Administrator, but in no event later than six (6) months following the finalization of the Determination of Taxability. Method of Selecting Series 2013 Bonds In the event that less than all of the Outstanding Series 2013 Bonds shall be redeemed, the Series 2013 Bonds will be redeemed in inverse order of maturity, or if less than all of the Series 2013 Bonds in a single maturity shall be redeemed, the selection of Series 2013 Bonds or portions thereof to be redeemed shall be selected by lot within such maturity. Notices of Redemption In the case of every redemption, the Trustee shall cause notice of such redemption by mailing by first-class mail a copy of the redemption notice to the Registered Owners of the Series 2013 Bonds designated for redemption in whole or in part, at their addresses as the same shall last appear upon the registration records, in each case not more than 60 nor less than 30 days prior to the redemption date, provided, however, that failure to give such notice, or any defect therein, shall not affect the validity of any proceedings for the redemption of such Series 2013 Bonds. The Trustee may state that the redemption is conditioned upon receiving from the Series 2013 Borrower, on or prior to the redemption date, sufficient moneys to redeem such Series 2013 Bonds and that if such money is not so received, no Series 2013 Bonds shall be redeemed. Each notice of redemption shall specify the date fixed for redemption, the redemption price, the place or places of payment, that payment will be made upon presentation and surrender of the Series 2013 Bonds to be redeemed, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon will cease to accrue. If less than all the Outstanding Bonds are to be redeemed, the notice of redemption shall specify the numbers of the Series 2013 Bonds or portions thereof to be redeemed. General SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2013 BONDS THE SERIES 2013 BONDS, THE PREMIUM, IF ANY, AND THE INTEREST THEREON ARE SPECIAL LIMITED OBLIGATIONS OF THE ISSUER PAYABLE EXCLUSIVELY FROM THE TRUST ESTATE. THE SERIES 2013 BONDS DO NOT CONSTITUTE A DEBT OR A LOAN OF CREDIT OR A PLEDGE OF THE FULL FAITH AND CREDIT OR TAXING POWER OF THE ISSUER, THE COUNTY, OR OF THE STATE, OR OF ANY POLITICAL SUBDIVISION THEREOF, WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION AND SHALL NEVER CONSTITUTE NOR GIVE RISE TO A PECUNIARY LIABILITY OF THE STATE OR THE COUNTY. THE SERIES 2013 BONDS SHALL NOT CONSTITUTE, DIRECTLY OR INDIRECTLY, OR CONTINGENTLY OBLIGATE OR OTHERWISE CONSTITUTE A GENERAL OBLIGATION OF OR A CHARGE AGAINST THE GENERAL CREDIT OF THE ISSUER, BUT 10

17 SHALL BE SPECIAL LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE SOURCES DESCRIBED HEREIN, BUT NOT OTHERWISE. THE ISSUER HAS NO TAXING POWER. NO RECOURSE SHALL BE HAD FOR THE PAYMENT OF THE PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THE SERIES 2013 BONDS AGAINST ANY PAST, PRESENT, OR FUTURE OFFICER, DIRECTOR, COUNSEL, ADVISOR, OR AGENT OF THE ISSUER, OR OF ANY SUCCESSOR TO THE ISSUER, AS SUCH, EITHER DIRECTLY OR THROUGH THE ISSUER OR ANY SUCCESSOR TO THE ISSUER, UNDER ANY RULE OF LAW OR EQUITY, STATUTE, OR CONSTITUTION OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR PENALTY OR OTHERWISE, AND ALL SUCH LIABILITY OF ANY SUCH OFFICERS, DIRECTORS, COUNSEL, ADVISORS, OR AGENTS, AS SUCH, IS HEREBY EXPRESSLY WAIVED AND RELEASED AS A CONDITION OF AND CONSIDERATION FOR THE EXECUTION AND ISSUANCE OF THE SERIES 2013 BONDS. NO RECOURSE SHALL BE HAD FOR THE PAYMENT OF THE PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THE SERIES 2013 BONDS AGAINST ANY PAST, PRESENT, OR FUTURE OFFICER, DIRECTOR, COUNSEL, ADVISOR, OR AGENT OF THE BORROWERS OR THE CORPORATION, OR OF ANY SUCCESSOR TO THE BORROWERS OR THE CORPORATION, AS SUCH, EITHER DIRECTLY OR THROUGH THE ISSUER OR ANY SUCCESSOR TO THE BORROWERS OR THE CORPORATION, UNDER ANY RULE OF LAW OR EQUITY, STATUTE, OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR PENALTY OR OTHERWISE, AND ALL SUCH LIABILITY OF ANY SUCH OFFICERS, DIRECTORS, COUNSEL, ADVISORS, OR AGENTS, AS SUCH, IS HEREBY EXPRESSLY WAIVED AND RELEASED AS A CONDITION OF AND CONSIDERATION FOR THE EXECUTION AND DELIVERY OF THE LOAN AGREEMENT. Indenture The Series 2013 Bonds will be payable solely from the revenues and receipts pledged pursuant to the Indenture, and will be secured by an assignment and pledge of the Trust Estate including Loan Payments. Debt Service Reserve Fund On the closing date for issuance of the Series 2013 Bonds, proceeds of the Series 2013 Bonds in an amount equal to $3,088, will be deposited in the Debt Service Reserve Fund created under the Indenture and held by the Trustee. Amounts in the Debt Service Reserve Fund, if any, may be used by the Trustee to pay principal amount of, premium, if any, and interest on the Series 2013 Bonds and any Additional Bonds in the event sums in the Bond Fund and amounts provided by the Master Trustee from payments under the Master Indenture are insufficient for such purpose. Amounts in the Debt Service Reserve Fund are valued semi-annually as provided in the Indenture. The Series 2013 Borrowers are required to cure any deficiency in the Debt Service Reserve Fund that occurs as a result of a valuation on or prior to the next Loan Payment Date following that valuation date, and if the deficiency occurs as a result of a transfer to cure a shortfall in the Bond Fund, the Series 2013 Borrowers are required to restore such withdrawal in not more than twelve (12) substantially equal monthly installments beginning on the Loan Payment Date that occurs in the sixth month following such deficiency. If amounts in the Debt Service Reserve Fund are in excess of the Debt Service Reserve Requirement, such excess amount shall be transferred to the Bond Fund. There is no guarantee that the Debt Service Reserve Fund will be available at any time to pay debt service on the Series 2013 Bonds. See APPENDIX D SUMMARIES OF FINANCING DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE OF TRUST Debt Service Reserve Fund. Additional Bonds The Issuer may issue Additional Bonds from time to time only with respect to Charter School Projects pursuant to the terms and conditions of the Indenture. Any Additional Bonds shall, to the extent provided for in the Indenture, be on a parity with the Series 2013 Bonds and any Additional Bonds theretofore or thereafter issued and outstanding as to the assignment to the Trustee of the Issuer s right, title and interest in the Trust Estate for the payment of debt service on the Bonds; provided, that nothing herein shall prevent the payment of debt service on any series of Additional Bonds from (i) being otherwise secured and protected from sources or by property or instruments not applicable to the Series 2013 Bonds and any one or more Series of Additional Bonds, or (ii) not being secured and protected from sources or by property or instruments not applicable to the Series 2013 Bonds and any one or more Series of Additional Bonds. 11

18 items: Before the Trustee shall authenticate and deliver any Additional Bonds, the Trustee shall receive the following 1. Duly executed counterparts of (i) the Agreement(s) (or an amendment or supplement to an existing Agreement) relating to the Charter School Project to be financed or refinanced from the proceeds of the Additional Bonds then to be issued and which Loan Agreement or amendment or supplement provides for payments sufficient to pay the debt service charges on the related Additional Bonds, (ii) the supplement to the Indenture providing for the issuance of and the terms and conditions of the Additional Bonds, (iii) the supplement to the Master Indenture providing for the issuance of and the forms and conditions of the Additional Obligation, and (iv) any required amendments or supplements to the Deeds of Trust. 2. One or more Additional Promissory Notes and Additional Obligation each in an aggregate principal amount equal to the aggregate principal amount of the related Additional Bonds and duly endorsed to the order of the Trustee without recourse or warranty. 3. A written order of the Issuer as to the delivery of the Additional Bonds, signed by an Authorized Representative of the Issuer. 4. A copy of the resolution duly adopted by the Issuer authorizing (i) the execution and delivery of the amendment or supplement to the existing Agreement, the Bond Purchase Agreement with the Issuer and the Underwriter, and Supplemental Indenture, each relating to the Additional Bonds and (ii) the issuance of the Additional Bonds. 5. An opinion of Bond Counsel: (i) to the effect that the Additional Bonds to be delivered will be valid and legal special obligations of the Issuer in accordance with their terms and will be secured equally and on a parity (except as otherwise permitted) with all other Bonds at the time Outstanding under the Indenture as to the assignment to the Trustee of the Trust Estate; (ii) the interest on any Additional Bonds that are Tax-Exempt Bonds will be excluded from gross income for federal income tax purposes; and (iii) the issuance of the Additional Bonds will not cause the interest on any Tax-Exempt bonds outstanding immediately prior to the issuance to be included in the gross income of beneficial owners for federal tax purposes. 6. A written opinion of counsel to the Borrower, which counsel shall be reasonably satisfactory to the Issuer, to the effect that the Loan Agreement or the amendment or supplement to the Agreement, any Deed of Trust and Additional Promissory Notes have been duly authorized, executed and delivered by the Borrower, and that the Agreement or the amendment or supplement to the Agreement, any Deed of Trust and Additional Promissory Notes constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, subject to exceptions reasonably satisfactory to the Trustee for bankruptcy, insolvency and similar laws and the application of equitable principles. 7. Evidence satisfactory to the Trustee that on delivery of the Additional Bonds then to be delivered there will be or has been paid into or provided for the Debt Service Reserve Fund any amounts required by the Indenture or the supplement to the Indenture relating to such Additional Bonds. 8. A binding commitment to issue a mortgagee s policy of title insurance as required by the Loan Agreement related to the Additional Bonds. 9. The Trustee has received the consents or certifications required by the Limitations on Incurrence of Additional Indebtedness section of the Loan Agreement. 10. If the Bonds are then rated, evidence satisfactory to the Trustee that the issuance of the Additional Bonds will not cause the rating agency to lower or withdraw its rating(s) on Outstanding Bonds. 11. Unless evidence satisfactory to the Trustee is provided that upon issuance of the Additional Bonds, the rating on the Outstanding Bonds (including the Additional Bonds), if the Bonds are then rated, will not be lower than an investment grade rating, an investor letter, in form satisfactory to the Issuer, from each of the purchasers of the Additional Bonds. 12. Written confirmation from the Master Trustee that the certifications required by the Master Indenture have been received. 12

19 The provisions, covenants and agreements set forth to be performed by or on behalf of the Issuer and in the Loan Agreements to be performed by each Borrower shall be for the equal benefit, protection and security of the Registered Owners of any and all of the Bonds, all of which, regardless of the time or times of their issuance or maturity, shall be of equal rank without preference, priority or distinction of any of the Bonds over any other thereof except as expressly provided in the Indenture. Series 2013 Loan Agreement Payments Under the Series 2013 Loan Agreements; Assignment of Series 2013 Loan Agreement Loan Payments from the Series 2013 Borrowers are required under the Series 2013 Loan Agreements and the Series 2013 Notes to be paid each month on or before the 25 th calendar day of the month (each a Loan Payment Date ) in amounts that will be sufficient, if paid promptly and in full, to pay when due all principal of, premium, if any, and interest on the Loan and certain ongoing costs. Under the Indenture, the Issuer has pledged its rights, title and interests in the Series 2013 Loan Agreements (including the Series 2013 Borrower Pledged Revenues, but excluding certain rights of the Issuer, including payment of fees, expenses and indemnification) to the Trustee to secure the Series 2013 Bonds. The Trustee is authorized to exercise the rights of the Issuer and enforce the obligations of each Series 2013 Borrower under the Series 2013 Loan Agreements. In the event the Trustee has insufficient funds to pay the principal of and interest on the Series 2013 Bonds, the nondefaulting Series 2013 Borrowers are not required to increase payments due under their Series 2013 Loan Agreement. No Series 2013 Borrower is required to make up any Loan Payment that is the obligation of another Series 2013 Borrower. Series 2013 Deed of Trust; Assignment of Leases and Rents Under their respective Series 2013 Deed of Trust, the AHA Camp Verde Borrower, the AHA Cottonwood Borrower, the CFA Borrower the Sequoia Pathway Borrower and the ACAA North 28 th Borrower (upon its acquisition of the ACAA North 28 th Facilities) will deliver to the Title Company, to be held in trust for the benefit of the Trustee, the Series 2013 Deed of Trust on its portion of the Series 2013 Facilities; provided that the ACAA North 28 th Deed of Trust will not be filed until the ACAA North 28 th Facilities are acquired. See INTRODUCTION General and APPENDIX A THE CORPORATION. Until the ACAA North 28 th Facilities are acquired, the portion of the Series 2013 Bond Proceeds to be used for the acquisition of the ACAA North 28 th Facilities will remain on deposit in the Project Fund under the Indenture. Each Series 2013 Deed of Trust will be subject to certain Permitted Encumbrances as described in the Series 2013 Deed of Trust. The provisions contained in the Series 2013 Deed of Trust include an assignment to the Trustee of rents and leases and amounts received pursuant to the Series 2013 Loan Agreements. See APPENDIX D SUMMARIES OF FINANCING DOCUMENTS SUMMARY OF DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING. The Master Trust Indenture and the Obligated Group The Master Indenture creates an Obligated Group, currently consisting of the Corporation. The Master Indenture provides that affiliates of any Obligated Group Member and other entities approved by such Obligated Group may be admitted to the Obligated Group upon the satisfaction of certain conditions. Each Obligated Group Member, as a coobligor and not guarantor, will jointly and severally covenant to pay the principal of, premium, if any and interest on all Obligations issued under the Master Indenture and to perform any and all other covenants, agreements and obligations under the Master Indenture, subject to the right of such Obligated Group Member to withdraw from the Obligated Group under certain circumstances. The Corporation, however, will covenant not to withdraw from the Obligated Group so long as any Series 2013 Bonds remain outstanding. See Withdrawal from Obligated Group in SUMMARIES OF THE FINANCING DOCUMENTS The Master Indenture in APPENDIX D hereto. Obligation No. 1 of the Corporation and any other Obligations issued by an Obligated Group Member will be the joint and several obligations of each and every Obligated Group Member. All Obligations will rank on a parity basis with each other and will be equally and ratably secured by the Maser Indenture. Under the Master Indenture, the Obligations are joint and several obligations of the Obligated Group Members that obligate all Obligated Group Members to make payments sufficient to pay all Obligations when due. The enforceability of the obligations of the Obligated Group may be limited in certain circumstances. See BONDHOLDERS RISKS Enforceability of Remedies; Risks of Bankruptcy herein. 13

20 The Obligated Group Members agree in the Master Indenture that they will not create or suffer the creation or existence of any lien on any Property (as defined in the Master Indenture) now owned or hereafter acquired by it, other than certain Permitted Liens. Any lien so created, although not a Permitted Lien, may nonetheless be enforceable against such Obligated Group Members. In addition, the Obligated Group Members are subject to restrictions and limitations with respect to the incurrence of indebtedness, consolidation and merger, transfer of assets and addition and withdrawal from the Obligated Group. In the Master Indenture, the Obligated Group will make certain covenants with respect to the maintenance of their property. The Obligated Group Members will also covenant that, upon the occurrence of an Event of Default, they will pay over to the Master Trustee, if so directed, all Gross Receipts (hereinafter defined). The complete covenants of the Obligated Group Members under the Master Indenture are contained in SUMMARIES OF FINANCING DOCUMENTS The Master Indenture in APPENDIX D hereto. Pledge of Gross Receipts Under the Master Indenture, each Obligated Group Member will grant to the Master Trustee a security interest in its Gross Receipts. During the continuance of an Event of Default under the Master Indenture, all Gross Receipts shall be transferred to the Master Trustee and applied as required in the Master Indenture. See SUMMARIES OF FINANCING DOCUMENTS The Master Indenture in APPENDIX D hereto. Gross Receipts means, to the extent permitted by law, all revenues, rentals, fees, third-party payments, receipts, donations, contributions or other income of the Obligated Group Member, including the rights to receive such revenues (each subject to Permitted Encumbrances), all as calculated in accordance with GAAP, including, without limitation: (i) State Payments; (ii) proceeds derived from insurance; (iii) condemnation proceeds; (iv) accounts, contract rights and other rights and assets, whether now or hereafter owned, held or possessed by the Obligated Group Member; and (v) all gifts, grants, bequests and contributions (including income and profits therefrom) to the extent permitted by the terms thereof. The Gross Receipts of the Corporation related to its operations at the ACAA Kelton Facilities, the Horne Facilities and the Village Facilities have been pledged on a senior basis for the repayment of the Series 2006 Bonds. Pledge of State Payments The Corporation has entered into the Pledged Charter School Contracts with the ASBCS, which governs the operation of the charter schools that occupy the AHA Camp Verde Facilities, the CFA Facilities, the AHA Cottonwood Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities, and which establishes the Corporation s right to receive State Payments, as described below. The Corporation shall execute the Irrevocable Pledge and Assignments regarding the Corporation s State Payments from the Pledged Charter School Contracts. Upon acknowledgement of the Irrevocable Pledge and Assignment by the State Treasurer, all of the Corporation s State Payments from the Pledged Charter School Contracts will be directed by the State Treasurer to the Master Trustee. The Master Trustee will use such funds to pay principal of, premium, if any, and interest on the Obligations and to apply such funds as otherwise required under the Master Indenture. The State Payments from Subordinate Lien Charter School Contracts have been assigned to the bond trustee for the Series 2006 Bonds and are pledged on a senior basis to the repayment of the outstanding Series 2006 Bonds. The Corporation will direct the bond trustee for the Series 2006 Bonds to pay any State Payments received with respect to the Subordinate Lien Charter School Contract and not required to make any payments related to the Series 2006 Bonds, directly to the Master Trustee. The primary source of Gross Receipts of the Corporation consists of State Payments received by the Corporation for the operation of its charter schools pursuant to the Charter School Contracts. The State Payments consist of moneys statutorily owed to the Corporation under Arizona Revised Statutes Section (B) that are permitted to be used for the purposes set forth in the Master Indenture. See APPENDIX C CHARTER SCHOOLS IN ARIZONA State Funding for additional information concerning how the amount of State Payments is calculated at the time of offering of the Series 2013 Bonds. The Corporation will irrevocably direct the State Treasurer to make State Payments with respect to the Senior Lien Charter School Contracts directly to the Master Trustee so long as any of the Series 2013 Borrowers obligations under the Series 2013 Loan Agreements remain outstanding or unsatisfied. Each month, the Master Trustee will calculate the amounts due from the Series 2013 Borrowers under the Series 2013 Loan Agreements (the Monthly Borrower Obligation ) and will deduct from the State Payments the Monthly Borrower Obligation (to the extent there are sufficient State Payments), pay such amount to the Bond Trustee for deposit into the appropriate accounts under the Bond Indenture and, within two business days of receipt, return any remaining State Payments to the Corporation. 14

21 Operating Reserve Fund The Master Indenture creates an Operating Reserve Fund and requires that Obligated Group Members fund the Operating Reserve Fund until the balance therein equals the Operating Reserve Fund Requirement and to replenish any shortfalls. On the closing date for issuance of the Series 2013 Bonds, proceeds of the Series 2013 Bonds in an amount equal to $514, will be deposited in the Operating Reserve Fund. Amounts held in the Operating Reserve Fund may be used for the payment of regularly scheduled debt service on the obligations if moneys provided by the Obligated Group Members and amounts on deposit in the MADS Reserve Fund described below are insufficient. The Operating Reserve Fund may be used in certain circumstances to provide funds in the event that State Payments are not received as expected, or may also be disbursed to the Obligated Group Agent upon the demonstration by the Obligated Group Agent of extraordinary expenses which Materially Exceed (as such term is defined below) those expenses in any expense category as indicated in the Budgeted Expenses (as define din exhibit D) for any given year during which the Obligation shall remain outstanding. For purposes of the Master Indenture, an expense shall materially exceed the Budgeted Expenses if it shall affect any expense item that (i) is outside the control of the Obligated Group Members, (ii) reasonable efforts on behalf of the Obligated Group Members could not have avoided the expense, (iii) exceeds the then current year-to-date budgeted expense for such expense item by not less than five percent (5%) and (iv) does not involve the payment of salaries. The following are examples of expenses for which disbursements from the Operating Reserve Fund may be made: 1. Unexpected repairs or replacements of equipment or facilities for which no budget item shall have been anticipated. 2. Increases in the costs of operations due to increases in utilities, fuel or other purchases of materials, which are required for the operation of the Series 2013 Facilities. 3. Any costs, levies or fines imposed upon the Obligated Group Members as a result of the operations of the Series 2013 Facilities, which could or may result in a lien being imposed upon the Series 2013 Facilities. 4. Costs to prosecute or defend any action or proceeding arising out of any occurrence or claim accruing or arising out of the Obligated Group Members operation of a charter school at the Series 2013 Facilities. 5. Unexpected delays or failures to receive funding from the State or any other funding sources at the times and in the amounts currently authorized or permitted. 6. Changes to payment dates imposed by federal agencies or the State legislature, which create a lag in receipt of State Payments. The Obligated Group Agent shall submit a disbursement request to the Master Trustee identifying the nature and cost of any expense for which a disbursement from the Operating Reserve Fund shall be made and certify to the Master Trustee that the disbursement is appropriate. The Trustee shall reimburse or pay as directed from the Operating Reserve Fund such amount or amounts as shall be indicated in the disbursement request within five (5) Business Days following receipt of such request. There is no guarantee that the Operating Reserve Fund will be available at any time to pay debt service on the Obligations or the Series 2013 Bonds. MADS Reserve Fund The Master Indenture creates a MADS Reserve Fund and requires that the Obligated Group Members fund the MADS Reserve Fund until the balance therein equals the MADS Reserve Fund Requirement. On the closing date of issuance of the Series 2013 Bonds, proceeds of the Series 2013 Bonds in an amount equal to $257, will be deposited in the MADS Reserve Fund. The Master Trustee will use moneys in the MADS Reserve Fund for the payment of debt service on the Obligations in the event amounts provided by the Obligated Group Members are insufficient for such purpose. There is no guarantee that the MADS Reserve Fund will be available at any time to pay debt service on the Obligations or Series 2013 Bonds. See EXHIBIT D SUMMARIES OF FINANCING DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE MADS Reserve Fund. 15

22 Repair and Replacement Fund The Master Indenture creates a Repair and Replacement Fund and requires that the Obligated Group Members fund the Repair and Replacement Fund until the balance therein equals the Repair and Replacement Fund Requirement. On the closing date of issuance of the Series 2013 Bonds, proceeds of the Series 2013 Bonds in an amount equal to $257, will be deposited in the Repair and Replacement Fund. Amounts on deposit in the Repair and Replacement Fund will be used for the purpose of paying the cost of extraordinary maintenance and replacements which may be required to keep the Series 2013 Facilities in sound condition, including but not limited to replacement of equipment, replacement of any roof or other structural component, exterior painting and the replacement of heating, air condition, plumbing and electrical equipment. Moneys in the Repair and Replacement Fund may be used for the payment of debt service on the Obligation in the event amounts provided by the Obligated Group Members and moneys in the MADS Reserve Fund and the Operating Reserve Fund are insufficient. There is no guarantee that the Repair and Replacement Fund will be available at any time to pay debt service on the Obligations or Series 2013 Bonds. See EXHIBIT D SUMMARIES OF FINANCING DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Payment into and use of moneys in the Repair and Replacement Funds. Second Deeds of Trust; Assignment of Leases and Rents Under each Corporation Second Deed of Trust, the Corporation will deliver to the Title Company, to be held in trust for the benefit of the Master Trustee, a Corporation Second Deed of Trust on the ACAA Kelton Facilities, the Horne Facilities and the Village Facilities. Each Corporation Second Deed of Trust will be subject to certain Permitted Encumbrances as described in the Corporation Second Deed of Trust, including the lien in favor of the bond trustee for the Series 2006 Bonds. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 16

23 SOURCES AND USES OF FUNDS The following table sets forth the sources and uses of funds from the proceeds of sale of the Series 2013 Bonds: SOURCES PAR AMOUNT OF SERIES 2013 BONDS $44,365, LESS UNDERWRITER DISCOUNT $887, LESS ORIGINAL ISSUE DISCOUNT $86, SUB TOTAL $43,391, CHILDREN FIRST PROJECT FUND TRANSFER $3,367, TOTAL SOURCES $46,759, USES REFUND PRIOR BONDS $20,281, PROJECT FUND $19,465, BOND FUND CAPITALIZED INTEREST $1,544, DEBT SERVICE RESERVE FUND $3,088, OPERATING RESERVE FUND $514, REPAIR AND REPLACEMENT FUND $257, MADS RESERVE FUND $257, COSTS OF ISSUANCE 1 $1,349, TOTAL USES $46,759, Includes legal fees and expenses, Underwriter s compensation, printing, Trustee s fees and Issuer s fees. THE SERIES 2013 PROJECT The Series 2013 Borrowers propose to use the proceeds of the Loans to: (i) refund the Prior Bonds; (ii) finance the costs of acquiring, constructing, equipping, improving and renovating the Series 2013 Facilities; (iii) fund any required reserve fund as set forth in the Indenture; (iv) pay capitalized interest on the Series 2013 Bonds; and (v) pay certain expenses related to the issuance of the Series 2013 Bonds. MATHEMATICAL VERIFICATION Concurrently with the initial delivery of and payment of the Series 2013 Bonds, Causey Demgen & Moore P.C., a firm of independent certified public accountants, will deliver to the Issuer its verification report indicating that it has examined, in accordance with standards established by the American Institute of Certified Public Accountants, the mathematical accuracy of computations prepared by the Underwriter for the Series 2013 Bonds, relating to (i) the sufficiency of the anticipated receipts from the Government Obligations, together with the initial cash deposit to pay, when due, the principal and interest on the Prior Bonds and (ii) the yield on the Government Obligations and the yield on the Prior Bonds. THE CONSTRUCTION ADMINISTRATOR The Corporation entered into the Construction Administration Agreement with Reynolds Project Management, LLC (the Construction Administrator ). Through the construction period, the Construction Administrator will review and approve all requests for draws from the Project Fund. The Construction Administrator will review and thereafter sign the certificate signed by the Authorized Representative of the Corporation stating that the Series 2013 Facilities have been constructed and equipped in substantial compliance with the plans and specifications relating thereto. In addition, the Construction Administrator has agreed in the Construction Administration Agreement to provide the Trustee with a progress statement, on or before the fifteenth (15th) day of each calendar month, until all of the work to be done at the Series 2013 Facilities is completed. Assignment of Administration Obligations The Construction Administrator may not, without the prior written consent of the Corporation, assign all of its administration rights and obligations to another qualified construction administrator. Any transferee administrator must 17

24 assume the administration obligations set forth in the Construction Administration Agreement for the same administration fee. Termination The Construction Administrator may be terminated for (i) failure to deliver the required documentation to the Trustee pursuant to the Construction Administration Agreement or the Indenture, (ii) failure to duly observe or perform (within the applicable cure period) in any material respect any covenant, condition or agreement in the Construction Administration Agreement, (iii) an entry of decree or order of a court or consent by the Construction Administrator for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings against the Construction Administrator, (iv) an admission by the Construction Administrator of its inability to pay its debts, (v) the discovery by the Corporation that any representation of or warranty by the Construction Administrator in the Construction Administration Agreement is false in any material respect, or (vi) failure of the Construction Administrator to keep true and accurate books and records. Construction Administrator s Experience The Construction Administrator s principal, Patricia Reynolds, will have the lead responsibility for receiving and approving the draw requests for the construction of the Series 2013 Facilities. The Construction Administrator provides project management and move coordination services for commercial clients, including full lifecycle build-out and tenant improvement, furniture procurement services, outsource facilities management, and move coordination. Ms. Reynolds was Senior Project Manager - Bank of America Account and subsequently Vice President - Project and Development Services for Jones Lang LaSalle, a global financial and professional services firm specializing in real estate services and investment management, in Phoenix, Arizona, for five years. Ms. Reynolds was also Corporate Director of Facilities for nine years with Tosco Corporation, Tempe, Arizona, which was subsequently purchased by ConocoPhillips. At Tosco Corporation, she was responsible for over 200 facilities nationwide. Her projects included the building of a ground-up campus in Tempe, Arizona that included a 280,000 square foot office building, parking structure, child care center, cafeteria, and a courtyard with one-of-a-kind shade structures and waterfalls. Ms. Reynolds is a LEED Accredited Professional who holds a Bachelor of Science degree in Management and Marketing from Marymount College in New York. She has had extensive training in Six Sigma methods, as well as OSHA regulations, Critical Environment Work Authorization (CEWA certified), and Remediation Methods. DEBT SERVICE REQUIREMENTS ON SERIES 2013 BONDS The following table sets forth, for each period ended July 1, the amounts required each year to be paid with respect to the Series 2013 Bonds, assuming no prepayment other than for mandatory sinking fund redemptions. Principal of the Series 2013 Bonds will be paid on July 1 of each year, commencing July 1, 2016 and interest will be paid on the first calendar day of each month, commencing March 1, PERIOD ENDING (JULY 1) ANNUAL PRINCIPAL ($) ANNUAL INTEREST ($) TOTAL ANNUAL DEBT SERVICE REQUIREMENTS ($) ,118, ,118, ,564, ,564, ,000 2,564, ,084, ,000 2,543, ,088, ,000 2,521, ,086, ,000 2,498, ,083, ,000 2,474, ,084, ,000 2,449, ,084, ,000 2,417, ,087, ,000 2,384, ,084, ,000 2,349, ,084, ,000 2,312, ,087, ,000 2,273, ,088, ,000 2,224, ,084,

25 ,000 2,173, ,088, ,000 2,118, ,088, ,025,000 2,059, ,084, ,090,000 1,998, ,088, ,155,000 1,933, ,088, ,220,000 1,863, ,083, ,295,000 1,790, ,085, ,370,000 1,716, ,086, ,445,000 1,638, ,083, ,535,000 1,551, ,086, ,625,000 1,459, ,084, ,725,000 1,362, ,087, ,825,000 1,258, ,083, ,935,000 1,149, ,084, ,050,000 1,033, ,083, ,175, , ,085, ,305, , ,084, ,445, , ,086, ,590, , ,084, ,745, , ,084, ,910, , ,084, TOTAL $44,365,000 63,706, $108,071, BONDHOLDERS RISKS Investment in the Series 2013 Bonds involves a high degree of risk and is speculative in nature. Anyone considering investing in the Series 2013 Bonds should carefully examine this Official Statement, including the Appendices hereto. INVESTMENT IN THE SERIES 2013 BONDS SHOULD BE UNDERTAKEN ONLY BY PERSONS WHOSE FINANCIAL RESOURCES ARE SUFFICIENT TO ENABLE THEM TO ASSUME SUCH RISK. THIS SECTION SETS FORTH A BRIEF SUMMARY OF SOME OF THE PRINCIPAL RISK FACTORS. PROSPECTIVE INVESTORS SHOULD FULLY UNDERSTAND AND EVALUATE THESE RISKS, IN ADDITION TO THE OTHER FACTORS SET FORTH IN THIS OFFICIAL STATEMENT, BEFORE MAKING AN INVESTMENT DECISION. This discussion of risk factors is not, and is not intended to be, exhaustive, and such risks are not necessarily presented in the order of their magnitude. General The Series 2013 Bonds are special, limited obligations of the Issuer. They are secured by and payable solely from funds payable by each Series 2013 Borrower under the terms and conditions of the respective Series 2013 Loan Agreement and the Corporation under the Master Indenture. The Corporation believes, based upon present circumstances (i.e., the executed Charter Contracts and related State Payment included in Gross Receipts, amounts expected to remain after payment of the Corporation s other obligations from its other charter school contracts, current and projected enrollment, student demand and levels of State Payments), that it will generate sufficient revenues to meet its obligations under the Master Indenture; however, the Charter Contracts may be terminated or not renewed, or the basis of the assumptions utilized by the Corporation to formulate this belief may otherwise change. NO REPRESENTATION OR ASSURANCE CAN BE MADE THAT THE CORPORATION WILL CONTINUE TO GENERATE SUFFICIENT REVENUES TO MEET ITS OBLIGATIONS. Revocation, Non-Renewal or Expiration of Charter Charter contracts are granted for a period of 15 years from the date of first operation of the charter school, although the term could be changed to as few as three years. In addition, the ASBCS 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. Upon the expiration of the initial 15 year term of a charter contract, the ASBCS may renew charter contracts for an additional term of up to 20 years upon application for the renewal of the charter contract and a review of the charter operator and the school. 19

26 The Charter Contracts with the ASBCS are scheduled to expire before the maturity of the Series 2013 Bonds. See APPENDIX A - THE CORPORATION herein. In accordance with the Charter School Act, the ASBCS is required to review each charter school contract every five years and may revoke a Charter Contract if it determines the Corporation has breached one or more provisions of a Charter Contract. See APPENDIX C CHARTER SCHOOLS IN ARIZONA Key Elements in the Charter School Statutes - Charter Term; Nonrenewal or Revocation of a Charter (A.R.S. Sections I and J). While the Corporation does not anticipate any non-renewal or revocation of the Charter Contracts or any of its other charter school contracts, there can be no assurance that the ASBCS will renew any of the Corporation s Charter School Contracts. No Taxing Authority/Dependence on State Payments The Corporation does not have any taxing authority and is substantially dependent upon the State to continue to provide funding for public education. The obligation of the State to make State Payments or otherwise provide funds to the Corporation 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, one or more of the Charter School Contracts or could be terminated by the ASBCS at the end of the period for which funds are available. No liability shall accrue to the ASBCS in such event, and the State shall not be obligated or liable for any future payments or any damages as a result of such termination. In certain circumstances, the State 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 the State were to withhold the payment of moneys from the Corporation for any reason even a reason that is ultimately determined to be invalid or unlawful it is possible that the Corporation would be forced to cease operations. Changes in State of Arizona Law; Annual Appropriation; Inadequate State Payments The State Legislature has amended the Charter School Act a number of times since it was first enacted in Past and future amendments to the Charter School Act may adversely affect the Corporation in various ways, including without limitation, by withholding a percentage of the State Payments if the Corporation is deemed not to be in compliance with the Charter Contracts or the Charter School Act or State and federal laws; by decreasing the charter term from 15 years to as few as three years or some other term; 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 Corporation; 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 Legislature must appropriate funds for public education including District Schools (as defined in APPENDIX C) and charter schools each year, and it may not appropriate sufficient funds to enable the Corporation to meet its financial obligations, including, the payments required to be made under the Master Indenture used to pay debt service on the Series 2013 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 Corporation are inadequate to allow the Corporation to make the payments under the Master Indenture used to pay debt service on the Series 2013 Bonds and its operating expenses. If the State Payments are insufficient, the Corporation may be unable to make the payments under the Maser Indenture as and when required. See APPENDIX A - THE BORROWERS AND THE CORPORATION State Payments herein. Changes in regulatory enforcement or administrative procedures, whether related to charter schools or business in general, may also adversely affect the Corporation, 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 ASBCS 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 2. Similar or different changes in regulatory enforcement or administrative procedures could materially impact charter schools, including Edkey. State of Arizona Budget State payments for charter schools are a component of, and rely upon, the State s budget. In prior years, the State has experienced budget deficits and cut certain State-funded projects. Generally, during past budget deficit years, 2 Rolling Hills Charter School v. Arizona State Board for Charter Schools, LC (Decision filed March 22, 2006, Superior Court of Arizona, Maricopa County, Arizona) 20

27 including Fiscal Year , the State Legislature has specifically exempted K-12 classroom spending from budget cuts. However, in order to address budget deficits during Fiscal Year through Fiscal Year resulting from the significant deterioration of economic conditions in the United States and the State, the State Legislature cut funding for K-12 education, including funding for charter schools. Significant cost cutting measures included a $5 million reduction of the statutorily prescribed total Additional Assistance funding for charter schools for Fiscal Year Although the statutorily prescribed total Additional Assistance funding for charter schools for Fiscal Year increased by 1.2% over the Fiscal Year amount, the State Legislature voted to reduce the statutorily prescribed amount by $10,000,000 and would have reduced the statutorily prescribed amount by $41,000,000, had Voters not approved a temporary 1-cent increase in the State s transaction privilege (sales) tax at a special election in May 2010, two-thirds of the monies from the tax increase were required to be spent on public primary and secondary education. However, this 1-cent increase will expire on May 31, level. The State Legislature also voted to maintain the per pupil Base Level support at the Fiscal Year Upon the enactment of the Fiscal Year budget, the State projected an ending balance surplus of $14 million in the General Fund. To achieve this surplus, the State continued to reduce spending, transfer a variety of fund balances to the General Fund, and rely on the 1-cent sales tax increase, among other solutions. In connection with such spending reductions, the State reduced funds appropriated to the Arizona Department of Education ( ADE ) by approximately $56 million, as compared to the ADE s Fiscal Year funding levels. Although the statutorily prescribed total Additional Assistance funding for charter schools for Fiscal Year increased by 0.9%, over the Fiscal Year amount, the State Legislature voted to reduce the statutorily prescribed amount by $17,656,000. The State Legislature also voted to maintain the per pupil Base Level support at the Fiscal Year level. As of May 2012, the State projected a Fiscal Year surplus of $122 million in the General Fund which was $98 million more than the May 2011 projection of $14 million. As of June 2012, the JLBC projected an ending balance surplus in the General Fund of $379 million for the Fiscal Year , primarily due to unanticipated revenue and lower than expected spending. Upon the enactment of the Fiscal Year budget in June 2012, the State projected an ending balance surplus of $249 million in the General Fund. Under this Fiscal Year enacted budget, the State increased funds appropriated to ADE by approximately $27.6 million or 0.8%. The statutorily prescribed total Additional Assistance funding for charter schools for Fiscal Year increased by 2% over the Fiscal Year amount. The State Legislature, however, voted to maintain the per pupil Base Level support at the Fiscal Year level and reduce the statutorily prescribed Additional Assistance funding for charter schools by $15,656,000. The enacted Fiscal Year budget included a three-year budget projection, which projected a shortfall of $486 million in Fiscal Year The projected shortfall in Fiscal Year may be due in part to the expiration of the temporary 1-cent sales tax increase on May 31, 2013, which is projected to reduce the Fiscal Year General Fund revenues by $912.8 million. A ballot initiative to effectively replace the temporary sales tax increase with a permanent 1-cent sales tax increase was presented to voters on the ballot for the November 6, 2012 general election. Voters, however, failed to approve this ballot measure. The $379 million surplus for the Fiscal Year will likely help the State reduce the Fiscal Year projected shortfall in the General Fund. However, the JLBC notes in its July 2012 Monthly Fiscal Highlights that while additional Fiscal Year resources may impact the end result of Fiscal Year through Fiscal Year , major uncertainties nevertheless remain about economic growth, federal budget negotiations and federal health care changes. In past years, the State Legislature has considered budget cutting measures related to education and State Payments, including additional rollovers to delay payment from one Fiscal Year to the next; freezing per- pupil funding; delaying or eliminating an assortment of programs that do not affect all schools (such as supplemental funding for math and science); rollbacks of increases in the weight assigned to kindergarten student counts; rolling back a previously approved 1 percent discretionary base level funding increase for Fiscal Year ; changing the timing of student counts; and including K-12 education in across-the-board percentage spending reductions. It is uncertain what further budget balancing measures, if any, will be taken, or how they might impact charter schools, and there can be no assurance that any final measures adopted by the State Legislature to implement required budget reductions will not include reductions in K-12 education spending, including reductions in State Payments to charter schools. Additionally, there is 21

28 no assurance that current levels of spending for K-12 education will not be decreased in future regular or special legislative sessions. In addition, a portion of the Series 2013 Borrower s revenues come from restricted State allocations identified as Classroom Site Funds and Instructional Improvement Funds. The State revenues supporting these two funds are generated, at least in part, from State Transaction Privilege (sales) Tax receipts. In prior years, due to economic conditions, consumer spending went down, thereby reducing the State revenues generated from taxes related to such spending. Accordingly, the amount of Classroom Site Funds and Instructional Improvement Funds allocated to schools, including charter schools, also decreased in prior years. There is no way to determine if State revenues generated from sales taxes will improve, stabilize or decrease. However, changes in such State revenues, and the allocation of Classroom Site Funds and Instructional Improvement Funds, will impact the Corporation and such impact may be material and adverse. Key Management The creation of and the philosophy of teaching in charter schools 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 Corporation s inability to find comparable qualified replacements, could adversely affect any of the Corporation s operations or financial results. Reliance on Projections Payment by the Trustee of principal of and interest due on the Series 2013 Bonds is dependent upon receipt of Loan Payments by the Trustee from the Series 2013 Borrowers and payments by the Corporation under the Master Indenture. The ability of the Series 2013 Borrower to make the payments under the Series 2013 Loan Agreements when due is dependent on State Payments to be received by the Corporation as payment for educating students in order that it may make payments to the Trustee on behalf of the Series 2013 Borrowers. The projections of revenues and expenditures prepared by the Corporation in APPENDIX E - THE CORPORATION S BUDGET PROJECTIONS herein are based upon assumptions made solely by the Corporation. SUCH PROJECTIONS DO NOT CONSTITUTE A CERTIFIED FINANCIAL FORECAST PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. No assurance can be given that the results described in the projections will be achieved, or that there has been no change in underlying considerations since the date of this Official Statement. The Corporation does not intend to update the projections and, accordingly, there are risks inherent in using the projections in the future as they become outdated. The projections are through June , and do not cover the entire period during which the Series 2013 Bonds may be outstanding. No guarantee can be made that the projections will correspond with the results actually achieved in the future because there is no assurance that the actual events will correspond with the assumptions made by the Corporation. For example, the projections make certain assumptions as to enrollment increases during the forecast period. See APPENDIX A - THE CORPORATION - The Schools - Enrollment herein and APPENDIX E - THE CORPORATION S BUDGET PROJECTIONS. Inevitably, the Corporation s actual future operations and financial condition will differ from those projected and actual future events and conditions will differ from those assumed by the Corporation. Such differences may be material and adverse. Actual operating results may be affected by many factors, including, but not limited to, increased costs, lower than anticipated revenues (as a result of changes in demographic trends, insufficient enrollment, changes in State or federal funding of education or otherwise) and local and general economic conditions. Income and Property Tax Exemption Under present federal and State law, regulations and rulings, the income and revenue of nonprofit, 501(c)(3) qualified exempt organizations are exempt from federal and state income tax, except for any unrelated business income as defined in the Code. The Corporation is an Arizona nonprofit corporation and has received a determination letter from the Internal Revenue Service stating that it is a 501(c)(3) qualified tax-exempt organization. Each of the Series 2013 Borrowers is an Arizona limited liability company that is wholly owned by the Corporation. Under present State law and rulings, an owner (whether for profit or not for profit) of real property and the improvements thereon may lease such property on a triple-net basis to a nonprofit organization that operates charter schools in the State and such property and improvements are used for educational instruction and not used or held for profit (although such property is subject to special assessments for local improvements to the property), may apply for exemption to the county assessor in the county in which such property is located during the period between January 1 and March 1 of the year following the year in which such owner leased the property to a charter school operator for educational instruction purposes. 22

29 Economic and Other Factors Future economic and other factors may adversely affect the Corporation s revenues and expenses and, consequently, the Corporation s ability to make payments under the Master Indenture. Among the factors that could have such adverse effects are: decreases in the number of students seeking to attend the schools at optimum levels for each grade level; decreases in the level of State Payments or other student enrollment-based funding by the State; decline in the ability of the Corporation and its management to provide education desired and accepted by the population served; economic developments in the affected service area, including inflation and interest rates; decline of the reputation of the schools; revocation of one or more of the Charter Contracts or any of its other charter school contracts; competition from other educational institutions, including other charter schools, private schools, and District Schools; lessened ability of the Corporation to attract and retain qualified teachers and staff at salaries that permit payment of debt service and expenses; increased costs associated with technological advances; changes in government regulation of the education industry or in the Charter School Act; future claims for accidents or other torts at the Series 2013 Facilities and the extent of insurance coverage for such claims; and the occurrence of natural disasters, such as floods. Factors Associated with Education There are a number of factors affecting schools in general, which could have an adverse effect on the Corporation s financial position and the Corporation s ability to make the payments required under the Master Indenture. These factors include, but are not limited to, increased 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 Corporation s work force with consequent impact on wage scales and operating costs of the Corporation; the inability to attract a sufficient number of students; federal requirements to provide services to special education students; unfavorable changes to existing statutes pertaining to the powers of the Corporation and legislation or regulations that may affect program funding; decline of the reputation of the Corporation s schools, faculty or student body, either generally or with respect to certain academic or extracurricular areas; and disruption of the Corporation s operations by real or perceived threats against its schools, employees or students. The Corporation cannot assess or predict the ultimate effect of these factors on the Corporation s operations or financial results of operations. Other Schools/Competition for Students The Corporation receives State Payments based on student enrollment. The Corporation competes for students with district schools, other charter schools and private schools. There can be no assurance that the Corporation will attract and retain the number of students that are needed to produce the revenues necessary to make payments under the Master Indenture used to pay the debt service on the Series 2013 Bonds. District schools and charter schools are located in close proximity to the Series 2013 Facilities. See APPENDIX A - THE CORPORATION for information regarding other schools in the Corporation s service areas. Construction Costs and Completion of the Series 2013 Facilities The Series 2013 Project includes the construction, and equipping of the Series 2013 Facilities located in Maricopa, Phoenix, Show Low and Mesa, Arizona. Such construction accommodates contemplated student capacity. Although the Corporation will enter into the Construction Contract for a guaranteed maximum price, and will allocate funds for construction contingencies, if current plans produce a construction cost that exceeds the amount available to pay such costs, the building plans will have to be modified by the Corporation 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 costs of building materials may also impact the cost of construction. No assurance can be given that the Series 2013 Facilities will be constructed or renovated on time or for the amount deposited into the Project Fund for such purpose. Construction delays could delay the Corporation s occupancy of the anticipated education facilities. No assurance can be given that the Series 2013 Facilities will be acquired, improved or constructed on time to avoid such eventuality. See APPENDIX A THE CORPORATION Risks of Real Estate Investment General. Development, ownership and operation of real estate, such as the Series 2013 Facilities, involves certain risks, including the risk of adverse changes in general economic and local conditions, including population decreases; uninsured losses; operating deficits and mortgage foreclosure; lack of attractiveness of the property to students/parents; cyclical nature of the real estate market; adverse changes in neighborhood values; and adverse changes in 23

30 zoning laws, other laws and regulations and real property tax rates (to the extent such taxes are applicable to the Series 2013 Facilities). Such losses also include the possibility of fire or other casualty or condemnation. If the Series 2013 Facilities, or any portion thereof, were not available during the period of restoration, this could adversely affect the ability of the Corporation to generate sufficient revenues to make payments under the Master Indenture and pay debt service on the Series 2013 Bonds. Changes in general or local economic conditions and changes in interest rates and the availability of mortgage funding may render the sale or refinancing of the Series 2013 Facilities difficult or unattractive. Limitations of Appraisals. Appraisals are estimates of value and not an assurance of what any particular property would bring on sale. Appraisals also are subject to numerous other limitations set forth therein. Potential investors should not assume that the values shown in APPENDIX A - THE CORPORATION The Appraisals represent reliable estimates of what the Series 2013 Facilities would bring in liquidation following an Event of Default. Damage, Destruction or Condemnation. Although the Borrowers will be required to obtain certain insurance against damage or destruction as set forth in the Series 2013 Loan Agreements and the Series 2013 Deed of Trust, there can be no assurance that any portion of the Series 2013 Facilities will not suffer losses for which insurance cannot be or has not been obtained or that the amount of any such loss, or the period during which the Corporation, as a result of damage or destruction to the Series 2013 Facilities, cannot generate revenues, will not exceed the coverage of such insurance policies. If the Series 2013 Facilities, or any portion thereof, is damaged or destroyed, or is taken in a condemnation proceeding, the proceeds of insurance or any such condemnation award for the Series 2013 Facilities, or any portion thereof, must be applied as provided in the Series 2013 Loan Agreements to restore or rebuild the Series 2013 Facilities or to redeem Series 2013 Bonds. There can be no assurance that the amount of revenues available to restore or rebuild the Series 2013 Facilities, or any portion thereof, or to redeem Series 2013 Bonds will be sufficient for that purpose, or that any remaining portion of the Series 2013 Facilities will generate revenues sufficient to pay the expenses of the Corporation and the payments under the Master Indenture used to pay debt service on the Series 2013 Bonds remaining outstanding. Environmental Risks. There are potential risks relating to liabilities for environmental hazards with respect to the ownership of any real property. If hazardous substances are found to be located on a property, owners of such property may be held liable for costs and other liabilities related to the removal of such substances, which costs and liabilities could exceed the value of the Facilities or any portion thereof. See APPENDIX A - THE CORPORATION for specific details and recommendations related to the Series 2013 Facilities. In the event environmental enforcement actions were initiated, the Series 2013 Borrowers and the Corporation could be liable for the costs of removing or otherwise treating pollutants or contaminants located at the site of the Series 2013 Facilities, or any portion thereof. In addition, under certain environmental statutes, in the event an enforcement action is initiated, a lien could be attached to the Series 2013 Facilities, or a portion thereof, that would adversely affect the Corporation s ability to generate revenues from the operation of the Series 2013 Facilities or otherwise sufficient to meet its obligations under the Master Indenture and the debt service requirements on the Series 2013 Bonds. In the event of a foreclosure on a Series 2013 Deed of Trust, the applicable Series 2013 Borrower and the Corporation may be held liable for costs and other liabilities relating to hazardous substances, if any, on the Series 2013 Facilities, or any portion thereof, on a strict-liability basis and such costs might exceed the value of such property. Debt Service Reserve Fund The Indenture has established the Debt Service Reserve Fund for payment of principal and interest due to the Registered Owners of the Series 2013 Bonds, to the extent Series 2013 Borrowers Pledged Revenues are insufficient to make such payments. Although the Corporation believes such reserves to be reasonable, and anticipates that the Series 2013 Borrowers will receive Series 2013 Borrowers Pledged Revenues sufficient to cover the debt service on the Series 2013 Bonds, there is no assurance that funds reserved and future Series 2013 Borrowers Pledged Revenues will be sufficient to cover debt service on the Series 2013 Bonds. Taxation of the Series 2013 Bonds Purchasers of the Series 2013 Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States of America), property and casualty insurance companies, banks, thrifts or other financial institutions or certain recipients of Social Security benefits, are advised to consult their tax advisors as to the tax consequences of purchasing or owning Series 2013 Bonds. 24

31 The interest on the Series 2013 Bonds may be includable in gross income for purposes of federal income taxation retroactive to the date of issuance of the Series 2013 Bonds for a variety of reasons. The exclusion from gross income is dependent upon, among other things, compliance with certain restrictions regarding investment of bond proceeds and continuing compliance by the Series 2013 Borrowers with the Series 2013 Loan Agreements and the Tax Certificate and the Corporation with the Master Indenture and the Tax Certificate under which enforcement remedies available to the Issuer and the Trustee are limited. See TAX MATTERS herein. If interest on the Series 2013 Bonds becomes includable in gross income for federal income tax purposes, the market for and value of the Series 2013 Bonds could be adversely affected. Moreover, there can be no assurance that the presently advantageous provisions of the Code, or the rules and regulations thereunder, will not be retroactively adversely amended or modified, thereby resulting in the inclusion in gross income of the interest on the Series 2013 Bonds for federal income tax purposes. While no such legislation has been proposed or adopted, there can be no assurance that Congress would not adopt legislation applicable to the Series 2013 Bonds or to the Corporation and that the Series 2013 Facilities would be able to comply with any such future legislation in a manner necessary to maintain the tax-exempt status of the Series 2013 Bonds. The Series 2013 Borrowers and the Corporation are required to comply with federal income tax law requirements in order to maintain the tax-exempt status of the Series 2013 Bonds to the extent that any such other requirements are made applicable to the Series 2013 Facilities. There is no assurance, however, that the Series 2013 Borrowers or the Corporation will comply with any such other requirements. Additional Bonds The Series 2013 Borrowers may receive one or more loans from the proceeds of Additional Bonds, secured on a parity basis with the Series 2013 Bonds, under the terms and conditions described herein. See APPENDIX D SUMMARIES OF FINANCING DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE OF TRUST Additional Bonds. Incurrence of Additional Indebtedness The Series 2013 Loan Agreements permit the Series 2013 Borrowers and the Master Indenture permits the Corporation and other Members of the Obligated Group to incur additional indebtedness upon compliance with the respective provisions thereof. The incurrence of such additional indebtedness could increase the economic burden on the Series 2013 Borrowers and the Obligated Group and thereby adversely affect the ability of the Series 2013 Borrowers and the Obligated Group to pay debt service on the Series 2013 Bonds. In addition, in connection with the incurrence of additional indebtedness, the Series 2013 Borrower(s) may secure additional indebtedness with a deed of trust on the Series 2013 Facilities that would be on parity with the Series 2013 Deed of Trust that secure the Series 2013 Bonds. See APPENDIX D SUMMARIES OF FINANCING DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMEN(S) Limitations on Incurrence of Additional Indebtedness. Non-Recourse Debt The obligations of the Series 2013 Borrowers under the Series 2013 Loan Agreements and the Corporation under the Maser Indenture are non-recourse in nature to officers and directors of their respective boards of directors. Should the Series 2013 Borrowers be unable to meet its obligations under the Series 2013 Loan Agreements or should the Corporation be unable to meet its obligations under the Master Indenture, the Trustee s remedies will be limited to foreclosure upon the defaulting Series 2013 Borrower s Series 2013 Deed of Trust, enforcement of its rights under Obligation No. 1 and recovery against the funds and accounts held by the Trustee (other than the Rebate Fund) pursuant to the Indenture. Legal Opinions The various legal opinions to be delivered concurrently with the delivery of the Series 2013 Bonds will express the professional judgment of the attorneys rendering the opinions on the legal issues explicitly addressed therein on the date thereof. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of parties to such transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. In addition, such opinions will be qualified as to the enforceability of the various legal instruments by, among others, limitations imposed by State and federal laws, rulings and decisions affecting remedies, and by bankruptcy, reorganization or other laws affecting the enforcement of creditors rights generally. 25

32 Cancellation of Contracts Pursuant to A.R.S. Section , public agencies such as the Issuer may, within three years after its execution, cancel any contract, without penalty or further obligation, made by the public agency if any person significantly involved in the initiating, negotiating, securing, drafting or creating of the contract on behalf of the public agency is, at any time while the contract or any extension thereof is in effect, an employee or agent of any other party to the contract in any capacity or a consultant to any other party of the contract with respect to the subject matter thereof. The cancellation becomes effective when written notice from the governing body of the public agency is received by all other parties to the contract unless the notice specifies a later time. The Issuer is a party to several contracts that are material to the payment of the Series 2013 Bonds, including the Indenture and the Series 2013 Loan Agreements. Exercise of a remedy under A.R.S. Section would adversely affect the Registered Owners of the Series 2013 Bonds. Inability or Delay in Liquidating the Series 2013 Facilities at an Adequate Sale Price An Event of Default gives the Trustee the right to possession of, and the right to sell, the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities pursuant to a foreclosure sale under one or more of the defaulting Series 2013 Borrower s Series 2013 Deed of Trust. The Series 2013 Facilities have been or will be specifically designed and constructed for use as a school and may not be readily adaptable and marketable for other uses. Furthermore, while the Corporation considers the location of the Series 2013 Facilities to be desirable for its purposes, there can be no assurance that potential purchasers will consider the location desirable for their particular purposes. Accordingly, there can be no assurance that the sale of all or a part of the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities could be accomplished rapidly, or at all. Any sale of any of the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities may require compliance with the laws of the State. Such compliance may be difficult, time-consuming, and/or expensive. Any delays in the ability of the Trustee to foreclose under the Series 2013 Deed of Trust could result in delays in the payment of the Series 2013 Bonds. Further, attempts to foreclose under the Series 2013 Deed of Trust or to obtain other remedies under the Series 2013 Deed of Trust, the Indenture, the Series 2013 Loan Agreements, the Master Indenture, or any other documents relating to the Series 2013 Bonds may be met with protracted litigation and/or bankruptcy proceedings, which could cause delays, and a court may decide not to order specific performance of covenants contained in such documents. In addition, in the event of a sale of the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities or any portion thereof, the potential use of the Series 2013 Facilities and the number of potential users that may be interested in purchasing the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities or any portion thereof could be limited, and the sale price could thus be affected. As more fully described in APPENDIX A - THE CORPORATION, the Corporation has received an appraisal of the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities. As mentioned above under Risks of Real Estate Investment - Limitation of Appraisals, the appraisals represent an estimate of value as of their respective dates and provide no assurance as to the price the Trustee might receive in a sale following foreclosure under the Series 2013 Deed of Trust. There is no requirement that the value of the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities equal or exceed the Loan to the Series 2013 Borrower(s). See APPENDIX A THE CORPORATION The Appraisals for the appraisal value of the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities. No assurance can be given that any of the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities can be sold now or in the future at the amount appraised or greater, and for the above-described reasons and others, no assurance can be made that the amount realized upon any sale of any of the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities will be sufficient to pay and discharge the Series 2013 Borrowers obligations under the Series 2013 Loan Agreements or to pay debt service on the Series 2013 Bonds in full when due. In particular, there can be no representation that the cost of the AHA Camp Verde Facilities, the AHA Cottonwood Facilities, the CFA Facilities, the ACAA North 28 th Facilities and the Sequoia Pathway Facilities constitutes a realizable amount upon any forced sale thereof. Potential Effects of Bankruptcy If the Series 2013 Borrowers or the Corporation were to file a petition for relief (or if a petition were filed against it as debtor) under the United States Bankruptcy Code, 11 U.S.C. Sections 101 et seq., as amended, or other similar laws 26

33 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 owners of the Series 2013 Bonds). In a bankruptcy proceeding, the debtor could file a plan for the adjustment of its debts that modifies the rights of creditors generally or the rights of any class of creditors, secured or unsecured (including the owners of the Series 2013 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. The Series 2013 Borrowers are prohibited from creating secured indebtedness except as provided in the Series 2013 Loan Agreements and the Corporation (and other Members of the Obligated Group are prohibited from creating secured indebtedness except as provided in the Master Indenture). See APPENDIX D SUMMARIES OF FINANCING DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE SERIES 2013 LOAN AGREEMENTS Limitation on Incurrence of Additional Indebtedness and SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Limitation on Incurrence of Additional Indebtedness. Enforcement of Remedies The remedies available to the Trustee or the Registered Owners of the Series 2013 Bonds upon an Event of Default under the Indenture, the Series 2013 Loan Agreements, the Master Indenture or the Series 2013 Deed of Trust are in many respects dependent upon judicial actions that are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, the remedies provided in the Indenture, the Series 2013 Loan Agreement, the Master Indenture and the Series 2013 Deed of Trust may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Series 2013 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 and the constitutional powers of the United States of America, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. Bond Audits Internal Revenue Service ( IRS ) officials have indicated that more resources will be invested in audits of taxexempt bonds in the charitable organization sector. The Series 2013 Bonds may be, from time to time, subject to audits by the IRS. The Series 2013 Borrowers and the Corporation believe that the Series 2013 Bonds properly comply with the tax laws. In addition, Bond Counsel will render an opinion with respect to the tax-exempt status of the Series 2013 Bonds, as described under the caption TAX MATTERS herein. No ruling with respect to the tax-exempt status of the Series 2013 Bonds has been or will be sought from the IRS, however, and opinions of counsel are not binding on the IRS or the courts and are not guarantees. There can be no assurance that an audit of the Series 2013 Bonds will not adversely affect the Series 2013 Bonds. Secondary Market There is no guarantee that a secondary trading market will develop for the Series 2013 Bonds. Consequently, prospective bond purchasers should be prepared to hold their Series 2013 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 Series 2013 Bonds. In General TAX MATTERS In the opinion of Kutak Rock LLP, Bond Counsel, to be delivered at the time of original issuance of the Series 2013 Bonds, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2013 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 opinion described in the preceding sentence assumes the accuracy of certain representations and continuing compliance by the Issuer, the Series 2013 Borrowers and the Corporation with covenants designed to satisfy the requirements of the Code that must be met subsequent to the issuance of the Series 2013 Bonds. Failure to comply with such requirements could cause interest on the Series 2013 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2013 Bonds. The Issuer, the Series 2013 Borrowers and the Corporation have covenanted to comply with such requirements. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2013 Bonds. Bond Counsel is further of the opinion that interest on the Series 2013 Bonds is exempt from State of Arizona personal income taxation. 27

34 Notwithstanding Bond Counsel s opinion that interest on the Series 2013 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 its 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 2013 Bonds may otherwise affect the federal income tax liability of the owners of the Series 2013 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 2013 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 2013 Bonds. Original Issue Discount. The Series 2013 Bonds maturing on July 1, 2025, July 1, 2035, July 1, 2043 and July 1, 2048 (collectively, the Discount Bonds ) are being sold at an original issue discount. The difference between the initial public offering prices, as set forth on the cover page of the Official Statement, of such Discount Bonds and their stated amounts to be paid at maturity, constitutes original issue discount treated as interest which is excluded from gross income for federal income tax purposes, 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 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, 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. Original Issue Premium. The Series 2013 Bonds maturing on July 1, 2033 (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 the call date, based on the purchaser s yield to the call date and giving effect to the call premium). As premium is amortized, 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 amortizable premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. 28

35 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 2013 Bonds is subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments made after March 31, 2007 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. This reporting requirement does not in and of itself affect or alter the excludability of interest on the Series 2013 Bonds from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations. Changes in Federal 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 tax matters referred to above or adversely affect the market value of the Series 2013 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. Purchasers of the Series 2013 Bonds should consult their tax advisors regarding any pending or proposed legislation, or regulatory initiatives. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as of the date of issuance and delivery of the Series 2013 Bonds and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation or regulatory initiatives. RATING Standard & Poor s Ratings Services ( S&P ) has assigned the Series 2013 Bonds a rating of BB+. Such rating reflects only the view of S&P at the time such rating was issued, and neither the Issuer nor the Corporation makes any representations as to the appropriateness of the rating. Any explanation of the significance of such rating may only be obtained from S&P. The Corporation furnished to S&P information and materials relating to the Series 2013 Bonds and to itself, certain of which information and materials and on investigations, studies and assumptions made by the rating agencies themselves. The rating is not a recommendation to buy, hold or sell the Series 2013 Bonds. There is no assurance that such rating will remain in effect for any given period of time or that such rating will not be revised downward or withdrawn entirely by S&P if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of the rating can be expected to have an adverse effect on the market price of the Series 2013 Bonds. The Corporation has undertaken to file notice of any formal change in any rating that relates to the Series 2013 Bonds that could affect the value of the Series 2013 Bonds. See APPENDIX G FORM OF CONTINUING DISCLOSURE UNDERTAKING. UNDERWRITING The Series 2013 Bonds are being purchased by Lawson Financial Corporation and Herbert J. Sims & Co., Inc. (collectively, the Underwriter ), pursuant to a purchase contract at prices which, if the Series 2013 Bonds are sold at the prices and yields shown on the inside cover page, will result in an Underwriter s discount of $887,300. The Corporation has also agreed to pay an underwriting and marketing fee to the Underwriter for services related to the offer and sale of the Series 2013 Bonds. The obligation of the Underwriter to accept delivery of the Series 2013 Bonds is subject to various conditions contained in the purchase contract. The purchase contract provides that the Underwriter will purchase all of the Series 2013 Bonds if any are purchased. The Series 2013 Bonds may be offered and sold to certain dealers (including dealers depositing Series 2013 Bonds into unit investment trusts), banks, and others, at prices lower than the initial offering prices, and such initial offering prices may be changed from time to time by the Underwriter. The Underwriter has no obligation to make a secondary market for the Series 2013 Bonds. LEGAL MATTERS All legal matters incident to the authorization, issuance, sale and delivery of the Series 2013 Bonds by the Issuer are subject to the approving opinion of Kutak Rock LLP, Scottsdale, Arizona, Bond Counsel, whose approving opinion will be delivered with the Series 2013 Bonds, and the proposed form of which is set forth in APPENDIX F PROPOSED FORM OF OPINION OF BOND COUNSEL. The legal opinion delivered may vary from that form if necessary to reflect facts and law on the date of delivery. Certain legal matters will be passed upon by Russo, Russo & Slania, P.C., Tucson, Arizona, as Issuer s counsel, by Buchalter Nemer, Scottsdale, Arizona, as Series 2013 Borrowers and the Corporation s counsel, by Kutak Rock LLP, Scottsdale, Arizona, as Issuer s disclosure counsel and by John T. Lynch, Jr., Phoenix, Arizona, as counsel to and solely for the benefit of the Underwriter. 29

36 The various legal opinions to be delivered concurrently with the delivery of the Series 2013 Bonds will speak only as of their dates 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. LITIGATION As of the date hereof, there is no litigation of any nature pending or threatened against the Issuer, the Series 2013 Borrowers or the Corporation to restrain or enjoin the issuance, sale, execution, or delivery of the Series 2013 Bonds or the application of the proceeds thereof toward the costs of the Series 2013 Project, or in any way contesting or affecting the validity of the Series 2013 Bonds or any proceedings of the Issuer, the Series 2013 Borrowers or the Corporation taken with respect to the issuance or sale thereof, or the pledge or application of any monies or security for the Series 2013 Bonds or the existence or powers of the Issuer. 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 Series 2013 Borrowers or the Corporation s knowledge, threatened, affecting the validity of the Indenture, the Series 2013 Loan Agreements, or the Series 2013 Bonds or contesting the corporate existence or powers of the Corporation on the date of this Official Statement. RELATIONSHIPS AMONG PARTIES Bond Counsel and Issuer s disclosure counsel has acted or is acting as bond counsel and Issuer s disclosure counsel with respect to other bond transactions underwritten by the Underwriter and will continue to do so in the future if requested. Bond Counsel and Issuer s disclosure counsel also serves as bond counsel and/or Issuer s disclosure counsel for political jurisdictions whose boundaries include all or part of the Series 2013 Borrowers, the Corporation, the Series 2013 Facilities, or the Series 2013 Project. Issuer s counsel has also acted or is acting as counsel to other parties to this transaction and will continue to do so in the future if requested. Counsel to the Underwriter previously represented the Underwriter with respect to other financings and will continue to do so in the future if requested. Counsel to the Corporation and the Series 2013 Borrowers has previously represented the Issuer as disclosure counsel with respect to other bond transactions and will continue to do so in the future if requested. CONTINUING DISCLOSURE Pursuant to the Master Indenture, the Corporation will execute and deliver a Continuing Disclosure Undertaking (the Continuing Disclosure Undertaking ), with respect to the Series 2013 Bonds. The Continuing Disclosure Undertaking is made for the benefit of the Registered Owners and Beneficial Owners (as defined in the Continuing Disclosure Undertaking) of the Series 2013 Bonds and in order to assist the Underwriter in complying with its obligations pursuant to Rule 15c2-12 adopted by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the Continuing Disclosure Rule ). See APPENDIX G FORM OF CONTINUING DISCLOSURE UNDERTAKING. Pursuant to the Continuing Disclosure Undertaking, the Corporation will agree to provide, or cause to be provided, annually, in accordance with Electronic Municipal Market Access ( EMMA ) to the Municipal Securities Rulemaking Board ( MSRB ) certain quantitative financial information and operating data of the type specified in the Continuing Disclosure Undertaking (the Annual Report ); and to provide in a timely manner to designated information repositories notice of the occurrence of certain events, if material (within the meaning of the Continuing Disclosure Rule), and of any failure to provide the Annual Report when due. The Continuing Disclosure Undertaking does not require that information be provided to Registered Owners or Beneficial Owners of the Series 2013 Bonds. CONSOLIDATED FINANCIAL STATEMENTS Included in this Official Statement are the consolidated financial statements of the Corporation, Choice, and American Heritage Academy, Inc. for Fiscal Years and , and of the Corporation and American Heritage Academy for Fiscal Year , prepared by Patric Greer, the Chief Financial Officer of the Corporation. These consolidated financial statements have not been audited, but are based upon the audited financial statements of the Corporation, Choice, and American Heritage Academy, Inc. for the aforementioned fiscal years. Copies of such audited financial statements, including the notes associated with such audits, are on file with the Underwriter and available upon 30

37 request. Such audited financial statements for the Corporation and Choice were prepared by Klecka, Wilkens & Klecka, certified public accountants, and such audited financial statements for American Heritage Academy, Inc. were prepared by Tkatchov & Tkatchov, certified public accountants. Also included in this Official Statement is a consolidated financial statement of the Corporation and American Heritage Academy, Inc. for the first quarter, ending September 30, 2012, of the current Fiscal Year , prepared by Patric Greer, the Chief Financial Officer of the Corporation. Such consolidated financial statement for the first quarter of Fiscal Year has not been audited. See APPENDIX B CONSOLIDATED FINANCIAL STATEMENTS. See APPENDIX A THE CORPORATION, for more information relating to the merger of Edkey, Choice, and American Heritage Academy, Inc. MISCELLANEOUS The Corporation has furnished the information herein relating to the Corporation, the Series 2013 Borrowers and the Series 2013 Facilities. The Issuer has furnished only the information herein under the caption ISSUER and the caption LITIGATION as it relates to the Issuer. The Underwriter has furnished the information in this Official Statement with respect to the offering prices of the Series 2013 Bonds, and the information under the captions MATURITY SCHEDULE, UNDERWRITING, SOURCES AND USES OF FUNDS and DEBT SERVICE REQUIREMENTS ON SERIES 2013 BONDS. All quotations from, and summaries and explanations of, the Indenture, the Series 2013 Loan Agreements, the Master Indenture, the Series 2013 Deed of Trust and other documents referred to herein do not purport to be complete, and reference is made to said documents for full and complete statements of their provisions. All references herein to the Series 2013 Bonds are qualified by the definitive forms thereof and the information with respect thereto contained in the Indenture, the Series 2013 Loan Agreements and the Master Indenture. This Official Statement shall not be construed as constituting an agreement with purchasers of the Series 2013 Bonds. The cover page, the inside cover, introductory statement and the attached Appendices are part of this Official Statement. 31

38 ANY STATEMENTS MADE IN THIS OFFICIAL STATEMENT INVOLVING MATTERS OF OPINION OR OF ESTIMATES, WHETHER OR NOT SO EXPRESSLY STATED, ARE SET FORTH AS SUCH AND NOT AS REPRESENTATIONS OF FACT AND NO REPRESENTATION IS MADE THAT ANY OF THE ESTIMATES WILL BE REALIZED. OTHER THAN WITH RESPECT TO INFORMATION CONCERNING THE ISSUER CONTAINED UNDER THE CAPTIONS ISSUER AND LITIGATION AS IT RELATES TO THE ISSUER, NONE OF THE INFORMATION IN THIS OFFICIAL STATEMENT HAS BEEN SUPPLIED OR VERIFIED BY THE ISSUER, AND THE ISSUER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO (I) THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION; (II) THE VALIDITY OF THE SERIES 2013 BONDS; OR (III) THE TAX STATUS OF THE INTEREST ON THE SERIES 2013 BONDS. Edkey, Inc. By /s/ President 32

39 APPENDIX A THE CORPORATION SUMMARY OF FREQUENTLY USED DEFINED TERMS Any capitalized terms not otherwise defined herein shall have the meaning set forth in the Official Statement. 132 General Crook Trail, LLC means the Arizona limited liability company the membership interests in which are wholly owned by the Corporation organized for the purpose of holding title to and being the Trustor on the Deed of Trust with respect to 132 West General Crook Trail, Camp Verde, AZ otherwise known as the AHA Camp Verde Facilities. 982 Full House, LLC means the Arizona limited liability company the membership interests in which are wholly owned by the Corporation S. 16 th Street, LLC means the Arizona limited liability company, the membership interests in which will be transferred to the Corporation by the Program Administrator pursuant to the CFA Purchase Agreement (defined herein) that will be wholly owned by the Corporation organized for the purpose of holding title to and being Trustor on the Deed of Trust with respect to 1648 S. 16 th Street, Phoenix, Arizona otherwise known as the CFA Facilities E. Cherry Street, LLC means the Arizona limited liability company the membership interests in which are wholly owned by the Corporation organized for the purpose of holding title to and being Trustor on the Deed of Trust with respect to 2030 E. Cherry Street, Cottonwood Arizona otherwise known as the AHA Cottonwood Facilities N. 28 th Avenue, LLC means the Arizona limited liability company the membership interests in which are wholly owned by the Corporation organized for the purpose of holding title to and being Trustor on the Deed of Trust with respect to N. 28 th Avenue Lane, Phoenix, Arizona otherwise known as the ACAA North 28 th Facilities N. Porter, LLC means the Arizona limited liability company the membership interests in which are wholly owned by the Corporation organized for the purpose of holding title to and being Trustor on the Deed of Trust with respect to N. Porter Road, Maricopa, Arizona otherwise known as the Sequoia Pathway Facilities. ACAA means Arizona Conservatory for Arts and Academics, the School operated by the Corporation at the ACAA Kelton Facilities and the ACAA North 28 th Facilities. ACAA Kelton Facilities means the charter school campus located at 2820 W. Kelton Lane, Phoenix, Arizona at which the Corporation operates ACAA. ACAA North 28 th Facilities means the charter school campus located at N. 28 th Avenue, Phoenix, Arizona at which the Corporation operates ACAA. ADE means the Arizona Department of Education. AHA means American Heritage Academy, Inc., an Arizona nonprofit corporation and the pre-aha Merger operator of the AHA Schools now operated by the Corporation at the AHA Camp Verde Facilities and the AHA Cottonwood Facilities. AHA Camp Verde Facilities means the charter school campus located at 132 W. General Crook Trail, Camp Verde, Arizona at which the Corporation operates AHA. AHA Cottonwood Facilities means the charter school campus located at 2030 E. Cherry Street, Cottonwood, Arizona at which the Corporation operates AHA. AHA Schools means Schools operated by the Corporation at the AHA Camp Verde Facilities and the AHA Cottonwood Facilities. AIMS means the Arizona Instrument to Measure Standards test. A-1

40 Appraiser means KS Appraisal, a licensed Arizona appraiser. Arizona School Improvement Plan means an education remediation plan for an Underperforming or Failing school as required by ADE under both the federal No Child Left Behind Act ( NCLB ) and the legislative requirements for the accountability system as stated in section of the Arizona Revised Statutes ( AZ LEARNS ). ASBCS means the Arizona State Board for Charter Schools. CFA Facilities means the charter school campus located at 1648 S. 16 th Corporation operates CFA-Phoenix. Street, Phoenix, Arizona at which the CFA-Phoenix means Children First Academy-Phoenix, the School operated by the Corporation at the CFA Facilities. CFA-Tempe means Children First Academy-Tempe, the School operated by the Corporation at leased facilities located at 1938 East Apache Boulevard, Tempe, Arizona. Charter School Contract means an individual charter school contract or Charter School Contracts means one or more of the charter school contracts by and between the Corporation and the ASBCS set forth in Table 3. Choice means Choice Education and Development Corporation, the pre-merger name of the Corporation. Corporate Board means the corporate board of directors of the Corporation, as required by its bylaws and which also serves as the Governing Board of a School as required by a Charter School Contract. Corporation means Edkey, Inc., an Arizona nonprofit corporation. Deaf School means Sequoia School for the Deaf and Hard of Hearing, a School operated by the Corporation at the Horne Facilities. Edkey means Edkey, Inc., an Arizona nonprofit corporation that was merged into the Corporation on June 30, Environmental Engineer means Liesch Southwest, Inc., an Arizona licensed environmental engineer. Governing Board means the Corporate Board acting in its capacity as governing board of a School as required by a Charter School Contract. Horne Facilities means the Facilities located at 1460 S. Horne, Mesa, Arizona at which the Corporation operates the Deaf School, Sequoia Charter Elementary School and Sequoia Secondary School. Merger means the corporate merger between the Corporation and Edkey which became effective on June 30, Officers means the corporate officers of the Corporation. School means, individually, and Schools means some, respectively, or all, collectively, of the charter schools operated by the Corporation set forth on Table 2 herein. School Year means the period during which the Schools provide education to students during any Fiscal Year. Sequoia Elementary means Sequoia Charter Elementary School, a School operated by the Corporation at the Horne Facilities. Sequoia Pathway means Sequoia Pathway Preparatory Academy, the School operated by the Corporation at the Sequoia Pathway Facilities. Sequoia Secondary means Sequoia Secondary School, a School operated by the Corporation at the Horne Facilities. Sequoia Pathway Facilities means the charter school campus located at Porter Road, Maricopa, Arizona at which the Corporation operates Sequoia Pathway. A-2

41 Sequoia Village means Sequoia Village School, the School operated by the Corporation at the Village Facilities. Series 2013 Limited Liability Company means, individually, and Series 2013 Limited Liability Companies means one or more of the Arizona limited liability companies set forth in Table 1 herein. Village Facilities means the charter school campus located at 982 Full House Lane, Show Low, Arizona at which the Corporation operates Sequoia Village. A-3

42 Introduction The Corporation operates a group of fifteen nonprofit public charter schools in Mesa, Tempe, Phoenix, Show Low, Cottonwood, Camp Verde 1 and Maricopa, Arizona set forth in Table 2 hereof. The Corporation also manages and operates three charter schools set forth in Table 5 hereof on behalf of a for profit entity, the assets of which the Corporation will purchase (as hereinafter provided). The Corporation The Corporation was incorporated as a Delaware nonprofit corporation on March 18, 2002 under the name of Choice Education and Development Corporation ( Choice ) and has been determined by the Internal Revenue Service to be an organization described in Section 501(c)(3) of the Code. On June 24, 2011, the Corporation domesticated as an Arizona nonprofit corporation by filing articles of domestication with the Arizona Corporation Commission. On June 18, 2012, the Corporation filed with the Arizona Corporation Commission Articles of Merger and Amendment with Edkey, Inc., an Arizona nonprofit corporation ( Edkey ) which was also determined by the Internal Revenue Service to be an organization described in Section 501(c)(3) of the Code whereby Edkey merged with and into the Corporation which merger became effective on June 30, 2012 (the Merger ). Included with and as a component of the Articles of Merger and Amendment of the Corporation with Edkey, on June 18, 2012, the Corporation changed its corporate name to Edkey, Inc., the name of the former corporation that the Corporation absorbed as a result of the Merger. On November 1, 2012, the Corporation and American Heritage Academy, Inc. filed articles of merger with the Arizona Corporation Commission whereby American Heritage Academy, Inc. merged into the Corporation which merger was effective December 31, The Corporate Board The Corporation s corporate activities are governed by its Corporate Board. The Corporate Board consists of the following five members: Douglas F. Pike, Tom L. Crewse, Vicki Jo Anderson, Mary Ferrell Gifford and Clark L. Smithson. The Corporate Board makes the major decisions with respect to the Corporation s business operations, community relations, fundraising, policies, business, and operations. Mr. Douglas F. Pike, Director, has significant management experience in both the public and private sectors, having overseen projects related to bond acquisition, municipal planning, contract management, construction and public works. Mr. Pike earned his Bachelor of Science degree in Civil Engineering from Brigham Young University, has previously been licensed as an engineer in California, Nevada and New Mexico and is currently licensed as an engineer in Arizona. Mr. Pike has served as both an engineering instructor and math instructor and has been an active participant within the Arizona charter school community, having served as a Governor s Appointee to the ASBCS from and President of ASBCS from 1996 to Mr. Pike also has served as a board member of the Greater Flagstaff Economic Committee and a member of the Superintendent s Council for the Flagstaff School District. Mr. Thomas L. Crewse, Director, holds both a Master in Business Administration in International Business and a Bachelor of Arts in Spanish (graduating summa cum laude) from Arizona State University. Mr. Crewse is currently the President/Founder of Grupo Desarrollos Santo Tomas SA de CV and the Vice President of International Construction Consultants, two companies which together employ over 120 individuals in the resort real estate development industry in Mexico. Mr. Crewse was raised in both the US and Latin cultures, and therefore brings bi-cultural and intercultural problem solving skills to the Corporate Board. Ms. Vicki Jo Anderson, Director, holds a Bachelor of Arts in both Sociology and Spanish, and a Master of Arts in history and religious studies. She has served as a government teacher for more than thirty years and is the founder and past president of AHA prior to the operation of AHA by the Corporation. Ms. Anderson has been the recipient of four research grants from Brigham Young University and currently serves as a board member of Yes the ARC and as Assistant Director of the American Heritage Academy. 1 Upon consummation of the AHA Merger (described herein), the Corporation will have direct control of the AHA Charter School Contract for the operation of the AHA Cottonwood Facilities and the AHA Camp Verde Facilities. A-4

43 Ms. Mary Ferrell Gifford, Director, currently serves as Regional Vice President of K 12, Inc. ( K 12 ), an online learning curriculum provider and online public school operator for grades K through 12. In this position, Ms. Gifford is primarily responsible for the business operations, government relations, policy development, board development and management and legal and financial compliance of schools in Wyoming, Colorado, Arizona, Texas, Kansas, Oklahoma, New Mexico and Utah which serve over 30,000 students and employ over 350 employees. Ms. Gifford has a long history with charter schools in Arizona having served as the Arizona State Superintendent s appointee to the ASBCS for eight years and having been the executive director of the ASBCS from 1997 through Ms. Gifford has invested a great deal of her career shaping public policy on educational issues having served as a Director of the Mackinac Center for Public Policy and a Program Director for the Goldwater Institute. She earned her Bachelor of Arts degree in Political Science from Arizona State University, her Master s Degree in Education Leadership from Northern Arizona University and has completed Master s level course work in Public Policy at Arizona State University. Ms. Gifford is the author of several articles and publications on education issues. Mr. Clark L. Smithson, Director, brings significant executive experience to the Corporate Board, having previously held positions as a city manager, negotiator, financial estate planner, corporate vice president, real estate agent, public relations specialist, instructor, and principal. Prior to joining the Corporate Board, Mr. Smithson gained 15 years experience as a city manager for several California cities. Mr. Smithson s executive management experience includes serving as Division Vice-President of European Health Spas, a Fortune 500 subsidiary, during which time he successfully managed profit-loss responsibilities for 38 locations in 12 states, and supervised 650 staff and field employees in sales, training, customer service and planning. Additionally, Mr. Smithson served as a financial and estate planning specialist for 12 years in Phoenix, Arizona. He has overseen the grant application processes resulting in awards of over $18 million in grants to various universities and cities. Mr. Smithson holds a Master of Public Administration from University of Southern California, a Bachelor of Arts in Political Science from University of California Los Angeles and is currently pursuing postgraduate work in Educational Administration at Arizona State University. He has been an instructor at the elementary, high school and college levels and served as a Chandler Chamber of Commerce Excellence in Education Council and Government Affairs Committee member. Corporate Officers The daily activities of all Schools operated by the Corporation are governed by its chief financial officer and the president/superintendent (the Corporate Officers ). The Corporate Officers are Ronald D. Neil, president/superintendent, and Patric R. Greer, treasurer and secretary who implement the policies, business, and operations as set forth by the Corporate Board and are primarily responsible for the fiscal and academic achievement of all Schools. Mr. Ronald D. Neil is the president/superintendent of the Corporation, has a Master of Business Administration in Finance and a Bachelor of Arts in Business Administration, both from the University of Washington. He has served as the chief operating officer and associate superintendent of the Corporation s charter schools 2 since Prior to 2004, he was a director of Sequoia Choice High School specializing in technology-enhanced project-based instruction for nine public charter schools throughout Arizona. Throughout his career he has served on several boards all dedicated to the advancement and improvement of education. Mr. Patric R. Greer is the chief financial officer and secretary of the Corporation is a certified public accountant. He holds a Bachelor of Science in Accounting from Northern Arizona University. Mr. Greer has been the controller of the Corporation 3 since He has over 20 years experience in corporate financing, business and financial analysis, and systems and corporate controls. 2 Including when operated by Corporation s pre-merger predecessors. 3 Including Corporation s pre-merger predecessors. A-5

44 THE SERIES 2013 LIMITED LIABILITY COMPANIES The Corporation has organized Arizona limited liability companies for the purpose of holding title to each Series 2013 Project and serving as Trustor on the Deeds of Trust with respect to each portion of the Series 2013 Project (the Series 2013 Limited Liability Companies ). 4 The Corporation is the sole member of each of the Series 2013 Limited Liability Companies and owns and controls all membership interests therein. Table 1 presents the Series 2013 Limited Liability Companies, the portion of the Series 2013 Project to which each will hold title 5 and the street address of the portion of the Series 2013 Project to which it corresponds. TABLE 1 THE SERIES 2013 PROJECT LIMITED LIABILITY COMPANIES NAME OF LIMITED LIABILITY COMPANY SERIES 2013 PROJECT ADDRESS OF PROPERTY N. Porter, LLC Sequoia Pathway Facilities N. Porter Road, Maricopa AZ Full House, LLC ACAA Kelton Facilities Horne Facilities Will not own real estate. See Footnote 5 above. Village Facilities Assets of Sequoia Choice Schools, LLLP N. 28th Avenue, LLC ACAA North 28 th Facilities N. 28th Avenue, Phoenix, AZ E. Cherry Street, LLC AHA Cottonwood Facilities 2030 E. Cherry Street, Cottonwood, AZ General Crook AHA Camp Verde Facilities 132 West General Crook Trail, Trail, LLC 1648 S. 16 th Street, LLC CFA Facilities Camp Verde, AZ South 16 th Street, Phoenix, AZ Corporation will acquire the membership interests of the Program Administrator in 1648 S. 16 th Street, LLC which currently owns title to the CFA Facilities as more fully described in Appendix A Full House, LLC will not hold title to any real property but will be a Borrower for purposes of acquisition of the assets of Sequoia Choice Schools, LLLP, and be the primary obligor with respect to certain obligations relating to improvements to be made to the Village Facilities, the Horne Facilities and the ACAA Kelton Facilities. A-6

45 The Corporation acquired or financed certain charter school projects, including certain portions of the Series 2013 Project, utilizing proceeds from tax exempt bond financings issued by the Issuer, some of which will be refunded or refinanced using proceeds of the Series 2013 Bonds. Table 2A presents the existing outstanding bonds that will be refunded and/or refinanced using proceeds of the Series 2013 Bonds. Table 2B presents the existing outstanding bonds that will not be refunded and/or refinanced using proceeds of the Series 2013 Bonds and for which the Corporation shall remain obligated. TABLE 2A EXISTING BOND FINANCINGS TO BE REFUNDED ORIGINAL ISSUER AND DATE OF ISSUE PRINCIPAL AMOUNT FACILITIES FINANCED The Industrial Development Authority of the $6,290,000 CFA Facilities County of Pima Education Facility Lease Revenue Revenue Bonds (Children First Academy Project) Series 2012 (the CFA Series 2012 Bonds ) 6 The Industrial Development Authority of the County of Pima Education Facility Revenue Bonds (Sequoia Pathway Project) Series 2010 (the Series 2010 Bonds ) $13,450,000 Sequoia Pathway Facilities TABLE 2B ISSUER AND DATE OF ISSUE The Industrial Development Authority of the County of Pima Education Facility Revenue Bonds (Choice Education and Development Corporation Project) (Series 2006) (the Series 2006 Bonds ) OTHER EXISTING BOND FINANCINGS ORIGINAL PRINCIPAL AMOUNT FACILITIES FINANCED 7 $28,600,000 Horne Facilities, ACAA Kelton Facilities and Village Facilities 6 See discussion in Appendix A-3 regarding the CFA Series 2012 Bonds. 7 Some proceeds of the Series 2012 Bonds will be used by Corporation to expand or otherwise make improvements to the Facilities pledged as security for the Series 2006 Bonds. Consequently, the Corporation will provide a subordinated pledge of revenue from the Schools that operate on and a subordinated deed of trust with respect to the Horne Facilities, ACAA Kelton Facilities and the Village Facilities as security for repayment of the Series 2012 Bonds. A-7

46 The Charter School Contracts The Charter School Contracts and the Schools operated by the Corporation pursuant to each are presented in Table 3 below. TABLE 3 Charter School Contract Name American Heritage Academy Arizona Conservatory for Arts and Academics 9 CHARTER SCHOOL CONTRACTS Renewal Expiration Initial Date (if Enrollment Schools Operated Term Charter Cap Per Pursuant to Effective Expiration has been Charter Charter Contract Date Date Renewed) Contract Enrollment 8 (i) American Heritage March 31, 6/30/ /30/ Academy-Cottonwood 1998 Renewed (ii) American Heritage December Academy-Camp Verde 22, 2011 (i) Arizona Conservatory for Arts and Academics May 28, /28/2017 N/A Learning Crossroads Basic Academy 11 (ii) Arizona Conservatory for Arts and Academics Middle School (i) Sequoia Academics and Arts Charter School (ii) Sequoia Academics and Arts Elementary Charter School June 30, 2000 (prior charter contract was effective July 1, 1998) Pathfinder Academy Pathfinder Academy July 1, 2003 (prior charter contract was effective as of July 1, 1998) 6/30/2013 N/A /30/2013 6/30/ Please See Table 4 for School by School enrollment detail. 9 All revenues from the operation of the Schools operated pursuant to the ACAA Charter School Contract have been pledged on a senior basis for repayment of the Series 2006 Bonds. 10 N/A means that the Charter School Contract is not due for renewal until a later date and, as such, no expiration date on the charter contract, as renewed, exists. 11 Students attending the two schools operated pursuant to the Learning Crossroads Basic Academy Charter School Contract will be re-enrolled under the Sequoia Charter School Charter School Contract on July 1, A-8

47 TABLE 3 Charter School Contract Name Sequoia Charter School 12 Sequoia Ranch 13 CHARTER SCHOOL CONTRACTS Renewal Expiration Initial Date (if Enrollment Schools Operated Term Charter Cap Per Pursuant to Effective Expiration has been Charter Charter Contract Date Date Renewed) Contract Enrollment 8 (i) Sequoia Charter 6/30/2012 6/30/2032 1, Elementary School (ii) Sequoia Secondary School (i) Sequoia Pathway Preparatory Academy (ii) Sequoia Ranch * (iii) Children First Academy Phoenix June 30, 2000 (prior charter contract was effective July 1, 1998) July 1, 2003 (prior charter contract was effective August 24, 1998) 6/30/2013 6/30/2033 1, ,463 Sequoia Redwood Academy Sequoia School for the Deaf and Hard of Hearing 16 (iv) Children First Academy Tempe Arizona Conservatory for Arts and Academics Elementary School Sequoia School for the Deaf and Hard of Hearing July 1, 2003 (prior charter contract was effective as of July 1, 1998) July 1, 2003 (prior charter contract was effective July 1, 1998) 6/30/2013 6/30/ /30/2013 6/30/ Sequoia Village 17 Sequoia Village School 6/30/00 6/30/2012 6/30/ The name of each School, its location, grades served, most recent enrollment, AZ Learns designation, AZ Learns A-F designation and AYP status 18 are set forth in Table 4 below. 12 All revenues from the operation of the Schools operated pursuant to the Sequoia Charter School Charter School Contract have been pledged on a senior basis for repayment of the Series 2006 Bonds. 13 All revenues from the operation of the Schools operated pursuant to the Sequoia Ranch Charter School Contract have been pledged for repayment of the Series 2010 Bonds which will be refunded using proceeds of the Series 2012 Bonds. * Sequoia Ranch closed as of June 30, The Corporation anticipates submitting to the ASBCS a request for an amendment to the Sequoia Ranch Charter School Contract for an increase of the enrollment cap to 2,500 upon commencement of construction of the Sequoia Pathway Multipurpose Building and the Elementary Addition (as hereinafter discussed). 16 All revenues from the operation of the School operated pursuant to the Deaf School Charter School Contract have been pledged on a senior basis for repayment of the Series 2006 Bonds. 17 All revenues from the operation of the School operated pursuant to the Sequoia Village Charter School Contract have been pledged on a senior basis for repayment of the Series 2006 Bonds. A-9

48 ACADEMIC ACCOUNTABILITY TEST RESULTS Student performance at public schools, district or charter, is judged by student scores on the state-mandated Stanford 10 test, a norm-referenced assessment is required by State statute in reading, language arts, and mathematics in second grade through high school that measures a student s national percentile ranking in those areas, and the Arizona s Instrument to Measure Standards (the AIMS Test ), a standards-based assessment that measures student proficiency of the Arizona Academic Content Standards in writing, reading and mathematics as required by State and federal law. 19 Statewide AIMS Test scores are available at NCLB By State and federal law, Arizona district and charter schools must comply with two parallel accountability regimens. Under the federal No Child Left Behind Act of 2001, PL ( NCLB ) and its implementing regulations, schools must demonstrate Adequate Yearly Progress ( AYP ) or face certain consequences. Consequences are standardized in Arizona in a set of six yearly School Improvement Status ( SIS ) designations. The first time a school fails to achieve AYP, the school goes into warning year status. At that time, parents are notified of the school s status. The school is required to develop an Arizona School Improvement Plan ( ASIP ). The second consecutive year of failure to achieve AYP, the school status is designated SIS Year One, the ASIP is implemented, and 10% of the school s federal Title One funds are set aside for professional development. A third AYP failure moves the school into SIS Year Two, which repeats the requirements of SIS Year One and adds a requirement that the school provide free tutoring to eligible students. A fourth AYP failure moves the school into SIS Year Three. During SIS Year Three, in addition to the requirements of SIS Year Two, a school must take one of the following corrective actions: Replace school staff relevant to failure to make AYP; Adopt research-based curriculum, including professional development; Decrease management authority at the school; Appoint external expert to advise school on making AYP; Extend school year and/or length of school day; or Restructure internal organization of the school. The fifth consecutive AYP failure sets in motion planning for alternate governance of the school. A sixth AYP failure will result in either a major restructure of the school s governance arrangement or the replacement of all or most of the school s staff. In 2012, the U.S. Department of Education ( USDOE ) invited each State educational agency to request flexibility on behalf of itself, its local educational agencies, and district and charter schools, in order to better focus on improving student learning and increasing the quality of instruction. This voluntary opportunity will provide educators and State and local leaders with flexibility regarding specific requirements of the NCLB in exchange for rigorous and comprehensive State-developed plans designed to improve educational outcomes for all students, close achievement gaps, increase equity, and improve the quality of instruction. If granted, schools within a state would be evaluated by measuring the improvement in student test scores in grades 3 through 10 in the subjects of Mathematics and Reading over the test scores achieved by students in the school during the prior year with a goal of 100% proficiency on the AIMS Test in those subjects by the year As 2012 is the first year that this evaluation criteria is being used, for purposes of determining Annual Measurable Objectives, the State has utilized student test scores during the School Year as the baseline against which student 2012 scores on the AIMS test were measured. Schools in states that have been granted this 18 AZ Learns A-F Designation and AYP Status are hereinafter described A-10

49 flexibility are determined to have met Annual Measurable Objectives based upon the criteria rather than being determined to have met AYP. The Superintendent of Public Instruction of the State applied for such flexibility in 2012 and on July 19, 2012, the State received notice from the USDOE that the State had been granted such flexibility and is exempted from certain requirements of NCLB. Consequently, commencing with results from the School Year, district and charter schools operating in the State now are determined to have met or failed to meet Annual Measurable Objectives. AZ LEARNS Parallel to NCLB, AZ LEARNS is an Arizona program established pursuant to A.R.S Measurement criterion used in AZ LEARNS incorporates many measures of progress other than AYP. Under AZ LEARNS, each school is assigned an achievement profile based on AZ LEARNS measurements. Commencing with the School Year, the ADE has developed a grading system for all public schools including district and charter schools. The ADE assigns each school a grade of A, B, C, D or F based upon certain performance criteria that takes into consideration the percentage of students that meet or exceed subject and grade level proficiency, performance of students enrolled in English language learners programs and the graduation and drop-out rates of each school. The ADE also evaluates growth in student performance on a year over year basis. This evaluation looks at the performance of the entire enrollment in each grade and then conducts a secondary evaluation of performance of students whose scores on the AIMS test fall into the bottom quarter of their class. Each school earns points under each of the evaluations and the points are totaled to establish an overall point total that is converted into a letter grade based the scoring system. A charter school receiving a grade of F must take immediate action to restore its academic performance or face revocation of its charter. Furthermore, if at any time the Arizona Department of Education determines that a charter school failed to properly implement an Arizona School Improvement Plan as required under both NCLB and AZ LEARNS, the statute provides that, the sponsor of the charter school shall revoke the charter school s charter. A.R.S (Z). Actions by the Arizona Department of Education are subject to administrative review pursuant to Arizona Administrative Code R et. seq. For an explanation of the formula by which AZ Learns letter grades are calculated, please see: In School Year, of the 1,501 district and charter schools that have been evaluated under the newlydeveloped AZ Learns criteria, 295 schools achieved a letter grade of A, 536 schools achieved a letter grade of B, 487 schools achieved a letter grade of C, and 183 schools achieved a letter grade of D. The AZ Learns grades and AYP determination for each of the Schools is presented in Table 4 below. TABLE 4 INFORMATION REGARDING THE ACADEMIC PERFORMANCE OF THE SCHOOLS Name of School Location Year established Grade Served 2012 AZ Learns Letter Grade 2012 Annual Measurable Objectives Enrollment American Heritage Academy Camp Verde American Heritage Academy Cottonwood Arizona Conservatory for the Arts and 132 General Crook Trail Camp Verde, AZ 2030 E. Cherry Street Cottonwood, AZ 2820 W. Kelton Lane, Phoenix, 2007 K-8 B Not Met K-8 B Not Met A Met 256 A-11

50 Name of School Location Year established Grade Served 2012 AZ Learns Letter Grade 2012 Annual Measurable Objectives Enrollment Academics AZ Arizona Conservatory for the Arts and Academics Elementary School North 28 th Avenue, Phoenix, Arizona 2012 K-8 D Met 320 Arizona Conservatory for the Arts and Academics 2820 W. Kelton Lane, Phoenix, AZ A Met Children First Academy Phoenix N 6th Avenue Phoenix, AZ 2008 K-8 D 23 Not Met Prior to the School Year, the Corporation operated a school in Peoria, Arizona under the Redwood Charter School Contract (as hereinafter defined) at which location the Corporation was only able to attract a small number of students (88). While the number of students tested met the minimum required by the ADE for purposes of assigning an AZ Learns letter grade, the effect of the poor performance by a small number of students on the AIMS and the Stanford 10 Tests had a disproportionately negative impact on the School s AZ Learns letter grade and AYP determination. Additionally, the Corporate Board determined that the cost of continuing operation of the School in the Peoria location with such a small enrollment may potentially result in a negative impact on the Corporation s finances. As such, the Corporation determined that continuing operation of the School at the Peoria, Arizona location was inconsistent with the business and academic objectives of the Corporation. Consequently, the Corporation requested authorization from the ASBCS for a transfer of the Redwood Charter School Contract to the ACAA N. 28 th Facilities at the commencement of the School Year for the establishment of the ACAA Elementary. The Corporation hopes that the relocation of the Redwood Charter School Contract will enable the Corporation to leverage the reputation of the highly performing middle and high school programs to attract students who wish to pursue an academically rigorous arts-based educational program in earlier grades. Notwithstanding the transfer of the Redwood Charter School Contract to its new location, the ADE continues to assign an AZ Learns letter grade to the Charter School Contract based upon its most recent performance at the Peoria, Arizona location. 21 Includes Arizona Conservator for the Arts and Academics Middle School. 22 CFA will relocate to 1648 S. 16 th Street, Phoenix, Arizona as hereinafter described. 23 The CFA School-Phoenix received a letter grade of D under the AZ Learns grading system for the School Year and is in the SIS Year 2. The CFA School targets students from at risk populations with ninety percent of the CFA School enrollment coming from homeless families. The ADE has designated most at risk schools in the State with a letter grade of D until it develops evaluation criteria on a school by school basis for schools specifically targeting at-risk populations. With the goal of establishing school-specific criteria for the CFA School in mind, the Corporation regularly shares with the ASBCS and ADE student data regarding test scores, attendance, and other relevant information for students enrolled at the CFA School that show that students who have been consistently enrolled at the CFA School show dramatic year over year academic improvement. However, the typical student who enrolls at the CFA School matriculates at the CFA School at a grade level several years behind his or her age-appropriate grade level and, more often than not given the transient nature of the students, students typically do not remain enrolled at the CFA School for multiple consecutive years making it very difficult for the Corporation to obtain the year over year improvement data revealed by test scores. Taking into account that most of the students enrolled at the CFA School are homeless and enter the CFA School far below grade level, and that many face daily challenges of survival, the Corporation has been working closely and cooperatively with Director for Research and Evaluation and other representatives of the ADE and the ASBCS provide a plan within the School Improvement Plan to allow the Corporation to continue serving the homeless population. Provided the available student data at the CFA School continue to show improvement in those students for which meaningful data can be obtained, the ADE and the ASBCS have indicated a willingness to continue working with the Corporation in bringing educational opportunities to students that the CFA School serves. The Corporation may consider applying for consideration to be determined an alternative school. A-12

51 Name of School Location Year established Grade Served 2012 AZ Learns Letter Grade 2012 Annual Measurable Objectives Enrollment Children First Academy Tempe Pathfinder Academy Sequoia Academics and Arts Charter School E. Apache Blvd., Tempe, AZ 2542 N. 76 th Place, Mesa, AZ 1460 S. Horne, Mesa, AZ 2008 K-8 C Not Met K-8 A Met D Not Met 90 Sequoia Academics and Arts Elementary Charter School S. Horne, Mesa, AZ 1999 K-8 D Not Met 204 Sequoia Charter Elementary School 1460 S. Horne, Mesa, AZ 1998 K-6 C Not Met 428 Sequoia Pathway Preparatory Academy Sequoia School for the Deaf and Hard of Hearing N. Porter Road, Maricopa, AZ 1460 S. Horne, Mesa, AZ 2009 K-12 B Met K-12 D 26 Met 71 Sequoia Secondary School Sequoia Village School 1460 S. Horne, Mesa, AZ 982 Full House Lane, Show Low, AZ C Met K-8 C Met Students will be re-assigned to the grade-appropriate School at the Horne Facilities operated by the Corporation pursuant to Sequoia Charter School Charter School Contract on July 1, See Footnote The Corporation has observed that traditional district schools lack the technology and training to serve the special needs of deaf students. Consequently, students who transfer into the Deaf School matriculate with academic achievement that otherwise falls far below State-mandated grade levels. Because of the special learning needs of the deaf students, each student at the Deaf School has an individualized educational program that is tailored to maximize their learning experience. In so doing, students at the Deaf School are given the opportunity to catch up with their hearing peers. Although students at the Deaf School have an average growth in excess of one year on AIMS or Stanford 10 Tests, students may still not meet the State-mandated grade level standards until they have had sufficient time at the Deaf School to catch up academically with their hearing peers and, based upon the amount of remedial work to be done, test scores tend to fall below State averages. A-13

52 Other Schools Currently Managed by the Corporation In addition to the schools operated by the Corporation under the Charter School Contracts, from 2010 through 2012, the Corporation via a wholly owned subsidiary, Edkey Management, Inc., an Arizona corporation, provided administrative management services to Sequoia Choice Schools, LLLP, an Arizona limited liability limited partnership (the LLLP ) in connection with the LLLP s operation of the schools (the Managed Schools ) set forth in Table 5 pursuant to a qualified management contract: Name of School Location Year established TABLE 5 MANAGED SCHOOLS Grade Served Current Enrollment AZ Learns Letter Grade Annual Measurable Objectives Sequoia Choice Schools, LLLP- Arizona Distance Learning (Virtual School) 1460 E Horne, Mesa, AZ 1998 K D Met Sequoia Choice Star Performing Arts Sequoia Choice School Village 323 N. Gilbert Rd., 108 Gilbert, AZ 982 Full House Lane, Show Low, AZ 2009 K D Met C Met Prior to the , the Corporation had no involvement with the delivery of educational services to students enrolled at the Managed Schools but did provide back-office services to the LLLP. Commencing with the School Year, the LLLP requested the Corporation to provide additional management services including the administration of the LLLP s educational programs with the intent that the Corporation will, at some point, assume control of the assets and the Charter School Contracts under which the Managed Schools are operated. In this connection, the Corporation has entered into that certain Asset Purchase Agreement dated as of January 1, 2013 (the Asset Purchase Agreement ) by and between the LLLP and the Corporation for the purchase of all of the assets (the Assets ) of the LLLP. Although the Assets are owned by the LLLP, the Corporation currently uses the Assets in connection with the operation of the Managed Schools, and is authorized pursuant to the management agreement with the LLLP to use the Assets in connection with Sequoia Village, Sequoia Charter Elementary School, Sequoia Secondary School and the Deaf School. The purchase price to be paid by the Corporation as set forth in the Asset Purchase Agreement is $700,000 and, upon consummation of the transaction contemplated therein, the Corporation will continue to use the Assets in connection with the operation of the Managed Schools, Sequoia Village, Sequoia Charter Elementary School, Sequoia Secondary School and the Deaf School. Historic and Projected Revenues and Expenses This Official Statement contains certain statements that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of All statements other than statements of historical facts included in this Official Statement, including without limitation statements that use terminology such as estimate, expect, intend, anticipate, believe, may, will, continue and similar expressions, are forward-looking statements. These forward-looking statements include, among other things, the discussions related to the Corporation s operations and expectations regarding student enrollment, future operations, revenues, capital resources and expenditures for capital projects, Although the Corporation believes that the assumptions upon which the forward-looking statements contained in this Official Statement are based are reasonable, any of the assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions also could be incorrect. All phases of the operations of the Corporation risks and uncertainties, many of which are outside the control of the Corporation and any one of which, or a combination of which, could materially affect the results of the Corporation s operations and whether the forward-looking statements ultimately prove to be correct. Factors that could cause actual results to differ from those expected include, but are not limited to, general economic conditions such as A-14

53 inflation and interest rates, both nationally and in Arizona where the Projects are located; the willingness of the State of Arizona to fund charter school operations at present or increased levels; competitive conditions within the Corporation s markets, including the acceptance of the education services offered by the Corporation; lower enrollments than projected; unanticipated expenses; the capabilities of the Corporation s management; changes in government regulation of the education industry or in the Arizona charter school statute; future claims for accident at the Corporation s Schools and the extent of insurance coverage for such claims; and other risks discussed in this Official Statement. NO REPRESENTATION OR ASSURANCE CAN BE GIVEN THAT THE CORPORATION WILL REALIZE REVENUES IN AMOUNTS SUFFICIENT TO MAKE THE REQUIRED PAYMENTS UNDER THE LOAN AGREEMENT. THE REALIZATION OF FUTURE REVENUES IS DEPENDENT UPON, AMONG OTHER THINGS, THE MATTERS DESCRIBED IN THE FOREGOING PARAGRAPH AND FUTURE CHANGES IN ECONOMIC AND OTHER CONDITIONS THAT ARE UNPREDICTABLE AND CANNOT BE DETERMINED AT THIS TIME SEE RISK FACTORS HEREIN. THE UNDERWRITER MAKES NO REPRESENTATION AS TO THE ACCURACY OF THE PROJECTIONS CONTAINED HEREIN OR AS TO THE ASSUMPTIONS ON WHICH THE PROJECTIONS ARE BASED. STATE PAYMENTS The Corporation s principal revenue source is State Payments, paid monthly pursuant to the Charter School Contracts. The funds received from the State are paid on a per pupil basis (ADM) and are generated by enrollment, with adjustments in payments made during each year based on designated dates for counting students enrolled. The actual amount requires a number of formula driven calculations using the Uniform System of Financial Records for Charter Schools ( USFRCS ). The USFRCS is regulated by legislation and enforced by the State Auditor General. In the last three years, the Arizona Legislature has increased the allocation of funds for charter schools without any stipulations as to how the funds must be spent. This is contrary to traditional school districts whose funds are more closely defined as to use (specified portions for maintenance, operation, and capital). See CHARTER SCHOOLS IN ARIZONA herein for a discussion of historical and projected levels of State allocation per pupil and other related matters. During the School Year, the percentage of children statewide in the State attending charter schools is 11.33% of the school-age population which percentage is an increase of 1.05% over the prior year. 27 Based upon current enrollment statistics published on the ADE website, the percentage of children statewide in the state attending charter schools is 14.3% for the School Year which is a 3% state-wide increase over the prior year.. During the School Year, Charter schools in the State receive 80.78% percent of their funding from the State, 11.58% of their funding from federal entitlement programs and.11% of their funding from other sources, excluding philanthropy 28. During the fiscal year of the State, charter schools in the State enjoyed an overall increase in funding from the State of 5.8% while districts in the State incurred an overall decrease in funding of 7.8%. 29 There is no assurance that such increases will continue. OTHER INCOME RECEIVED BY THE CORPORATION The Corporation also receives restricted income from grants, pledges and other related sources. This income is generally not considered Pledged Revenues. In the section CASH FLOW PROFORMA below, such income is included within revenues to the Corporation but is believed to be offset by comparable expenses. CASH FLOW PROFORMA The tables set forth in Appendix A-8 show the cash flows for the fiscal years ending June 30, 2013 through June 30, Revenue Projections are based upon enrollment information and other revenues as discussed herein. Expense projections are based upon historical operations and additional expenses associated with increased enrollment and new programs. 27 Annual Report of the Arizona Superintendent of Public Instruction for Fiscal Year Ibid. 29 Ibid. A-15

54 THE SERIES 2012 PROJECTS See Appendices A-1 through A-7 attached hereto. APPENDIX A-1 AMERICAN HERITAGE ACADEMY FACILITIES INTRODUCTION American Heritage Academy, an Arizona nonprofit corporation ( AHA ) was incorporated in 1998 by a group of parents who wanted an alternative to home schooling their children. The founders of AHA spearheaded the efforts to apply for and obtain a charter contract for the operation of a charter school that emphasized American values and provided a classical learning experience for students which resulted in the establishment of American Heritage Academy (the AHA School ). Prior to May 2012, AHA operated and, subsequent to May 2012, the Corporation operates the AHA School at two campuses, one in Cottonwood, Arizona and one in Camp Verde, Arizona as hereinafter more fully described (together, the AHA Schools ). In May 2012, the founders and the board of directors of AHA decided to retire and pass the torch of control over AHA and operating the AHA School to the Corporation. As a first step in the transition of control of AHA to the Corporation, the then-existing corporate board members of AHA resigned as directors and elected the same individuals who serve on the Corporate Board to be the corporate board of AHA. With that action, the Corporation effectively took over control of AHA and operation of the AHA Schools. On November 1, 2012, the Corporation filed Articles of Merger between AHA and the Corporation with the Corporation being the post-merger survivor (the AHA Merger ). On October 4, 2012, the Corporate Board passed a resolution approving a plan of merger, articles of merger, and such other documents and instruments required in connection therewith to consummate the AHA Merger which was effective on December 31, The Corporation also filed required documentation notifying the ASBCS of the AHA Merger. AHA currently operates the AHA Schools at two locations, both of which are operated under the AHA Charter School Contract. AHA COTTONWOOD FACILITIES The Corporation operates the AHA Cottonwood Facilities that is comprised of approximately 5 acres and is located in Cottonwood, Yavapai County, Arizona. The AHA Cottonwood Facilities serves grades kindergarten through twelve and has capacity for 350 students on a Monticello-style campus, with approximately 28,000 square feet of building space. The original acquisition and construction of the AHA Cottonwood Facilities was funded utilizing the proceeds of tax exempt education facility revenue bonds issued by The Industrial Development Authority of the County of Maricopa (Arizona Charter Schools Project) Series 2000 (the AHA Bonds ). Upon issuance of the Series 2013 Bonds, the Corporation will use approximately $2,600,000 of the proceeds of the Series 2013 Bonds to refund the AHA Bonds. In addition, the Corporation will expend approximately $20,000 to upgrade certain lighting and electrical systems at the AHA Cottonwood Facilities to be more energy efficient. The Corporation organized 2030 E. Cherry Street, LLC, an Arizona limited liability company, by the filing of Articles of Organization with the Arizona Corporation Commission on October 24, 2012 in which the Corporation will hold all of the issued and outstanding membership interests. Subsequent to the effective date of the AHA Merger, the Corporation will transfer title to the AHA Cottonwood Facilities to 2030 E. Cherry Street, LLC, which will hold title to the AHA Cottonwood Facilities and be a Borrower with respect to that portion of the Series 2013 Bonds associated therewith. THE APPRAISAL The Corporation has obtained an appraisal dated October 31, 2012 for the AHA Cottonwood Facilities (the Cottonwood Appraisal ) prepared by the Appraiser. The Cottonwood Appraisal sets forth the following valuations of the AHA Cottonwood Facilities: (i) the as-is market valuation is $4,100,000; and (ii) the investment value, upon completion of the renovations, is $4,760,000. A-16

55 ENVIRONMENTAL REPORT The Corporation engaged Environmental Engineer to perform environmental investigations of the AHA Cottonwood Facilities. The Environmental Engineer prepared a Phase I Environmental Assessment of the AHA Cottonwood Facilities in which the Environmental Engineer stated that there is no evidence of any recognized environmental conditions. The Environmental Engineer did, however, recommend that (i) a groundwater well that is located on the AHA Cottonwood Facilities be registered with the Arizona Department of Water Resources, (ii) if there is to be demolition and/or renovation of the buildings, the Corporation should conduct an asbestos survey, and (iii) although the Environmental Engineer did not identify the presence of Freon, it did note that if Freon is present in the HVAC systems that should be recovered and recycled when the HVAC units undergo regularly scheduled maintenance. The Corporation has commenced registration of the groundwater well. AHA CAMP VERDE FACILITIES AND THE CAMP VERDE ADDITIONAL PARCEL The Corporation also operates the AHA School at the AHA Camp Verde Facilities pursuant to a Real Estate Lease Agreement dated March 15, 2012 (the Camp Verde Lease ) by and between AHA and Savant, LLC, an Arizona limited liability company ( Savant ). Pursuant to that certain Agreement of Purchase and Sale dated November 16, 2012 (the Camp Verde Purchase Agreement ) by and between the Corporation, as buyer, and Savant, as seller, the Corporation will purchase the AHA Camp Verde Facilities to continue operating the AHA Camp Verde Facilities for the purchase price of $1,160,000, subject to the terms and conditions as set forth in the Camp Verde Purchase Agreement. In addition, the Corporation will expend approximately $20,000 to upgrade certain lighting and electrical systems to be more efficient at the AHA Camp Verde Facilities. Savant is an Arizona limited liability company, the membership interests in which are owned by Steven R. Anderson and Vicki Jo Anderson, husband and wife, and Aaron Anderson, their son (together, the Andersons ). Mrs. Anderson also serves a member of the Corporate Board of the Corporation. Prior to determining the purchase price to be offered to Savant for the AHA Camp Verde Facilities, the Corporation required that the appraisal for the AHA Camp Verde Facilities (without inclusion of the Camp Verde Additional Parcel (defined below)) be received by the Corporation and be approved by a disinterested majority of the Corporate Board. At a meeting of the Corporate Board held on November 16, 2012 at which meeting a disinterested majority of the Corporate Board approved the appraised value and the acquisition of the AHA Camp Verde Facilities and the terms and conditions set forth in the Camp Verde Purchase Agreement. Mrs. Anderson recused herself from discussion and consideration of and voting on the transaction and its terms. The purchase price for the AHA Camp Verde Facilities is less than the appraised value of such property and no other consideration will be paid to Savant or to the Andersons therefor. The AHA Camp Verde Facilities to be acquired from Savant includes 2.27 acres of land located on General Crook Trail on which is situated an approximately 12,000 square foot classroom building that includes ten classrooms, offices, entry and two sets of restrooms. The Corporation believes that the AHA Camp Verde Facilities has capacity to educate up to 180 students. The AHA Camp Verde Facilities is located in the central Camp Verde neighborhood located on the east side of the I-17 and Highway 260 interchange which makes the AHA Camp Verde Facilities easily accessible surrounded by a variety of commercial uses and residential areas. The Corporation has entered into an Agreement of Purchase and Sale (with Escrow Instructions) dated November 15, 2012 with Brittaney A. Johnson, an unmarried woman, as seller, for the acquisition of an approximately one acre of land that is contiguous with the AHA Camp Verde Facilities (the Camp Verde Additional Parcel ). The purchase price for the Camp Verde Additional Parcel is $95,000 and will be used by the Corporation, initially, for additional play space and parking for the AHA Camp Verde Facilities. The Corporation organized 132 General Crook Trail, LLC, an Arizona limited liability company, by the filing of Articles of Organization with the Arizona Corporation Commission on October 24, 2012 in which the Corporation will hold all of the issued and outstanding membership interests. The Corporation will take title to the AHA Camp Verde Facilities in the name of the 132 General Crook Trail, LLC, which will hold title to the AHA Camp Verde Facilities and the Camp Verde Additional Parcel. THE APPRAISAL The Corporation has obtained an appraisal dated October 31, 2012 for the AHA Camp Verde Facilities (the Camp Verde Appraisal ) prepared by the Appraiser. The Camp Verde Appraisal sets forth the following valuations of the AHA Camp Verde Facilities: (i) the as-is market valuation is $1,500,000; (ii) the investment value of the AHA A-17

56 Camp Verde Facilities, upon completion of the renovations, is $1,740,000, and (iii) the Camp Verde Additional Parcel adds additional value to the Camp Verde Facilities in its as is condition in the amount of $78,000. ENVIRONMENTAL REPORT The Corporation engaged the Environmental Engineer to perform environmental investigations of the AHA Camp Verde Facilities. The Environmental Engineer prepared a Phase I Environmental Assessment dated November 3, 2012 of the AHA Camp Verde Facilities which the Environmental Engineer stated that there is no evidence of any recognized environmental conditions. SECURITY FOR THE SERIES 2013 BONDS The Corporation will grant a primary pledge of all revenue from the operation of the AHA Cottonwood Facilities and the AHA Camp Verde Facilities to the Master Trustee E. Cherry Street, LLC will grant a first priority deed of trust deed of trust with respect to the AHA Cottonwood Facilities and 132 General Crook Trail, LLC will grant a first priority deed of trust with respect to the AHA Camp Verde Facilities. THE AHA SCHOOLS The mission of educators at the AHA Schools is to promote America s founding principles through a classical liberal arts education, fostering personal greatness, community service, strong academic and leadership skills, while reaffirming hope in a caring environment. The Corporation intends to continue holding to the principles and employing the curriculum and educational philosophy of AHA in the continuing operation of the AHA Schools. AHA operated the AHA Cottonwood Facilities pursuant to a charter contract under the name of Heritage Academy, a for profit predecessor to AHA, during the 1996, 1997 and 1998 School Years. AHA obtained a charter contract for operation of the AHA Schools (the AHA Charter School Contract ) on March 31, 1998 from the ASBCS which was renewed by the ASBCS on December 22, 2011 for an additional twenty years. The ASBCS approved the transfer of the AHA Charter School Contract to the Corporation on November 26, The AHA Charter School Contract provides that the Corporation may educate up to 570 children at no more than 3 locations. The ASBCS may unilaterally terminate the AHA Charter School Contract at any time if the Corporation is not in substantial compliance with its charter or any provisions of Title 15, Chapter 1, Article 8 of the Arizona Revised Statutes. The Corporation believes that AHA is in substantial compliance with such requirements. Neither the Corporation nor AHA is under review by any agency with respect to its operations and has not received at any time any notice of noncompliance from any agency with respect to the AHA Schools. AHA was founded on the belief that the love of learning is instilled only when the student experiences meaning and feeling in the classroom. The best way to promote meaningful classroom instruction is to provide quality curriculum and innovative methodology, highly qualified and motivated teachers, concerned and involved parents and student participation in the instruction process. By promoting personal greatness, community service, strong academic and leadership skill, and reaffirming hope in a caring environment, the AHA Schools expect to lead students and parents to a new level of personal initiative and responsibility towards achieving a quality education. The AHA Schools have adopted a methodology of using methods that hold students accountable to is to inspire interest in gaining a quality education by increasing student interest in classroom participation. For example, teachers at the AHA Schools use of mock trials or the colloquium format to demand active participation in the instructional process and to encourage preparation necessary to have a successful activity. The AHA Schools curriculum emphasizes the inclusion of classical literature and a study of historical figures as role models into every aspect of the AHA Schools educational program. In so doing, students increase reading, writing, and comprehension skills and establish a firm foundation for pursuing future higher education (based on Bloom s Taxonomy of Education Objectives). The AHA Schools have adopted a Seamless Learning program which allows exceptional students to enroll in college classes that are asynchronous with high school. The AHA Schools aspire to keep students challenged academically and prepare them for their roles as leaders of tomorrow. A-18

57 ENROLLMENT Tables 7A and 7B below provides enrollment data based on the AHA Schools operating history for the most recent five-year operating history and projections by the Corporation for the five succeeding years. TABLE 7A AHA COTTONWOOD FACILITIES HISTORICAL AND PROJECTED ENROLLMENTS Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments KG TABLE 7B AHA CAMP VERDE FACILITIES HISTORICAL AND PROJECTED ENROLLMENTS Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments KG No assurance can be given that the projected levels of enrollment will be reached. See BONDHOLDERS RISKS Reliance on Projections. FACULTY AND OTHER EMPLOYEES The Corporation has established hiring criteria, codes of behavior, compensation policies and benefit policies for all employees, including all teaching staff, for all schools operated by the Corporation and has codified such policies for the AHA Schools in its site-specific Operations Manual. Teachers at the AHA Schools are provided a menu of benefits including health insurance, life insurance, disability insurance, paid vacation, and continuing education and accreditation programs. Compensation for teachers is competitive to the compensation offered by competing district schools. Teachers employed by the Corporation often enjoy smaller class sizes and educational autonomy than that which is permitted by competing district schools. See student/teacher ratios in Table 8A and Table 8B below. A-19

58 TABLE 8A AHA COTTONWOOD FACILITIES TEACHING FACULTY INFORMATION FULL TIME TEACHERS PART-TIME AND SPECIALTY TEACHERS ADMINISTRATION AND CLASSROOM ASSISTANTS FULL TIME EQUIVALENT TEACHERS PAY RANGE ,000-37,000 STUDENT- TEACHER RATIO 22:1 TABLE 8B AHA CAMP VERDE FACILITIES TEACHING FACULTY INFORMATION FULL TIME TEACHERS PART-TIME AND SPECIALTY TEACHERS ADMINISTRATION AND CLASSROOM ASSISTANTS FULL TIME EQUIVALENT TEACHERS PAY RANGE ,000-37,000 STUDENT- TEACHER RATIO 18:1 TEST RESULTS Student performance at the AHA Schools is judged by student scores on the state-mandated Stanford 10 test, a normreferenced assessment is required by State statute in reading, language arts, and mathematics in second grade through high school that measures a student s national percentile ranking in those areas, and the Arizona s Instrument to Measure Standards (the AIMS Test ), a standards-based assessment that measures student proficiency of the Arizona Academic Content Standards in writing, reading and mathematics as required by State and federal law A-20

59 Arizona s Instrument to Measure Standards (AIMS) Stanford 10 A-21

60 Arizona s Instrument to Measure Standards (AIMS) Stanford 10 ACADEMIC ACCOUNTABILITY COMPETING SCHOOLS Table 9A below illustrates the elementary and middle school programs, both district and charter, located within a five-mile radius of the AHA Cottonwood Facilities. Table 9B below illustrates the elementary and middle school programs, both district and charter, located within a five-mile radius of the AHA Camp Verde Facilities. Additional information such as enrollment and academic results can be found for each competing school showing on the State of Arizona Department of Education website. A-22

61 TABLE 9A AHA COTTONWOOD FACILITIES COMPETING SCHOOL PROGRAMS 31 SCHOOL PROGRAMS WITHIN 5-MILE RADIUS COMPETING SCHOOLS DISTANCE FROM AHA AZ LEARNS LETTER GRADE ANNUAL MEASURABLE OBJECTIVES DETERMINATION ENROLLMENT GRADES SERVED DISTRICT CHARTER X ARIZONA INTERNATIONAL 2.4 MILES N/A MET 4 K-12 SCHOOL X COTTONWOOD ELEMENTARY SCHOOL 2.2 MILES C NOT MET X X X COTTONWOOD MIDDLE SCHOOL DR. DANIEL BRIGHT ELEMENTARY SCHOOL MOUNTAIN VIEW PREPARATORY 1.6 MILES 3.2 MILES 2.4 MILES B B A NOT MET MET MET K-2 K-8 X TAVASCI ELEMENTARY 3.2 MILES N/A N/A N/A K-8 X ACCELERATED LEARNING CHARTER 0.3 MILES C MET 63 K-8 SCHOOL X VERDE VALLEY MONTESSORI SCHOOL 0.5 MILES B MET 69 K-6 31 Competing schools with no information available are within the first two years of operation or are new schools and, consequently, no information is reported. All information has been obtained from the Arizona Department of Education. A-23

62 TABLE 9A AHA COTTONWOOD FACILITIES COMPETING SCHOOL PROGRAMS 32 SCHOOL PROGRAMS WITHIN 5-MILE RADIUS COMPETING SCHOOLS DISTANCE FROM AHA AZ LEARNS LETTER GRADE ANNUAL MEASURABLE OBJECTIVES DETERMINATION ENROLLMENT GRADES SERVED DISTRICT CHARTER X ARIZONA INTERNATIONAL 2.4 MILES N/A MET 4 K-12 SCHOOL X COTTONWOOD ELEMENTARY SCHOOL 2.2 MILES C NOT MET X X X COTTONWOOD MIDDLE SCHOOL DR. DANIEL BRIGHT ELEMENTARY SCHOOL MOUNTAIN VIEW PREPARATORY 1.6 MILES 3.2 MILES 2.4 MILES B B A NOT MET MET MET K-2 K-8 X TAVASCI ELEMENTARY 3.2 MILES N/A N/A N/A K-8 X ACCELERATED LEARNING CHARTER 0.3 MILES C MET 63 K-8 SCHOOL X VERDE VALLEY MONTESSORI SCHOOL 0.5 MILES B MET 69 K-6 32 Competing schools with no information available are within the first two years of operation or are new schools and, consequently, no information is reported. All information has been obtained from the Arizona Department of Education. A-24

63 APPENDIX A-2 ARIZONA CONSERVATORY FOR ARTS AND ACADEMICS FACILITIES INTRODUCTION The Corporation operates Arizona Conservatory for Arts and Academics ( ACAA High School ) and Arizona Conservatory for Arts and Academics Middle School ( ACAA Middle ) at the 2820 West Kelton Lane, Phoenix, Arizona (the ACAA Kelton Facilities ) under the Arizona Conservatory for Arts and Academics Charter School Contract (the ACAA Charter School Contract ) and Arizona Conservatory for the Arts and Academics Elementary School ( ACAA Elementary ) at the North 28th Avenue, Phoenix, Arizona (the ACAA North 28th Facilities ) under the Sequoia Redwood Academy Charter School Contract (the Redwood Charter School Contract ) 33 as more fully described below. The ACAA Kelton Facilities and the ACAA North 28 th Facilities are located directly across the street from one another. ACAA High School, ACAA Middle and ACAA Elementary shall hereinafter collectively be referred to as the ACAA Schools. ACAA KELTON FACILITIES The Corporation operates the ACAA High School and ACAA Middle at property that is located at the ACAA Kelton Facilities which was acquired by the Corporation in 2006 the financing for which acquisition was provided by the proceeds of the Series 2006 Bonds. The ACAA Kelton Facilities consists of 3.2 acres of land and is improved with a single-story building containing 47,526 square feet that includes 35 classrooms, including classrooms dedicated as a science lab, music rooms, visual arts rooms, a performing arts theatre and stage, computer lab, multi-purpose rooms, offices, conference rooms, teachers lounge and storage areas. When the Corporation acquired the ACAA Kelton Facilities in 2006 the purchase price for the ACAA Kelton Facilities was $4,878,000. At that time, the Corporation obtained an appraisal from K.S. Appraisal of the ACAA Kelton Facilities for the land and the improvements which indicated a then-appraised value of $6,400,000. Subsequent to acquiring the ACAA Kelton Facilities, the Corporation made certain additions and improvements to the ACAA Kelton Facilities including reconfiguring the space to incorporate additional classrooms, computer labs, an atrium and other related educational facilities. The Corporation intends to use a portion of the proceeds of the Series 2013 Bonds to make certain improvements and additions to the ACAA Kelton Facilities including performing structural repairs to the facility, rebuilding a cooling tower, addressing certain plumbing issues with the building and expend approximately $200,000 to upgrade certain lighting and electrical systems to be more efficient. APPRAISAL The Corporation has obtained an appraisal dated October 31, 2012 for the ACAA Kelton Facilities (the Kelton Appraisal ) prepared by the Appraiser. The Kelton Appraisal sets forth the following valuations of the ACAA Kelton Facilities: (i) the as-is market valuation is $6,600,000; and (ii) the investment value of the ACAA Kelton Facilities, upon completion of the renovations, is $7,363,000. The Corporation has pledged the ACAA Kelton Facilities and the revenues therefrom on a senior basis for repayment of the Series 2006 Bonds. ENVIRONMENTAL REPORT The Corporation engaged the Environmental Engineer to perform environmental investigations of the ACAA Kelton Facilities. The Environmental Engineer prepared a Phase I Environmental Assessment of the ACAA Kelton Facilities which the Environmental Engineer stated that there is no evidence of any recognized environmental conditions. 33 See Footnote 21. A-25

64 ACAA NORTH 28 TH FACILITIES The Corporation currently leases the portion of the ACAA Facilities that is located at the ACAA North 28 th Facilities pursuant to a lease dated December 30, 2011 (the ACAA Lease ) by and between the Corporation and CWSP-I- B, LLC, a Delaware limited liability company ( Crown ). Pursuant to the ACAA Lease, the Corporation and Crown entered into that certain Option to Purchase Real Property dated as of December 30, 2011 (the Option Agreement ) whereby the Corporation has been granted the option to purchase the ACAA North 28 th Facilities for the purchase price of $3,549, (the Option Price ), subject to the terms and conditions set forth in the Option Agreement. The ACAA North 28 th Facilities consists of approximately 2.87 acres of land and is improved with a single-story building containing 26,295 square feet that includes classroom space and other facilities related to the operation of a charter school. The Corporation organized N. 28 th Avenue, LLC, an Arizona limited liability company, by the filing of Articles of Organization with the Arizona Corporation Commission on October 24, 2012 in which the Corporation will hold all of the issued and outstanding membership interests. The Corporation will take title to the ACAA North 28 th Facilities in the name of N. 28 th Avenue, LLC. THE APPRAISAL The Corporation has obtained an appraisal dated October 31, 2012 for the ACAA North 28 th Facilities (the North 28 th Appraisal ) prepared by Appraiser. The North 28 th Appraisal sets forth the following valuations of the ACAA North 28 th Facilities: (i) the as-is market valuation is $3,550,000; and (ii) the investment value of the ACAA North 28 th Facilities is $4,050,000. ENVIRONMENTAL REPORT The Corporation engaged Environmental Engineer to perform environmental investigations of the ACAA North 28 th Facilities. The Environmental Engineer prepared a Phase I Environmental Assessment of the North 28 th Facilities. The Environmental Engineer stated that there is no evidence of any recognized environmental condition at the ACAA North 28 th Facilities. The Environmental Engineer did note, however, that a drywell is located at the southeast corner of the ACAA North 28 th Facilities that is currently unregistered. The Corporation has commenced registration of this drywell. SECURITY FOR THE SERIES 2013 BONDS The Corporation will grant a subordinated pledge of all revenue from the operation of the ACAA Kelton Facilities and grant a subordinated deed of trust deed of trust with respect to the ACAA Kelton Facilities. The Corporation will grant a first priority pledge of all revenue from its operation of the ACAA North 28 th Facilities and N. 28 th Avenue, LLC will grant a first priority deed of trust deed of trust with respect to the ACAA North 28 th Facilities. THE ACAA SCHOOLS The Corporation obtained the ACAA Charter School Contract for the operation of ACAA High School and ACAA Middle on March 18, The initial term of the ACAA Charter School Contract is fifteen years from the date of first operation of the School and the ACAA Charter School Contract will expire on June 30, The Corporation may apply to the ASBCS for an extension of the ACAA Charter School Contract for an extended term of an additional twenty years at the end of the Corporation s fourteenth year of operation of ACAA High School and ACAA Middle. The ACAA Charter School Contract provides a limit of 475 on the number of students that the Corporation may educate at the ACAA Kelton Facilities. The Sequoia Redwood Academy Charter School Contract (the Redwood Charter School Contract ), the Charter School Contract under which the Corporation operates ACAA Elementary, was entered into by Redwood Academy, LLC and the ASBCS on June 12, On October 25, 2005, Redwood Academy, LLC assigned the Redwood Charter School Contract to Edkey (the Redwood Assignment ) which assignment was approved by the ASBCS. Edkey operated a charter school under the name of Redwood Academy in Peoria, Arizona until the conclusion of the School Year. Prior to the Merger, Edkey obtained a renewal of the Redwood Charter School Contract for a term of an additional twenty years and simultaneously requested an amendment to the Redwood Charter School Contract to allow Edkey to operate ACAA Elementary at the ACAA North 28 th Facilities pursuant thereto which amendment was approved by the ASBCS. The Corporation and the ASBCS entered into a Renewal Charter Contract on June 25, 2012 which extends the term of the A-26

65 Redwood Charter School Contract to expire on June 30, Upon consummation of the Merger, the Redwood Charter School Contract came under the control of the Corporation. The Redwood Charter School Contract provides a limit of 350 on the number of students that the Corporation may educate at the ACAA North 28 th Facilities. At the ACAA Schools, the Corporation primarily teaches students who reside in North Phoenix and the northern suburbs of greater Phoenix, Arizona including the cities of Glendale, Surprise, Deer Valley and Phoenix. Subject to capacity, the ACAA Schools are open to all students in the State. The ACAA Schools are college preparatory, performing arts schools that provide students with sound academic curriculum and performing arts training with working artists while providing students and their parents with educational choices to achieve balance in their lives. The goals of the ACAA Schools include seeking improvement of student achievement through the integration of arts and academics by laterally transitioning the disciplines and developing student competence in both academic and artistic performance through research based instructional strategies and best practices. FACULTY AND OTHER EMPLOYEES The Corporation has established hiring criteria, codes of behavior, compensation policies and benefit policies for all employees, including all teaching staff, for all schools operated by the Corporation and has codified such policies for the ACAA Schools in its site-specific Site Operations Manual dated June 17, Teachers at the ACAA Schools are provided a menu of benefits including health insurance, life insurance, disability insurance, paid vacation, and continuing education and accreditation programs. Compensation for teachers is competitive to the compensation offered by competing district schools. Teachers employed by the Corporation often enjoy smaller class sizes and educational autonomy than that which is permitted by competing district schools. See student/teacher ratios in Tables 10A, 10B and 10C below. TABLE 10A FULL TIME TEACHERS PART-TIME AND SPECIALTY TEACHERS ACAA ELEMENTARY TEACHING FACULTY INFORMATION ADMINISTRATION AND CLASSROOM ASSISTANTS A-27 FULL TIME EQUIVALENT TEACHERS PAY RANGE ,500-39,000 FULL TIME TEACHERS PART-TIME AND SPECIALTY TEACHERS TABLE 10B ACAA MIDDLE TEACHING FACULTY INFORMATION ADMINISTRATION AND CLASSROOM ASSISTANTS FULL TIME EQUIVALENT TEACHERS PAY RANGE ,500-40,100 FULL TIME TEACHERS PART-TIME AND SPECIALTY TEACHERS TABLE 10C ACAA HIGH SCHOOL TEACHING FACULTY INFORMATION ADMINISTRATION AND CLASSROOM ASSISTANTS FULL TIME EQUIVALENT TEACHERS PAY RANGE ,500-40,100 STUDENT- TEACHER RATIO 24:1 STUDENT- TEACHER RATIO 24:1 STUDENT- TEACHER RATIO 24:1

66 TEST RESULTS Student performance at the ACAA Schools is judged by student scores on the state-mandated Stanford 10 test, a norm-referenced assessment is required by State statute in reading, language arts, and mathematics in second grade through high school that measures a student s national percentile ranking in those areas, and the Arizona s Instrument to Measure Standards (the AIMS Test ), a standards-based assessment that measures student proficiency of the Arizona Academic Content Standards in writing, reading and mathematics as required by State and federal law 34. Arizona s Instrument to Measure Standards (AIMS) Stanford A-28

67 Arizona s Instrument to Measure Standards (AIMS) Stanford 10 ACADEMIC ACCOUNTABILITY ACAA High School and ACAA Middle have met Annual Measurable Objectives and each has earned an A grade under AZLearns for the School Year. In addition, ACAA High School and ACAA Middle have been determined to be Reward schools under Arizona s Reward, Focus and Priority School Definitions. To be determined to be a Reward school, a school must meet Annual Measurable Objectives, have a graduation rate in excess of 80%, the students in the bottom quartile achieve certain test criteria and show year over year growth. 36 Only 113 public schools, district and charter, earned the distinction of being a Reward school during the School Year. 37 ACAA Elementary met Annual Measurable Objectives and earned a D grade under AZ Learns for the School Year Testing data presented represents achievement for ACAA Elementary at its former Facilities in Peoria, Arizona. See Footnote See Footnote 21. A-29

68 COMPETING SCHOOLS Table 11 below illustrates the elementary and middle school programs, both district and charter, located within a five-mile radius of the ACAA Kelton Facilities and ACAA North 28 th Facilities. Additional information such as enrollment and academic results can be found for each competing school on the State of Arizona Department of Education website. TABLE 11 ACAA KELTON FACILITIES AND ACAA NORTH 28 TH FACILITIES COMPETING SCHOOL PROGRAMS 39 SCHOOL PROGRAMS W ITHIN 5-MILE RADIUS 39 Competing schools with no information available are within the first two years of operation or are new schools and, consequently, no information is reported. All information has been obtained from the Arizona Department of Education. A-30

69 TABLE 11 (Continued) ACAA KELTON FACILITIES AND ACAA NORTH 28 TH FACILITIES COMPETING SCHOOL PROGRAMS ENROLLMENT The following Table 12A provides enrollment and retention data for ACAA High School for the operating history of ACAA High School and projected increases for the succeeding five years. TABLE 12A ACAA HIGH SCHOOL HISTORIC AND PROJECTED ENROLLMENT ARIZONA CONSERVATORY FOR THE ARTS AND ACADEMICS Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments A-31

70 The following Table 12B provides enrollment and retention data for ACAA Middle for the operating history of ACAA Middle and projected increases for the succeeding five years. TABLE 12B ACAA MIDDLE HISTORIC AND PROJECTED ENROLLMENT ARIZONA CONSERVATORY FOR THE ARTS AND ACADEMICS MIDDLE SCHOOL Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments The following Table 12C provides enrollment and retention data for ACAA Elementary for the operating history of ACAA Elementary and projected increases for the succeeding five years. TABLE 12C ACAA ELEMENTARY HISTORIC AND PROJECTED ENROLLMENT ARIZONA CONSERVATORY FOR THE ARTS AND ACADEMICS ELEMENTARY SCHOOL Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments KG No assurance can be given that the projected levels of enrollment will be reached. See BONDHOLDERS RISKS in the Official Statement. 40 See Footnote Prior to the School Year, the Corporation offered grades Kindergarten through 8 under the Redwood Charter School Contract at its former location in Peoria, Arizona. Commencing with the School Year, Borrower operates only grades Kindergarten through 6 at ACAA Elementary. A-32

71 EXHIBIT A-3 THE CHILDREN FIRST ACADEMY-PHOENIX FACILITIES THE CFA FACILITIES The Corporation, as buyer, acquired a former grocery store property located at 1648 S. 16 th Street, Phoenix, Arizona (the CFA Facilities ) from Van Vliet Acquisition II, LLC, an Arizona limited liability company on November 7, The Corporation entered into an Agreement of Purchase and Sale (with Escrow Instructions) dated August 20, 2012 with 1648 S. 16 th Street, LLC, an Arizona limited liability company ( Seller ) for the sale and leaseback of the CFA Facilities pursuant to a lease dated August 20, 2012 (the CFA Lease ). The CFA Facilities is improved with an approximately 71,193 square foot building (a former Food City grocery store building), together with parking areas and related improvements. The Corporation has commenced construction of renovations and, upon completion of construction, the CFA Facilities will include an approximately 77,470 square foot public charter school facility and a 32,194 square foot playground. The CFA Facilities will contain 19 classrooms, administrative offices, a multi-purpose room, a library, a commercial kitchen, a family service center, clothing, grocery, and donation facilities, examination rooms, and storage facilities. Upon completion, the CFA Facilities will have capacity for 475 students. The Corporation has entered into a Standard Agreement between Owner and Builder with GCon, Inc., an Arizona corporation (the General Contractor ), dated August 20, 2012 (the Construction Contract ) which Construction Contract provides for the construction of the improvements at the CFA Facilities at a guaranteed maximum price of $3,213, The Construction Contract has been assigned by the Corporation to Seller concurrently with the issuance of the CFA Bonds. Seller will assign the Construction Contract to the Corporation upon issuance of the Series 2013 Bonds. The Program Administrator organized 1648 S. 16 th St., LLC, an Arizona limited liability company, by the filing of Articles of Organization with the Arizona Corporation Commission on July 30, 2012 in which the Program Administrator currently holds all of the issued and outstanding membership interests S. 16 th St., LLC will continue to hold title to the CFA Facilities. The Corporation will enter into a Unit Purchase Agreement with the Program Administrator to be dated as of the date of the Series 2013 Bonds whereby the Corporation will purchase from the Program Administrator all of its issued and outstanding membership interests in Seller (the CFA Purchase Agreement ). The purchase price for the membership interest in Seller as set forth in the CFA Purchase Agreement is $6,290,000. Upon the consummation of the transaction contemplated by the CFA Purchase Agreement, the Corporation will terminate the CFA Lease S. 16 th St., LLC will amend and restate the existing deed of trust encumbering the CFA Facilities in connection with the CFA Bonds to reflect the refunding of such CFA Bonds and the encumbrance of the CFA Facilities in connection with the Series 2013 Bonds. THE APPRAISAL The Corporation has obtained an appraisal dated August 10, 2012 for the CFA Facilities (the CFA Appraisal ) prepared by K.S. Appraisal, in Mesa, Arizona. The CFA Appraisal sets forth the following valuations of the CFA Facilities: (i) the as-is market valuation is $1,200,000; (ii) the as if complete market valuation as $6,475,000; and (iii) the investment value, upon completion, is $6,900,000. ENVIRONMENTAL REPORT The Corporation engaged Environmental Engineer to perform environmental investigations of the CFA Facilities. The Environmental Engineer prepared a Phase I Environmental Assessment of the CFA Facilities which noted that there may exist the presence of asbestos at the CFA Facilities and, consequently, the Environmental Engineer recommended that the Corporation cause Environmental Engineer to conduct an asbestos survey of the CFA Facilities in anticipation of renovation of the CFA Facilities as part of the Series 2013 Project. Because of the presence and age of certain air conditioning units at the CFA Facilities, Ozone Depleting Chemicals ( ODC ) and mercury containing devices may be present in those air conditioning units and when the units are replaced or removed, special care must be taken in handling and disposing of any such ODCs or mercury. The Construction Contract provides for the replacement of the existing air conditioning system at the CFA Facilities and for addressing the concerns regarding and disposal of the existing air conditioning units that may contain ODC in accordance with all laws and regulations. Also, one drywell was observed on the southeastern portion of the CFA Facilities within the loading dock. No staining or evidence of non-storm water discharges was observed at the time of the Environmental Engineer s Facilities visit. However, the drywell did not appear to be registered with the Arizona Department of Environmental Quality and, as such, the drywell must be properly A-33

72 registered and the use of the drywell should be limited to the disposal of storm water runoff. The Corporation has included closure of the drywell in accordance with all applicable laws and regulations in the scope of work contemplated by Construction Contract. Otherwise, the Environmental Engineer stated that there is no evidence of any recognized environmental condition at the CFA Facilities. SECURITY FOR THE SERIES 2013 BONDS The Corporation will grant a first priority pledge of all revenue from the operation of the CFA Facilities and 1648 S. 16 th Street, LLC will grant a first priority deed of trust deed of trust with respect to the CFA Facilities. Sequoia Ranch, CFA School-Phoenix, CFA School-Tempe and Sequoia Pathway are operated under the Sequoia Ranch Charter School Contract and, as such, the revenues from the operation of such Schools will be included in the pledge of the revenues from the Sequoia Ranch Charter School Contract. The CFA Schools The Corporation operates CFA School-Phoenix and CFA School-Tempe (together, the CFA Schools ) pursuant to the Sequoia Ranch Charter School Contract 42 hereinafter defined. Sequoia Ranch School, LLC originally obtained a Charter School Contract for the operation of the Sequoia Ranch Charter School in Mayer, Arizona ( Sequoia Ranch ) (more fully hereinafter described) from the Ganado School District. On June 5, 2003, Sequoia Ranch School, LLC entered into a Transfer Charter Contract with the ASBCS for the operation of Sequoia Ranch (the Sequoia Ranch Charter School Contract ). On October 25, 2005, Sequoia Ranch, LLC assigned the Sequoia Ranch Charter to Edkey (the Ranch Assignment ) which assignment was approved by the ASBCS. The initial term of the Sequoia Ranch Charter School Contract was ten years from the date of first operation of the CFA School thereunder 43 and will expire on June 30, The Corporation and the ASBCS entered into a Renewal Charter Contract on July 24, 2012 which extends the term of the Sequoia Ranch Charter School Contract to expire on June 30, The Sequoia Ranch Charter School Contract provides a limit of 1, on the number of students that the Corporation may educate at the CFA Schools, Sequoia Ranch and Sequoia Pathway. The CFA School-Phoenix and its sister school, CFA School-Tempe that operates in a leased facility, are the only public charter schools in the State that have been established with the special needs of homeless and significantly financially disadvantaged students in mind. While a portion of the proceeds of the Series 2013 Bonds will be used for the CFA Facilities only, both Facilities are operated under the Sequoia Ranch Charter School Contract and work in concert with the other to provide the same services to similar populations but in different locations. Together, the CFA School- Phoenix and CFA School-Tempe form the largest charter school in the nation catering to the homeless student population 45. The CFA Schools mission is to inspire motivation to learn by engaging students as critical thinkers, problem solvers and active citizens. The administration at the CFA Schools strives to serve the whole child by providing hope, fostering strength and facilitating self-determination. One hundred percent of the students enrolled at the CFA Schools and their families are at or below the poverty line and ninety percent of the students are homeless. One of the goals of the leadership at the CFA Schools is to provide stability and hope for kids amid a chaotic world of homelessness and hopelessness; many of the children live in motels and shelters. The CFA Schools work to provide the necessities, care and attention that many homeless children and children from severely low socio-economic circumstances lack. The leadership at the CFA Schools hold firm to the belief that educating children requires more than a classroom, desk and textbooks. The CFA Schools provides the following for students and their families: 1. Transportation: The CFA Schools provide five busses that travel over 450 miles a day; changing routes to 42 The Corporation operates Sequoia Pathway, CFA School-Phoenix, and CFA School-Tempe under the Sequoia Ranch Charter School Contract. Services provided at the CFA School-Phoenix are also provided at CFA School-Tempe. 43 While charter contracts in Arizona typically have an initial term of fifteen years, Sequoia Ranch, LLC operated for five year under the charter contract with the Ganado School District and the term of the Sequoia Ranch Charter School Contract began tolling when the school originally opened. 44 The Corporation will apply to the ASBCS for an increase in the enrollment cap under the Sequoia Ranch Charter School Contract as and when the Corporation can demonstrate that it possesses the physical capacity to accommodate such additional enrollment, which demonstration is a condition to the increase in such caps. 45 North Central Accreditation Association (now known as AdvancED). A-34

73 accommodate the transitional lives of students families. This provides a consistent and stable environment for students. On a daily basis before the school day begins, the administrators at the CFA Schools contact all but two 46 of the homeless shelters in the City of Phoenix to identify which of their students have taken shelter at each facility the night before. Students who are unable to avail themselves of any shelter during the course of a night assemble at the shelters in the morning to be picked up by the Corporation s busses and transported to the CFA Facilities. Bus routes are adjusted on a daily basis to collect all students who will attend the respective CFA School for that day. 2. Food: Once a month, food boxes are given to families. 3. Family service center: As a result of community donations, families receive hygiene kits, clothing, furniture and household items. students 4. Social services: A full-time counselor is on staff at the CFA Schools to work with individuals and groups of 5. Medical care: Students are provided proper medical and dental care at the CFA Facilities through the Corporation s partnership with Phoenix Children Hospital and Community Dental. These services include immunizations, health screening, vision and hearing assessments. The students are the top priority and each child at the CFA Schools is personally known by the faculty and administration. The philosophy of the CFA Schools is to help each student discover a love for learning. The faculty uses a hands-on approach to teach the curriculum, allowing learning by discovery and integrated use of technology in the classroom. The CFA Schools offer a kindergarten through eighth grade program grounded in a back to basics approach. ACADEMIC ACCOUNTABILITY Student performance at the CFA Schools is judged by student scores on the state-mandated Stanford 10 test, a norm-referenced assessment is required by State statute in reading, language arts, and mathematics in second grade through high school that measures a student s national percentile ranking in those areas, and the Arizona s Instrument to Measure Standards (the AIMS Test ), a standards-based assessment that measures student proficiency of the Arizona Academic Content Standards in writing, reading and mathematics as required by State and federal law The two shelters that are not contacted are a sufficient distance from the School to make inclusion in the bus routes impractical A-35

74 CFA SCHOOL-PHOENIX Spring Test Results Arizona s Instrument to Measure Standards (AIMS) Stanford 10 Students at the CFA School-Phoenix failed to meet Annual Measurable Objectives for the School Year. A-36

75 CFA SCHOOL-TEMPE Spring Test Results Arizona s Instrument to Measure Standards (AIMS) Stanford 10 Students at the CFA School-Tempe met Annual Measurable Objectives for the School Year. AZ LEARNS Under A.R.S , the governing board of a charter school may apply to the ADE to provide a program of alternative education or, in short hand, to become an alternative school as described in the NCLB discussion above. In order be classified as an alternative school, the ADE requires that 1) a charter school must be expressly chartered to serve a specific student population that will benefit from an alternative school setting; 2) the educational program and related student services of the school must match the mission or charter of the school; and 3) the school must intend to serve students exclusively in one or more of the following categories: Students with behavioral issues (documented history of disruptive behavior); Students identified as dropouts; Students in poor academic standing who are either severely behind on academic credits (more than one year) or have a demonstrated pattern of failing grades; Pregnant and/or parenting students; or Adjudicated youth. A-37

76 Charter schools may count students for daily attendance as other district and charter schools in the state who are not actually and physically in attendance in a recognized common or high school but who are enrolled in and actually physically in attendance in an alternative school which meets the standard of the ADE. The alternative school must prescribe procedures for verifying student attendance and alternative school calendars which procedures calendars must be approved by ADE, but students must be enrolled and physically attend at least twenty hours of instruction per week and students must complete the same number of hours of instruction as students enrolled in non-alternative schools. Beginning with the School Year, the ADE adopted a grading system for all alternative schools including district and charter schools. The ADE assigns each school a grade of A-Alt, B-Alt, C-Alt, D-Alt or F based upon certain performance criteria that take into consideration an alternative method of evaluating the percentage of students that meet or exceed subject and grade level proficiency, performance of students enrolled in English language learners programs and the graduation and drop-out rate of each school. The ADE also evaluates growth in student performance on a year over year basis. The CFA School-Tempe received a letter grade of C and the CFA School-Phoenix received a letter grade of D under the AZ Learns grading system for the School Year and is in the SIS Year 2. The CFA School- Phoenix and CFA School-Tempe target students from at risk populations with ninety percent of enrollment at both Schools coming from homeless families. The ADE has designated all at risk schools in the State with a letter grade of D until it develops evaluation criteria on a school by school basis for schools specifically targeting at-risk populations. With the goal of establishing school-specific criteria for the CFA Schools in mind, the Corporation regularly shares with the ASBCS and ADE student data regarding test scores, attendance, and other relevant information for students enrolled at the CFA Schools that show that students who have been consistently enrolled at the CFA Schools show dramatic year over year academic improvement. However, the typical student who enrolls at the CFA Schools matriculates at a grade level several years behind his or her age appropriate grade level and, more often than not given the transient nature of the students, students typically do not remain enrolled at the CFA Schools for multiple consecutive years making it very difficult for the Corporation to obtain the year over year improvement data revealed by test scores. Taking into account that most of the students enrolled at the CFA Schools are homeless and enter the CFA Schools far below grade level, many of whom face daily challenges of survival, the Corporation has been working closely and cooperatively with Director for Research and Evaluation and other representatives of the ADE and the ASBCS to provide a plan within the School Improvement Plan to allow the Corporation to continue serving the homeless population. Provided the available student data at the CFA Schools continue to show improvement in those students for which meaningful data can be obtained, the ADE and the ASBCS have indicated a willingness to continue working with the Corporation in bringing educational opportunities to students that the CFA Schools serve. The Corporation may consider applying for consideration to be determined an alternative school in order to have the CFA Schools performance measured by a standard more compatible with the population the Corporation serves at the CFA Schools. The US Department of Education has taken notice of the CFA Schools. To this end, the CFA Schools have recently been awarded a $125,000 federal grant to provide additional educational services at the CFA Schools to help improve performance of students enrolled at the CFA Schools. FACULTY AND OTHER EMPLOYEES The Corporation has established hiring criteria, codes of behavior, compensation policies and benefit policies for all employees, including all teaching staff, for all schools operated by the Corporation and has codified such policies for the CFA Schools in its campus-specific Site Operations Manual dated June 17, Teachers at the CFA Schools are provided a menu of benefits including health insurance, life insurance, disability insurance, paid vacation, and continuing education and accreditation programs. Compensation for teachers is competitive to the compensation offered by district schools in the area of the CFA Schools. Teachers employed by the Corporation at the CFA Schools are committed to meeting the special needs of homeless and underprivileged children and, in pursuit of that goal, are able to achieve a level of professional gratification greater than that which may be permitted by teaching in a more traditional district or charter school. See student/teacher ratios in Table 13A and 13B below. A-38

77 TABLE 13A CFA SCHOOL-PHOENIX TEACHING FACULTY INFORMATION FULL TIME TEACHERS PART-TIME AND SPECIALTY TEACHERS ADMINISTRATION AND CLASSROOM ASSISTANTS Administration 3 Classroom Assistants FULL TIME EQUIVALENT TEACHERS PAY RANGE 27 27,000-38,700 STUDENT- TEACHER RATIO :1 TABLE 13B CFA SCHOOL-TEMPE TEACHING FACULTY INFORMATION FULL TIME TEACHERS PART-TIME AND SPECIALTY TEACHERS ADMINISTRATION AND CLASSROOM ASSISTANTS Administration ENROLLMENT 10 Classroom Assistants FULL TIME EQUIVALENT TEACHERS PAY RANGE 25 34,500-42,000 STUDENT- TEACHER RATIO 49 15:1 Table 14A below provides enrollment data based on the current operating history and projections by the Corporation for the CFA Schools for the five succeeding years. TABLE 14A CFA SCHOOL-PHOENIX HISTORIC AND PROJECTED ENROLLMENT Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments KG Corporation does not anticipate any increase in the student teacher ratio in excess of 25 students to 1 teacher pursuant to the requirements of the Sequoia Ranch Charter Contract. 49 Corporation does not anticipate any increase in the student teacher ratio in excess of 25 students to 1 teacher pursuant to the requirements of the Sequoia Ranch Charter Contract. A-39

78 Table 14B below provides enrollment data based on the current operating history and projections by the Corporation for CFA School-Tempe for the five succeeding years. TABLE 14B CFA SCHOOL-TEMPE HISTORIC AND PROJECTED ENROLLMENT CHILDREN FIRST ACADEMY TEMPE Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments KG A-40

79 EXHIBIT A-4 THE HORNE FACILITIES The Corporation operates Sequoia Charter Elementary School ( Sequoia Elementary ) serving grades K-6, Sequoia Charter Secondary School ( Sequoia Secondary ) serving grades 7-12 and Sequoia School for the Deaf and Hard of Hearing (the Deaf School ) serving grades K-12 at the Horne Facilities. The Horne Facilities is located at 1460 South Horne, Mesa, Arizona (the Horne Facilities ) and consists of 10,949 acres and is improved with ten buildings totaling approximately 91,900 square feet that include classroom space, administrative offices, computer laboratories, art rooms, special education classrooms including classrooms equipped for use by deaf and hard of hearing students, and multi-purpose rooms. The Corporation acquired the Horne Facilities in 2006 for a purchase price of $8,640,000 the funding for which acquisition was provided by the proceeds of the Series 2006 Bonds. At the time of acquisition, the Corporation obtained an appraisal from K.S. Appraisal of the Horne Facilities for the land and the improvements which indicates an appraised investment value of $8,640,000. After acquisition of the Horne Facilities, the Corporation caused improvements to be constructed thereon including the construction of a classroom building and a multi-purpose/gymnasium building totaling 39,557 square feet, 21,257 of which square feet include eleven (11) classrooms, a conference room, computer labs, special education rooms, district offices, washrooms, storage and a teachers lounge. The multipurpose/gymnasium building contains 17,541 square feet and includes a regulation basketball court, locker rooms, weight room, kitchen, storage, offices, and three additional classrooms. There is also a stage for performing arts and for assemblies. The Corporation intends to use a portion of the proceeds of the Series 2013 Bonds to make certain improvements and additions to the Horne Facilities including replacing roofs and parking areas at the facility and expending approximately $100,000 to upgrade certain lighting and electrical systems to be more efficient. THE APPRAISAL The Corporation has obtained an appraisal dated October 31, 2012 for the Horne Facilities (the Horne Appraisal ) prepared by the Appraiser. The Horne Appraisal sets forth the following valuations of the Horne Facilities: (i) the as-is market valuation is $10,150,000; and (ii) the investment value, upon completion of the renovations, is $11,500,000. ENVIRONMENTAL REPORT The Corporation engaged Environmental Engineer to perform environmental investigations of the Horne Facilities. The Environmental Engineer prepared a Phase I Environmental Assessment of the Horne Facilities which the Environmental Engineer stated that there is no evidence of any recognized environmental conditions. SECURITY FOR THE SERIES 2013 BONDS The Corporation will provide a pledge of all revenue from the operation of the Schools at the Horne Facilities and grant a deed of trust encumbering the Horne Facilities both of which pledge and grant will be subordinate to the pledge and deed of trust granted by the Corporation in connection with the Series 2006 Bonds. THE SCHOOLS SEQUOIA ELEMENTARY AND SEQUOIA SECONDARY Sequoia Elementary and Sequoia Secondary (together, Sequoia Charter Schools ) are elementary, middle and high school programs operated under the Sequoia Charter School Contract (as hereinafter defined) located on the Horne Facilities, and has the distinction of having been one of the first charter schools in Arizona when it opened its doors in August of The original charter school contract for Sequoia Charter Schools was granted in 1996 by the Ganado School District, (the Sequoia Charter School Contract ) which charter school contract was subsequently transferred to the ASBCS on June 29, The Sequoia Charter School Contract provides a limit of 1200 on the number of students that may be educated under the Sequoia Charter School Contract at the Horne Facilities. Pursuant to the terms of a Charter A-41

80 Transfer Agreement dated October 25, 2005 with Sequoia, Inc., an Arizona corporation and the former holder of the Sequoia Charter School Contract (the Sequoia Transfer Agreement ), the Sequoia Charter School Contract was transferred to the Corporation, which transfer became effective as of October 31, 2005 and was approved by the ASBCS. The initial term of the Sequoia Charter School Contract will expire on June 30, The Corporation applied for an extension of the Sequoia Charter School Contract which application was approved by the ASBCS. The Corporation and the ASBCS entered into a Renewal Charter Contract on June 25, 2012 which will become effective on July 1, 2013 and extends the term of the Sequoia Charter School Contract to June 30, Sequoia Charter Schools currently provides public education for grades kindergarten through 12 at the Horne Facilities. Sequoia Charter Schools primarily teaches students residing in the East Valley suburbs of Greater Phoenix, Arizona including the cities of Mesa, Tempe, Gilbert, Chandler and Apache Junction. Subject to capacity, Sequoia Charter Schools is open to all students in the State. Sequoia Charter Schools have adopted four CORE Values that instill within the school culture that the schools always place the needs of the child first and that everything the administrators and teachers do as individuals and as an organization reflects the highest level of respect for all people. The four CORE Values include: Knowing every child and existing to meet their needs; Respect and be kind and courteous to all people, at all times and in all communications; Lead by agreement; and Continually strive for excellence. Sequoia Charter Schools assesses each student four times during the School Year in reading comprehension, writing and math. These academic assessments are controlled tests from the superintendent's office that provide independent verification of learning of core State standards. Each teacher is measured by the difference they achieve between the first assessment of the year and the last assessment of the year. Teachers at each grade level are ranked according to the percent of improvement for that specific subject. In order to ensure appropriate instructional strategies are based upon academic data, Sequoia Charter Schools also try to provide all teachers common planning time, common intervention time and significant scheduled time for professional development and professional learning communities at each School. The primary responsibility of the principal is to support the teachers at Sequoia Charter Schools. This support includes helping the teacher to become a more effective teacher. The principal is expected to allocate a substantial part of his or her time to visiting classrooms on a daily basis. FACULTY AND OTHER EMPLOYEES The Corporation has established hiring criteria, codes of behavior, compensation policies and benefit policies for all employees, including all teaching staff, for all schools operated by the Corporation and has codified such policies for the Sequoia Charter Schools in its site-specific Site Operations Manual dated June 17, Teachers at the Sequoia Charter Schools are provided a menu of benefits including health insurance, life insurance, disability insurance, paid vacation, and continuing education and accreditation programs. Compensation for teachers is competitive to the compensation offered by competing district schools. Consistent with the mission of the Sequoia Charter Schools, teachers employed by the Corporation often enjoy smaller class sizes and educational autonomy than that which is permitted by competing district schools. See student/teacher ratios in Tables 15A and 15B. A-42

81 TABLE 15A SEQUOIA ELEMENTARY TEACHING FACULTY INFORMATION FULL TIME TEACHERS PART-TIME AND SPECIALTY TEACHERS ADMINISTRATION AND CLASSROOM ASSISTANTS FULL TIME EQUIVALENT TEACHERS PAY RANGE ,000-65,000 STUDENT- TEACHER RATIO 20:1 TABLE 15B SEQUOIA SECONDARY TEACHING FACULTY INFORMATION FULL TIME TEACHERS PART-TIME AND SPECIALTY TEACHERS ADMINISTRATION AND CLASSROOM ASSISTANTS FULL TIME EQUIVALENT TEACHERS PAY RANGE ,000-42,000 STUDENT- TEACHER RATIO 18:1 TEST RESULTS Student performance at Sequoia Charter Schools is judged by student scores on the state-mandated Stanford 10 test, a norm-referenced assessment is required by State statute in reading, language arts, and mathematics in second grade through high school that measures a student s national percentile ranking in those areas, and the Arizona s Instrument to Measure Standards (the AIMS Test ), a standards-based assessment that measures student proficiency of the Arizona Academic Content Standards in writing, reading and mathematics as required by State and federal law A-43

82 SEQUOIA ELEMENTARY Spring Test Results Grades K-6 Arizona s Instrument to Measure Standards (AIMS) Stanford 10 A-44

83 SEQUOIA SECONDARY Spring Test Results Grades 7-12 Arizona s Instrument to Measure Standards (AIMS) Stanford 10 ACADEMIC ACCOUNTABILITY Sequoia Elementary failed to meet Annual Measurable Objectives for the School Year and earned a letter grade of C under AZLearns. Sequoia Secondary has met Annual Measurable Objectives for the School Year and earned a letter grade of C under AZLearns. COMPETING SCHOOLS Table 16 below illustrates the elementary, middle and high school programs, both district and charter, located within a five-mile radius of the Horne Facilities. Additional information such as enrollment and academic results can be found for each competing school showing on the State of Arizona Department of Education website. A-45

84 TABLE 16 HORNE FACILITIES COMPETING SCHOOL PROGRAMS 51 SCHOOL PROGRAMS W ITHIN 5-MILE RADIUS DISTRICT CHARTER 51 Competing schools with no information available are within the first two years of operation or are new schools and, consequently, no information is reported. All information has been obtained from the Arizona Department of Education. A-46

85 TABLE 16 (Continued) HORNE FACILITIES SCHOOL PROGRAMS W ITHIN 5-MILE RADIUS DISTRICT CHARTER COMPETING SCHOOL PROGRAMS A-47

86 TABLE 16 (Continued) HORNE FACILITIES COMPETING SCHOOL PROGRAMS SCHOOL PROGRAMS W ITHIN 5-MILE RADIUS DISTRICT CHARTER A-48

87 TABLE 16 (Continued) HORNE FACILITIES SCHOOL PROGRAMS W ITHIN 5-MILE RADIUS DISTRICT CHARTER COMPETING SCHOOL PROGRAMS A-49

88 ENROLLMENT 52 Table 17A provides enrollment and retention data for Sequoia Elementary for the most recent five-year operating history of Sequoia Elementary and projected increases for the succeeding five years. TABLE 17A SEQUOIA ELEMENTARY HISTORIC AND PROJECTED ENROLLMENT SEQUOIA CHARTER ELEMENTARY SCHOOL Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments K G Table 17B provides enrollment and retention data for Sequoia Secondary for the most recent five-year operating history of Sequoia Secondary and projected increases for the succeeding five years. SEQUOIA CHARTER SECONDARY SCHOOL Historical ADM Enrollment (ACTUALS) TABLE 17B SEQUOIA SECONDARY HISTORIC AND PROJECTED ENROLLMENT Projected ADM Enrollments No assurance can be given that the projected levels of enrollment will be reached. See BONDHOLDERS RISKS in the Official Statement. 52 Students that are currently enrolled at the Horne Facilities under the Learning Crossroads Basic Academy Charter School Contract will be enrolled at either Sequoia Elementary or Sequoia Secondary, as appropriate, under the Sequoia Charter Schools Charter School Contract at the commencement of the School Year which will result in a significant increase in enrollment. The historic enrollment under the Learning Crossroads Basic Academy Charter School Contract and the current enrollment, many of which the Corporation expects to transfer to the Sequoia Schools Charter School Contract is set forth below: SEQUOIA ACADEMIC AND ARTS ELEMENTARY SCHOOL Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments KG SEQUOIA ACADEMIC AND ARTS Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments A-50

89 SEQUOIA SCHOOL FOR THE DEAF AND HARD OF HEARING Sequoia Schools, Inc. obtained the original charter for Sequoia School for the Deaf and Hard of Hearing ( Deaf School ) in 2000 from the ASBCS (the Deaf Charter School Contract ). The Deaf Charter School Contract will expire on June 30, 2015 and provides a limit of 100 on the number of students that may be educated at the Horne Facilities. Pursuant to the terms of a Charter Transfer Agreement dated October 25, 2005 by and between Sequoia Schools, Inc. and the Corporation (the Deaf Transfer Agreement ), the Deaf Charter School Contract was transferred to the Corporation effective as of October 31, 2005 which transfer was approved by the ASBCS. Deaf School provides public education for grades kindergarten through 12 at the Horne Facilities and primarily teaches students residing in the East Valley suburbs of greater Phoenix, Arizona including the cities of Mesa, Tempe, Gilbert, Chandler and Apache Junction. Subject to capacity, the Deaf School is open to all students in the State, deaf or hearing. The structure of the operations at the Deaf School provide a safe, challenging and motivating educational environment which promotes development of wholesome social skills, academic growth and independence through the bilingual and bi-cultural approach. The majority of the students at the Deaf School are deaf or significantly hard of hearing and classes and laboratories are taught with special attention to the needs of such students. Some hearing students live in households where there are deaf persons present and, as such, are able to learn sign language at the Deaf School to assist them in interacting with their family members. The Deaf School has made a significant investment in technology that facilitates this learning and demonstrates the tools that are useful to hearing impaired students to function in today s technological world. The Corporation has observed that traditional district schools lack the technology and training to serve the special needs of deaf students. Consequently, students who transfer into the Deaf School matriculate with academic achievement that otherwise falls far below State-mandated grade levels. Because of the special learning needs of the deaf students, each student at the Deaf School has an individualized educational program that is tailored to maximize their learning experience. In so doing, students at the Deaf School are given the opportunity to catch up with their hearing peers. Although students at the Deaf School have an average growth in excess of one year on AIMS or Stanford 10 Tests, students may still not meet the State-mandated grade level standards until they have had sufficient time at the Deaf School to catch up academically with their hearing peers. FACULTY AND OTHER EMPLOYEES The Corporation has established hiring criteria, codes of behavior, compensation policies and benefit policies for all employees, including all teaching staff, for all schools operated by the Corporation and has codified such policies for the Deaf School in its site-specific Site Operations Manual dated June 17, Teachers at the Deaf School are provided a menu of benefits including health insurance, life insurance, disability insurance, paid vacation, and continuing education and accreditation programs. Compensation for teachers is competitive to the compensation offered by competing district schools. Teachers at the Deaf School are specially trained to work with the population of hearing impaired students and compensation is commensurate with the necessary additional training and certifications. Teachers have the opportunity to provide instruction in small classes while enjoying educational autonomy that may not be present in other work environments serving the same population. See student/teacher ratios in Table 18 below. TABLE 18 DEAF SCHOOL TEACHING FACULTY INFORMATION FULL TIME TEACHERS PART-TIME AND SPECIALTY TEACHERS ADMINISTRATION AND CLASSROOM ASSISTANTS FULL TIME EQUIVALENT TEACHERS PAY RANGE ,200-60,000 STUDENT- TEACHER RATIO 7:1 A-51

90 ENROLLMENT Table 19 provides enrollment and retention data for Deaf School based on the most recent five-year operating history and projected increases for the succeeding five years. TABLE 19 DEAF SCHOOL HISTORIC AND PROJECTED ENROLLMENT Historical ADM Enrollment (ACTUALS) Projected ADM Enrollments KG TEST RESULTS Student performance at the Deaf School is judged by student scores on the state-mandated Stanford 10 test, a norm-referenced assessment is required by State statute in reading, language arts, and mathematics in second grade through high school that measures a student s national percentile ranking in those areas, and the Arizona s Instrument to Measure Standards (the AIMS Test ), a standards-based assessment that measures student proficiency of the Arizona Academic Content Standards in writing, reading and mathematics as required by State and federal law A-52

91 Arizona s Instrument to Measure Standards (AIMS) Stanford 10 ACADEMIC ACCOUNTABILITY COMPETING SCHOOLS As the one of only two publicly funded schools for the hearing impaired in the Phoenix Metro Area, there is little or no competition for the Deaf School except by privately funded schools serving similar populations. 54 See Footnote 27. A-53