OFFICIAL STATEMENT DATED SEPTEMBER 13, 2006 NEW ISSUE BOOK-ENTRY ONLY

Transcription

1 OFFICIAL STATEMENT DATED SEPTEMBER 13, 2006 NEW ISSUE BOOK-ENTRY ONLY Rating: S&P "AAA" Underlying Ratings: S&P "A" and "BBB-" See "RATINGS" In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and continuing compliance with certain covenants, interest on the Tax-Exempt 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. Interest on the Taxable Bonds is included in gross income for federal income tax purposes. Bond Counsel is also of the opinion that interest on the Bonds is exempt from all taxation and assessments in the State of Colorado. For a more complete description, see "TAX MATTERS" herein. COLORADO EDUCATIONAL AND CULTURAL FACILITIES AUTHORITY $11,560,000 CHARTER SCHOOL REVENUE REFUNDING AND IMPROVEMENT BONDS (CHEYENNE MOUNTAIN CHARTER ACADEMY PROJECT) SERIES 2006A $110,000 CHARTER SCHOOL REVENUE REFUNDING AND IMPROVEMENT BONDS (CHEYENNE MOUNTAIN CHARTER ACADEMY PROJECT) TAXABLE SERIES 2006B Dated: Date of Delivery Due: as shown on inside cover The Colorado Educational and Cultural Facilities Authority (the "Authority"), an independent public body politic and corporate constituting a public instrumentality and political subdivision of the State of Colorado (the "State"), is issuing its Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project) Series 2006A in the aggregate principal amount of $11,560,000 (the "Tax-Exempt Bonds") and its Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project) Taxable Series 2006B in the aggregate principal amount of $110,000 (the "Taxable Bonds") (collectively, the "Bonds") pursuant to an Indenture of Trust, dated as of September 1, 2006 (the "Indenture"), between the Authority and American National Bank, Denver, Colorado, as trustee (the "Trustee"). The Bonds will be dated their date of delivery, will be in authorized denominations of $5,000 and any integral multiple thereof, and will mature on June 15 of the years as shown on the front inside cover hereof. The Bonds will bear interest payable semi-annually on June 15 and December 15 of each year, commencing December 15, 2006, until maturity or earlier redemption. The proceeds of the Bonds will be loaned by the Authority to Cheyenne Mountain Charter Academy Foundation, a Colorado nonprofit corporation and an organization described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Corporation"), pursuant to the terms of a Mortgage and Loan Agreement, dated as of September 1, 2006 (the "Loan Agreement"), by and between the Authority and the Corporation for the following purposes: (i) to finance the refunding of the principal of a bank loan (the "Bank Loan"); (ii) to make a yield reduction payment in connection with the refunding of the Bank Loan; (iii) to pay a portion of the cost of constructing and improving additional educational facilities (the "Additional Facilities"); (iv) to fund a Bond Reserve Fund; and (v) to pay the costs of issuing the Bonds (collectively, the "Project"). The Bank Loan financed a portion of the cost of constructing and improving the Additional Facilities, and financed the advance refunding of a portion of the Authority's Charter School Revenue Refunding Bonds, Series 2003C (the "Series 2003 Bonds"). The Series 2003 Bonds refinanced the acquisition, construction and equipping of the Charter School's current educational facilities (the "Existing Facilities," and, collectively with the Additional Facilities, the "Facilities"). The Facilities will be leased by the Corporation to Cheyenne Mountain Charter Academy (the "Charter School"), a Colorado non-profit corporation and a charter school operating under a charter granted by the Cheyenne Mountain School District 12, Colorado (the "District"). The Charter School will lease the Facilities pursuant to the terms of a Lease Agreement, dated as of September 1, 2006, by and between the Corporation and the Charter School (the "Lease"). See "PLAN OF FINANCE." The Authority, the Charter School, the Corporation and the Trustee intend to and shall take all actions necessary to utilize the Colorado State Treasurer Charter School Intercept Program, the Colorado Charter School Debt Reserve Fund Program and the Colorado Charter School Moral Obligation Program. See "SECURITY FOR THE BONDS" and "EXHIBIT A CHARTER SCHOOLS IN COLORADO." The Tax-Exempt Bonds are subject to optional and mandatory sinking fund redemption, and the Bonds are subject to extraordinary redemption prior to maturity as set forth herein. See "THE BONDS Prior Redemption." Payment, when due, of the principal of and interest on the Bonds is to be guaranteed under a Financial Guaranty Insurance Policy to be issued by CIFG Assurance North America, Inc. simultaneously with the delivery of the Bonds. The Bonds constitute special, limited obligations of the Authority and except to the extent payable from Bond proceeds and investment income, are payable solely from certain payments, revenues and other amounts derived by the Authority pursuant to the Loan Agreement. The Bonds will be secured by (a) a pledge of certain rights of the Authority under and pursuant to the Loan Agreement, (b) a pledge of the Funds and Revenues (other than the Rebate Fund) and all trust accounts created under the Indenture and (c) an assignment of the Authority's mortgage on the Facilities and security interest in certain Pledged Revenues of the Corporation to the extent permitted by law. Payments to be received from the Charter School by the Corporation under the Lease will be the Corporation's sole expected source of Pledged Revenues and the Lease is subject to annual appropriation by the Charter School. See "SECURITY FOR THE BONDS." The Bonds will be issued as registered bonds in book-entry only form in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York, which will act as securities depository for the Bonds. Purchases of beneficial interests in the Bonds will be made in book-entry only form and purchasers will not receive physical certificates representing the ownership interest in the Bonds purchased by them. See "BOOK-ENTRY-ONLY SYSTEM." THE BONDS AND THE INTEREST THEREON SHALL NEVER CONSTITUTE THE DEBT OR INDEBTEDNESS OF THE AUTHORITY, THE STATE OF COLORADO OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE DISTRICT, WITHIN THE MEANING OF ANY PROVISION OF THE CONSTITUTION AND LAWS OF THE STATE AND SHALL NOT CONSTITUTE NOR GIVE RISE TO A PECUNIARY LIABILITY OR A CHARGE AGAINST THE GENERAL CREDIT OR ANY TAXING POWERS OF THE AUTHORITY, THE DISTRICT OR THE STATE. THE AUTHORITY HAS NO TAXING POWER. The Bonds are offered when, as and if issued by the Authority and received and accepted by the Underwriters and subject to the approval of legality by Kutak Rock LLP, Denver, Colorado, Bond Counsel. Certain legal matters will be passed upon by Sherman & Howard L.L.C., Denver, Colorado, general counsel to the Authority, by Rothgerber, Johnson & Lyons LLP, Denver, Colorado, as counsel to the Corporation and the Charter School, and by Quarles & Brady LLP, Milwaukee, Wisconsin, as Underwriter's counsel. J. Berg Financial Advisors LLC, Colorado Springs, Colorado is serving as financial advisor to the Corporation and the Charter School, and BD Advisors LLC, Denver, Colorado is serving as financial advisor to the Authority in connection with the offering of the Bonds. It is expected that the Bonds will be available for delivery against payment therefor on or about September 27, A.G. Edwards Bathgate Capital Partners

2 MATURITY SCHEDULE $11,560,000 CHARTER SCHOOL REVENUE REFUNDING AND IMPROVEMENT BONDS (CHEYENNE MOUNTAIN CHARTER ACADEMY PROJECT) SERIES 2006A $3,380,000 Serial Bonds Maturity Date (June 15) Principal Amount Interest Rate Price CUSIP 2008 $ 95, % % E , F , G , H , J , K , L , M , N , P , Q , V , W2 $1,115,000 Term Bonds Maturing June 15, 2023; Rate 5.00%; Price: % * X0 1,290,000 Term Bonds Maturing June 15, 2026; Rate 4.30%; Price: % R3 2,565,000 Term Bonds Maturing June 15, 2031; Rate 4.40%; Price: % S1 3,210,000 Term Bonds Maturing June 15, 2036; Rate 4.50%; Price: % T9 * Priced to call. MATURITY SCHEDULE $110,000 CHARTER SCHOOL REVENUE REFUNDING AND IMPROVEMENT BONDS (CHEYENNE MOUNTAIN CHARTER ACADEMY PROJECT) TAXABLE SERIES 2006B Maturity Date (June 15) Principal Amount Interest Rate Price CUSIP 2008 $110, % % U6

3 No dealer, salesman, or other person has been authorized to give any information or to make any representation, other than the information contained in this Official Statement, in connection with the offering of the Bonds, and, if given or made, such information or representation must not be relied upon as having been authorized by the Authority, the Charter School, the Corporation or the Underwriters. The information in this Official Statement is subject to change without notice, and neither the delivery of this Official Statement nor any sale hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the Charter School, the Corporation or the Underwriters since the date hereof. This Official Statement does not constitute an offer or solicitation in any jurisdiction in which such offer or solicitation is not authorized, or in which any person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. INTRODUCTION... 2 RISK FACTORS... 6 General... 6 Operating History; Reliance on Projections... 6 Factors Associated with Education... 7 Competition for Students... 7 Nonrenewal or Revocation of Charter... 7 Failure to Provide Ongoing Disclosure... 7 Future Changes to Charter School Laws... 7 Nonrenewal of the Lease... 8 Nonrecourse Obligation... 8 Damage or Destruction of the Facilities... 8 Environmental Regulation... 8 Potential Effects of Bankruptcy... 9 Additional Bonds Enforcement of Remedies Covenant to Maintain Tax-Exempt Status of the Tax-Exempt Bonds Constitutional Provisions Affecting Revenues and Spending Vouchers The Financial Guaranty Insurer Secondary Market Risk of Loss from Nonpresentment upon Redemption THE BONDS General Prior Redemption Acceleration PLAN OF FINANCE Refunding Facility Improvements Sources and Uses of Funds SECURITY FOR THE BONDS General The Loan Agreement Pledged Revenues The Lease State Treasurer Charter School Intercept Program State Education Fund Capital Construction Monies The Indenture Bond Reserve Fund Charter School Debt Reserve Fund Program Charter School Moral Obligation Program Financial Guaranty Insurance Policy TABLE OF CONTENTS Additional Bonds...20 Limitations on Incurrence of Additional Indebtedness...21 Reserve and Working Capital Covenants...21 Repair and Replacement Fund...22 Debt Service Requirements...23 CONSTRUCTION CONTRACTS...23 General...23 Payment and Performance Bonds; Permits...23 BOOK-ENTRY-ONLY SYSTEM...24 THE FINANCIAL GUARANTY INSURER...25 CIFG Assurance North America, Inc...25 General THE AUTHORITY...27 LEGAL MATTERS...27 In General...27 Sovereign Immunity...27 Pending and Threatened Litigation...28 TAX MATTERS...28 Federal Tax Matters...28 State Tax Matters...30 RATINGS...30 MISCELLANEOUS...30 Underwriting...30 Financial Advisors...31 Registration of Bonds...31 Continuing Disclosure Agreement...31 Financial Statements...31 Additional Information...31 Official Statement Certification...32 EXHIBIT A CHARTER SCHOOLS IN COLORADO... A-1 EXHIBIT B THE CORPORATION AND THE CHARTER SCHOOL... B-1 EXHIBIT C CHARTER SCHOOL FINANCIAL STATEMENTS... C-1 EXHIBIT D DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE, THE LOAN AGREEMENT AND THE LEASE... D-1 EXHIBIT E FORM OF BOND COUNSEL OPINION... E-1 EXHIBIT F FORM OF CONTINUING DISCLOSURE AGREEMENT...F-1 EXHIBIT G FORM OF FINANCIAL GUARANTY INSURANCE POLICY... G-1

4 THE BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION BY REASON OF CERTAIN EXEMPTIONS CONTAINED IN THE SECURITIES ACT OF 1933, AS AMENDED. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE AUTHORITY, THE CHARTER SCHOOL, THE CORPORATION, THE BONDS AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. CERTAIN STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS OFFICIAL STATEMENT CONSTITUTE "FORWARD-LOOKING STATEMENTS" AS DESCRIBED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED. SEE "INTRODUCTION." THE PRICES AT WHICH THE BONDS ARE OFFERED BY THE UNDERWRITERS (AND THE YIELDS RESULTING THEREFROM) MAY VARY FROM THE INITIAL OFFERING PRICES APPEARING ON THE INSIDE FRONT COVER PAGE HEREOF. IN ADDITION, THE UNDERWRITERS MAY ALLOW CONCESSIONS OR DISCOUNTS FROM SUCH INITIAL OFFERING PRICES TO DEALERS AND OTHERS. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAYBE DISCONTINUED AT ANY TIME. EXCEPT FOR THE INFORMATION CONTAINED UNDER THE CAPTIONS "INTRODUCTION THE AUTHORITY," "THE AUTHORITY" AND "LEGAL MATTERS PENDING AND THREATENED LITIGATION NO PROCEEDINGS AGAINST THE AUTHORITY," THE AUTHORITY NEITHER HAS NOR WILL ASSUME ANY RESPONSIBILITY AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION IN THIS OFFICIAL STATEMENT. THE FINANCIAL GUARANTY INSURER ACCEPTS NO RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT OR ANY OTHER INFORMATION OR DISCLOSURE CONTAINED HEREIN, OR OMITTED HEREFROM, OTHER THAN WITH RESPECT TO THE ACCURACY OF THE INFORMATION REGARDING THE FINANCIAL GUARANTY INSURER AND ITS AFFILIATES SET FORTH HEREIN. IN ADDITION, THE FINANCIAL GUARANTY INSURER MAKES NO REPRESENTATION REGARDING THE BONDS OR THE ADVISABILITY OF INVESTING IN THE BONDS. 1

5 COLORADO EDUCATIONAL AND CULTURAL FACILITIES AUTHORITY $11,560,000 CHARTER SCHOOL REVENUE REFUNDING AND IMPROVEMENT BONDS (CHEYENNE MOUNTAIN CHARTER ACADEMY PROJECT) SERIES 2006A $110,000 CHARTER SCHOOL REVENUE REFUNDING AND IMPROVEMENT BONDS (CHEYENNE MOUNTAIN CHARTER ACADEMY PROJECT) TAXABLE SERIES 2006B INTRODUCTION The purpose of this Official Statement is to provide certain information concerning the issuance and sale by the Colorado Educational and Cultural Facilities Authority (the "Authority") of its $11,560,000 aggregate principal amount of Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project) Series 2006A (the "Tax-Exempt Bonds") and its $110,000 aggregate principal amount of Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project) Series 2006B (the "Taxable Bonds") (collectively, the "Bonds"). The Bonds are being issued pursuant to an Indenture of Trust, dated as of September 1, 2006 (the "Indenture"), by and between the Authority and American National Bank, Denver, Colorado, as trustee (the "Trustee"). The offering of the Bonds is made only by way of this Official Statement, which supersedes any other information or materials used in connection with the offer or sale of the Bonds. This Official Statement speaks only as of its date, and the information contained herein is subject to change. Capitalized terms used but not defined in this Official Statement have the meanings assigned to them in EXHIBIT D hereto. This Official Statement contains statements relating to future results that are "forward-looking statements" as defined in the Private Litigation Reform Act of When used in this Official Statement, the words "estimate," "intend," "expect" and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty and risks that could cause actual results to differ, possibly materially, from those contemplated in such forwardlooking statements. Inevitably, some assumptions used to develop forward-looking statements will not be realized or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward-looking statements and actual results, and those differences could be material. The following introductory material is only a brief description of, and is qualified by, the more complete information contained throughout this Official Statement. A full review should be made of the entire Official Statement and the documents summarized or described herein. Purpose of the Issue The proceeds from the sale of the Bonds will be loaned to Cheyenne Mountain Charter Academy Foundation, a Colorado nonprofit corporation and an organization described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Corporation"), pursuant to the terms of a Mortgage and Loan Agreement, dated as of September 1, 2006 (the "Loan Agreement"), by and between the Authority and the Corporation. Proceeds of the Bonds will be used for the following purposes: (i) to finance the refunding of the principal of a bank loan (the "Bank Loan"); (ii) to make a yield reduction payment in connection with the refunding of the Bank Loan; (iii) to pay a portion of the cost of constructing and improving additional educational facilities (the "Additional Facilities"); (iv) to fund a Bond Reserve Fund; and (v) to pay the costs of issuing the Bonds (collectively, the "Project"). The Bank Loan financed a portion of the cost of constructing and improving the Additional Facilities, and financed the advance refunding of a portion of the Authority's Charter School Revenue Refunding Bonds, Series 2003C (the "Series 2003 Bonds"). The Series 2003 Bonds refinanced the acquisition, construction and equipping of the Charter School's current educational facilities (the "Existing Facilities," and, collectively with the Additional Facilities, the "Facilities"). The Facilities will be leased by the Corporation to Cheyenne Mountain Charter Academy (the "Charter School"), a Colorado non-profit corporation and a charter school operating under a charter granted by the Cheyenne Mountain School District 12, Colorado (the "District"). The Charter School will lease the Facilities pursuant to the terms of a Lease Agreement, dated as of September 1, 2006, by and between the Corporation and the Charter School (the "Lease"). See "PLAN OF FINANCE." 2

6 The Authority The Corporation The Charter School Security The Authority is an independent public body politic and corporate constituting a public instrumentality and political subdivision of the State of Colorado (the "State"). The Authority was created in 1981 pursuant to the "Colorado Educational and Cultural Facilities Authority Act," Title 23, Article 15, Colorado Revised Statutes ("CRS"), as amended (the "Act"). The Authority was formed to promote the welfare of the people of the State by providing financing for educational institutions and cultural institutions. The Authority was formerly known as the Colorado Postsecondary Educational Facilities Authority. See "THE AUTHORITY." The Corporation is a Colorado nonprofit corporation and an organization described under Section 501(c)(3) of the Code, organized for the primary purpose of serving as a support organization for the Charter School by acquiring land and buildings and other real personal property through debt financing or otherwise for the benefit of the Charter School, developing and carrying out support activities, providing financial or other assistance to the Charter School, and engaging in other exempt activities for the benefit of the Charter School. The Corporation's articles of incorporation were filed on August 29, See "EXHIBIT B THE CORPORATION AND THE CHARTER SCHOOL." Cheyenne Mountain Charter Academy (the "Charter School") is a Colorado non-profit corporation, an organization described under Section 501(c)(3) of the Code, and a charter school under the Charter Schools Act, Title 22, Article 30.5, CRS, as amended (the "Charter Schools Act"), operating under a charter granted by the Cheyenne Mountain School District 12 (the "District"). See "EXHIBIT B THE CORPORATION AND THE CHARTER SCHOOL." The Bonds are special, limited obligations of the Authority as described under "Limited Obligations" herein. Under the Loan Agreement, the Corporation is obligated unconditionally (but only on the limited, nonrecourse basis described in "Limited Obligations" below) to pay amounts sufficient to provide for the payment of the principal of, premium, if any, and interest on the Bonds. The Bonds are secured by: (a) a pledge of certain rights of the Authority under and pursuant to the Loan Agreement, (b) a pledge of the Funds and Revenues (other than the Rebate Fund) and all trust accounts created under the Indenture and (c) an assignment of the Authority's mortgage on the Facilities and security interest in certain Pledged Revenues of the Corporation to the extent permitted by law. The Indenture pursuant to which the Bonds are issued establishes a Bond Reserve Fund in an amount equal to the Maximum Annual Debt Service on the Bonds. Further, the Authority, the Charter School, the Corporation and the Trustee intend to and shall take all actions necessary to utilize the Colorado State Treasurer Charter School Intercept Program, the Charter School Debt Reserve Fund Program and the Colorado Charter School Moral Obligation Program. See "SECURITY FOR THE BONDS" and "EXHIBIT A CHARTER SCHOOLS IN COLORADO." Limited Obligations The Bonds do not constitute the debt or indebtedness of the Authority within the meaning of any provision or limitation of the constitution or statutes of the State and shall never constitute or give rise to a pecuniary liability of the Authority or the State or a charge against the general credit or any taxing power of the Authority, the District or the State. The Authority has no taxing power. Except as provided in the Loan Agreement with respect to certain fees, expenses and indemnity rights of the Authority and the Trustee, recovery against the Corporation for any event of default under the Loan Agreement is limited to the Pledged Revenues granted by the Loan Agreement. The obligations of the Corporation under the Loan Agreement (subject to such exceptions) are not general obligations of the Corporation and neither the Trustee, the Authority nor the Registered Owners of the Bonds shall have any recourse to any property, funds or assets of the Corporation (other than the Pledged Revenues and the Facilities) with respect to such obligations. 3

7 Financial Guaranty Insurance Risk Factors Payment Provisions Registration and Denominations Book-Entry-Only Registration Prior Redemption Tax Status Continuing Disclosure Agreement Authority for Issuance Payment, when due, of the principal of and interest on the Bonds is to be guaranteed under a Financial Guaranty Insurance Policy to be issued by CIFG Assurance North America, Inc. (the "Financial Guaranty Insurer") simultaneously with the delivery of the Bonds. See "SECURITY FOR THE BONDS Financial Guaranty Insurance Policy" and "THE FINANCIAL GUARANTY INSURER." A prospective purchaser is advised to read this entire Official Statement and the Exhibits attached hereto in their entirety, particularly the section "RISK FACTORS" below, for a discussion of certain risk factors which should be considered in connection with an investment in the Bonds. The Bonds mature and bear interest (computed on the basis of a 360-day year of twelve 30-day months) at the rates set forth on the inside front cover page hereof. Interest on the Bonds is payable semiannually on June 15 and December 15 each year, commencing on December 15, 2006 (each an "Interest Payment Date"), by check or draft of the Trustee to the Registered Owners of the Bonds as of the close of business on the 15th day of the calendar month next preceding any Interest Payment Date (the "Record Date"); provided, however, the Registered Owners of at least $500,000 in aggregate principal amount of Bonds Outstanding may, by written request to the Trustee received at least 10 Business Days prior to the Record Date, receive payment of interest by wire transfer at the address specified in such request, which address must be in the United States of America. The Bonds are issued in fully registered form in denominations of $5,000 or any integral multiple thereof. The Bonds will be issued in fully registered form and will be registered initially in the name of "Cede & Co." as nominee for The Depository Trust Company, New York, New York ("DTC"), a securities depository. See "BOOK-ENTRY-ONLY SYSTEM" for a discussion of the operating procedures of the DTC system with respect to payments, registration, transfers, notices, and other matters. The Tax-Exempt Bonds are subject to optional redemption and mandatory sinking fund redemption, and the Bonds are subject to extraordinary redemption. The terms and provisions regarding such prior redemption are set forth in "THE BONDS Prior Redemption." In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and continuing compliance with certain covenants, interest on the Tax-Exempt 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. Interest on the Taxable Bonds is included in gross income for federal income tax purposes. Bond Counsel is also of the opinion that interest on the Bonds is exempt from all taxation and assessments in the State of Colorado. See "TAX MATTERS" and "EXHIBIT E FORM OF BOND COUNSEL OPINION." Pursuant to the requirements of Securities and Exchange Commission Rule 15c2-12 (17 CFR Part 240, c2-12) (the "Rule"), the Corporation and the Charter School have agreed for the benefit of the Registered Owners and Beneficial Owners of the Bonds to provide certain financial information and other operating data annually, and notices of material events. See "MISCELLANEOUS Continuing Disclosure Agreement" and "EXHIBIT F FORM OF CONTINUING DISCLOSURE AGREEMENT." The Bonds are issued in full conformity with the constitution and laws of the State, and pursuant to an authorizing resolution (the "Bond Resolution") adopted by the Authority's Board of Directors (the "Board"). The Authority is authorized by the Act and Article 57, Title 11, Section 201, et seq., CRS, as amended, to issue the Bonds. 4

8 Delivery Information Financial Statements Agents and Advisors Additional Information The Bonds are offered when, as, and if issued by the Authority and accepted by the Underwriters, subject to prior sale and the approving legal opinion of Bond Counsel and certain other conditions. It is expected that the Bonds will be available for delivery through the facilities of DTC in New York, New York on or about September , against payment therefor. The Charter School is audited as a component unit of the District. The District is audited by Johnson, Holscher & Company, PC, Certified Public Accountants, Greenwood Village, Colorado. The District's financial statements are prepared in accordance with generally accepted accounting principles, and are available upon request to the Underwriters. The Charter School has been audited in relation to the District as a whole. Attached as EXHIBIT C are financial statements relating to the Charter School, which have been excerpted from the District's financial statements. The Charter School's financial statements attached in EXHIBIT C are presented using the modified accrual basis of accounting in accordance with generally accepted accounting principles. See "EXHIBIT C CHARTER SCHOOL FINANCIAL STATEMENTS." Kutak Rock LLP has acted as Bond Counsel. Certain legal matters will be passed on by Rothgerber, Johnson & Lyons LLP, Denver, Colorado, counsel to the Corporation and the Charter School; by Sherman & Howard L.L.C., Denver, Colorado, general counsel to the Authority; and Quarles & Brady LLP, Milwaukee, Wisconsin, Underwriter's counsel. A.G. Edwards & Sons, Inc. and Bathgate Capital Partners will serve as the Underwriters for the Bonds. See "MISCELLANEOUS Underwriting." American National Bank, Denver, Colorado, will serve as the Trustee for the Bonds. J. Berg Financial Advisors LLC, Colorado Springs, Colorado will serve as financial advisor to the Corporation and the Charter School, and BD Advisors LLC, Denver, Colorado will serve as financial advisor to the Authority in connection with the offering of the Bonds. Certain fees with respect to the Bonds of various counsel, the Underwriters, the Trustee and the Financial Advisors are contingent upon the issuance and delivery of the Bonds. The summaries of or references to constitutional provisions, statutes, resolutions, agreements, contracts, financial statements, reports, publications and other documents or compilations of data or information set forth in this Official Statement do not purport to be complete statements of the provisions of the items summarized or referred to and are qualified in their entirety by the actual provisions of such items, copies of which are either publicly available or available upon request and the payment of a reasonable copying, mailing and handling charge from the Charter School's administrative offices, 1832 S. Wasatch Avenue, Colorado Springs, Colorado, telephone (719) , or from the Underwriters c/o A.G. Edwards & Sons, Inc., 1675 Broadway, Suite 2700, Denver, Colorado, 80202, telephone (303)

9 RISK FACTORS General The Bonds are special and limited obligations of the Authority. They are secured by and payable solely from funds payable by the Corporation under the terms and conditions of the Loan Agreement and as otherwise described herein. Except as provided in the Loan Agreement with respect to certain fees, expenses and indemnity rights of the Authority and the Trustee, recovery against the Corporation for any event of default under the Loan Agreement is limited to the Pledged Revenues and amounts realized from the foreclosure of the mortgage on the Facilities granted by the Loan Agreement. The obligations of the Corporation under the Loan Agreement (subject to such exceptions) are not general obligations of the Corporation and neither the Trustee, the Authority nor the registered owners of the Bonds shall have any recourse to any property, funds or assets of the Corporation (other than the Pledged Revenues and the Facilities) with respect to such obligations. Operating History; Reliance on Projections The Authority's ability to make debt service payments when due on the Bonds is dependent on Per Pupil Revenue to be received by the Charter School as payment from the State for educating students. The Charter School has conducted operations as a charter school since the school year. The projections of revenues and expenses contained in "EXHIBIT B THE CORPORATION AND THE CHARTER SCHOOL Historical and Projected Revenue and Expense Information," herein were prepared by the Charter School and have not been independently verified by any other party. No feasibility studies have been conducted with respect to operations of the Charter School pertinent to the Bonds. The projections are "forward-looking statements" and are subject to the general qualifications and limitations described under "INTRODUCTION" with respect to such statements. The Underwriters have not independently verified such projections, and make no representations nor give any assurances that such projections, nor the assumptions underlying them, are complete or correct. Further, the projections relate only to the fiscal years of the Charter School ending June 30, 2007 through 2010, and consequently do not cover the entire period that the Bonds will be outstanding. The projections are derived from the actual operations of the Charter School and from the Charter School's assumptions about future student enrollment and expenses. There can be no assurance that the actual enrollment revenues and expenses for the Charter School will be consistent with the assumptions underlying the projections contained herein. Moreover, no guarantee can be made that the projections of revenues and expenses contained herein will correspond with the results actually achieved in the future because there is no assurance that actual events will correspond with the assumptions made by the Charter School. Actual operating results may be affected by many factors, including, but not limited to, increased costs, lower than anticipated revenues (as a result of insufficient enrollment, reduced Per Pupil Revenue payments, or otherwise), employee relations, changes in taxes, changes in applicable government regulation, changes in demographic trends, changes in elementary and secondary education competition and changes in local or general economic conditions. Refer to "EXHIBIT B THE CORPORATION AND THE CHARTER SCHOOL," to review certain of the projections and to consider the various factors that could cause actual results to differ significantly from projected results. Refer to "INTRODUCTION," above, for qualifications and limitations applicable to forward-looking statements. NO GUARANTEE CAN BE MADE THAT THE PROJECTED INFORMATION WILL CORRESPOND WITH THE RESULTS ACTUALLY ACHIEVED IN THE FUTURE BECAUSE THERE IS NO ASSURANCE THAT ACTUAL EVENTS WILL CORRESPOND WITH THE ASSUMPTIONS MADE BY THE CHARTER SCHOOL. ACTUAL OPERATING RESULTS MAY BE AFFECTED BY MANY FACTORS, INCLUDING, BUT NOT LIMITED TO, INCREASED COSTS, LOWER THAN ANTICIPATED REVENUES (AS A RESULT OF INSUFFICIENT ENROLLMENT, REDUCED STATE AID PAYMENTS, OR OTHERWISE), EMPLOYEE RELATIONS, CHANGES IN TAXES, CHANGES IN APPLICABLE GOVERNMENTAL REGULATION, CHANGES IN DEMOGRAPHIC TRENDS, CHANGES IN ELEMENTARY AND SECONDARY EDUCATION COMPETITION AND LOCAL OR GENERAL ECONOMIC CONDITIONS. 6

10 Factors Associated with Education There are a number of factors affecting schools in general, including the Charter School and the Corporation, that could have an adverse effect on the Charter School's and the Corporation's financial position and ability to make the payments required under the Lease and the Loan Agreement. These factors include, but are not limited to, the ability to attract a sufficient number of students; increasing costs of compliance with federal or State regulatory laws or regulations, including, without limitation, laws or regulations concerning environmental quality, work safety and accommodating persons with disabilities; any unionization of the Charter School's work force with consequent impact on wage scales and operating costs of the Corporation or the Charter School; changes in existing statutes pertaining to the powers of the Charter School and legislation or regulations which may affect program funding. Neither the Corporation nor the Charter School can assess or predict the ultimate effect of these factors on their operations or financial results of operations. Competition for Students The majority of the Charter School's students currently attend the Charter School to obtain the type of education and instruction that the Charter School provides. The Charter School competes for students with the District, other schools within or near the District and neighboring districts, and private schools that are located in the Denver, Colorado area. There can be no assurance that the Charter School will continue to attract and retain the number of students that are needed to produce the Pledged Revenues necessary to pay the debt service on the Bonds. Nonrenewal or Revocation of Charter Pursuant to the Charter Schools Act, CRS , et seq. (the "Charter Schools Act") and the Charter, if not renewed the Charter will expire on June 30, For operations beyond that time, the Charter School will be required to apply for renewal of the Charter. A charter contract is subject to nonrenewal or revocation for material violations of the charter contract, failure to make reasonable progress towards the goals and requirements set forth in the charter contract, failure to meet accepted standards of fiscal management, or violations of law. See "EXHIBIT A CHARTER SCHOOLS IN COLORADO Nonrenewal or Revocation" and " Appeal Procedures and Standard of Review." For more information regarding certain restrictive provisions of the Charter and performance goals toward which reasonable progress is required, see "EXHIBIT B THE CORPORATION AND THE CHARTER SCHOOL THE CHARTER SCHOOL The Charter Contract," below. Failure to Provide Ongoing Disclosure The Charter School and the Corporation will enter into a Continuing Disclosure Agreement pursuant to Securities and Exchange Commission Rule 15c2-12 (17 CFR Part 240, c2-12) (the "Rule") in connection with the issuance of the Bonds. Failure to comply with the Continuing Disclosure Agreement and the Rule in the future may adversely affect the liquidity of the Bonds and their market price in the secondary market. See "MISCELLANEOUS Continuing Disclosure Agreement" and "EXHIBIT F FORM OF CONTINUING DISCLOSURE AGREEMENT." Future Changes to Charter School Laws Future changes to the laws applicable to charter schools in Colorado, and in particular the Charter Schools Act and the Public School Finance Act of 1994, CRS , et seq. (the "Public School Finance Act") by the Colorado General Assembly could be adverse to the financial interests of the Charter School and could adversely impact the security for the Bonds. There can be no assurance that the Colorado General Assembly will not in the future amend such laws in a manner which is adverse to the interests of the registered owners of the Bonds. Charter school law provisions, including the provisions regarding capital funding for charter schools, are subject to amendment, including the reduction of funding, which could adversely affect the Charter School. Further, although constitutional provisions, such as Amendment 23 (defined and discussed below), cannot be changed by the General Assembly, the General Assembly may, by resolution, submit reductions or limitations to the electorate. For more information on the laws governing charter schools in Colorado, see "EXHIBIT A CHARTER SCHOOLS IN COLORADO." Adverse State budget considerations could result in the General Assembly seeking voter approval to reduce constitutional requirements for public school funding. STATE BUDGET CONSIDERATIONS MAY ADVERSELY AFFECT APPROPRIATIONS FOR CHARTER SCHOOL FUNDING. 7

11 Nonrenewal of the Lease The expected source of Pledged Revenues for the repayment of the Bonds is the payments made by the Charter School under the Lease. The Lease will be subject to annual renewal by the Charter School. It is anticipated that amounts payable pursuant to the Lease will be sufficient to pay debt service on the Bonds. However, the Charter School's obligation to pay such amounts is subject to: (a) the continued existence of the Charter School, see "Nonrenewal or Revocation of Charter" above, (b) the level of annual appropriations by the District to the Charter School, and (c) specific appropriations and allocations for such purpose by the Charter School. In the event the Charter School determines not to appropriate or allocate funds in order to make payments under the Lease, or in the event the District does not appropriate adequate funds for such purpose, it is possible that no proceeds will be generated by the Trustee from the re-letting or sale of the Facilities (which have been constructed specifically for the purpose of providing a charter school). Nonrecourse Obligation Except as provided in the Loan Agreement with respect to certain fees, expenses and indemnity rights of the Authority and the Trustee, recovery against the Corporation for any event of default under the Loan Agreement is limited to the Pledged Revenues granted by the Loan Agreement. The obligations of the Corporation under the Loan Agreement (subject to such exceptions) are not general obligations of the Corporation and neither the Trustee, the Authority nor the registered owners of the Bonds shall have any recourse to any property, funds or assets of the Corporation (other than the Pledged Revenues and the Facilities) with respect to such obligations. The Bonds are special, limited obligations of the Authority and also constitute nonrecourse obligations of the Authority. Damage or Destruction of the Facilities The Loan Agreement and the Lease require that the Facilities be insured against certain risks. There can be no assurance that the amount of insurance required to be obtained with respect to the Facilities will be adequate or that the cause of any damage or destruction to the Facilities will be as a result of a risk which is insured. Further, there can be no assurance of the ongoing creditworthiness of the insurance companies with which the Corporation or the Charter School obtain insurance policies. The Charter School may choose to terminate the Lease if a casualty renders the Facilities totally or partially untenantable or unfit for their purposes, and if insurance proceeds are insufficient to restore the Facilities to a tenantable condition. The Charter School believes that the risks associated with its properties and its operations are adequately provided for through the standard commercial insurance policies it maintains. The Charter School provides property insurance on the Facilities through a standard commercial insurance policy; however, all other insurance coverage will be provided to the Charter School by the District. Environmental Regulation The Facilities are subject to various federal, State and local laws and regulations governing health and the environment. In general, these laws and regulations could result in liability to the owner of the Facilities (and to any mortgagee holding a mortgage lien on the Facilities, particularly following any foreclosure proceeding) for remediating adverse environmental conditions on or relating to the Facilities, whether arising from preexisting conditions or conditions arising as a result of the activities conducted in connection with the ownership and operation of the Facilities. Costs incurred by the Corporation with respect to environmental remediation or liability could adversely impact its financial condition and its ability to own and operate the Facilities. Certain environmental costs might be the responsibility of the Charter School, but such costs would be subject to appropriation and might be a factor in the Charter School's decision concerning the continuation of the Lease. If excessive costs are incurred by the Corporation or the Charter School in connection with remediating environmental problems or in connection with any liability to third parties, such costs could make it impractical for the Lease to be continued pursuant to its current terms or such costs could make it more difficult to successfully relet the Facilities if the Lease were not renewed. 8

12 A Phase I Environmental Site Assessment was performed on the site of the Existing Facilities by Environmental Solutions, Inc. ("Environmental Solutions") in August of In that connection, Environmental Solutions prepared a report dated August 27, 1997 (the "Environmental Solutions Report"). The Environmental Solutions Report states that it was based on American Society for Testing and Materials ("ASTM") Standard Practice for Environmental Site Assessment: Phase I for Commercial Real Estate Guideline E In its findings and conclusions section, the Environmental Solutions Report states that the assessment revealed no evidence of a recognized environmental condition with the property, with the following exceptions: (i) general janitorial cleaning supplies stored in two utility closets at the site, which appeared to be stored properly and most of which were biodegradable; (ii) there was no indication of the presence of a grease/sand trap at the site, hence Environmental Solutions recommended that temporary drain plugs be installed in the utility closet floor drains to reduce the probability of a future violation resulting from a spill that would reach these floor drains. Neither Environmental Solutions nor any other engineering firm or similar entity has been asked to perform any additional environmental review or assessment of the site of the Existing Facilities. A Phase I Environmental Site Assessment and Limited Soil Evaluation (the "Assessment") was performed on the site of the Additional Facilities by CTL Thompson Incorporated ("CTL Thompson") in May of In that connection, CTL Thompson prepared a report dated May 17, 2006 (the "CTL Thompson Report"). The CTL Thompson Report states that the purpose of the Assessment was to identify Recognized Environmental Conditions, to the extent feasible, in general accordance with the methods and procedures described in the ASTM Practice E : Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process. The CTL Thompson Report states that a Recognized Environmental Condition is defined as the presence, or likely presence, of hazardous substances or petroleum products on a site under conditions that indicate an existing release, a past release, or a material threat of release of hazardous substances or petroleum products into structures on the site or ground, ground water, or surface water of the site. The CTL Thompson Report states that the term includes hazardous substances or petroleum products even under conditions in compliance with laws, but is not intended to include de minimis conditions that generally do not present a material risk of hard to public health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate government agencies. In its conclusions section, the CTL Thompson Report states that arsenic was detected in soil samples at concentrations above the Colorado Department of Public Health and Environment (the "Department") Proposed Soil Remediation Objective level, but that concentrations of arsenic in soils typically exceed that level due to naturally occurring arsenic. Consistent with the conclusions stated in the CTL Thompson Report, representatives of the Department stated in a letter dated June 6, 2006, that such arsenic concentrations appear to be naturally occurring and pose no increased risk to occupants when compared to surrounding residential and commercial properties. The conclusions section of the CTL Thompson Report also summarizes historical uses of the site, and provides conclusions regarding solid waste and stockpiles on the site, radon, storm water discharges associated with construction activity and nearby environmental concerns. The CTL Thompson Report concludes by stating that the Assessment revealed no evidence of Recognized Environmental Conditions in connection with the site. For information as to how to obtain a complete copy of the Environmental Solutions Report or the CTL Thompson Report, see "INTRODUCTION Additional Information," above. Potential Effects of Bankruptcy If the Corporation were to file a petition for relief (or if a petition were filed against the Corporation as debtor) under the United States Bankruptcy Code, 11 U.S.C. 101 et. seq., as amended, or other state insolvency, liquidation or receivership laws, the filing could operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the Corporation or the property of the Corporation. If the bankruptcy court or other state or federal court so ordered, the Corporation's property and revenues could be used for the benefit of the Corporation despite the claims of its creditors (including the owners of the Bonds). In a bankruptcy proceeding under Chapter 11 of the Bankruptcy Code, the Corporation could file a plan of reorganization which would modify the rights of creditors generally or the rights of any class of creditors, secured or unsecured (including the owners of the Bonds). The plan, when approved ("confirmed") by the bankruptcy court, binds all creditors who had notice or knowledge of the plan and discharges all claims against the Corporation except as otherwise provided for in the plan. No plan may be confirmed by a bankruptcy court unless, among other conditions, the plan is in the best interest of creditors, is feasible and has been accepted by each class of claims impaired thereunder. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly. The Corporation is prohibited from creating secured creditors except as provided in the Indenture. 9

13 Additional Bonds The Indenture permits the Authority to issue Additional Bonds secured by and payable solely from the Trust Estate on a parity with the Bonds if certain conditions are met. See "EXHIBIT D DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE, THE LOAN AGREEMENT AND THE LEASE Additional Bonds Requirement," "SECURITY FOR THE BONDS Additional Bonds" and "SECURITY FOR THE BONDS Limitations on Incurrence of Additional Indebtedness." Enforcement of Remedies The remedies available to the Trustee or the registered owners of the Bonds upon an Event of Default under the Indenture, the Loan Agreement or the Lease are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, the remedies provided in the Indenture, the Loan Agreement and the Lease may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the 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. Covenant to Maintain Tax-Exempt Status of the Tax-Exempt Bonds The excludability from gross income for federal income taxation purposes of the interest on the Tax-Exempt Bonds is based on the continuing compliance by the Corporation, the Charter School and the Authority with certain covenants contained in the Indenture, Lease, Loan Agreement and Tax Regulatory Agreement, dated as of September 1, 2006 (the "Tax Regulatory Agreement"), by and among the Authority, the Corporation, the Charter School and the Trustee. These covenants relate generally to restrictions on the use of the Facilities financed with proceeds of the Tax-Exempt Bonds, arbitrage limitations, and rebate of certain excess investment earnings, if any, to the federal government. Failure to comply with such covenants could cause interest on the Tax-Exempt Bonds to become subject to federal income taxation retroactive to the date of issuance of the Tax-Exempt Bonds. Constitutional Provisions Affecting Revenues and Spending TABOR In the November 3, 1992 general election, the voters of the State approved an amendment to the Colorado Constitution, Article X, Section 20, which imposes certain spending, revenue and other limitations upon the State and its political subdivisions (including the District and the Charter School). One of the subsections of Article X, Section 20 limits the maximum annual percentage change in the District's and the Charter School's fiscal year spending to an amount equal to inflation in the prior calendar year plus annual population growth, adjusted for changes approved by voters after See "EXHIBIT A CHARTER SCHOOLS IN COLORADO TABOR." The Lease is subject to annual appropriation by the Charter School. There can be no assurances that Article X, Section 20 spending limitations would not impede the ability of the Charter School to make such appropriation. In addition, Article X, Section 20, contains many undefined or unclear terms and provisions which will require judicial interpretation or legislative action to clarify. Although certain clarifying judicial interpretations and legislative action have already occurred, the effect upon the Bonds of any future interpretations or actions is impossible to determine at this time. Amendment 23 In the November 7, 2000 general election, the voters of the State approved an amendment to the Colorado Constitution, Article IX, Section 17, which is commonly known as "Amendment 23." Generally, Amendment 23: (i) increases per pupil funding for public schools and total state funding for special purpose education programs by at least the rate of inflation plus one percentage point for ten years (through fiscal year ) and by at least the rate of inflation thereafter, (ii) requires state aid under the Public School Finance Act to increase by at least five percent annually if personal income grows by at least 4.5%, (iii) sets aside a portion of the State's income tax revenue, requires that it be deposited into a State Education Fund, and permits monies from the State Education Fund to be used to meet certain of the funding requirements of Amendment 23 and (iv) exempts money in the State Education Fund from the revenue and spending limits established under Article X, Section 20 of the State Constitution. See "EXHIBIT A CHARTER SCHOOLS IN COLORADO AMENDMENT 23." 10

14 As a means of implementing Amendment 23, in April, 2001, the Colorado General Assembly amended the Public School Finance Act to increase the statutory requirements imposed on State school districts to fund charter schools, and provided additional sources of State revenue for school districts to meet such requirements. One of the amendments to the Public School Finance Act provides capital funding monies for charter schools. There can be no assurance, however, that such monies will continue to be provided in the future. Vouchers The Charter Schools Act was passed by the Colorado General Assembly in 1993 and was intended to foster educational reform in the State's public schools. Prior and subsequent to the adoption of the Charter Schools Act, the State's voters have repeatedly rejected various "voucher" initiatives that have been proposed from time to time. Under the proposed "voucher" plans, State money targeted for public schools would have been given to parents in the form of vouchers, which could be applied toward the cost of sending children to any public, private or parochial school in the State. Adoption of a "voucher" plan could adversely impact the operation of charter schools in the State. The Financial Guaranty Insurer CIFG Assurance North America, Inc. (the "Financial Guaranty Insurer") will issue the Financial Guaranty Insurance Policy pursuant to which it will unconditionally guarantee the payment of principal of and interest on the Bonds when due. The ongoing stability and financial condition of the Financial Guaranty Insurer and the Financial Guaranty Insurer's ability to pay the principal of and interest on the Bonds and otherwise perform its obligations under the Financial Guaranty Insurance Policy are the basis for the rating assigned to the Bonds as set forth on the cover page hereof. Upon the occurrence and continuation of an event of default under the Indenture, proceeds of claims under the Financial Guaranty Insurance Policy are the Bondholder's primary expected source of payment of principal and interest on the Bonds. See "THE BONDS Financial Guaranty Insurance" and "RATINGS" herein. Pursuant to the terms of the Indenture and the Financial Guaranty Insurance Policy, so long as the Financial Guaranty Insurer has honored its obligations under the Financial Guaranty Insurance Policy, the Financial Guaranty Insurer has the ability under the Indenture to control certain remedies upon an event of default under the Indenture. In addition, the Financial Guaranty Insurer is given certain consent, notice, and approval rights that the owners of the Bonds will not enjoy. Secondary Market There is no guarantee that a secondary trading market will develop for the Bonds. Consequently, prospective bond purchasers should be prepared to hold their Bonds to maturity or prior redemption. Subject to applicable securities laws and prevailing market conditions, the Underwriters intend but are not obligated to make a market in the Bonds. Risk of Loss from Nonpresentment upon Redemption The rights of the registered owners of the Bonds to receive interest will terminate on the date, if any, on which the Bonds are to be redeemed pursuant to a call for redemption, notice of which has been given under the terms of the Indenture. General THE BONDS The Bonds will be dated as of their date of delivery, will be issued in the aggregate principal amounts and will bear interest at the rates and mature on the dates, subject to redemption as described below, set forth on the inside front cover page hereof. The Bonds will be issuable as fully registered bonds without coupons in denominations of $5,000 or any integral multiple thereof. Interest on the Bonds is payable semiannually on June 15 and December 15 of each year, commencing on December 15, 2006 (each an "Interest Payment Date"), by check or draft mailed to the registered owners of the Bonds (initially Cede & Co.). The principal and premium, if any, of the Bonds shall be payable, without exchange or collection charges, in lawful currency of the United States of America. 11

15 Interest on the Bonds will be computed on the basis of a year of 360 days of 12 months of 30 days each until payment of principal has been made or provided for, payable on each Interest Payment Date, except that Bonds which are reissued upon transfer, exchange or other replacement will bear interest from the most recent Interest Payment Date to which interest has been paid or duly provided for, or if no interest has been paid, from the date of the Bonds. Except in the case of overdue interest, the record date for interest due will be the 15th day of the month preceding any Interest Payment Date. Interest which is due and payable on any Interest Payment Date, but cannot be paid on such date from available sources, ceases to be payable to the registered owner otherwise entitled thereto as of such date. At such time as sufficient funds are available for the payment of such overdue interest, the Trustee is required to establish a special payment date and a Special Record Date in respect thereof. The Trustee is required to mail a notice specifying each date so established to each registered owner of the Bonds, such notice to be mailed at least 10 days prior to the Special Record Date. Prior Redemption Optional Redemption The Tax-Exempt Bonds maturing on or after June 15, 2016 are subject to redemption by the Authority upon the direction of the Corporation on June 15, 2015 and on any date thereafter, as a whole or in part and at any time at a redemption price equal to the principal amount of such Tax-Exempt Bonds being redeemed and accrued interest to the redemption date. The Taxable Bonds are not subject to optional redemption prior to maturity. No Partial Redemption in Event of Default Notwithstanding any redemption provision set forth in the Indenture, the Bonds are not subject to partial redemption pursuant to the optional redemption provisions described in the prior paragraph if an Event of Default has occurred under the Indenture and has not been cured or otherwise waived by the Trustee. Mandatory Sinking Fund Redemption The Tax-Exempt Bonds maturing on June 15, 2023 are subject to mandatory Sinking Fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date. As and for a Sinking Fund for the redemption of Tax-Exempt Bonds maturing on June 15, 2023, there shall be deposited pursuant to the Loan Agreement into the Bond Principal Fund and Bond Interest Fund a sum which is sufficient to redeem the following principal amounts of such Bonds: June 15 of the Year Principal Amount 2021 $355, , ,000 Final Maturity 12

16 The Tax-Exempt Bonds maturing on June 15, 2026 are subject to mandatory Sinking Fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date. As and for a Sinking Fund for the redemption of Tax-Exempt Bonds maturing on June 15, 2026, there shall be deposited pursuant to the Loan Agreement into the Bond Principal Fund and Bond Interest Fund a sum which is sufficient to redeem the following principal amounts of such Bonds: June 15 of the Year Principal Amount 2024 $410, , ,000 Final Maturity The Tax-Exempt Bonds maturing on June 15, 2031 are subject to mandatory Sinking Fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date. As and for a Sinking Fund for the redemption of Tax-Exempt Bonds maturing on June 15, 2031, there shall be deposited pursuant to the Loan Agreement into the Bond Principal Fund and Bond Interest Fund a sum which is sufficient to redeem the following principal amounts of such Bonds: June 15 of the Year Principal Amount 2027 $470, , , , ,000 Final Maturity The Tax-Exempt Bonds maturing on June 15, 2036 are subject to mandatory Sinking Fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date. As and for a Sinking Fund for the redemption of Tax-Exempt Bonds maturing on June 15, 2036, there shall be deposited pursuant to the Loan Agreement into the Bond Principal Fund and Bond Interest Fund a sum which is sufficient to redeem the following principal amounts of such Bonds: June 15 of the Year Principal Amount 2032 $585, , , , ,000 Final Maturity 13

17 Extraordinary Redemption The Bonds are subject to extraordinary redemption upon the direction of the Corporation, in whole at any time or in part on any Interest Payment Date at a redemption price equal to the principal amount of the Bonds to be redeemed plus accrued interest thereon to the redemption date upon the occurrence of any of the following events: (a) The Facilities shall have been damaged or destroyed, in whole or in part, to such extent that, as expressed in a consulting architect's certificate filed with the Trustee, (i) the Facilities cannot reasonably be restored within a period of six consecutive months to the condition thereof immediately preceding such damage or destruction, (ii) the Corporation is thereby prevented from carrying on its normal operations for a period of six consecutive months or (iii) the cost of restoration thereof would exceed the net proceeds of insurance carried thereon pursuant to the requirements of the Loan Agreement. (b) Title to or the temporary use of, all or any substantial part of the Facilities shall have been taken under the exercise of the power of eminent domain by any governmental authority or person, firm or corporation acting under governmental authority or because of a defect in title. (c) As a result of any changes in the Constitution of the State or the Constitution of the United States of America or of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after the contest thereof by the Corporation in good faith, the Loan Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed in the Loan Agreement or unreasonable burdens or excessive liabilities shall have been imposed on the Corporation in respect to the Facilities, including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Loan Agreement. Redemption pursuant to this subsection (c) shall be in whole only. Only Net Proceeds of insurance or of a condemnation award may be used for a partial redemption of Bonds pursuant to subsections (a) or (b) above. Notice of Redemption The Trustee is required to cause notice of the call for redemption to be given not less than 30 days prior to the applicable redemption date by mailing by first-class mail a copy of the notice to the registered owners of the Bonds designated for redemption in whole or in part at its address as the same shall last appear upon the registration books; 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 Bonds. Each notice of redemption is required to specify the date fixed for redemption, the applicable redemption price or prices, the place or places of payment, that payment will be made upon presentation and surrender of the Bonds to the Trustee 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 will specify the numbers of the Bonds or portions thereof to be redeemed. Acceleration Upon the occurrence of certain events, payment of the principal of and accrued interest on the Bonds may be accelerated under the Indenture. See "EXHIBIT D DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT, THE INDENTURE AND THE LEASE Remedies on Events of Default." 14

18 PLAN OF FINANCE The proceeds of the Bonds will be used for the following purposes: (i) to finance the refunding of the principal of a bank loan (the "Bank Loan"); (ii) to make a yield reduction payment in connection with the refunding of the Bank Loan; (iii) to pay a portion of the cost of constructing and improving additional educational facilities (the "Additional Facilities"); (iv) to fund a Bond Reserve Fund; and (v) to pay the costs of issuing the Bonds (collectively, the "Project"). Refunding A portion of the proceeds of the Bonds will be used for a current refunding of the Bank Loan. The Bank Loan financed a portion of the cost of constructing and improving the Additional Facilities, and financed the advance refunding of a portion of the Authority's Charter School Revenue Refunding Bonds, Series 2003C (the "Series 2003 Bonds"). The proceeds of the Bank Loan were deposited in an Escrow Account (the "Escrow Account") created pursuant to an Escrow Agreement, dated as of July 1, 2006 (the "Escrow Agreement"), by and between the Corporation and American National Bank, Denver, Colorado, as escrow agent thereunder (the "Escrow Agent"). Monies in the Escrow Account were used to acquire certain direct obligations of the United States Treasury ("Government Obligations"). The principal of and interest on the Government Obligations, together with any beginning cash balance held therein, are sufficient to pay the regularly scheduled principal of and interest on the Series 2003 Bonds through June 15, 2013, and to redeem the Series 2003 Bonds at a redemption price of 100% of the principal amount thereof on such date. Causey Demgen & Moore Inc., Denver, Colorado, Certified Public Accountants, verified the accuracy of the mathematical computations of the adequacy of cash and securities held in the Escrow Account, together with the interest to be earned thereon, to pay the principal of and interest on the Series 2003 Bonds, and relevant yield computations. Because the yield on the Bonds is less than the yield on the Government Obligations held in the Escrow Account, a portion of the proceeds of the Bonds will be used to make a "yield reduction" payment required relevant provisions of the Code. Facility Improvements The Charter School is in the process of expanding from its Existing Facilities in several anticipated phases. A portion of the proceeds of the Bank Loan financed a portion of the first phase of such expansion, including the acquisition of an approximately 21 acre site, related site preparation and water and sewer utility installation, access roads and a parking lot, and the acquisition of a modular classroom building. A portion of the proceeds of the Bonds will be used to finance remaining costs associated with the first phase of such expansion, including site preparation and water and sewer utility installation, acquisition of a second modular classroom building, and construction of a gymnasium. For more information on these improvements, and the Charter School's expansion plans, see "EXHIBIT B THE CORPORATION AND THE CHARTER SCHOOL Charter School Facilities and Planned Expansion." Sources and Uses of Funds The following table sets forth anticipated sources and uses of funds: Sources Par Amount of Tax-Exempt Bonds $11,560, Par Amount of Taxable Bonds 110, Net Original Issue Discount (37,855.65) Project Funds on Hand 46, $11,679, Uses Current Refunding of Bank Loan $ 5,142, Yield Reduction Payment 59, Project Fund 5,177, Bond Reserve Fund 733, Costs of Issuance, Including Bond Insurance and Underwriter's Discount 566, $11,679,

19 SECURITY FOR THE BONDS General The Bonds constitute special, limited obligations of the Authority and except to the extent payable from Bond proceeds and investment income, are payable solely from certain payments, revenues and other amounts derived by the Authority pursuant to the Loan Agreement. The Bonds will be secured by (a) a pledge of certain rights of the Authority under and pursuant to the Loan Agreement, (b) a pledge of the Funds and Revenues (other than the Rebate Fund) and all trust accounts created under the Indenture and (c) an assignment of the Authority's mortgage on the Facilities and security interest in certain Pledged Revenues of the Corporation to the extent permitted by law. Payments from the Charter School to the Corporation under the Lease will be the Corporation's sole expected source of Pledged Revenues and, as discussed below, payments under the Lease are subject to annual appropriation by the Charter School. The Bonds do not constitute the debt or indebtedness of the Authority within the meaning of any provision or limitation of the constitution or statutes of the State and shall never constitute or give rise to a pecuniary liability of the Authority or the State or a charge against the general credit or any taxing power of the Authority, the District or the State. The Authority has no taxing power. Except as provided in the Loan Agreement with respect to certain fees, expenses and indemnity rights of the Authority and the Trustee, recovery against the Corporation for any event of default under the Loan Agreement is limited to the Pledged Revenues granted by the Loan Agreement. The obligations of the Corporation under the Loan Agreement (subject to such exceptions) are not general obligations of the Corporation and neither the Trustee, the Authority nor the Registered Owners of the Bonds shall have any recourse to any property, funds or assets of the Corporation (other than the Pledged Revenues and the Facilities) with respect to such obligations. The description and summaries of the documents set forth below and in the Exhibits attached hereto do not purport to be comprehensive or definitive and reference is made to each document for the complete details of all terms and conditions. The Loan Agreement Under the Loan Agreement, the Authority agrees to issue the Bonds and to loan the proceeds thereof to the Corporation to finance the cost of the Project. The Corporation is obligated unconditionally, but only on the limited, non-recourse basis described below in this paragraph, to repay the loan in amount sufficient, together with available funds held under the Indenture, to provide for the timely payment of the principal of, premium, if any, and interest on the Bonds when due (whether by maturity, mandatory sinking fund redemption or acceleration) and to perform certain other obligations set forth therein. Except as provided in the Loan Agreement with respect to certain fees, expenses and indemnity rights of the Authority and the Trustee, recovery against the Corporation for any event of default under the Loan Agreement is limited to the Pledged Revenues granted by the Loan Agreement. The obligations of the Corporation under the Loan Agreement, subject to such exceptions, are not general obligations of the Corporation and neither the Trustee, the Authority nor the registered owners of the Bonds shall have any recourse to any property, funds or assets of the Corporation, if any (other than the Pledged Revenues and the Facilities), with respect to such obligations. The Authority will assign certain of its rights and interests in the Loan Agreement, including certain of its rights to receive certain payments thereunder and certain of its rights and interests in the Pledged Revenues (subject to Permitted Encumbrances) to the Trustee for the benefit of the registered owners of the Bonds under the Indenture. Pursuant to the terms of the Loan Agreement, the Corporation will grant to the Authority a security interest, within the meaning of the Colorado Uniform Commercial Code and to the extent permitted by law, in the Pledged Revenues and all of its right, title and interest, if any, in the Funds (other than the Rebate Fund) and in certain accounts referred to in the Loan Agreement or in the Indenture, subject to Permitted Encumbrances. The security interests created by the Indenture and the Loan Agreement are for the equal and ratable benefit of the Bonds. As to certain components of the Pledged Revenues, the security interest will not be perfected. See "EXHIBIT D DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE, THE LOAN AGREEMENT AND THE LEASE." 16

20 Pledged Revenues Pledged Revenues are defined in the Loan Agreement as all revenues, rentals, fees, third-party payments, receipts, donations, contributions or other income derived from the Facilities, including the rights to receive such revenues (each subject to Permitted Encumbrances), all as calculated in accordance with sound accounting practices, including, but not limited to, any revenues received from rentals of the Facilities, including, without limitation, rentals received pursuant to the Lease; proceeds derived from insurance, condemnation proceeds, accounts, contract rights and other rights and assets, whether now or hereafter owned, held or possessed by the Corporation which are derived from the Facilities; and all gifts, grants, bequests and contributions (including income and profits therefrom) specifically restricted by the donor or maker thereof to the Facilities, to the extent not specifically restricted by the donor or maker thereof to a particular purpose inconsistent with their use for any of the payments required under the Loan Agreement. Pledged Revenues shall not, however, include any administrative fee paid to the Corporation by a lessee of the Facilities for the Corporation's administration of the Facilities, including, without limitation, the supplemental rent paid to the Corporation pursuant to the Lease. See "RISK FACTORS Nonrecourse Obligation." The Lease The expected source of Pledged Revenues for the repayment of the Bonds are amounts appropriated and allocated for rental payments under the Lease, which are subject to annual appropriation by the Charter School. The Lease provides for payments from the Charter School to the Corporation which, if paid when due, will be sufficient to pay the principal of and interest on the Bonds and all other amounts payable by the Corporation under the Loan Agreement. The Charter School's primary source of funding is the Per Pupil Revenue ("PPR") due to the Charter School under the Charter and the Charter Schools Act, from amounts appropriated for the purpose by the Colorado legislature. See "EXHIBIT A CHARTER SCHOOLS IN COLORADO CHARTER SCHOOLS ACT." It is anticipated that such amounts received by the Charter School will be sufficient to allow it to make the required payments under the Lease and the cost of operating, insuring and maintaining the Facilities. The Charter School will lease all of the Facilities pursuant to the Lease for a term commencing upon the issuance and delivery of the Bonds and running until the Lease is terminated or not renewed upon the earliest of any of the following events: (a) June 30 of any Fiscal Year during which there has occurred an Event of Nonappropriation under the Lease, (b) an Event of Default and termination of the Lease by the Trustee, or (c) discharge of the Indenture. The Charter School has no option to purchase the Facilities. Pursuant to the Loan Agreement, the Corporation covenants and agrees to transfer and convey fee simple title and its ownership interest in the Facilities to the Charter School at such time as the Bonds are no longer outstanding. Pursuant to the Lease, the Facilities will be maintained by the Charter School. Under certain conditions, the Charter School has the ability in the Lease to make capital improvements to the Facilities. The Charter School is required to provide insurance with respect to the Facilities which is similar to some of the insurance required in the Loan Agreement. Pursuant to the Lease and subject to certain conditions, the Charter School is permitted to sublet the Facilities with the consent of the Financial Guaranty Insurer, the Authority, the Corporation and the Trustee. The Charter School is not permitted to assign the Lease. The Charter School further agrees not to take any action which would adversely affect the excludability from gross income for federal income tax purposes of interest on the Tax-Exempt Bonds. In addition to the annual renewal right described above, the Charter School has the ability in the Lease to terminate the Lease upon certain events of condemnation or damage or destruction of the Facilities. Upon an Event of Default, the Corporation has the right to retake possession of the Facilities with or without terminating the Lease and to sue the Charter School (subject to the Charter School's right to not renew the Lease) for certain damages (less net proceeds, if any, from reletting the Facilities). State Treasurer Charter School Intercept Program Pursuant to the Lease, the Charter School is required to apply to the State Treasurer to request that the State Treasurer make payment of the Charter School's payments due under the Lease (representing debt service on the Bonds) directly to the Trustee, subject to annual appropriation by the Charter School. Such application may be made pursuant to Section , CRS, as amended (the "Charter Intercept Statute"). See "APPENDIX A CHARTER SCHOOLS IN COLORADO CHARTER SCHOOL CAPITAL FACILITIES FINANCING ACT State Charter School Intercept Program." The Charter School's application is expected to be filed with the Colorado State Treasurer prior to the first Interest Payment Date for the Bonds. 17

21 The Charter Intercept Statute shall not be construed to create a debt of the State or any State financial obligation whatsoever with respect to any bonds which qualify for direct payment pursuant to its provisions and no monies can otherwise be paid by the State Treasurer under the Charter Intercept Statute unless an allocable portion of the State share of total program funding which the Charter School is entitled to receive equals or exceeds the applicable amount of the respective payments which the State Treasurer is directed to make. Further, the Charter Intercept Statute shall not be construed to require the State to continue the payment of state assistance to any school district or to limit or prohibit the State from repealing or amending any law relating to the amount of State assistance to school districts or the manner or timing of the payment of such assistance. If direct payment of the Bonds is not made through the Charter Intercept Statute, the Charter School is required to make such payments pursuant to the Lease and the Corporation is required to take all necessary actions to assist the Authority in utilizing the Charter School Intercept Program pursuant to the Loan Agreement. The information set forth in this Official Statement has not been verified or approved by the State and the State has no responsibility with respect to any disclosure matters relating to the offer or sale of the Bonds. State Education Fund Capital Construction Monies Pursuant to Colorado Senate Bill enacted in 2001, qualified charter schools are eligible to receive additional funding for capital construction from the State Education Fund. Such monies may be used solely to construct, demolish, remodel, finance, purchase, or lease land, buildings or facilities used to educate pupils enrolled in or to be enrolled in the Charter School. However, capital funding for charter schools could be reduced or eliminated in future years. See "EXHIBIT A CHARTER SCHOOLS IN COLORADO PUBLIC SCHOOL FINANCE ACT OF 1994." In each year that the Charter School qualifies for and receives such monies from the State Education Fund, the Charter School covenants in the Lease to deposit said monies within three business days of their receipt to be applied to the payment of Base Rentals under the Lease. In the event of non-renewal of the Lease Term upon an Event of Nonappropriation, any monies deposited by the Charter School pursuant to such section of the Lease which are in excess of the amount necessary to pay the Base Rentals required pursuant to the Lease shall be returned by the Trustee to the Charter School within 30 days following the end of the Lease Term. See "RISK FACTORS Nonrenewal of the Lease." The Indenture The Bonds are to be issued pursuant to the Indenture and will be equally and ratably secured thereby and by an assignment of certain of the Authority's rights under the Loan Agreement. The Indenture provides that all Bonds issued thereunder shall be limited obligations of the Authority, payable solely from and secured solely by certain payments made by the Corporation under the Loan Agreement, the Pledged Revenues and the Funds (other than the Rebate Fund) established under the Indenture. As security for its obligations under the Indenture, the Authority will assign to the Trustee certain payments of the Corporation received or receivable by the Authority pursuant to the Loan Agreement, certain of its rights and interests in the Pledged Revenues and its rights and interests in all Funds (other than the Rebate Fund) held by the Trustee under the Indenture and all income derived from the investment of such funds. The registered owners of the Bonds and the Trustee will have a mortgage lien on the Facilities, and are also entitled to the benefit of a covenant by the Corporation not to further encumber the Facilities other than for certain Permitted Encumbrances. See "EXHIBIT D DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT, THE INDENTURE AND THE LEASE." Bond Reserve Fund The Indenture provides for the creation of the Bond Reserve Fund in the custody of the Trustee which Bond Reserve Fund is to be used (subject to any required rebate of investment earnings thereon to the United States of America) solely for the payment of principal of premium, if any, and interest on the Bonds in the event that monies in the Bond Principal Fund and Bond Interest Fund are insufficient to make such payments when due, whether on an Interest Payment Date, redemption date, mandatory sinking fund redemption date, maturity date or otherwise. 18

22 Upon the issuance of the Bonds, there shall be deposited into the Bond Reserve Fund, from proceeds of the Bonds, an aggregate amount equal to $733, (representing the initial Bond Reserve Requirement). The Bond Reserve Fund shall be maintained in an amount equal to the Bond Reserve Requirement. The Corporation may at any time substitute (a) cash or Investment Obligations for a reserve fund insurance policy or (b) a reserve fund insurance policy for cash or Investment Obligations, upon compliance with certain provisions of the Loan Agreement. The Corporation may direct the Trustee as to the priority of use of cash, Investment Obligations or a reserve fund insurance policy on deposit in the Bond Reserve Fund. Any reserve fund insurance policy must be issued by an entity having a rating in one of the two highest rating categories assigned by any nationally recognized rating agency. See "EXHIBIT D DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT, THE INDENTURE AND THE LEASE THE INDENTURE Bond Reserve Fund" for a description of terms and provisions of the Indenture applicable to the Bond Reserve Fund. Charter School Debt Reserve Fund Program The Authority, the Charter School, the Corporation and the Trustee intend to and shall take all actions necessary to utilize the Colorado Charter School Debt Reserve Fund Program. That program was created by the Charter School Capital Facilities Financing Act, which established the Charter School Debt Reserve Fund (the "CSDRF"). The CSDRF is funded with (i) $1 million appropriated by the State; (ii) monies credited to the interest savings account of the CSDRF (and interest and income derived from the investment of such monies); and (iii) amounts transferred from the State Education Fund to the CSDRF that may be withheld, under certain conditions, by the State Treasurer to the extent necessary to restore the CSDRF to a $1 million balance. See "EXHIBIT A CHARTER SCHOOLS IN COLORADO Charter School Capital Facilities Financing Act State Charter School Debt Reserve Fund Program." For its participation in the Charter School Debt Reserve Program, the Charter School is required to pay to the State Treasurer, for credit to the interest savings account of the CSDRF, an amount equal to 10 basis points of the principal amount of the Bonds outstanding, on an annual basis (payable in monthly installments). If amounts in the Bond Reserve Fund are not sufficient to pay the principal and interest on the Bonds when due and the Charter School is unable to make such payments, and if the Charter School has made the required payments described in the prior paragraph, then amounts in the CSDRF are expected to be available to apply toward the payment of such principal and interest. If the State Treasurer expends monies in the CSDRF in excess of monies in the interest savings account, then the State Treasurer is required to withhold charter school per pupil facilities aid program monies from charter schools to the extent necessary to restore the CSDRF to the $1 million balance. See "EXHIBIT A CHARTER SCHOOLS IN COLORADO Charter School Capital Facilities Financing Act State Charter School Debt Reserve Fund Program." Charter School Moral Obligation Program The Authority, the Charter School, the Corporation and the Trustee intend to and shall take all actions necessary to utilize the Colorado Charter School Moral Obligation Program. Under that program, if the Charter School were to draw upon and fail to immediately restore the Bond Reserve Fund to the Bond Reserve Requirement, then the Authority must submit to the Governor a certificate certifying the amount necessary to restore the Bond Reserve Fund to the Bond Reserve Requirement. The Governor must then submit a request for appropriations in an amount sufficient to restore the Bond Reserve Fund to the Bond Reserve Requirement to the general assembly, which may but is not required to appropriate monies for such purpose. If, in its sole discretion, the general assembly appropriates such monies, the aggregate amount of bonds for which monies may be appropriated for said purpose may not exceed $400,000,000. For additional information, see "EXHIBIT A CHARTER SCHOOLS IN COLORADO Charter School Capital Facilities Financing Act State Charter School Moral Obligation Program." 19

23 Financial Guaranty Insurance Policy The Financial Guaranty Insurer has committed to issue, effective as the date of issuance of the Bonds, a non-cancelable policy of insurance which guarantees the payment of the principal of and interest on the Bonds when due. A specimen of the Financial Guaranty Insurance Policy is attached as "EXHIBIT G FORM OF FINANCIAL GUARANTY INSURANCE POLICY." The Financial Guaranty Insurer will issue the Financial Guaranty Insurance Policy pursuant to which it will unconditionally guarantee the payment of principal of and interest on the Bonds when due. The ongoing stability and financial condition of the Financial Guaranty Insurer and the Financial Guaranty Insurer's ability to pay the principal of and interest on the Bonds and otherwise perform its obligations under the Financial Guaranty Insurance Policy are the basis for the rating assigned to the Bonds as set forth on the cover page hereof. Upon the occurrence and continuation of an Event of Default under the Indenture, proceeds of claims under the Financial Guaranty Insurance Policy are expected to be the primary source of payment of the principal of and interest on the Bonds. See "THE FINANCIAL GUARANTY INSURER" and "RATINGS." Additional Bonds Additional Bonds secured by and payable solely from the Trust Estate may be issued in one or more additional series provided the following terms and conditions have been met: (a) (b) (c) (d) (e) (f) (g) Either (i) consent of the Financial Guaranty Insurer has been obtained, or (ii) the Additional Bonds are issued to pay costs of further construction, modifications and improvements on the Leased Property; the Trustee has received a certificate of an Authorized Representative of the Corporation to the effect that (i) the Corporation is not in default under the Loan Agreement or the Indenture, (ii) the Corporation is not aware of any Events of Default under the Loan Agreement or the Indenture and (iii) the requirements for additional Indebtedness of the Corporation as set forth in Section 8.13 of the Loan Agreement have been met; the Trustee has received a copy, duly certified by the Executive Director of the Authority, of the resolution adopted by the Authority authorizing the issuance of such Additional Bonds and the execution and delivery of a supplemental indenture, supplementing and amending the Indenture, which supplemental indenture shall not require the approval of the Registered Owners of the Bonds Outstanding, providing the date, interest rates and maturities of such Additional Bonds, options and requirements for redemption prior to maturity with respect to such Additional Bonds, deposit of proceeds to the various funds and accounts, including the Bond Reserve Fund, and such other terms as may be required by reason of the foregoing and which adopts the applicable provisions of the Indenture, and of an agreement supplementing and amending the Loan Agreement; the Authority and the Trustee have received an opinion of nationally recognized municipal bond counsel to the effect that the issuance of such Additional Bonds will not affect adversely the exclusion from gross income for federal income tax purposes of interest on any tax-exempt Outstanding Bonds; the Trustee has received original executed counterparts of the agreement supplementing and amending the Loan Agreement, and the supplemental indenture supplementing and amending the Indenture; the Trustee has received a request and authorization to the Trustee on behalf of the Authority and signed by its Executive Director or any other Authorized Representative of the Authority to authenticate and deliver such Additional Bonds to the purchasers therein identified, upon payment to the Trustee, but for the account of the Authority, of a sum specified in such request and authorization, plus accrued interest thereon, if any, to the date of delivery; the Trustee will receive from the proceeds of the Additional Bonds or otherwise on the date of delivery of the Additional Bonds an amount equal to the additional Bond Reserve Requirement for deposit into the Bond Reserve Fund; 20

24 (h) (i) the Authority and the Trustee have received an executed opinion of nationally recognized municipal bond counsel to the effect that (i) the Additional Bonds have been duly authorized, executed and delivered and constitute the binding limited obligations of the Authority, enforceable in accordance with their terms, subject to normal bankruptcy exceptions, and (ii) the interest on such Additional Bonds is excluded from gross income for federal income tax purposes (unless it is intended that such interest be taxable); and the Base Rentals, as recalculated by the Trustee pursuant to Section 6.02(a) of the Lease, shall be equal to the amounts necessary to make the principal, premium, if any, and interest payments on the Bonds and the Additional Bonds when due. Limitations on Incurrence of Additional Indebtedness Pursuant to the Loan Agreement, the Corporation may not incur any additional Indebtedness secured in whole or in part by the Facilities or the Pledged Revenues, except under the conditions provided in the Loan Agreement as summarized below: (a) (b) The Corporation shall be precluded from incurring additional Indebtedness secured by Liens on the Facilities or the Pledged Revenues which are senior to the mortgage on the Facilities and the security interest in the Pledged Revenues granted by the Loan Agreement. So long as the Lease is in effect, the Corporation may, with the written consent of the Financial Guaranty Insurer (provided, however, that no such Financial Guaranty Insurer consent shall be required in connection with Additional Bonds issued to pay costs of further construction, modifications and improvements on the Leased Property) and/or the Charter School and written confirmation by the Trustee that the requirements regarding issuance of Additional Bonds (under Section 2.11 of the Indenture) have been met, incur additional Indebtedness secured in whole or in part by a mortgage on the Facilities and a security interest in the Pledged Revenues on a parity with amounts secured by the mortgage on the Facilities and the security interest in the Pledged Revenues granted by the Loan Agreement if either: (i) (ii) the Net Revenue for the School Year for which a budget has been adopted by the Board and submitted to the State and/or the Authorizer must be sufficient to pay an amount representing not less than 120% of the combined Maximum Annual Debt Service for outstanding Long-Term Indebtedness and the Long-Term Indebtedness proposed to be incurred; or the combined Maximum Annual Debt Service for outstanding Long-Term Indebtedness and the Long-Term Indebtedness proposed to be incurred must be less than 10% of the Pledged Revenues for the School Year for which a budget has been adopted by the Board and submitted to the State and/or the Authorizer. (c) The Corporation may enter into interest rate swaps, caps, collars, options, floors, forward or other hedging agreements, arrangements or security, however denominated, with respect to outstanding Indebtedness as long as such agreements or arrangements qualify as a Financial Products Agreement. Indebtedness subordinate to the obligations of the Corporation under the Indenture and liens on the Facilities, Pledged Revenues or other assets of the Corporation securing such subordinate indebtedness, so long as the same are subordinate to the obligations under the Indenture, are permitted by the Indenture. Reserve and Working Capital Covenants The Charter School covenants and agrees to maintain the reserves set forth below. (a) an unrestricted working capital balance in its operating fund which equals not less than an amount calculated as a percentage of Operating Expenses for the prior Fiscal Year as follows: (i) Such percentage shall be 5.0% for any Renewal Term Fiscal Year if, in the Fiscal Year immediately preceding such Renewal Term, the total of the Maximum Annual Debt Service plus any similar lease-purchase or loan payment obligations of the Charter School, excluding Short- Term Debt, were equal to or less than 10% of Gross Revenue; 21

25 (ii) (iii) Such percentage shall be 7.5% for any Renewal Term Fiscal Year if, in the Fiscal Year immediately preceding such Renewal Term, the total of the Maximum Annual Debt Service plus any similar lease-purchase or loan payment obligations of the Charter School, excluding Short- Term Debt, were greater than 10% and equal to or less than 15% of Gross Revenue; and Such percentage shall be 10% for any Renewal Term Fiscal Year if, in the Fiscal Year immediately preceding such Renewal Term, the total of the Maximum Annual Debt Service plus any similar lease-purchase or loan payment obligations of the Charter School, excluding Short- Term Debt, were greater than 15% of Gross Revenue; (b) (c) emergency reserves in the amount required under Article X, Section 20(5) of the Colorado Constitution; and cumulative unrestricted cash reserves sufficient to meet all accrued and unrestricted salary obligations of the Charter School; provided however, such amount may be included in the unrestricted working capital balance required pursuant to subparagraph (a) above. Such reserve balances required above shall be tested on July 1 of each year and shall be based upon the results of the Charter School only, without regard to the impact of its component unit the Corporation. The Charter School shall provide the Trustee with a Certification no later than the earlier of November 1 or two weeks after the completion of the Charter School's audit for each year that the reserve fund balances required above have been met. Repair and Replacement Fund There shall be deposited into the Repair and Replacement Fund as and when received (a) all payments by the Corporation pursuant to Section 5.02(g) of the Loan Agreement, (b) all other monies deposited into the Repair and Replacement Fund pursuant to the Loan Agreement or the Indenture, and (c) all other monies received by the Trustee when accompanied by directions not inconsistent with the Loan Agreement or the Indenture that such monies are to be paid into the Repair and Replacement Fund. There shall also be retained in the Repair and Replacement Fund, interest and other income received on investment of monies in the Repair and Replacement Fund to the extent provided in the Indenture. Any amounts on deposit in the Repair and Replacement Fund in excess of the Repair and Replacement Fund Requirement shall be transferred by the Trustee to the Bond Interest Fund and applied to the payment of the interest on the Bonds; provided, however, that the amount remaining in the Repair and Replacement Fund immediately after such transfer shall not be less than the Repair and Replacement Fund Requirement. [The balance of this page left intentionally blank] 22

26 Debt Service Requirements Set forth in the following table are the debt service requirements for the Bonds. Debt Service Requirements Period Ending June 30 Principal Interest Annual Total 2007 $ - $ 365, $ 365, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 90, , ,000 61, , ,000 31, , Total: $11,670,000 $9,674, $21,344, General CONSTRUCTION CONTRACTS In connection with the new construction included as part of the Project to be financed with proceeds of the Bonds, the Charter School has entered into a guaranteed maximum price contract (in the form of American Institute of Architects Document A ) with Pioneer Sand Company, Inc., Colorado Springs, Colorado (the "Contractor") for site preparation, access roads and a parking lot, and water and sewer utility installation projects. In connection with the remaining new construction included as part of the Project (gymnasium projects), the Charter School expects to enter into a guaranteed maximum price construction contract with the Contractor (collectively, the "Construction Contracts"). Under the Construction Contracts, the Contractor will agree to construct the new construction included as part of the Project for a guaranteed maximum price equal to no more than the net proceeds of the portion of the Bonds allocated to such new construction (and estimated earnings thereon to the extent available for construction purposes). Payment and Performance Bonds; Permits In connection with the new construction included as part of the Project, the Charter School will deliver to the Trustee: (a) payment and performance bonds issued by a responsible bonding company licensed to do business in the State and rated at least "A" by S&P or A.M. Best Company, Inc., in an amount not less than the guaranteed maximum price under the Construction Contracts; and (b) as soon as possible following the closing for the Bonds and no later than such time as building permit is required by law, a copy of the building permit authorizing the construction of the relevant portions of the Project. 23

27 BOOK-ENTRY-ONLY SYSTEM The information in this section concerning The Depository Trust Company ("DTC") and DTC's book-entry-only system has been obtained from DTC, and the Authority, Corporation, Charter School, Trustee and Underwriters take no responsibility for the accuracy thereof. The Depository Trust Company, New York, New York ("DTC"), will act as securities depository for the Bonds. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC's partnership nominee). One fully-registered Bond certificate in typewritten form will be issued for each stated maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE BONDS, REFERENCES HEREIN TO BONDHOLDERS OR OWNERS OF THE BONDS (OTHER THAN UNDER THE CAPTION "TAX MATTERS" HEREIN) SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE BONDS. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation, (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 24

28 DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by providing reasonable notice. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository); in that event, the Bond certificates will be printed and delivered to the Participants for delivery to the Beneficial Owners. The information in this section concerning DTC and DTC's book entry system has been obtained from sources believed to be reliable, but neither the Authority, the Corporation nor the Charter School assume any responsibility for the accuracy thereof. THE AUTHORITY, THE CORPORATION, THE CHARTER SCHOOL, THE TRUSTEE AND THE UNDERWRITERS WILL HAVE NO RESPONSIBILITY OR OBLIGATION TO PARTICIPANTS OR THE BENEFICIAL OWNERS OF THE BONDS WITH RESPECT TO (i) THE ACCURACY OF ANY RECORDS MAINTAINED BY THE DEPOSITORY OR ANY PARTICIPANT; (ii) THE PAYMENT BY THE DEPOSITORY TO ANY PARTICIPANT OR BY ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT, OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (iii) THE DELIVERY OF ANY NOTICE BY THE DEPOSITORY TO ANY PARTICIPANT OR BY ANY PARTICIPANT TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED TO BE GIVEN TO BONDHOLDERS UNDER THE TERMS OF THE INDENTURE; (iv) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (v) ANY OTHER ACTION TAKEN BY THE DEPOSITORY AS OWNER OF THE BONDS. The information herein concerning DTC and DTC's book-entry system has been obtained from sources believed to be reliable, but the Authority, the Corporation, the Charter School and the Underwriters take no responsibility for the accuracy thereof, and neither Participants nor Beneficial Owners should rely on the foregoing information with respect to such matters. Instead, they should confirm the same with DTC or the Participants, as the case may be. There can be no assurance that DTC will abide by its procedures or that such procedures will not be changed from time to time. CIFG Assurance North America, Inc. THE FINANCIAL GUARANTY INSURER The information set forth in the following paragraphs has been provided by CIFG Assurance North America, Inc. ("CIFG" or the "Financial Guaranty Insurer") for inclusion in this Official Statement. CIFG does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding CIFG set forth under the heading "THE FINANCIAL GUARANTY INSURER." CIFG makes no representation regarding the Bonds or the advisability of investing in the Bonds. General CIFG is a monoline financial guaranty insurance company incorporated under the laws of the State of New York. The address of the principal executive offices of the Financial Guaranty Insurer is 825 Third Avenue, Sixth Floor, New York, New York 10022; its toll-free telephone number is (866) CIFG-212 and its general telephone number is (212) and its website is located at The Financial Guaranty Insurer is a member of the CIFG Group of financial guaranty companies, which also includes CIFG Europe, a French insurance company licensed to do business in the European Union, and CIFG Guaranty, a dedicated French reinsurance corporation. In addition to its capital and surplus as set forth below, the Financial Guaranty Insurer is supported by a net worth maintenance agreement from CIFG Guaranty, which provides that CIFG Guaranty will maintain the Financial Guaranty Insurer's New York statutory capital and surplus at no less than $80 million, and may cede a substantial portion (not to exceed 90%) of its exposure on each transaction to CIFG Guaranty through a facultative reinsurance agreement. Each of the Financial Guaranty Insurer, CIFG Europe and CIFG Guaranty has received an insurer financial strength rating of "AAA" from Fitch, an insurer financial strength rating of "Aaa" from Moody's, and an insurer financial enhancement rating of "AAA" from Standard and Poor's, the highest rating assigned by each rating agency. Each such rating should be evaluated independently. The ratings reflect the respective rating agency's current assessment of each company's capacity to pay claims on a timely basis and are not recommendations to buy, sell or hold the Bonds. Such ratings may be subject to revision or withdrawal at any time. 25

29 The Financial Guaranty Insurer is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York, its state of domicile, and is licensed to do business in 46 jurisdictions. The Financial Guaranty Insurer is subject to Article 69 of the New York Insurance Law which, among other things, limits the business of such insurers to financial guaranty insurance and related lines, requires that such insurers maintain a minimum surplus to policyholders, establishes contingency, loss and unearned premium reserve requirements for such insurers, and limits the size of individual transactions and the volume of transactions that may be underwritten by such insurers. Other provisions of the New York Insurance Law applicable to non-life insurance companies such as the Financial Guaranty Insurer regulate, among other things, permitted investments, payment of dividends, transactions with affiliates, mergers, consolidations, acquisitions or sales of assets and incurrence of liabilities for borrowings. Capitalization. The following tables set forth the capitalization of the Financial Guaranty Insurer on the basis of accounting principles generally accepted in the United States ("US GAAP") and statutory accounting practices prescribed or permitted by the New York State Insurance Department, respectively. US GAAP June 30, 2006 (in thousands of US dollars) US GAAP December 31, 2005 (in thousands of US dollars) Total Assets... $349,385 $324,134 Total Liabilities... $229,913 $202,042 Shareholder's Equity... $119,472 $122,092 Statutory Accounting Principles June 30, 2006 (in thousands of US dollars) Statutory Accounting Practices December 31, 2005 (in thousands of US dollars) Admitted Assets... $177,546 $ 175,333 Liabilities... $70,845 $66,758 Capital and Surplus... $106,701 $ 108,575 The following table sets forth the capitalization of CIFG Guaranty on the basis of US GAAP. US GAAP December 31, 2005 (in thousands of euros) (in thousands of US dollars) (1) Assets ,208 $ 871,634 Liabilities ,794 $ 232,995 Shareholder's Equity ,414 $ 638,639 (1) The translation of euros into dollars is presented solely for the convenience of the reader, using the observed exchange rate at December 31, 2005 of $ to The convenience translation should not be construed as representation that the euro amounts have been, could have been, or in the future could be, converted into U.S. Dollars at this or any rate of exchange. For further information concerning the Financial Guaranty Insurer and CIFG Guaranty, see the audited financial statements of both companies, including the respective notes thereto, prepared in accordance with US GAAP as of December 31, 2005 and 2004 and for each of the three years in the period ended December 31, 2005, and the unaudited interim financial statements of the Financial Guaranty Insurer as of June 30, 2006 and for the six-month period ended June 30, 2006, which are available on the CIFG Group's website at Copies of the most recent audited annual and unaudited interim financial statements of the Financial Guaranty Insurer prepared in accordance with accounting principles prescribed or permitted by the New York State Insurance Department, are also available on the website and may be obtained, without charge, upon request to the Financial Guaranty Insurer at its address above, Attention: Finance Department. 26

30 THE AUTHORITY The Authority, created in 1981, is an independent public body politic and corporate constituting a public instrumentality and political subdivision of the State. The Authority is not an agency of state government and is not subject to administrative direction by any department, commission, board or agency of the State. The Authority is authorized by the Act to provide financing for educational institutions and cultural institutions and to acquire, construct, reconstruct, repair, alter, improve, extend, own, lease and dispose of properties to the end that the Authority may be able to promote the welfare of the people of the State. The Authority was formerly known as the Colorado Postsecondary Educational Facilities Authority. The Authority has offered and plans to offer other obligations from time to time to finance other educational facilities and cultural institutions with respect to facilities located in Colorado and, subject to the satisfaction of certain requirements, other states. Such obligations have been and will be issued pursuant to and secured by instruments separate and apart from the Indenture. The Authority has not prepared or assisted in the preparation of this Official Statement except for statements relating to the Authority under the sections captioned "INTRODUCTION The Authority," "THE AUTHORITY" and "LEGAL MATTERS Pending and Threatened Litigation No Proceedings Against the Authority" and, except as aforesaid, the Authority is not responsible for any statements made in this Official Statement. Except for the execution and delivery of documents required to effect the issuance of the Bonds, the Authority has not otherwise assisted in the public offer, sale or distribution of the Bonds. Accordingly, except as aforesaid, the Authority disclaims any responsibility for the disclosures set forth in this Official Statement or otherwise made in connection with the offer, sale and distribution of the Bonds. The Bonds are limited obligations of the Authority payable solely from the payments made by the Corporation under the Loan Agreement and from the monies and securities held by the Trustee under the Indenture. Neither the Authority nor its directors or officers are personally liable with respect to the Bonds. Accordingly, no financial information with respect to the Authority or its directors or officers has been included in this Official Statement. In General LEGAL MATTERS All legal matters incident to the authorization, issuance, sale and delivery of the Bonds by the Authority are subject to the approving opinion of Kutak Rock LLP, Denver, Colorado, Bond Counsel, whose approving opinion will be delivered with the Bonds, and the proposed form of which is set forth in "EXHIBIT E FORM OF BOND COUNSEL OPINION." 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 Sherman & Howard L.L.C., Denver, Colorado, general counsel to the Authority, by Rothgerber, Johnson & Lyons LLP, Denver, Colorado, as counsel to the Corporation and the Charter School, and by Quarles & Brady LLP, Milwaukee, Wisconsin, as Underwriter's counsel. The various legal opinions to be delivered concurrently with the delivery of the 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. Certain fees paid to Bond Counsel, the Underwriters, the Trustee and the Financial Advisors for services rendered are contingent upon the issuance and delivery of the Bonds. Sovereign Immunity The Governmental Immunity Act, title 24, article 10, part 1, CRS, as amended (the "Governmental Immunity Act"), provides that, with certain specified exceptions, sovereign immunity acts as a bar to any action against a public entity, such as the Charter School, for injuries which lie in tort or could lie in tort. 27

31 The Governmental Immunity Act provides that sovereign immunity does not apply to injuries occurring as a result of certain specified actions or conditions. In such instances, the public entity may be liable for injuries arising from an act or omission of the public entity, or an act or omission of its public employees, which is not willful and wanton, and which occurs during the performance of a public employee's duties and within the scope of a public employee's employment. The maximum amounts that may be recovered under the Governmental Immunity Act, whether from one or more public entities and public employees, are as follows: (a) for any injury to one person in any single occurrence, the sum of $150,000; and (b) for an injury to two or more persons in any single occurrence, the sum of $600,000, except in such instance, no person may recover in excess of $150,000. Suits against both the Charter School and a public employee do not increase such maximum amounts which may be recovered. The Charter School may not be held liable either directly or by indemnification for punitive or exemplary damages. The Charter School may be subject to civil liability and may not be able to claim sovereign immunity for actions founded upon various federal laws. Examples of such civil liability include, but are not limited to, suits filed pursuant to 42 U.S.C. Section 1983 alleging the deprivation of federal constitutional or statutory rights of an individual. In addition, the Charter School may be enjoined from engaging in anti-competitive practices which violate the antitrust laws. However, the Governmental Immunity Act provides that it applies to any action brought against a public entity or a public employee in any Colorado state court having jurisdiction over any claim brought pursuant to any federal law, if such action lies in tort or could lie in tort. The Charter School seeks to limit its liability by promoting fair and equal employment practices and by complying with Colorado's Teacher Employment, Compensation, and Dismissal Act. Pending and Threatened Litigation No Proceedings Against the Corporation or the Charter School In connection with the issuance of the Bonds, the Corporation and the Charter School will deliver a certificate or certificates which will state that, as of the date of issuance of the Bonds, to the best of their knowledge, there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court, public board or body pending or threatened against or affecting the Corporation or the Charter School, wherein an unfavorable decision, ruling or finding would adversely affect the transactions contemplated by the Indenture, the Loan Agreement, the Lease, the bond purchase agreement (referred to in "MISCELLANEOUS Underwriting"), or this Official Statement, the validity and enforceability of the Indenture, the Loan Agreement, the Lease, the bond purchase agreement or the Bonds or the operations (financial or otherwise) of the Charter School. No Proceedings Against the Authority There is not now pending against the Authority or, to the knowledge of the Authority, threatened, any litigation against the Authority restraining or enjoining the issuance or delivery of the Bonds or questioning or affecting the validity of the Bonds or the proceedings or authority under which they are to be issued. There is no litigation pending against the Authority or, to the Authority's knowledge, threatened against the Authority which in any manner questions the right of the Authority to enter into the Loan Agreement with the Corporation or to issue and secure the Bonds in the manner provided in the Indenture. Federal Tax Matters The Tax-Exempt Bonds TAX MATTERS In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Tax-Exempt 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. The opinions described in the preceding sentence assume the accuracy of certain representations and compliance by the Authority, the Corporation and the Charter School with covenants designed to satisfy the requirements of the Code that must be met subsequent to the issuance of the Bonds. The Authority, the Corporation and the Charter School have covenanted to comply with such requirements. Failure to comply with such requirements could cause interest on the Tax-Exempt Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Tax-Exempt Bonds. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Tax-Exempt Bonds. 28

32 Notwithstanding Bond Counsel's opinion that interest on the 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 Bonds may otherwise affect the federal income tax liability of the owners of the 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 Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States of America), 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, or 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 Bonds. Bonds Purchased at an Original Issue Discount Certain of the Tax-Exempt Bonds are being sold at a discount (the "Discounted Tax-Exempt Obligations"). The difference between the initial public offering prices of the Discounted Tax-Exempt Obligations and their stated amounts to be paid at maturity or upon prior redemption, constitutes original issue discount treated as interest which is not includable in gross income for federal income tax purposes, subject to the caveats and provisions described above. In the case of an owner of a Discounted Tax-Exempt Obligation, the amount of original issue discount which is treated as having accrued with respect to such Discounted Tax-Exempt Obligation is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of a Discounted Tax-Exempt Obligation (including its sale, redemption or payment at maturity). Amounts received upon disposition of a Discounted Tax-Exempt Obligation 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 Discounted Tax-Exempt Obligation, on days which are determined by reference to the maturity date of such Discounted Tax-Exempt Obligation. The amount treated as original issue discount on a Discounted Tax- Exempt Obligation for a particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such Discounted Tax-Exempt Obligation (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such Discounted Tax-Exempt Obligation at the beginning of the particular accrual period if held by the original purchaser; and (b) less the amount of any interest payable for such Discounted Tax-Exempt Obligation during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discounted Tax-Exempt Obligation the sum of the amounts which have been treated as original issue discount for such purposes during all prior periods. If a Discounted Tax-Exempt Obligation 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. The Code contains additional provisions relating to the accrual of original issue discount in the case of owners of a Discounted Tax-Exempt Obligation who purchase such Discounted Tax-Exempt Obligations after the initial offering. Owners of Discounted Tax-Exempt Obligations including purchasers of the Discounted Tax-Exempt Obligations in the secondary market should consult their own tax advisors with respect to the determination for federal income tax purposes of original issue discount accrued with respect to such obligations as of any date and with respect to the state and local tax consequences of owning a Discounted Tax-Exempt Obligation. Bonds Purchased at an Original Issue Premium Certain of the Tax-Exempt Bonds are being sold at a premium (collectively, the "Premium Bonds"). An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes original issue premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over the term of such Premium Bond using constant yield principles based upon 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 upon the purchaser's yield to the call date and giving effect to any call premium). As premium is amortized, the amount of premium amortized in a period offsets a corresponding amount of the interest allocable to the payment period and the purchaser's basis in such Premium Bond is reduced by a corresponding amount resulting in the gain (or decrease in the loss) to be recognized for 29

33 federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even through 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. Changes in Federal Tax Law From time to time, there are legislative proposals in the Congress that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Tax-Exempt 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 Tax-Exempt Bonds should consult their tax advisors regarding any pending or proposed tax legislation. The opinions expressed by Bond Counsel are based upon existing legislation as of the date of issuance and delivery of the Bonds and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation. The Taxable Bonds In the opinion of Bond Counsel, under existing laws, regulations, rulings and judicial decisions, payments on the Taxable Bonds are not excluded from gross income for federal income tax purposes. Under Section 103 of the Code, Purchasers of the Taxable Bonds should consult their own tax advisors as to the consequences of purchasing or owning the Taxable Bonds. State Tax Matters In the opinion of Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Bonds is exempt from all taxation and assessments in the State. RATINGS Standard & Poor's Ratings Services, a division of the McGraw Hill Companies, Inc. ("S&P") has assigned the rating of "AAA" to the Bonds, with the understanding that, upon delivery of the Bonds, the Financial Guaranty Insurance Policy will be issued by the Financial Guaranty Insurer. S&P has also assigned the underlying rating of "A" to the Bonds, which is based on the inclusion of the Charter School in the State's Charter School Moral Obligation Program upon the provisions of the Charter School Facilities Financing Act. S&P has also assigned an underlying Standard and Poor's Underlying Rating ("SPUR") of "BBB-" to the Bonds, without giving effect the Charter School's inclusion in the Charter School Moral Obligation Program. Such ratings reflect only the views of S&P and any desired explanation of the significance of such ratings should be obtained from S&P at 55 Water Street, New York, New York Generally, rating agencies base their ratings on the information and materials furnished to them and on investigations, studies and assumptions of their own. There is no assurance that any such rating will continue for any given period of time or that any such rating will not be revised downward or withdrawn entirely by the rating agency, if, in the judgment of such agency, circumstances so warrant. Any such downward revision or withdrawal of any rating may have an adverse effect on the market price of the Bonds. Underwriting MISCELLANEOUS The Bonds are being sold by the Authority at an underwriting discount of $128, to the Underwriters pursuant to a bond purchase agreement entered into by and among the Underwriters, the Corporation, the Charter School and the Authority. Expenses associated with the issuance of the Bonds are being paid from proceeds of the Bonds. The right of the Underwriters to receive compensation in connection with the Bonds is contingent upon the actual sale and delivery of the Bonds. The Underwriters have initially offered the Bonds to the public at the prices set forth on the inside front cover page of this Official Statement. Such prices may subsequently change without any requirement of prior notice. The Underwriters reserve the right to join with dealers and other investment banking firms in offering the Bonds to the public. 30

34 Financial Advisors J. Berg Financial Advisors LLC, Colorado Springs, Colorado ("Berg Financial Advisors") is serving as financial advisor to the Corporation and the Charter School, and BD Advisors LLC, Denver, Colorado ("BD Advisors") is serving as financial advisor to the Authority in connection with the offering of the Bonds. Neither Berg Financial Advisors nor BD Advisors is obligated or has undertaken to make an independent verification or to assume responsibility for the accuracy or completeness of the information contained in this Official Statement. Registration of Bonds Registration or qualification of the offer and sale of the Bonds (as distinguished from registration of the ownership of the Bonds) is not required under the federal Securities Act of 1933, as amended, or the Colorado Securities Act, as amended. THE AUTHORITY ASSUMES NO RESPONSIBILITY FOR QUALIFICATION OR REGISTRATION OF THE BONDS FOR SALE UNDER THE SECURITIES LAWS OF ANY JURISDICTION IN WHICH THE BONDS MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED. Continuing Disclosure Agreement The Corporation and the Charter School will enter into and deliver a Continuing Disclosure Agreement (the "Continuing Disclosure Agreement"), with respect to the Bonds. The Continuing Disclosure Agreement is made for the benefit of the registered and Beneficial Owners (as defined in the Continuing Disclosure Agreement) of the Bonds and in order to assist the Underwriters in complying with their obligations pursuant to Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Rule"). See "EXHIBIT F FORM OF CONTINUING DISCLOSURE AGREEMENT." Pursuant to the Continuing Disclosure Agreement, the Corporation and the Charter School will agree to provide, or cause to be provided, annually to designated information repositories certain quantitative financial information and operating data of the type specified in the Continuing Disclosure Agreement (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 Rule), and of any failure to provide the Annual Report when due. The Continuing Disclosure Agreement does not require that information be provided to registered owners or Beneficial Owners of the Bonds, but rather requires only that such information be provided to certain information repositories. See "EXHIBIT F FORM OF CONTINUING DISCLOSURE AGREEMENT." Financial Statements The Charter School is audited as a component unit of the District. The District is audited by Johnson, Holscher & Company, PC, Certified Public Accountants, Greenwood Village, Colorado. The District's financial statements are prepared in accordance with generally accepted accounting principles, and are available upon request to the Underwriters. The Charter School has been audited in relation to the District as a whole. Attached as EXHIBIT C are financial statements relating to the Charter School, which have been excerpted from the District's financial statements. The Charter School's financial statements attached in EXHIBIT C are presented using the modified accrual basis of accounting in accordance with generally accepted accounting principles. See "EXHIBIT C CHARTER SCHOOL FINANCIAL STATEMENTS." The Charter School and the Corporation are not aware of any facts that would make such audited financial statements misleading. Additional Information Copies of constitutional provisions, statutes, resolutions, agreements, contracts, financial statements, reports, publications and other documents or compilations of data or information summarized or referred to herein are available as described in "INTRODUCTION Additional Information." 31

35 Official Statement Certification The preparation of this Official Statement and its distribution have been authorized by the Corporation and the Charter School. This Official Statement is not to be construed as an agreement or contract between the Corporation or the Charter School and any purchaser, owner or holder of any Bond. CHEYENNE MOUNTAIN CHARTER ACADEMY FOUNDATION By: /S/ Name: Mark Chabica Title: President CHEYENNE MOUNTAIN CHARTER ACADEMY By: /S/ Name: Mark Chabica Title: President 32

36 EXHIBIT A CHARTER SCHOOLS IN COLORADO INTRODUCTION This Exhibit summarizes certain provisions of Colorado charter school law. This Exhibit provides only a summary, and for informational purposes only; reference should be made to such provisions in their entirety for a complete understanding of their terms. Further, the provisions summarized below are subject to change by the Colorado Legislature and/or Colorado electors, and this summary only pertains to certain aspects of currently existing law. See "RISK FACTORS Future Changes to Charter School Laws" above. Various statutory provisions govern the creation, operation and financing of charter schools in Colorado. These provisions, which are described further below, derive from Acts which include: The Charter Schools Act, CRS , et seq., which includes, among others, provisions governing the legal status and organization of charter schools; their relationship to their chartering school districts; laws applicable to charter schools and related exemptions; charter school pupils, enrollment and tuition; the charter application process; charter terms and renewals; grounds for revocation or nonrenewal and a related appeal process; and charter school financing guidelines; The Public School Finance Act of 1994, Article 54 of Title 22, CRS, which includes, among others, provisions that: set forth a finance formula applicable to all school districts; define "per pupil revenues" (which applies to charter schools through the Charter Schools Act); and provide for use of State Education Fund monies for capital construction under certain conditions; and The Charter School Capital Facilities Financing Act, CRS , et seq., which includes, among others, provisions relating to the State Charter School Intercept Program, the State Charter School Debt Reserve Fund Program, and the State Moral Obligation Program. In addition to these statutory provisions, there are various Colorado constitutional provisions affecting revenues and spending relevant to Charter Schools, including a "TABOR" amendment to the Colorado Constitution, Article X, Section 20 and an amendment to the Colorado Constitution, Article IX, Section 17, which is commonly known as "Amendment 23." These statutory and constitutional provisions, as well as several questions which will appear on the November 2006 State ballot, are summarized, in turn, below. CHARTER SCHOOLS ACT (CRS , ET SEQ.) Legal Status; Relationship to Chartering School District (CRS ) In Colorado, a charter school is a public, nonsectarian, nonreligious, non-home-based school which operates within a public school district. Under Colorado law, a charter school is a public school of the school district that approves its charter application and enters into a charter contract with the charter school. The charter school is accountable to the school district's local board of education for purposes of ensuring compliance with applicable laws and charter provisions. The charter school itself, however, is responsible for its operations, including, but not limited to, preparation of a budget, contracting for services, facilities and personnel matters. Organization as a Nonprofit Corporation (CRS ) The Charter Schools Act contemplates that a charter school may organize as a nonprofit corporation pursuant to the Colorado Nonprofit Corporation Act (Articles 121 to 137 of title 7, CRS). Such organization does not affect the charter school's status as a public school for any purpose under Colorado law. Notwithstanding organization as a non-profit corporation, a charter school must annually complete a governmental audit that complies with the requirements of the Colorado department of education. A-1

37 Applicable Law; Exemptions (CRS ) Charter schools are subject to all federal and state laws and constitutional provisions prohibiting discrimination on the basis of disability, race, creed, color, gender, national origin, religion, ancestry, or need for special education services. Charter schools are subject to any court-ordered desegregation plan in effect for the chartering school district. The State Board of Education promulgates rules identifying state statutes and rules that are automatically waived for charter schools. A school district, on behalf of a charter school, may apply to the State board for a waiver of any state statute or state rule that is not automatically waived; but no waiver may be had with respect to certain statutes and rules pertaining to assessments required pursuant to CRS , accountability reports required pursuant to CRS , or any statute or rule necessary to implement the provisions of the Public School Finance Act of 1994 (Article 54 of Title 22, CRS) (the "Public School Finance Act") or the Children's Internet Protection Act (Article 87 of Title 22, CRS). Charter School Pupils; Enrollment; Tuition (CRS ) A majority of the pupils attending a charter school must reside in the school district which grants the school's charter, or in school districts contiguous thereto. Enrollment in a charter school must be open to any child who resides within the chartering school district; except that no charter school is required to make alterations in the structure of the facility used by the charter school or to make alterations to the arrangement or function of rooms within the facility, other than as may be required by state or federal law. Enrollment decisions must made in a nondiscriminatory manner specified by the charter school applicant in its charter school application. Charter schools may not charge tuition. Charter Application Process (CRS , ) In Colorado, a charter school application is a proposed agreement upon which the charter applicant and the chartering local school board of education negotiate a charter contract. A charter school application must include the elements required by CRS (1)(a) through (m), including its mission statement; performance standards; evidence of support from parents, teachers and pupils; educational program and curriculum; corrective action plan (in the event pupil performance falls below relevant achievement goals); a proposed budget and evidence that the plan for the charter school is economically sound; the proposed governance and operation of the school; employment policies; insurance coverages; plans regarding pupil transportation needs; proposed enrollment policies; and dispute resolution process. The charter applicant submits its application to the local board of education for review. Prior to consideration by the local board, the application is reviewed by a district accountability committee, whose composition is prescribed by statute. The local board is required to hold community meetings in affected areas or in the entire school district, and must rule by resolution on the application at a public hearing within 75 days of receiving the application. If the board denies the application, it must state its reasons for the denial, and the applicant may appeal to the State Board of Education. Charter Term and Renewals (CRS ) A new charter application that is approved must be approved for a period of at least three years, and may be approved for longer periods). A charter may be renewed for successive periods, and the governing body of a charter school seeking renewal must submit a renewal application no later than December first of the year prior to the year in which the charter expires. Nonrenewal or Revocation (CRS ) A charter may be revoked or not renewed by the chartering local board of education if the local board determines that the charter school did any of the following: a. Committed a material violation of any of the conditions, standards, or procedures set forth in its charter contract; b. Failed to meet or make reasonable progress toward achievement of the goals, objectives, content standards, pupil performance standards, applicable federal requirements, or other terms identified in the charter contract; A-2

38 c. Failed to meet generally accepted standards of fiscal management; or d. Violated any provision of law from which the charter school was not specifically exempted. If a local board of education revokes or does not renew a charter, the local board must state its reasons for the revocation or nonrenewal, and the decision to revoke or not to renew a charter may be appealed, or facilitation may be sought, pursuant to the provisions of CRS , as described further below. Appeal Procedures and Standard of Review (CRS ) The State Board of Education, upon receipt of a notice of appeal or upon its own motion, may review decisions of any local board of education concerning the denial of a charter school application, the nonrenewal or revocation of a charter school's charter, or the unilateral imposition of conditions on a charter applicant or a charter school. A charter applicant or person who wishes to appeal a local board decision must provide to the State board and the local board notice within 30 days after the local board's decision. The notice must contain a brief statement of the reasons the appealing party contends that the local board's decision was in error. A summary of the appeal process is as follows: a. Within 60 days after the receipt of the notice of appeal, the State board reviews the decision of the local board and makes its findings. If the State board finds that the local board's decision was contrary to the best interests of the pupils, school district or community, the State board remands the decision to the local board with written instructions for reconsideration and specific recommendations regarding matters requiring reconsideration. b. Within 30 days following such remand, the local board, at a public hearing, shall reconsider its decision and make a final decision. If the local board decides to approve the charter application (or decides not to unilaterally impose conditions) the local board and the charter school are required to complete the charter contract within 90 days following the remand. c. If the local board's final decision is still to deny, refuse to renew or to revoke a charter application (or to unilaterally impose conditions) a second notice of appeal may be filed within 30 days. d. Within 30 days following a second notice of appeal, the State board, at a public hearing, determines whether the final decision of the local board was contrary to the best interests of the pupils, school district or community. If such a finding is made, the State board remands such final decision to the local board with instructions to approve the charter application, or to renew or reinstate the charter, or to approve or disapprove the conditions imposed on the charter applicant or charter school, as the case may be. The decision of the State board is final and is not subject to appeal. In lieu of a first appeal to the State board, the parties may agree to facilitation. Within 30 days of denial of a charter application or nonrenewal or revocation of a charter or unilateral imposition of conditions on a charter applicant, the parties may file a notice of facilitation with the State board. The parties may continue in facilitation as long as both parties agree to its continued use. If one party subsequently rejects facilitation, and such rejection is not reconsidered within seven days, the local board must reconsider its denial or nonrenewal or revocation and make a final decision. The charter applicant may then file an notice of appeal with the state board within 30 days. Charter Schools Financing Guidelines (CRS ) For purposes of the Public School Finance Act (discussed below), pupils enrolled in a charter school are included in pupil enrollment, online pupil enrollment, or preschool enrollment, whichever is applicable, of the school district that granted the charter. The chartering school district must report to the Department of Education the number of pupils included in the school district's pupil enrollment that are actually enrolled in each charter school. A-3

39 For the budget year and thereafter, each charter school and the chartering school district negotiate funding under the charter contract. The charter school must receive 100% of the district per pupil revenues for each pupil enrolled in the charter school, except that the district may choose to retain the actual amount of the charter school's per pupil share of the central administrative overhead costs of services actually provided to the charter school, up to 5% of the district per pupil revenues for each pupil. For budget years through , the minimum amount of such funding must reflect the 1% increase in statewide base per pupil funding received by the school district as required by section 17 of article IX of the State constitution. For the budget year and thereafter, each charter school must annually allocate the minimum per pupil dollar amount multiplied by the number of students enrolled in the charter school to a fund created by the charter school for capital reserve purposes (as set forth in CRS (1)(c) and (1)(e)) or solely for the management of risk-related activities (as identified in CRS , CRS, and Article 13 of Title 29). Said monies may only be used for the purposes prescribed by statute, and may not be expended by the charter school for any other purpose. PUBLIC SCHOOL FINANCE ACT OF 1994 (CRS ET SEQ.) The Public School Finance Act of 1994, CRS et seq. (the "Public School Finance Act") was enacted to provide a finance formula applicable to all school districts in furtherance of the general assembly's duty under the State constitution to provide a thorough and uniform system of public schools throughout the State. District Total Program and Per Pupil Revenue (CRS , ) Under the Public School Finance Act, an amount representing the base financial support, referred to as the "Total Program," is calculated for each school district for every budget year. The Public School Finance Act also sets forth the funding formulas, on a budget year by budget year basis, pursuant to which each school district's Total Program is calculated. A district's total program is available to the district to fund the costs of providing public education and, except as otherwise provided in section (regarding instructional supplies and materials, capital reserve and insurance reserve, at-risk funding and preschool funding), the amounts and purposes for which such monies are budgeted and expended are within the discretion of the district. Under the Public School Finance Act, a district's "per pupil revenue" ("PPR") is a function of its Total Program. Specifically, PPR is defined as a district's Total Program for any budget year divided by the district's "funded pupil count" for said budget year. CRS (9.3). For budget years commencing on and after July 1, 2003, a district's funded pupil count equals its online pupil enrollment for the applicable budget year, plus its preschool enrollment for the applicable budget year, plus the greater of: i. the district's pupil enrollment for the applicable budget year; or ii. iii. iv. the average of the district's pupil enrollment for the applicable budget year and the district's pupil enrollment for the immediately preceding budget year; or the average of the district's pupil enrollment for the applicable budget year and the district's pupil enrollment for the two immediately preceding budget years; or the average of the district's pupil enrollment for the applicable budget year and the district's pupil enrollment for the three immediately preceding budget years. Each of the terms "online pupil enrollment," "preschool enrollment," and "pupil enrollment" are further defined under the Public School Finance Act, and reference should be made to the Act for more detailed information with respect to them. The Charter Schools Act relies on the definition of PPR in its provisions regarding funding of charter schools. As discussed above, under the Charter Schools Act, a charter school must receive 100% of the district per pupil revenues for each pupil enrolled in the charter school, except that the district may choose to retain the actual amount of the charter school's per pupil share of the central administrative overhead costs of services actually provided to the charter school, up to 5% of the district per pupil revenues for each pupil. See "CHARTER SCHOOLS ACT - CHARTER SCHOOL FINANCING GUIDELINES," above. A-4

40 General Fund Appropriation Requirement (CRS ) In accordance with Article IX section 17 of the State constitution (approved by voters of the State at the November 7, 2000 general election (see "AMENDMENT 23, below)), the general assembly appropriates from the general fund for districts' Total Program an amount equal to the maintenance of effort base plus an amount as determined annually by the general assembly that is equal to at least 5% of that base, unless Colorado personal income grows less than four and one-half percent between the two calendar years preceding the state fiscal year in which an appropriation is made. Generally, the maintenance of effort base is defined as the aggregate amount of general fund appropriations for Total Program for the immediately preceding State fiscal year. State Aid for Charter Schools - Use of State Education Fund Monies (CRS ) Under this provision of the Public School Finance Act, districts are eligible to receive State Education Fund monies for district charter school capital construction under certain conditions. For this purpose, "capital construction" means construction, demolition, remodeling, financing, purchasing, or leasing of land, buildings or facilities used to educate pupils enrolled or to be enrolled in a charter school. A charter school is a qualified charter school for purposes of such capital funding so long as, among other things, the charter school spends more than 3% of its operating revenues for capital construction for the budget year two years prior to the budget year in which State Education Fund monies are to be appropriated. The amount of monies to be distributed in the budget year and each year thereafter is calculated by multiplying a charter school's pupil enrollment by an amount equal to 130% of the minimum capital reserve amount per pupil established by state law for school districts (which is approximately $188 per pupil). For such period as a charter School qualifies for funding, the district is required to provide such funding to the charter school by making a single lump sum payments as soon as possible after the district receives a lump sum payment from the State Education Fund. Pursuant to Senate Bill which was enacted in 2003, the aggregate amount of funding available for charter school capital construction in the budget year was $5,000,000. Pursuant to enacted legislation, the amount for the budget year will be $7,800,000. However, capital funding for charter schools could be reduced or eliminated in future years. CHARTER SCHOOL CAPITAL FACILITIES FINANCING ACT (CRS , ET SEQ.) The Charter School Capital Facilities Financing Act was enacted in 2002 as a comprehensive proposal for funding the capital construction needs of charter schools. As discussed further below, the Act contains, among others, provisions providing for the "State Treasurer Charter School Intercept Program," the "Charter School Debt Reserve Fund Program" and the "Charter School Moral Obligation Program." State Charter School Intercept Program (CRS ) A charter school that is entitled to receive monies from the State public school fund may request that the State Treasurer make direct payments of principal and interest on the bonds on behalf of the charter school. The State Treasurer shall withhold the amount of any direct payments made on behalf of the charter school, plus administrative costs associated with the making of direct payments in the amount agreed upon by the State Treasurer and the charter school, from the payments to the chartering school district. The chartering district reduces the amount of funding it provides to the charter school by said amount. The provisions relating to such direct payment state that they shall not be construed to require the State to continue the payment of state assistance to any school district or to limit or prohibit the State from repealing or amending any law relating to the amount of state assistance to school districts or the manner or timing of the payment of such assistance. Further, such provisions shall not be construed to created a debt of the State or any state financial obligation whatsoever with respect to any bonds issued on behalf of a charter school by a governmental entity other than a school district for the purpose of financing charter school capital construction within the meaning of any State constitutional provision or to create any liability except to the extent expressly provided in such provisions. A-5

41 State Charter School Debt Reserve Fund Program (CRS ) The Charter School Capital Facilities Financing Act created a State Charter School Debt Reserve Fund (the "CSDRF") within the State treasury. The CSDRF consists of: a. $1,000,000 appropriated from the State Education Fund on July 1, 2002; b. Monies credited to the interest savings account of the CSDRF, as described below, and any interest and income derived from the deposit and investment of monies in such account; and c. Monies transferred from the State Education Fund to the CSDRF, as described further below, that have been withheld by the State Treasurer to the extent necessary to restore the CSDRF to a $1,000,000 balance. A qualified charter school 1 that chooses to finance capital construction with revenues from bonds issued on behalf of the qualified charter school by the Authority shall pay to the State Treasurer, on an annual basis, commencing on the date of issuance of the bonds and on each one-year anniversary of the issuance of the bonds thereafter while the bonds remain outstanding, an amount equal to 10 basis points of the principal amount of the bonds outstanding as of each calculation date (such amount is deemed to be the amount of any interest rate savings resulting from more favorable financing terms attributable to the reliance upon the CSFRF and the Colorado Charter School Moral Obligation Program). Each such annual payment is prorated and payable in equal installments among the debt service payments required of the qualified charter school during the 12 months following the annual computation date. The State Treasurer credits any such payments received to the interest savings account of the CSDRF. The State Treasurer may spend monies in the CSDRF solely for the purpose of paying principal and interest on bonds issued on behalf of a qualified charter school by the Authority, and only if: (i) the State Treasurer has been notified and has confirmed that the charter school has expended all monies in its own debt service reserve fund or account funded with proceeds derived from the issuance of the bonds and is unable to make bond payments, and (ii) the qualified charter school has made the annual payments to the State Treasurer described in the prior paragraph. Whenever the trustee responsible for making payments to the holders of any qualified charter school bonds 2 issued by the Authority has not received payment of the principal or interest on the bonds on the 10th business day immediately prior to the date on which such payment is due and the qualified debt service reserve fund for the charter school has been depleted, the trustee must notify the State Treasurer and the charter school, and must immediately contact the charter school to determine whether the charter school will make the payment by the date on which it is due. If the State Treasurer confirms that the charter school will not make the payment, the State Treasurer shall make the payment. The State Treasurer is required to expend all monies in the interest savings account of the CSDRF before expending any other monies in the CSDRF. If a qualified charter school defaults on a payment with respect to qualified charter school bonds, and the amount of such payment default exceeds the amounts available in the interest savings account of the CSDRF and the CSDRF, monies from the interest savings account and the CSDRF are allocated pro rata among the qualified charter school bonds that will have a default in payment of principal or interest based on the ratio that the payment default on each series of such bonds bears to the total payment defaults on all series of such qualified charter school bonds. If the State Treasurer expends monies from the portion of the CSDRF that is not the interest savings account, the State treasurer is required to withhold charter school per pupil facilities aid program monies to the extent necessary to restore that portion of the CSDRF, by the transfer of all amounts withheld from the State Education Fund to that portion of the CSDRF to the $1,000,000 balance in accordance with the following requirements: 1 A "qualified charter school" is a charter school that has a stand-alone credit assessment or rating of at least investment grade (i.e., one of the four highest investment ratings) by a nationally recognized rating agency at the time of issuance of any qualified charter school bonds on behalf of the charter school by the Authority and that has been certified as a qualified charter school by the State Treasurer. CRS (1)(b). 2 "Qualified charter school bonds" means bonds issued by the Authority for the purpose of financing a facility to be used for occupancy by pupils enrolled in a qualified charter school and which are secured by the CSDRF and the State Moral Obligation Program. CRS (1)(c). A-6

42 i. Each qualified charter school that has had bonds issued on its behalf by the Authority that have relied upon the CSDRF and the State Moral Obligation Program shall have its payments reduced by the same percentage and by a maximum of 50%; ii. If, in any given fiscal year, the State Treasurer determines that after withholding the maximum amount of charter school per pupil facilities aid program monies that may be withheld as described in paragraph (i) immediately above, the CSDRF (excluding the interest savings account) will not be restored to a $1,000,000 balance, each charter school that is not relying upon the CSDRF and the State Moral Obligation Program shall have its payment reduced by the same percentage and by a maximum of 10%. State Moral Obligation Program (CRS ) If the Authority has issued qualified charter school bonds on behalf of a qualified charter school that fails to immediately restore its qualified charter school debt service reserve fund (i.e., a reasonably required debt service reserve fund or account that has been funded with proceeds derived from the issuance of qualified charter school bonds or other monies of the qualified charter school) to the applicable qualified charter school debt service reserve fund requirement (i.e., the amount specified in the indenture pursuant to which the bonds have been issued), then the board of directors of the Authority shall submit to the Governor a certificate certifying any amount of monies required to restore the qualified charter school debt service reserve fund to the applicable qualified charter school debt service reserve fund requirement. The Governor shall then submit a request for appropriations in an amount sufficient to restore any or all qualified charter school debt service reserve funds to their respective qualified charter school debt service reserve fund requirements and the general assembly may, but shall not be required to, appropriate monies for that purpose. If, in its sole discretion, the general assembly appropriates any monies for that purpose, the aggregate outstanding principal amount of bonds for which monies may be appropriated for said purpose shall not exceed $400,000,000. TABOR In the November 3, 1992 general election, the voters of the State approved an amendment to the Colorado Constitution, Article X, Section 20 (the "TABOR Amendment"), which imposes certain spending, revenue and other limitations upon the State and its political subdivisions (including the District and the Charter School). Section 7 of the TABOR Amendment limits the maximum annual percentage change in each local political subdivision's spending to an amount equal to inflation in the prior calendar year plus annual local growth, adjusted for revenue changes approved by voters after That section also limits the maximum annual percentage change in each local political subdivision's property tax revenue to an amount equal to inflation in the prior calendar year plus annual local growth, adjusted for property tax revenue changes approved by voters after If revenue from sources not excluded from fiscal year spending exceeds these limits for a particular fiscal year, the TABOR Amendment requires that the excess be refunded in the next fiscal year unless voters approve a revenue change as an offset. Some changes have been made to the TABOR Amendment since its enactment. In November of 2005, Colorado voters approved "Referendum C," which allows the State to retain and spend revenue for the next five years instead of returning an estimated $3.7 billion to taxpayers as otherwise required by Article X, Section 20. For additional information regarding the TABOR Amendment, see "RISK FACTORS - Constitutional Provisions Affecting Revenues and Spending," above. AMENDMENT 23 In the November 7, 2000 general election, the voters of the State approved an amendment to the Colorado Constitution, Article IX, Section 17, which is commonly known as "Amendment 23." Section 1 of Amendment 23 requires that, in fiscal year through , the statewide base per pupil funding, as defined in the Public School Finance Act, for public education from preschool through the 12th grade, and total state funding for all "categorical programs" grow annually by at least the rate of inflation plus an additional one percentage point. In fiscal year and each fiscal year thereafter, Amendment 23 requires that the statewide base per pupil funding for public education from preschool through 12th grade and total state funding for all categorical programs shall grow annually at a rate set by the general assembly that is at least equal to the rate of inflation. For this purpose, "categorical programs" include transportation programs, English language proficiency programs, expelled and at-risk A-7

43 student programs, special education programs (including gifted and talented programs), suspended student programs, vocational educational programs, small attendance centers, comprehensive health education programs, and other current and future accountable programs specifically identified in statute as a categorical program. Section 5 of Amendment 23 requires that for fiscal year through , the general assembly shall, at a minimum, annually increase the general fund appropriation for Total Program under the Public School Finance Act by an amount not below five percent of the prior year general fund appropriation for Total Program. However, such general fund growth requirement shall not apply in any fiscal year in which Colorado personal income grows less than 4.5 percent between the two previous calendar years. Amendment 23 also creates in the Colorado Department of Treasury a state education fund (the "State Education Fund"). Amendment 23 requires that all state revenues collected from a tax of one third of one percent on federal taxable income, as modified by law, of every individual, estate, trust and corporation, as defined in law, shall be deposited in the State Education Fund, and shall not be subject to the limitation on fiscal year spending set forth in the TABOR Amendment. All interest earned on monies in the State Education Fund are required to be deposited in the State Education Fund and used before any principal is depleted. Monies remaining in the State Education Fund at the end of any fiscal year must remain in the fund and not revert to the general fund. Amendment 23 provides that for fiscal year and thereafter, the general assembly may annually appropriate monies from the State Education Fund. Such monies may only be used to comply with the requirements of Section 1 of Amendment 23, described above, and for other specified purposes. Section 5 of Amendment 23 states that monies appropriated from the State Education Fund shall not be used to supplant the level of general fund appropriations existing as of the section's effective date for total program education funding under the Public Schools Finance Act and for categorical programs, discussed above. As a means of implementing Amendment 23, in April, 2001, the Colorado General Assembly amended the Public School Finance Act, increasing the statutory requirements imposed on State school districts to fund charter schools, and provided additional sources of State revenue for school districts to meet such requirements. For additional information regarding Amendment 23, see "RISK FACTORS - Constitutional Provisions Affecting Revenues and Spending," above. COLORADO QUESTIONS TO APPEAR ON THE NOVEMBER 2006 ELECTION BALLOT Public School Expenditures Accountability Act Legislation recently passed by the Colorado Assembly proposes an act, the "Public School Expenditures Accountability Act," (the "Act") which has been certified to appear as a referendum question (Referendum Question "J") on Colorado's November 2006 election ballot. If adopted by the electors, beginning in the budget year and each budget year thereafter, proposed CRS would require school districts to spend at least 65% of their "operational expenditures" (as defined in proposed CRS (1)) on "services that directly affect student achievement" (as defined in proposed CRS (2)). Under proposed CRS (1), expenditures by a charter school within a school district shall not be considered expenditures by that school district. At the present time, it is unclear whether or how Referendum Question J, if adopted, will apply to or impact Colorado charter schools. Amendment 39 (School District Expenditures for Instruction) Proposed Initiative Measure #46 will also be presented to Colorado voters in the November, 2006 election. This measure would amend section 17 of article IX of the State constitution to add a provision beginning in State fiscal year and each State fiscal year thereafter, requiring each school district to spend at least 65% of its "operational expenditures" on "classroom instruction expenditures." The definition of classroom instruction expenditures does not include expenditures for capital construction or debt or bond payments, including but not limited to payment of interest on debt or bonds. At the present time, it is unclear whether or how Amendment 39, if adopted, will apply to or impact Colorado charter schools. A-8

44 EXHIBIT B THE CORPORATION AND THE CHARTER SCHOOL THE CORPORATION Cheyenne Mountain Charter Academy Foundation (the "Corporation") is a Colorado nonprofit corporation and an organization described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). The Corporation filed its articles of incorporation ("Articles") with the Secretary of State of the State of Colorado on August 29, The Articles state that the Corporation is organized for the primary purpose of serving as a support organization for the Charter School by acquiring land and buildings and other real personal property through debt financing or otherwise for the benefit of the Charter School, developing and carrying out support activities, providing financial or other assistance to the Charter School, and engaging in other exempt activities for the benefit of the Charter School. Under the Corporation's bylaws, the Board of Directors of the Corporation, which conducts the affairs of the Corporation, consists of five members. Vacancies on the Board are to be filled as set forth in the bylaws. The Corporation's directors have no private or proprietary interest in the Corporation, and serve without compensation (except reimbursement of expenses). No part of the Corporation's net earnings, income or assets will inure to the benefit of any private entity or person. The following table sets forth certain information regarding the Corporation's Board of Directors. TABLE 1: CORPORATION'S BOARD OF DIRECTORS Name Mark Chabica Principal Occupation Engineer, Atmel Corporation Position President Deirdre Shuck Homemaker Secretary Walt Cooper Superintendent, District 12 Treasurer Colin Mullaney Principal, CMCA Director Scott Hall Director of Development, Hillsdale College Director The Corporation has agreed to enter into the Lease with the Charter School to facilitate the financing described in this Official Statement. The Corporation has assigned its rights and interests under the Lease (with certain exceptions) to the Trustee for the benefit of the Owners of the Bonds. THE CORPORATION IS NOT LIABLE FOR THE PAYMENT OF DEBT SERVICE ON THE BONDS, AND THE BOND OWNERS HAVE NO RIGHT TO LOOK TO THE CORPORATION FOR ANY PAYMENTS OF THE BONDS OR FOR ANY OTHER PAYMENTS. In addition, the Corporation has no control over the expenditure of the proceeds of the Bonds. THE CHARTER SCHOOL General Cheyenne Mountain Charter Academy (the "Charter School") was created under the Charter Schools Act by the Cheyenne Mountain School District 12 (the "District"), pursuant to a Charter School Contract, dated May 22, 1995, by and among the District and the Charter School (the "Charter"). The Charter has been amended and renewed several times and is currently set to expire on June 30, See "The Charter Contract," below. The Charter School was incorporated as a Colorado non-profit corporation in May 17, The Charter School is an organization described under Section 501(c)(3) of the Code. The Charter School initially opened in the school year, serving grades K through eight, with an enrollment of approximately 271 students. For the school year, the Charter School's enrollment was 472 students; for the school year, the Charter School's enrollment was 525 students; and for the school year, the Charter School's enrollment is 578 students. The Charter School had a waiting list of approximately 400 students as of April, B-1

45 Governing Board As set forth in the Charter School's bylaws, members of the Charter School include each legal guardian of a student attending the Charter School and each member of the Governing Board. The membership terminates when the child is no longer enrolled at the Charter School. Each member has the same rights and obligations with respect to voting and all other matters. The Charter School's bylaws provide that it is governed by a Governing Board consisting of five voting members. At least four of the directors must be parents of students enrolled at the Charter School at the time of election. One of the members may be a District resident of legal age. All candidates for the Governing Board must have attended the entire public session of at least three board meetings in the school year prior to running. Annual elections are held during the fourth quarter of each school year. Governing Board members are elected by a vote of the parents for staggered two-year terms. Vacancies are filled by appointment of the Governing Board. The Governing Board holds regular monthly meetings and special meetings as necessary. Pursuant to the Charter School's bylaws, the Governing Board has the power to control and manage the affairs, property and business of the Charter School and to enact any and all policies and procedures necessary for the proper operation of the Charter School. Brief biographical information pertaining to current Governing Board members is provided below. Mark Chabica President Mark Chabica currently serves as President of the Board, and has served on the Board since He also serves as President of the Corporation. Mr. Chabica is a Senior Engineer at Atmel Corporation in Colorado Springs. Previously, he worked as an Engineer at Texas Instruments in Dallas, Texas. Mr. Chabica received his Bachelor's degree in Sociology from Cornell University, a Teacher Certification from SUNY New Paltz, a Masters degree in Materials Science and Bachelor's degree in Engineering Physics from the Colorado School of Mines, and a Ph.D. in Materials Science from Case Western Reserve University. Steve Bowlby Vice President Steve Bowlby currently serves as Vice President of the Board, and has served on the Board since He also serves on the Curriculum and Coordinating Committees for the new high school expansion program. Since 2000, Mr. Bowlby has owned and operated a film and video production company called i25productions. Prior to that, he worked for another production company, IMS Productions in Colorado Springs, for nearly 20 years. Also at various times during that period, he worked for two televisions stations and five radio stations. Deirdre Schuck Secretary Deirdre Schuck is a member of the Governing Board and has served on the Board since She also serves as Secretary for the Corporation. Ms. Schuck has been an active volunteer for the Charter School since She has assisted grade school teachers with special projects, organized field trips, and supervised lunch and recess activities. Previously, Ms. Schuck worked as a Project Manager Assistant and Sale Coordinator for Intelligent Electronics in Englewood, Colorado. She received her Bachelor's degree in Marketing from the University of Colorado in Boulder. Carole Tripoli Director Carole Tripoli is a member of the Governing Board and has served on the Board since Since 1995, she has worked as a teacher at the Charter School, teaching English classes in grades seven and eight. Previously, Ms. Tripoli worked as an assistant to the President and Vice President at IDIX Corporation in Colorado Springs, Colorado. Prior to that, she worked as a teacher at various schools dating back to Ms. Tripoli received her Bachelor's degree in English from Georgian Court College. B-2

46 Vicki Card Director Vicki Card is a member of the Governing Board and has served on the Board since She currently serves as the Permitting Services Supervisor for the Environmental Services Department, Colorado Springs Utilities, and has over two decades of experience directing, developing and implementing environmental monitoring and compliance programs. Previously, she worked as a Division Manager and Program Administrator for the Water Resources Department of the Colorado Springs Utilities. She is the Director and Secretary for the Western Coalition Arid of States, the Chair of the Pikes Peak Council of Governments, Air Quality Technical Committee, and a former Chair of the Colorado Wastewater Utility Council. Ms. Card received her Bachelor's degree in Engineering Systems and Control from Case Western Reserve University, and her Master's degree in Environmental Engineering from the University of Florida. Management and Administration Principal. The Principal, who reports directly to the Governing Board, is the chief executive officer of the Charter School and is responsible for the day-to-day operation and management of the Charter School, student achievement and the Charter School's relations with the community and the District as the chartering authority. The Principal undergoes an annual evaluation by the Governing Board and is responsible for staff recruiting, hiring and terminations in conjunction with the Governing Board. The Principal is also responsible for staff supervision, curricula planning and implementation, program evaluation and documentation, and staff evaluations. The Principal oversees testing, personnel scheduling, budgeting, purchasing, accounts payable and accounts receivable and information requests from the District. The Principal presides over staff meetings, attends monthly meetings of the Governing Board, and coordinates planning and educational seminars for staff. Colin Mullaney has served as the Principal of the Charter School since August of He has been involved in the school since it first opened in He started as the seventh and eighth grade science and math teacher. Prior to joining the Charter School, Mr. Mullaney was an active duty officer in the army for three years. He has continued his service as an army reserve soldier since leaving active duty in For a two-year period, Mr. Mullaney was called back to active duty in support of the war against terrorism. He returned to the Charter School in January of Mr. Mullaney holds a bachelor's degree in biology from the University of Notre Dame and master's degree in Public Administration from the University of Colorado in Colorado Springs. Business Manager. The Business Manager, who currently reports directly to the board through the Principal, is responsible for the daily financial activities of the Charter School. These duties include creating and maintaining current year and five-year projected budgets, working with the Governing Board to ensure its understanding of the budget before approval, and holding informational parent meetings on budget issues. On a day-to-day basis, the Business Manager manages accounts receivable and accounts payable, oversees purchasing, reconciles bank accounts and manages employee benefits. The Business Manager also oversees payroll production, federal, state, PERA and 401k reporting, and presents financial reports to the Governing Board on a monthly basis. The Business Manager also works closely with the Financial Department of the District to ensure all reports are submitted in the proper format to the Colorado Department of Education. The Business Manager serves as an active member of the Colorado Business Manager Network and mentors new business managers as needed. The Business Manager is responsible for ensuring that the annual audit is conducted by an authorized CPA firm. Diane Borre has recently been hired to serve as the Charter School's Business Manager. She has been a parent at the school for the past ten years. Prior to joining the Charter School, Diane was a founder of James Irwin Charter School and served as its business manager from January 2001 to November She has also served as the business manager for American Academy, another Colorado charter school, from January to June Mrs. Borre is currently a grant reviewer for the Walton Family Foundation and has prior experience reviewing grants for the Colorado Department of Education. She has a degree in accounting and is a Certified Payroll Professional. The Charter Contract The Charter School was created pursuant to a Charter School Contract, dated May 22, 1995, by and among the District and the Charter School (the "Charter"). The Charter was amended in each of the years 1996 through 2001, to reflect renegotiated administrative service charges charged by the District to the Charter School. One such amendment extended the Charter's term to June 20, Another amendment extended the term of the Charter to June 20, The Charter was renewed again on July 10, 2006 and unless renewed is currently set to expire on June 30, B-3

47 A charter contract may be renewed for successive periods, and the governing body of a charter school seeking renewal must submit a renewal application no later than December first of the year prior to the year in which the charter expires. See "EXHIBIT A CHARTER SCHOOLS IN COLORADO Charter Term and Renewals." A charter contract is subject to nonrenewal or revocation for material violations of the charter contract, failure to make reasonable progress towards the goals and requirements set forth in the charter contract, failure to meet accepted standards of fiscal management, or violations of law. See "EXHIBIT A CHARTER SCHOOLS IN COLORADO Nonrenewal or Revocation" and " Appeal Procedures and Standard of Review." In anticipation of the Charter School's addition of a high school (and potentially a new K-8 school) located outside the geographical boundaries of the District, the current Charter contains provisions that allow, but do not require, the District to compel the Charter School to replace the Charter with a charter contract from another chartering entity. See "Charter School Facilities and Planned Expansion," below. Further, the current Charter contains provisions pursuant to which the Charter School agrees that the annual percentage of all Charter School students scoring proficient or above on the CSAP for grades three through 12 shall meet or exceed 95% of the percentage of all other District students scoring at those levels. The Charter contains a similar provision for the 11th grade ACT test. See "Student Performance," below. Material violations of such provisions or failure to make reasonable progress toward such goals could constitute grounds for nonrenewal or revocation of the Charter. For information as to how to obtain a complete copy of the Charter, see "INTRODUCTION Additional Information," above. Employees In order to provide the variety of services required by law, the Charter School currently employs 52 full-time staff and 19 part-time staff as set forth in the following table. TABLE 2: CHARTER SCHOOL STAFF Full Time Part Time Teachers 25 1 Administration/Office 3 4 Aides 21 5 Maintenance 2 2 Home School 1 7 Total Source: The Charter School. The following table presents student-faculty ratios at the Charter School on a grade-by-grade level for the school years shown. TABLE 3: STUDENT / FACULTY RATIOS Grade K 9:1 9:1 9:1 1 12:1 13:1 13:1 2 12:1 12:1 13:1 3 12:1 12:1 12:1 4 13:1 13:1 12:1 5 12:1 12:1 12:1 6 12:1 12:1 12:1 7 11:1 11:1 12:1 8 11:1 11:1 11:1 Source: the Charter School. B-4

48 The following table presents information regarding degrees held by teachers at the Charter School. Employee Benefits TABLE 4: EDUCATIONAL BACKGROUND OF CHARTER SCHOOL TEACHERS Percent of Degree Held Teachers Bachelors 88% Masters 12% Total 100% Source: the Charter School. Full time Charter School employees are eligible for health, dental, vision, life insurance, and disability benefits consistent with the same eligibility requirements and benefits made available for District employees. The Charter School reimburses the District, through appropriate funds or account transfers the cost of providing these benefits. Workers compensation and unemployment insurance are provided in accordance with state law. All of the Charter School employees are members of the Public Employees Retirement Association of Colorado, School Employees Division ("PERA") to which the Charter School is required to contribute 10.65% of salaries paid and employees are required to contribute 8.0%. These rates are established by State law. For additional information regarding the Charter School's contribution to PERA, see "Charter School Finance Information Retirement and Pension Matters," below. Labor Relations Teachers are employed by the Charter School pursuant to annually renewable contracts established by the Governing Board. The faculty, administration and Governing Board have a strong and collaborative working relationship. The Charter School has a high teacher retention rate (approximately 82% from year to year for the last two years). The current Principal is the Charter School's only principal since the school year with the exception of a two year period during which time he was activated in the Army Reserves and the Assistant performed the duties of the Principal. The Charter School's Governing Board and administration considers relations with the teachers as good to excellent. Enrollment The Charter School initially opened in the school year with an enrollment of approximately 271 students in grades kindergarten through eighth grade. For the school year, the Charter School's enrollment was 297 students; for the school year, the Charter School's enrollment was 291 students; and for the school year, the Charter School's enrollment was 319 students. Enrollment of Full Time Equivalents (FTEs) for the last three years was as follows: for the school year, the Charter School's FTE enrollment was 405 students; for the school year, the Charter School's FTE enrollment was 442 students; and for the school year, the Charter School's FTE enrollment was 502 students. The Charter School currently has six kindergarten classes, four classes for first and second grades, three classes per grade for third through fifth grade, and two classes per grade sixth through ninth grade. The Charter School has 13 students (approximately 0.3% of total student population) who qualify for special education services. The Charter School had no expulsions in the school year. Enrollment in the Charter School is open to all residents of Colorado subject to compliance with state statutes, Governing Board policy, and the Charter. The Charter School population is filled from an Enrollment Wait List based on a lottery placement system. Enrollment priority is given to children of Charter School staff, District students and out-of-district students. Within each category, siblings of currently enrolled students receive a higher priority. B-5

49 The Charter School plans to expand into the high school grades by adding one grade per year, beginning in through For more information about the Charter School's expansion, see "Charter School Facilities and Planned Expansion," below. The following table sets forth data provided by the Charter School regarding its historical and projected enrollment. TABLE 5: HISTORICAL AND PROJECTED ENROLLMENT BY GRADE LEVEL Grade K Totals ,016 Source: the Charter School; data presented for the through school years is as of the end of those school years. Data presented for the school year and thereafter is projected by the Charter School. Numbers of students includes students enrolled in the Charter School home-school program. Waiting List The following table sets forth data provided by the Charter School regarding the number of students on its waiting list for the and school years. TABLE 6: WAITING LIST DATA Grade K Totals: Source: the Charter School. B-6

50 Student Retention The following table compares enrollment for the years shown against the number (and corresponding percentage) of students re-enrolled for the following years: TABLE 7: STUDENT RETENTION DATA Enrolled * Retained Percentage Enrolled * Retained Percentage % % Source: the Charter School. * Does not include 8th grade students because they were not eligible to re-enroll in and , respectively. Charter School Facilities and Planned Expansion The Charter School's current facilities consist of an approximately 39,000 square-foot, pre-formed facility, consisting of 21 classrooms, a gymnasium, and a junior high cafeteria / common area, located at 1832 South Wasatch Avenue in Colorado Springs, Colorado (the "Existing Facilities"). The Charter School financed improvements and expansions to the Existing Facilities with proceeds of the Colorado Educational and Cultural Facilities Authority, Charter School Revenue Bonds (Cheyenne Mountain Charter Academy Project), Series 2003 (the "Series 2003 Bonds"). The Charter School is in the process of expanding from its Existing Facilities in several anticipated phases. The first phase includes acquisition of an approximately 21 acre site located at South Corona Street and Hunter Avenue in Colorado Springs, Colorado; performing site work; providing water and sewer utility installation; constructing access roads and a parking lot; building a gymnasium; and financing the manufacture or acquisition and installation of two modular classroom buildings which will initially provide classrooms for anticipated additional students in grades seven and eight, and new students in grades nine through 11 as those grade offerings are added. The Charter School anticipates that phase one of the construction will be complete by May of The new site and the phase one improvements and facilities (the "Additional Facilities"), together with the Existing Facilities, are referred to collectively herein as the "Facilities." The Charter School is pursuing phase one expansion to accommodate expected seventh and eight grade enrollment increases, and believes that demand for such expansion is evidenced by its enrollment and waiting list statistics. In the second phase of construction, the Charter School anticipates that it will construct and equip a high school on the new site. Once the high school is completed, the modular facilities acquired in the first phase will be used to provide additional classroom space for students in grades K through 8. The Charter School anticipates that it will complete the second phase of construction by the beginning of the school year. The Charter School is pursuing the addition of a high school in part because of its perception that there is presently no logical high school extension to education it provides in the lower grades, and in part based on its projections regarding increased demand. The Charter School also contemplates a third phase of construction, which may provide for a permanent K-8 school, also on the new site. The Charter School has already begun work on the first phase of construction. The Charter School obtained the Bank Loan to finance the acquisition of the new site, to pay a portion of the phase one construction costs, and to refund a portion of the Series 2003 Bonds. The Bonds are being issued to refund the Bank Loan, to make a yield reduction payment in connection with the refunding of the Bank Loan, to pay the remaining phase one construction costs, to fund a Bond Reserve Fund and to pay costs of issuing the Bonds. The Bonds are not financing any phase two or phase three construction costs, and separate financing will need to be obtained for such costs. Because the anticipated new high school and potential new K-8 school are expected to be located outside the geographic boundaries of the District, the Charter allows, but does not require, the District compel the Charter School to replace the Charter with a charter contract from another chartering entity. Specifically, the Charter allows the District to give notice to the Charter School if, in any year, the number of Charter School students residing in the District is less than the total number of students residing in any other district. This "plurality" provision requires the District to provide written notice to the Charter School that District students do not represent a plurality of the Charter School's students, and allows the District to exercise its option to compel replacement of the Charter in the following year if students residing in the District again do not represent a plurality of Charter School students. In such event, termination of the Charter would be effective one year from the date of the termination notice. The Charter School anticipates that a plurality of Charter School students will reside in districts other than the District. B-7

51 Curriculum and Instruction The mission of the Cheyenne Mountain Charter Academy is to help guide students in the development of their character and academic potential through academically rigorous, content-rich educational programs. The Charter School utilizes the Direct Instruction technique for teaching students and the nationally recognized Core Knowledge Sequence as the basis for its educational program. The Core Knowledge Scope and Sequence is offered at every grade level and provides students with a well-defined, content-rich curriculum. Classes are ability-grouped in reading, math, and spelling. In addition, students receive instruction in art, music and physical education. The Charter School maintains a code of ethics for academic achievement, and teaches positive behavior. Students are required to wear uniforms. Class sizes are capped at a maximum of 25 students. The Charter School students participate in a variety of sports programs. The school has teams that compete through the YMCA and the Cheyenne Mountain District 12 intramural leagues. Charter School students are eligible to participate in extracurricular activities at their home District school they would have attended, based on their residency, if they were not enrolled at the Charter School, but the Charter School or its students are responsible for the payment of any required fees. Service Area and Competing Schools The Charter School primarily serves the southwestern portion of Colorado Springs with priority given to students from the District pursuant to the Charter School's Charter. The Charter School is located at the intersection of three school districts that are fairly equally represented in student population: approximately 26% of students come from the District; 25% from District 11, and 25% from District 2. Several other districts are represented at the Charter School as well, drawing from as far away as Florissant, Colorado. The Charter School competes with the District schools and, to a lesser extent, other charter schools and private schools located in the area. Student Performance The Charter School uses a variety of assessments to collect qualitative and quantitative information. Teachers use curricular assessments, performance measures, and specified skill assessments to continually monitor student progress. Each year, all students take the Iowa Test of Basic Skills (ITBS), a norm referenced test, to monitor yearly growth. Student achievement is also measured using the state mandated Colorado Student Assessment Program ("CSAP"). The CSAP is a statewide standards based assessment aligned with the State model content standards, that covers reading, writing, math, and in some grades science for grades 3-10 each year. Grade level report cards are provided to students and parents quarterly with scheduled conferences in the fall and spring. B-8

52 The Charter School's CSAP results for Spring of 2005 are summarized below: TABLE 8: COMPARATIVE CSAP RESULTS (SPRING 2005) Reading Writing Math Science Grade Charter School District State Unsatis- Unsatis- Unsatis- Charter School District State Charter School District State Charter School District State Partially Partially Partially factory factory factory Proficient Proficient Proficient Proficient Proficient Proficient Advanced Advanced Advanced 3 2% 3% 9% 23% 9% 18% 67% 75% 65% 8% 12% 7% 4 2% 6% 13% 8% 11% 22% 73% 66% 57% 17% 16% 7% 5 0% 2% 11% 11% 8% 19% 66% 72% 60% 23% 18% 9% 6 0% 2% 11% 2% 6% 20% 63% 62% 56% 35% 29% 11% 7 0% 3% 13% 0% 10% 21% 50% 68% 56% 50% 18% 8% 8 0% 2% 12% 0% 10% 22% 35% 67% 55% 65% 19% 9% Grade Unsatisfactory Unsatisfactory Unsatisfactory Partially Proficient Partially Proficient Partially Proficient Proficient Proficient Proficient Advanced Advanced Advanced 3 0% 0% 5% 23% 19% 38% 65% 61% 47% 13% 19% 9% 4 0% 2% 8% 16% 18% 39% 63% 59% 43% 22% 21% 9% 5 2% 1% 5% 7% 13% 37% 43% 57% 48% 48% 30% 10% 6 0% 0% 5% 2% 14% 34% 42% 49% 48% 56% 37% 11% 7 0% 1% 5% 0% 16% 37% 11% 50% 44% 89% 33% 12% 8 0% 1% 5% 0% 21% 42% 5% 52% 43% 95% 25% 9% Grade Unsatisfactory Unsatisfactory Unsatisfactory Partially Proficient Partially Proficient Partially Proficient Proficient Proficient Proficient Advanced Advanced Advanced 3 0% 0% 6% 21% 12% 24% 46% 40% 43% 33% 48% 25% 4 0% 5% 9% 6% 10% 24% 45% 44% 44% 49% 39% 22% 5 5% 3% 10% 7% 11% 26% 36% 35% 36% 52% 51% 27% 6 0% 4% 14% 9% 13% 29% 28% 35% 34% 63% 47% 22% 7 0% 4% 16% 6% 21% 36% 28% 31% 28% 67% 43% 18% 8 0% 5% 23% 11% 22% 31% 16% 40% 29% 74% 33% 15% Grade Unsatisfactory Unsatisfactory Unsatisfactory Partially Proficient Partially Proficient Partially Proficient Proficient Proficient Proficient Advanced Advanced Advanced % 4% 19% 0% 21% 28% 47% 59% 43% 53% 15% 8% Source: the Charter School. In its Charter, the Charter School agrees that the annual percentage of all Charter School students scoring proficient or above on the CSAP for grades three through 12 shall meet or exceed 95% of the percentage of all other District students scoring proficient or above for grades three through 12. In the Charter, the Charter School also agrees that the average composite score of all Charter School students in grade 11 taking the State-mandated ACT shall meet or exceed 95% of the average composite score of all other District students in grade 11 taking the State-mandated ACT. Retirement and Pension Matters The Charter School contributes to the School Division Trust Fund ("SDTF"), a cost sharing multiple employer defined benefit pension plan administered by the Public Employees' Retirement Association of Colorado (PERA). SDTF provides retirement and disability, annual increases, and death benefits for members or their beneficiaries. All employees are members of the SDTF. The Charter School is currently required by statute to contribute to PERA, from Charter School funds, an amount equal to 10.65% of the gross salaries of member employees. In addition, each member employee contributes 8.0% of his or her salary. Insurance Pursuant to the Charter, the Charter School receives insurance coverage from the District consistent with coverages available to the District itself. In addition, employees and authorized volunteers of the Charter School are deemed to be employees and authorized volunteers of the District for purposes of the Colorado Governmental Immunity Act which provides the District with substantial protection from liability. See "LEGAL MATTERS Sovereign Immunity" and EXHIBIT D "DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT, THE INDENTURE AND THE LEASE THE LOAN AGREEMENT Insurance Provisions." B-9

53 Charter School Financial Information Debt Summary. Below is a listing of the currently outstanding debt obligations for which the Corporation is the borrower (for the benefit of the Charter School). Type of Debt Original Amount Amount Outstanding * Bank Loan, dated July 1, 2006 $8,950,000 $8,950,000 * Proceeds of the Bonds will be used for the current refunding of the full principal amount of the Bank Loan. In addition to the above-listed indebtedness, the Charter School has entered into certain capital lease obligations for rental space. Type of Debt Date Original Amount Amount Outstanding Capital Lease for Home School Rental Space 7/1/06 6/30/07 $53,295 $53,295 Capital Lease for Grade K Rental Space 7/1/06 6/30/07 $28,150 $28,150 Accounting Principles. The Charter School maintains one fund which accounts for all transactions of the Charter School. The fund represents and accounts for the Charter School's ordinary operations financed primarily from PPR revenue. The following information should be read together with the Charter School's financial statements appended hereto. Pursuant to the Charter, the Charter School must establish, maintain and retain appropriate financial records in accordance with all applicable federal, state and local laws, rules and regulations, and will make such records available to the District as requested from time to time. Historical and Projected Revenue and Expense Information. The following table sets forth the Charter School's historical and projected revenues and expenses for the years shown below. The information presented for the School Years ended June 30, 2004 and June 30, 2005 is actual audited data presented by the Charter School, for the School Year ended June 30, 2006 is based on actual revenues and expenses obtained by the District, and for the School Years ending June 30, 2007 through 2010 is projected information provided by the Charter School, which is based upon certain assumptions made by the Charter School. These projections are "forward-looking statements" and are subject to the general qualifications and limitations described under "INTRODUCTION" with respect to such statements. The Underwriters have not independently verified such projections, and makes no representations nor gives any assurances that such projections, nor the assumptions underlying them, are complete or correct. Inevitably, some assumptions used to develop forward-looking statements will not be realized or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward-looking statements and actual results, and those differences could be material. See "INTRODUCTION," and "RISK FACTORS Operating History; Reliance on Projections" above. NO GUARANTEE CAN BE MADE THAT THE PROJECTED INFORMATION WILL CORRESPOND WITH THE RESULTS ACTUALLY ACHIEVED IN THE FUTURE BECAUSE THERE IS NO ASSURANCE THAT ACTUAL EVENTS WILL CORRESPOND WITH THE ASSUMPTIONS MADE BY THE CHARTER SCHOOL. B-10

54 Cheyenne Mountain Charter Academy Historical and Projected Operating Income Historical Projected * Total Enrollment Full Time Equivalent Students (FTE) REVENUE PPR $ 2,151,536 $ 2,402,708 $ 2,750,325 $ 4,241,334 $ 4,945,920 $ 5,652,202 $ 6,397,400 Mill Levy Income 115, ,986 59,700 96,711 98, , ,630 Interest on Investments 3,116 12,582 2,000 2,040 2,081 2,122 Pupil Activities (5,372) 63,020 CCF 121,898 75,607 75, , , , ,440 Grants/Title Transfers from D-12 8,843 15, ,531 98, , ,439 Total Revenue 2,395,259 2,694,993 2,885,025 4,808,976 5,267,167 5,978,452 6,726,032 OPERATING EXPENDITURES Salaries $ 1,353,716 $ 1,465,016 $ 1,695,779 $ 2,442,929 $ 2,725,721 $ 2,998,293 $3,298,123 Benefits 260, , , , , , ,590 Purchased Services 35,149 42, , , , , ,429 CMSD Chargeback 52,585 67,301 78,400 32,650 37,327 41,821 46,407 Facility Costs 176,763 70, , , , , ,331 Purchased Supplies 179, , , , , , ,258 Equipment 10,187 22,952 30,720 68,767 89, , ,270 Total Expenditures 2,068,833 2,216,603 2,656,952 3,746,429 4,318,488 4,800,029 5,263,408 Estimated Net Revenues Available For Debt Service 326, , ,073 1,062, ,678 1,178,422 1,462,624 Estimated Lease Expense (Debt Service) 157, , , , , , ,755 Estimated Coverage Estimated Debt Burden 6.56% 5.86% 5.42% 7.60% 13.57% 11.97% 10.66% Estimated Net Surplus 169, ,365 71, , , , ,869 Prior Year Fund Balance 612, ,730 1,102,095 1,173,762 1,870,898 2,104,702 2,567,769 End of Year Fund Balance 781,730 1,102,095 1,173,762 1,870,898 2,104,702 2,567,769 3,313,638 Estimated Fund Balance Requirement , , , ,756 *Projections for are based on actual data obtained from the authorizing District through June 10, 2006 Source: the Charter School. Data is as of June 30 for the years shown. B-11

55 EXHIBIT C CHARTER SCHOOL FINANCIAL STATEMENTS C-1

56

57

58 EXHIBIT D DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE, THE LOAN AGREEMENT AND THE LEASE DEFINITIONS The following are definitions of certain terms used in the Indenture, the Agreement, the Lease and this Official Statement: "Accountant" means any independent public accounting firm licensed to practice in the State of Colorado (which may be the firm of accountants who regularly audit the books and accounts of the Corporation) from time to time selected by the Corporation. "Act" means the Colorado Educational and Cultural Facilities Authority Act, constituting Article 15, Title 23 of the Colorado Revised Statutes, as amended, and the Supplemental Public Securities Act, constituting Part 2, Article 57, Title 11 of the Colorado Revised Statutes, as amended. "Additional Bonds" means any Additional Bonds authorized and issued pursuant to the Indenture. "Additional Rentals" means the cost of all taxes; insurance premiums; reasonable expenses and fees of the Authority, the Trustee and the Corporation (including, but not limited to, any legal expenses incurred by the Corporation, or its officers or directors in their official or personal capacity, as provided in the Lease); the administrative fee charged by the State Treasurer pursuant to the Charter Intercept Program Application; the fee charged by the State Treasurer pursuant to Section of the Charter Schools Act consisting of 10 basis points of the principal amount of the Bonds outstanding; utility charges; costs of maintenance, upkeep, repair, restoration, modification, improvement and replacement; Bond Reserve Fund payments; Rebate Fund payments; Repair and Replacement Fund payments; costs and expenses incurred by the Corporation or by its directors or officers in connection with any investigation, claim, demand, suit, action or proceeding relating to the activities of the Corporation, or such directors or officers in their capacity as such, in respect of the Leased Property, the Bonds, the Lease, the Agreement, the Indenture or any matter related thereto; and all other charges and costs, including reasonable attorneys' fees, which the Charter School assumes or agrees to pay under the Lease with respect to the Leased Property, the Bonds, the Lease, the Agreement, the Indenture or any matter related thereto. Additional Rentals do not include the Base Rentals. "Agreement" means the Mortgage and Loan Agreement, dated as of September 1, 2006, between the Authority and the Corporation, and any amendments and supplements thereto made in conformity with the requirements thereof and of the Indenture. "Authority" means the Colorado Educational and Cultural Facilities Authority, an independent public body politic and corporate constituting a public instrumentality, duly organized and existing under the laws of the State of Colorado, or any public corporation succeeding to its rights and obligations under the Agreement. "Authorized Denomination" means $5,000 and any integral multiple of $5,000 in excess thereof. "Authorized Representative" means, in the case of the Authority, the Chairperson, the Vice-Chairperson, any Assistant Vice-Chairperson or the Executive Director thereof or, in the case of the Corporation or the Charter School, the President, any Vice-President or the Secretary thereof and, when used with reference to the performance of any act, the discharge of any duty or the execution of any certificate or other document, any officer, employee or other person authorized to perform such act, discharge such duty or execute such certificate or other document. "Base Rentals" means the monthly payments payable by the Charter School, as set forth in the Lease and an exhibit to the Lease, as it may be amended during the Lease Term, which constitute the payments payable by the Charter School for and in consideration of the right to use the Leased Property during the Lease Term. "Bond Interest Fund" means the Bond Interest Fund created in the Indenture. D-1

59 "Bond Principal Fund" means the Bond Principal Fund created in the Indenture. "Bond Reserve Fund" means the Bond Reserve Fund created in the Indenture. "Bond Reserve Requirement" means the amount of $733,125.00, which is equal to Maximum Annual Debt Service for any Bond Year during the term of the Bonds. "Bonds" means, collectively, the "Colorado Educational and Cultural Facilities Authority, Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project), Series 2006A" and "Colorado Educational and Cultural Facilities Authority, Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project) Taxable Series 2006B" issued pursuant to the Indenture. "Building" means that certain building or buildings and all other structures and facilities now owned or hereafter acquired (including, but not limited to, all fixtures, heating and air conditioning equipment and all other equipment and machinery affixed to the Land or Building and parking areas and site improvements) which are located on the Land or property upon which the Corporation has a perpetual easement which is pledged as security for the Bonds, as they may from time to time exist. "Business Day" means any day other than a Saturday or Sunday or a day on which banking institutions in the State are authorized to close. "Charter Authorizer" means Cheyenne Mountain School District 12, El Paso County, State of Colorado or any successor Person pursuant to which the Charter School is granted a charter under the Charter Schools Act. "Charter School" means Cheyenne Mountain Charter Academy, a charter school duly organized and validly existing pursuant to the Charter Schools Act, or any successor thereto. "Charter Schools Act" means the Charter Schools Act, Article 30.5 of Title 22 of the Colorado Revised Statutes, as amended, or any successor act thereto. "Code" means the Internal Revenue Code of 1986, as amended to the date of issuance of the Bonds, and the regulations prescribed thereunder. "Consultant" means an independent consulting or management firm selected by the Corporation and accepted by the Authority. "Consulting Architect" means an individual or an independent engineering or architectural firm (which may be an individual or an engineering or architectural firm retained by the Corporation for other purposes) selected by the Corporation and accepted by the Authority. "Corporation" means (a) Cheyenne Mountain Charter Academy Foundation, a duly organized and validly existing Colorado nonprofit corporation or (b) any surviving, resulting or transferee corporation, as provided in the Agreement. "Cost of the Project" means the sum total of all reasonable or necessary costs incidental to the Project which may be financed pursuant to the Act. "Escrow Agent" means the commercial bank or financial institution designated in the Indenture to serve as Escrow Agent under the Escrow Agreement. "Escrow Agreement" means the Escrow Agreement, dated as of September 1, 2006, by and between the Corporation and the Escrow Agent relating to the refunding of the Refunded Obligations. "Escrow Fund" means the Series 2003 Escrow Fund created in the Escrow Agreement. "Event of Default" means those defaults described under the captions "THE LOAN AGREEMENT Events of Default," "THE INDENTURE Events of Default" and "THE LEASE Events of Default" in this Appendix B. D-2

60 "Event of Nonappropriation" means a decision by the Charter School not to renew the Lease, determined by the Charter School's failure, for any reason, (a) to appropriate by June 30 of each Fiscal Year (i) sufficient amounts authorized and directed to be used to pay all Base Rentals due in the next ensuing Fiscal Year in accordance with the Lease and (ii) sufficient amounts authorized and directed to be used to pay such Additional Rentals as are estimated to become due in the next ensuing Fiscal Year in accordance with the Lease; (b) to appropriate sufficient amounts authorized and directed to be used to pay Additional Rentals in accordance with the Lease; or (c) to appropriate sufficient amounts to proceed pursuant to the Lease. "Facilities" means, collectively, the Land and the Building and equipment therein, if any, financed or refinanced with proceeds of the Bonds. "Financial Guaranty Insurance Policy" means the Financial Guaranty Insurance Policy issued by the Financial Guaranty Insurer in conjunction with the issuance of the Bonds. "Financial Guaranty Insurer" means CIFG Assurance North America, Inc. "Financial Products Agreement" means an interest rate swap, cap, collar, option, floor, forward or other hedging agreement, arrangement or security, however denominated, identified to the Trustee in a certificate signed by an Authorized Representative of the Corporation as having been entered into by the Corporation with a Qualified Provider not for investment purposes but with respect to Indebtedness (which Indebtedness shall be specifically identified in the certificate) for the purpose of (a) reducing or otherwise managing the Corporation's risk of interest rate changes or (b) effectively converting the Corporation's interest rate exposure, in whole or in part, from a fixed rate exposure to a variable rate exposure, or from a variable rate exposure to a fixed rate exposure. "Financial Products Receipts" means amounts periodically required to be paid to the Authority by a counterparty pursuant to a Financial Products Agreement. "Fiscal Year" means the Corporation's fiscal year, which currently begins on July 1 and ends on June 30 of the following calendar year. "Funds" means the Bond Principal Fund, the Bond Interest Fund, the Project Fund, the Bond Reserve Fund, the Escrow Fund, the Repair and Replacement Fund, the Rebate Fund and the Issuance Expense Fund. "Government Obligations" means: (a) (b) (SLGs)); (c) cash; U.S. Treasury Certificates, Note and Bonds (including State and Local Government Series direct obligations of the U.S. Treasury which have been stripped by the U.S. Treasury itself; (d) Resolution Funding Corp. ("REFCORP"). Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable; (e) pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If, however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre-refunded bonds must have been pre-refunded with cash, direct U.S. or U.S. guaranteed obligations, or "AAA" rated pre-refunded municipals to satisfy this condition; and (f) the U.S.: obligations issues by the following agencies which are backed by the full faith and credit of (i) (ii) U.S. Export-Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership Farmers Home Administration (FmHA) D-3

61 (iii) (iv) (v) (vi) Federal Financing Bank General Services Administration Participation Certificates U.S. Maritime Administration Guaranteed Title XI financing U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds U.S. Government Guaranteed public housing notes and bonds "Gross Revenue" means all income and revenues directly or indirectly derived by the Charter School from its operations, including without limitation per pupil revenues and other funding received from the Charter Authorizer or by virtue of the charter granted to the Charter School and all gifts, grants, bequests and contributions (including income and profits therefrom) specifically restricted by the donor or maker thereof to the Facilities, to the extent not specifically restricted by the donor or maker thereof to a particular purpose inconsistent with their use of the payments required under the Indenture. "Hazardous Substance" means, at any time, (a) any "hazardous substance" as defined in 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C et seq.) as amended at such time; and (b) any additional substances or materials which at such time are classified or considered to be hazardous or toxic under applicable federal, state or local the laws, regulations, orders, judgments, decrees, agreements, authorizations, consents, licenses, permits and other governmental restrictions and requirements which apply to the Facilities. "Indebtedness" means all indebtedness of the Corporation for borrowed moneys, or which has been incurred or assumed in connection with the acquisition of Property, all indebtedness, no matter how created, secured by Property, whether or not such indebtedness is assumed by the Corporation, any leases required to be capitalized in accordance with generally accepted accounting principles, installment purchase obligations and Guaranties. "Indenture" means the Indenture of Trust, dated as of September 1, 2006, between the Authority and the Trustee, including any indentures supplemental thereto made in conformity therewith, pursuant to which the Bonds are authorized to be issued and secured. "Initial Term" means the period commencing on the date the Bonds are issued and ending on June 30, "Insurance Consultant" means an independent insurance consultant and/or risk management firm or an insurance broker or an insurance agent (which may be a consultant, firm, broker or agent with whom the Corporation, the Authority or the Trustee regularly transacts business) selected by the Corporation. "Investment Obligations" means any security or other obligation that is on the following list: (a) Direct obligations of the United States of America (including obligations issued or held in bookentry form on the books of the Department of the Treasury, and CATS and TIGRS), or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. (b) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): (i) (ii) U.S. Export-Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership Farmers Home Administration (FmHA) Certificates of Beneficial Ownership D-4

62 (iii) (iv) (v) (vi) (vii) (viii) Federal Financing Bank Federal Housing Administration Debentures (FHA) General Services Administration Participation Certificates Government National Mortgage Association (GNMA or Ginnie Mae) GNMA guaranteed mortgage-backed bonds GNMA guaranteed pass-through obligations (these obligations are not acceptable for certain cash-flow sensitive issues) U.S. Maritime Administration Guaranteed Title XI financing U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds U.S. government guaranteed Public housing notes and bonds (c) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies which are not backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): (i) (ii) (iii) (iv) (v) (vi) Federal Home Loan Bank System Senior debt obligations Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage-backed securities and senior debt obligations Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations Resolution Funding Corp. (REFCORP) obligations Farm Credit System Consolidated system-wide bonds are notes (d) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by Standard & Poor's of "AAAm-G," "AAA-m," or "AA-m" and if rated by Moody's rated "Aaa," "Aa1" or "Aa2." (e) Certificates of deposit secured at all times by collateral described in (a) and/or (b) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders much have a perfected first security interest in the collateral. (f) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF. D-5

63 (g) Investment Agreements, including GICs, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to the Financial Guaranty Insurer. (h) Commercial paper rated, at the time of purchase, "Prime-1" by Moody's and "A-1" or better by Standard & Poor's Ratings Services. (i) Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such rating agencies. (j) Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime-1" or "A3" or better by Moody's and "A-1" or "A" or better by S&P. (k) Repurchase Agreements ("Repos") for 30 days or less must follow the following criteria. Repos which exceed 30 days must be acceptable to the Financial Guaranty Insurer (criteria available upon request). Repos provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. (i) Repos must be between the municipal entity and a dealer bank or securities firm. (A) Primary dealers on the Federal Reserve reporting dealer list which are rated "A" or better by Standard and Poor's and "A2" or better by Moody's, or (B) Moody's. Banks rated "A" or above by Standard and Poor's and "A2" or better by (ii) The written repo contract must include the following: (A) Securities which are acceptable for transfer are: (1) Direct obligations of the United States of America referred to in Section A above, (2) Obligations of federal agencies referred to in Section B above, or (3) Obligations of FNMA and FHLMC. (B) The term of the Repos may be up to 30 days. (C) The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee is (if the trustee is supply the collateral) before/simultaneous with payment (perfection by possession of certificated securities). (D) Valuation of Collateral. (1) the securities must be valued weekly, marked-to-market at current market price plus accrued interest. (2) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by the municipal entity, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. D-6

64 (iii) A legal opinion which must be delivered to the municipal entity that states that the Repo meets guidelines under state law for legal investment of public funds. "Issuance Expense Fund" means the Issuance Expense Fund established by the Indenture. "Issuance Expense Fund Initial Deposit" means an amount equal to $438, "Land" means the real estate, interests in real estate, and other real property rights described in the Agreement, together with all real estate, interests in real estate and other real property rights made a part of the Land in connection with the substitution of such real estate and other real property rights pursuant to the Agreement or as the result of replacement of property taken in condemnation, or otherwise, less such real estate, interests in real estate and other real property rights released under the provisions of the Agreement or taken by the exercise of the power of eminent domain as provided in the Agreement. "Lease" means the Lease Agreement, dated as of September 1, 2006, between the Charter School and the Corporation, and any amendments or supplements thereto, pursuant to which all or substantially all of the Facilities are expected to be leased by the Corporation to the Charter School. "Leased Property" means the property described in Exhibit A to the Lease, as from time to time amended or supplemented, together with all other property that may be designated as part of the Leased Property in any amendment or supplement thereto, less any property damaged, destroyed or condemned as provided in the Lease or released pursuant to the Lease. "Lease Term" means the Initial Term and each Renewal Term during which the Charter School is the lessee of the Leased Property under the Lease. Certain provisions of the Lease survive the expiration or end of the Lease Term. "Lien" means any mortgage or pledge of, security interest in, or lien or encumbrance on, any Property which secures any Indebtedness or other obligation of the Corporation or which secures any obligation of any Person other than an obligation to the Corporation excluding liens applicable to Property in which the Corporation has only a leasehold interest unless the lien secures Indebtedness. "Loan" means the loan by the Authority to the Corporation of the proceeds from the sale of the Bonds pursuant to the Agreement. "Loan Payments" means the loan payments required to be paid by the Corporation pursuant to the Agreement. "Long-Term Indebtedness" means all Indebtedness, the final maturity of which (taking into account any extensions available at the sole option of the Corporation) is greater than one year after the initial incurrence thereof. "Maximum Annual Debt Service" means as of any date of calculation, the highest principal and interest payment requirements with respect to all Long-Term Indebtedness of the Corporation outstanding for any succeeding Bond Year. "Net Proceeds" means, when used with respect to any insurance payment or condemnation award, the gross proceeds thereof less the expenses (including attorneys' fees) incurred in the collection of such gross proceeds. "Net Revenue" means Gross Revenue, plus the amount of unrestricted working capital balance of the Charter School operating fund in excess the balance required pursuant to the Lease, less Operating Expenses, including lease or sublease revenues projected to be received if and as evidenced by executed lease or sublease documents customary in commercial real estate transactions, including lease or sublease revenues projected to be received if and as evidenced by executed lease or sublease documents customary in commercial real estate transactions. D-7

65 "Operating Expenses" means all reasonable and necessary current expenses of the Charter School, paid or accrued, to operate a public school and provide educational services, including without limitation (a) salaries and administrative expenses, (b) the cost of instructional supplies and materials, (c) insurance premiums, (d) professional services and (e) any payments made under the Lease which constitute Additional Rentals; provided however, there shall be excluded from Operating Expenses (i) any allowance for depreciation, (ii) expenses incurred in connection with Capital Improvements, (iii) expenses paid from the Repair and Replacement Fund, (iv) expenses paid from grants from state, federal or local sources, or from any Person, which were not included as part of Gross Revenue, and (v) Base Rental payments and any similar rental payments made for the lease-purchase of Capital Improvements. "Outstanding" means when used with respect to the Bonds, as of any particular time, all Bonds which have been duly authenticated and delivered by the Trustee under the Indenture, except: (a) Bonds theretofore cancelled by the Trustee or delivered to the Trustee for cancellation after purchase in the open market or because of payment at or redemption prior to maturity; (b) Bonds for the payment or redemption of which cash funds (or securities to the extent permitted in the Indenture) shall have been theretofore deposited with the Trustee (whether upon or prior to the maturity or redemption date of any such Bonds); provided that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Trustee, shall have been filed with the Trustee; (c) (d) Bonds in lieu of which other Bonds have been authenticated pursuant to the Indenture; and Bonds for which the conditions in the Indenture have been met. "Permitted Encumbrance" means, as of any particular time, any of the following: (a) (b) (c) (d) Liens for taxes and special assessments on the Facilities not then delinquent; the Agreement, the Tax Regulatory Agreement, and the Indenture; purchase money security interests with respect to any item of equipment related to the Facilities; the Lease and any other leases of the Facilities permitted pursuant to the terms of the Agreement; (e) utility, access, and other public easements and rights-of-way, mineral rights and reservations, restrictions and exceptions which would not in the aggregate (i) materially interfere with or impair any present use of the Facilities or any reasonably probable future use of the Facilities or (ii) materially reduce the value which would be reasonably expected to be received for the Facilities upon any sale (including any foreclosure of the mortgage granted by the Agreement); (f) mechanics' and materialmen's liens related to the Facilities when payment of the related bill is not overdue and as may be permitted by the Lease; (g) mechanics' and materialmen's liens, security interests or other encumbrances related to the Facilities to the extent permitted by the Agreement; (h) Liens arising by reason of good faith deposits with the Corporation in connection with leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by the Corporation to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges; (i) Liens arising by reason of deposits with, or the giving of any form of security to, any governmental agency as required by law or governmental regulation as a condition to any transaction or any business or the exercise of any privilege or license, or to enable the Corporation to maintain self insurance or to participate in any funds established to cover any insurance risks or in connection with workmen's compensation, unemployment insurance, pension or profit sharing plans or other similar social security plans, or to share in the privileges or benefits required for companies participating in such arrangements; D-8

66 (j) judgment liens against the Corporation or the Charter School so long as such judgment is being contested and execution thereon is stayed or while the period for responsive pleading has not lapsed; (k) (i) rights reserved to or vested in any municipality, school district or public authority by the terms of any right, power, franchise, grant, license or permit, or provision of law, affecting the Facilities, to (A) terminate such right, power, franchise, grant, license or permit, provided that the exercise of such right would not materially impair the use of the Facilities or materially and adversely affect the value thereof, or (B) purchase, condemn, appropriate, or recapture, or designate a purchaser of, the Facilities; (ii) Liens on the Facilities for taxes, assessments, levies, fees, water and sewer charges, and other governmental and similar charges and any liens of mechanics, materialmen, laborers, suppliers or vendors for work or services performed or materials furnished in connection with the Facilities, which are not due and payable or which are not delinquent or which are being contested in good faith or with respect to liens of mechanics, materialmen and laborers, have been due for less than 60 days; (iii) easements, rights-of-way, servitudes, restrictions and other minor defects, encumbrances and irregularities in the title to the Facilities which do not materially impair the use of the Facilities or materially and adversely affect the value thereof; or (iv) rights reserved to or vested in any municipality or public authority to control or regulate the Facilities or to use the Facilities in any manner, which rights do not materially impair the use of the Facilities or materially and adversely affect the value thereof; (l) Liens and any other restrictions, exceptions, leases, easements or encumbrances which are existing on the date of initial issuance and delivery of the Bonds and permitted to remain by the Trustee, provided that no such Lien (or the amount of Indebtedness secured thereby) and any other restrictions, exceptions, leases, easements or encumbrances may be increased, extended, renewed or modified to apply to the Facilities not subject to such Lien on such date, unless such Lien as so extended, renewed or modified or otherwise qualified as a Permitted Encumbrance or is otherwise permitted by the Agreement; (m) (n) proceeds; (o) Liens arising by reason of an Irrevocable Deposit; Liens in favor of the Trustee on the proceeds of the Bonds prior to the applications of such Liens securing the Bonds or any additional Indebtedness permitted by the Agreement; (p) any Lien subordinate to the Liens described in clause (p) required by a statute under which such Indebtedness is issued; and (q) such minor defects, irregularities, encumbrances, easements, rights-of-way and clouds on title as normally exist with respect to properties similar in character to the Facilities and which do not in the aggregate (i) materially interfere with or impair any present use of the Facilities or any reasonably probable future use of the Facilities, or (ii) materially reduce the value which would be reasonably expected to be received for the Facilities upon any sale (including any foreclosure of the mortgage granted by the Agreement). "Person" includes an individual, association, corporation, partnership, joint venture or a government or an agency or a political subdivision thereof. "Pledged Revenues" means all revenues, rentals, fees, third-party payments, receipts, donations, contributions or other income derived from the Facilities, including the rights to receive such revenues (each subject to Permitted Encumbrances), all as calculated in accordance with sound accounting practices, including, but not limited to, any revenues received from rentals of the Facilities, including, without limitation, rentals received pursuant to the Lease; proceeds derived from insurance, condemnation proceeds, accounts, contract rights and other rights and assets, whether now or hereafter owned, held or possessed by the Corporation which are derived from the Facilities; and all gifts, grants, bequests and contributions (including income and profits therefrom), to the extent not specifically restricted by the donor or maker thereof to a particular purpose inconsistent with their use for any of the payments required hereunder. Pledged Revenues shall not, however, include any administrative fee paid to the Corporation by a lessee of the Facilities for the Corporation's administration of the Facilities, including, without limitation, the Additional Rentals paid to the Corporation pursuant to the Lease. D-9

67 "Project" means, collectively, the financing of the refunding of the principal on a bank loan, making of a yield reduction payment in connection with the refunding of the bank loan, paying a portion of the cost of constructing and improving additional educational facilities, funding the Bond Reserve Fund and paying the costs of issuing the Bonds. "Project Fund" means the Project Fund created in the Indenture. "Project Fund Initial Deposit" means an amount equal to $5,177, "Property" means any and all rights, title and interest in and to any and all property of the Corporation whether real or personal, tangible or intangible and wherever situated and whether now owned or hereafter acquired. "Qualified Provider" means any financial institution or insurance company which is a party to a Financial Products Agreement if the unsecured long-term debt obligations of such financial institution or insurance company (or of the parent or a subsidiary of such financial institution or insurance company if such parent or subsidiary guarantees the performance of such financial institution or insurance company under such Financial Products Agreement), or obligations secured or supported by a letter of credit, contract, guarantee, agreement, insurance policy or surety bond issued by such financial institution or insurance company (or such guarantor parent or subsidiary), are rated in one of the three highest rating categories (without regard to numerical or similar modifiers) of a national rating agency at the time of the execution and delivery of the Financial Products Agreement. "Rebate Fund" means the Rebate Fund created in the Indenture. "Refunded Obligations" means the Series 2003 Bonds. "Refunded Obligations Requirement" means an amount equal to $5,201, "Registered Owner" of Bonds means the registered owner of any Bond. "Renewal Term" means the twelve-month period, commencing on September 1 of each year and ending on August 31 of following calendar year, for which the Charter School renews the Lease Term. "Repair and Replacement Fund" means the Repair and Replacement Fund created in the Indenture. "Repair and Replacement Fund Requirement" means, in any one Fiscal Year, an amount equal to 2% of the budgeted Operating Expenses of the preceding Fiscal Year. "Requirement of Law" means any material federal, state or local statute, ordinance, rule or regulation, any judicial or administrative order (whether or not on consent), request or judgment, any common law doctrine or theory, any provision or condition of any permit required to be obtained or maintained, or any other binding determination of any governmental authority relating to the ownership or operation of property, including but not limited to any of the foregoing relating to environmental, health or safety matters. "Reserve Fund Insurance Policy" means any insurance policy, surety bond, letter of credit or similar instrument deposited in or credited to the Bond Reserve Fund pursuant to the Agreement in lieu of or in partial substitution for cash or Investment Obligations on deposit in the Bond Reserve Fund. Any such insurance policy, surety bond, letter of credit or similar instrument must be issued by an entity having a rating in one of the two highest rating categories assigned by Standard & Poor's and Moody's at the time such policy, surety, bond, letter of credit or similar instrument is deposited in or credited to the Bond Reserve Fund. "Revenues" means all payments received by the Trustee in cash for the account of the Authority pursuant to the Agreement and the Indenture. "School Year" means the Charter School's fiscal year, which currently begins on July 1 and ends on June 30 of the following calendar year. D-10

68 "Series 2003 Bonds" means, collectively, the "Colorado Educational and Cultural Facilities Authority, Charter School Revenue Refunding Bonds (Cheyenne Mountain Charter Academy Project) Series 2003" originally issued in the aggregate principal amount of $2,215,000 pursuant to an Indenture of Trust, dated May 1, 2003, between the Authority and the Trustee. "Short-Term Indebtedness" means all Indebtedness other than Long-Term Indebtedness. "Special Record Date" means a special record date, which shall be a Business Day, fixed to determine the names and addresses of owners for purposes of paying interest on a special interest payment date for the payment of defaulted interest, all as further provided in the Indenture. "State" means the State of Colorado. "Tax Regulatory Agreement" means the Tax Regulatory Agreement, dated as of September 1, 2006, among the Authority, the Corporation, the Charter School and the Trustee executed in connection with the initial issuance and delivery of the Bonds, as amended or supplemented from time to time pursuant to its terms. "Trustee" means American National Bank, Denver, Colorado, being the paying agent, the registrar and the trustee under the Indenture, or any successor corporate trustee. "Trust Estate" means the pledged property, assigned and mortgaged to the Trustee pursuant to the granting clauses of the Indenture. D-11

69 SUMMARY OF THE INDENTURE, THE LOAN AGREEMENT AND THE LEASE The following constitutes summaries of certain portions of the Indenture, the Loan Agreement and the Lease. The summaries do not purport to be complete and reference is hereby made to the full text of each such document for a complete description thereof. General THE INDENTURE The Indenture is a contract between the Authority and the Trustee for the benefit of the owners of the Bonds issued pursuant to the Indenture. Pledge and Agreement of the State of Colorado By the enactment of Section of the Act, the State of Colorado has pledged to and agreed with the owners of any bonds, notes and other obligations issued under the Act, and with those parties who may enter into contracts with the Authority pursuant to the provisions of the Act, that the State of Colorado will not limit, alter, restrict or impair the rights vested in the Authority to acquire, construct, reconstruct, maintain and operate any facility as defined in the Act or to establish, revise, charge and collect rates, rents, fees and other charges as may be convenient or necessary to produce sufficient revenues to meet the expenses of maintenance and operation thereof and to fulfill the terms of any agreements made with the holders of bonds, notes or other obligations authorized and issued pursuant to the Act, and with the parties who may enter into contracts with the Authority pursuant to the Act, and will not in any way impair the rights or remedies of the holders of such bonds, notes or other obligations of such parties until such bonds, notes or other obligations, together with interest thereon, with interest on any unpaid installment of interest and all costs and expenses in connection with any action or proceeding by or on behalf of such owners, are fully met and discharged and such contracts are fully performed on the part of the Authority. Nothing in the Act precludes such limitation or alteration if and when adequate provision is made by law for the protection of the owners of such bonds, notes or other obligations of the Authority or those entering into such contracts with the Authority. Limited Obligation The Bonds shall be limited obligations of the Authority payable solely out of the security specified in the Indenture. The Bonds shall not constitute or become an indebtedness, a debt or a liability of or a charge against the general credit or taxing power of the State of Colorado, the General Assembly of the State of Colorado, or of any county, city, city and county, town, school district, or other subdivision of the State of Colorado, or of any other political subdivision or body corporate and politic within the State of Colorado other than the Authority (but only to the extent provided in the Indenture), and neither the State of Colorado, the General Assembly of the State of Colorado, nor any county, city, city and county, town, school district, or other subdivision of the State of Colorado except the Authority to the extent provided above shall be liable thereon; nor shall the Bonds constitute the giving, pledging or loaning of the faith and credit of the State of Colorado, the General Assembly of the State of Colorado, or any county, city, city and county, town, school district or other subdivision of the State of Colorado or of any other political subdivision or body corporate and politic within the State of Colorado but shall be payable solely from the funds provided therefor in the Indenture. Except as provided in the Charter School Facilities Financing Act, the issuance of the Bonds shall not, directly or indirectly or contingently, obligate the State of Colorado or any subdivision of the State of Colorado nor empower the Authority to levy or collect any form of taxes or assessments therefor or to create any indebtedness payable out of taxes or assessments or make any appropriation for their payment, and such appropriation or levy is prohibited. Nothing in the Act or the Supplemental Act shall be construed to authorize the Authority to create a debt of the State of Colorado within the meaning of the Constitution or statutes of the State of Colorado or authorize the Authority to levy or collect taxes or assessments. Neither the members of the Authority nor any person executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. The State of Colorado shall not in any event be liable for the payment of the principal of, premium, if any, or interest on the Bonds or for the performance of any pledge, mortgage, obligation or agreement of any kind whatsoever undertaken by the Authority. No breach of any such pledge, mortgage, obligation or agreement shall impose any pecuniary liability upon the State of Colorado or any charge upon its general credit or against its taxing power. D-12

70 Additional Bonds Authorized Additional Bonds secured by and payable solely from the Trust Estate may be issued in one or more additional series provided the following terms and conditions have been met: (a) Either (i) consent of the Financial Guaranty Insurer has been obtained, or (ii) the Additional Bonds are issued to pay costs of further construction, modifications and improvements on the Leased Property; (b) the Trustee has received a certificate of an Authorized Representative of the Corporation to the effect that (i) the Corporation is not in default under the Agreement or this Indenture, (ii) the Corporation is not aware of any Events of Default under the Agreement or the Indenture and (iii) that the requirements for additional Indebtedness of the Corporation as set forth in the Agreement have been met; (c) the Trustee has received a copy, duly certified by the Executive Director of the Authority, of the resolution adopted by the Authority authorizing the issuance of such Additional Bonds and the execution and delivery of a supplemental indenture, supplementing and amending the Indenture, which supplemental indenture shall not require the approval of the Registered Owners of the Bonds Outstanding, providing the date, interest rates and maturities of such Additional Bonds, options and requirements for redemption prior to maturity with respect to such Additional Bonds, deposit of proceeds to the various funds and accounts, including the Bond Reserve Fund, and such other terms as may be required by reason of the foregoing and which adopts the applicable provisions of the Indenture, and of an agreement supplementing and amending the Agreement; (d) the Authority and the Trustee have received an opinion of nationally recognized municipal bond counsel to the effect that the issuance of such Additional Bonds will not affect adversely the exclusion from gross income for federal income tax purposes of interest on any Outstanding Bonds; (e) the Trustee has received original executed counterparts of the agreement supplementing and amending the Agreement, and the supplemental indenture supplementing and amending the Indenture; (f) the Trustee has received a request and authorization to the Trustee on behalf of the Authority and signed by its Executive Director or any other Authorized Representative of the Authority to authenticate and deliver such Additional Bonds to the purchasers therein identified, upon payment to the Trustee, but for the account of the Authority, of a sum specified in such request and authorization, plus accrued interest thereon, if any, to the date of delivery; (g) the Trustee will receive from the proceeds of the Additional Bonds or otherwise on the date of delivery of the Additional Bonds an amount equal to the additional Bond Reserve Requirement for deposit into the Bond Reserve Fund; (h) the Authority and the Trustee have received an executed opinion of nationally recognized municipal bond counsel to the effect that (i) the Additional Bonds have been duly authorized, executed and delivered and constitute the binding limited obligations of the Authority, enforceable in accordance with their terms, subject to normal bankruptcy exceptions, and (ii) the interest on such Additional Bonds is excluded from gross income for federal income tax purposes (unless it is intended that such interest be taxable); and (i) the Base Rentals, as recalculated by the Trustee pursuant to the Lease, shall be equal to the amounts necessary to make the principal, premium, if any, and interest payments on the Bonds and the Additional Bonds when due. The provisions, covenants and agreements above to be performed by or on behalf of the Authority and in the Agreement to be performed by the Corporation 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. Establishment of Funds The Indenture creates the Bond Principal Fund, the Bond Interest Fund, the Project Fund, the Bond Reserve Fund, the Issuance Expense Fund, the Repair and Replacement Fund and the Rebate Fund, all of which are to be held in trust by the Trustee for the purposes specified in the Indenture. D-13

71 Bond Interest Fund and Bond Principal Fund There shall be deposited into the Bond Interest Fund accrued interest from the sale of the Bonds. There shall also be deposited into the Bond Interest Fund or the Bond Principal Fund, as appropriate, as received by the Trustee, the payments of interest or principal to be made by the Corporation pursuant to the Agreement and all other moneys deposited into such Funds pursuant to the Agreement, the Lease or the Indenture. Subject to any necessary transfers to the Rebate Fund, investment income of the Bond Principal Fund and Bond Interest Fund moneys shall be retained in the Bond Principal Fund or the Bond Interest Fund, respectively, unless there exists a deficiency in the Bond Reserve Fund, in which case such investment income shall be deposited (up to the amount of such deficiency) into the Bond Reserve Fund. Except in the case of default by the Corporation, upon payment in full of the Bonds or if required to fund the Rebate Fund, moneys in the Bond Principal Fund and Bond Interest Fund are to be used, subject to the next paragraph, solely for the payment of principal, premium and interest on the Bonds. Whenever the total amount in the Bond Principal Fund, the Bond Interest Fund and the Bond Reserve Fund is sufficient to redeem all of the Bonds Outstanding and to pay interest to accrue thereon prior to such redemption, and the Trustee, subject to the requirements of the Agreement and written direction from the Corporation, shall take and cause to be taken the necessary steps to redeem all of the Bonds on the redemption date for which the required redemption notice has been given. The Trustee shall transfer to the Charter School, as soon as reasonably possible, all or such portion of any moneys deposited with the Trustee by or on behalf of the Charter School pursuant to the Lease, which are not necessary to meet the monthly Loan Payments required pursuant to the Agreement because moneys from the State Education Fund have been deposited with the Trustee by the Charter School pursuant to the Lease. Further, so long as (a) there has been no Event of Default under the Indenture, (b) the Lease Term has not expired, ended or been terminated, (c) none of the moneys in the Bond Principal Fund or Bond Interest Fund are necessary or required for payment of all or any portion of the Bonds for a redemption pursuant to the Indenture, and (d) the Trustee is not in possession of any Net Proceeds, the Trustee shall, within five Business Days following the date of maturity or sinking fund redemption of any of the Bonds, transfer to the Charter School the balance of any moneys on deposit in the Bond Principal Fund and the Bond Interest Fund which is not required to be held pursuant to the Indenture. The Trustee shall utilize the provisions of the Colorado State Treasurer Charter School Intercept Program. Bond Reserve Fund There shall be deposited into the Bond Reserve Fund all moneys to be paid by the Corporation to the Trustee pursuant to the Agreement and the Indenture. If on any payment date with respect to principal or interest on any Bonds there is a deficiency in the amount on deposit in either the Bond Interest Fund or the Bond Principal Fund, the Trustee is required to transfer money from the Bond Reserve Fund to eliminate such deficiency. The Trustee is also required in certain circumstances to transfer moneys from the Bond Reserve Fund to the Rebate Fund to make up deficiencies in the Rebate Fund. If money is withdrawn from the Bond Reserve Fund for any such purpose, the Corporation is obligated under the Agreement to make additional deposits into the Bond Reserve Fund to maintain its balance in an amount equal to the Bond Reserve Requirement on all Bonds Outstanding under the Indenture. Investment income on moneys in the Bond Reserve Fund shall be retained in the Bond Reserve Fund, except that annually any excess of moneys in the Bond Reserve Fund over the Bond Reserve Requirement shall be transferred to the Bond Principal Fund to be applied to the payment of the principal of the Bonds. On the final maturity date of the Bonds, the amount in the Bond Reserve Fund may be used to pay the principal of and interest on the Bonds. In the event of the redemption of the Bonds in whole, any moneys in the Bond Reserve Fund may be used to pay the principal on the Bonds. In the event the Corporation shall deliver a Reserve Fund Insurance Policy in substitution for the cash or Investment Obligations then on deposit in the Bond Reserve Fund, the Trustee is authorized to release to the Corporation or its designee cash and Investment Obligations in an amount (including accrued but unpaid interest on such Investment Obligations, if any) equal to the face amount of such Reserve Fund Insurance Policy. In addition, the Trustee is hereby authorized to release any Reserve Fund Insurance Policy from the Trust Estate in the event the Corporation shall deliver to the Trustee for deposit to the Bond Reserve Fund cash and Investment Obligations (exclusive of accrued but unpaid interest thereon) in an amount equal to the amount then available to be drawn under such released Reserve Fund Insurance Policy. D-14

72 The Trustee shall utilize the provisions of the Colorado Charter School Debt Reserve Fund Program and the Colorado Charter School Moral Obligation Program. Escrow Fund There shall be deposited into the Escrow Fund an amount equal to the Refunded Obligations Requirement. The Trustee is authorized to give or cause to be given a notice of refunding, defeasance and redemption of the Refunded Obligations in accordance with the provisions of the respective documents and instruments authorizing and providing for the issuance of the Refunded Obligations. Any notice of defeasance shall include a statement that redemption provisions relating to the Refunded Obligations are waived and the Refunded Obligations will be redeemed pursuant to the Escrow Agreement. Project Fund The unspent proceeds of the Bonds will be deposited in the Project Fund. The Trustee is authorized to disburse the monies in the Project Fund to or on behalf of the Corporation for the cost of the construction, renovation and equipping of the Facilities pursuant to the Agreement. Issuance Expense Fund Moneys in the Issuance Expense Fund shall be used to pay issuance expenses incurred by the Corporation in connection with the financing; provided, however, amounts necessary to pay invoiced fees of bond counsel, the Authority and the Trustee may be paid by the Trustee without additional documentation. Upon receipt by the Trustee of a certificate of the Corporation to the effect that all expenses incurred in connection with this financing have been paid, any moneys remaining in the Issuance Expense Fund shall be transferred to the Bond Interest Fund or the Bond Principal Fund. Subject to the preceding and any necessary transfers to the Rebate Fund, any moneys received as investment income on the moneys in the Issuance Expense Fund shall be retained in the Issuance Expense Fund. Repair and Replacement Fund The Corporation has covenanted that unless the amount on deposit in the Repair and Replacement Fund on the first Business Day of any Fiscal Year equals or exceeds the Repair and Replacement Fund Requirement (in which event no additional deposits are required), commencing the first month of said Fiscal Year the Corporation shall pay or cause to be paid to the Trustee substantially equal monthly amounts (i.e., 12-month period) which total 1/2 of one percent of the current Fiscal Year's Operating Expenses, or substantially equal monthly installments which total the deficiency in the Repair and Replacement Fund if such deficiency is less than 1/2 of one percent of Operating Expenses of the current Fiscal Year. The Charter School has covenanted to pay such amounts as Additional Rentals pursuant to the Lease. Interest and other income received on investment of moneys in the Repair and Replacement Fund, to the extent provided in the Indenture, shall be retained in the Repair and Replacement Fund. The Trustee is authorized and directed to make each disbursement upon receipt by the Trustee of a written requisition from an Authorized Representative of the Corporation setting forth the amount and the payee for the purpose of paying the cost of extraordinary maintenance and replacements which may be required to keep the 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 conditioning, plumbing and electrical equipment. Rebate Fund The Corporation must, every five years, provide to the Trustee a certificate of the Corporation that (a) all requirements of the Agreement, the Indenture and the Tax Regulatory Agreement with respect to the Rebate Fund have been met on a continuing basis, (b) the proper amounts are on deposit in the Rebate Fund and (c) timely payment of amounts due to the United States Treasury, if any, have been made. The Trustee shall cause amounts on deposit in the Rebate Fund to be forwarded to the United States Treasury at the times and in the amounts set forth in the Corporation's written direction pursuant to the Agreement. D-15

73 If the Corporation does not fund the Rebate Fund as required by the Indenture and there is not sufficient investment income subject to transfer from the other funds, the Trustee is required to make up the deficiency in the Rebate Fund by transferring moneys from the following funds in the following order of priority: the Issuance Expense Fund, the Bond Reserve Fund, the Bond Principal Fund and the Bond Interest Fund. Any money received as investment income on the moneys in the Rebate Fund shall be retained in the Rebate Fund. Investment of Funds The moneys held by the Trustee in the various Funds created under the Indenture are to be invested in Investment Obligations, all in accordance with instructions from the Corporation to the Trustee. The Investment Obligations are to mature or be redeemable within designated time limits and prior to the time when the moneys so invested shall be required for expenditure. If the Trustee does not receive investment instructions from the Corporation, the Trustee will invest moneys held as part of the Funds (except the Escrow Fund) in Investment Obligations. Investment Obligations shall be valued semiannually at market value. Any loss suffered from any investment shall be charged to the Fund with respect to which the investment was made. Supplemental Indentures of Trust Without the consent of or notice to any of the Registered Owners of the Bonds, the Authority may, and at the written direction of the Corporation and Charter School, the Trustee may at any time enter into supplemental indentures for the following purposes: (a) to add covenants and agreements to the Indenture for the protection or benefit of the Registered Owners, (b) to cure any ambiguity, or to cure, correct or supplement any defect or inconsistent provision in the Indenture or to make any provisions with respect to matters arising under the Indenture or for any other purpose if such provisions are necessary or desirable and do not materially adversely affect the interests of the Registered Owners of the Bonds, (c) to subject to the lien of the Indenture additional revenues, properties or collateral or (d) to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. With the consent of the Registered Owners of at least 66-2/3% in aggregate principal amount of the Bonds then Outstanding (and the Corporation if no Event of Default has occurred and is continuing), the Authority and the Trustee, at the written direction of the Corporation and Charter School, may enter into supplemental indentures for any other purpose, except that no supplemental indenture without the consent of all Registered Owners of Bonds Outstanding and adversely affected thereby may (i) extend the maturity, reduce the principal amount, reduce the rate of interest on or extend the time of payment of interest any Bond, (ii) deprive any Registered Owner of a Bond then Outstanding of the lien created by the Indenture (other than as permitted by the Indenture when such Bond was initially issued), (iii) give a privilege or priority to any Bond over any other Bond or (iv) reduce the aggregate principal amount of the Bonds required for consent to any supplemental indenture or any amendment to the Agreement. In connection with each supplemental indenture, the Trustee is required to obtain an opinion of bond counsel as set forth in the Indenture. The Indenture describes the procedures to be used to give notice to and to obtain the consent of the Registered Owners of any Bonds whenever the Authority and the Trustee propose to enter into a supplemental indenture requiring such consents. Events of Default Under the Indenture an "Event of Default" is defined to include, in general terms (a) default in making payment of principal of or premium, if any, on any Bond when due; (b) default in the payment by the Authority of any installment of interest on any Bonds when due; (c) any default in the observance or performance of any other provision in the Bonds or the Indenture which continues for 30 days after written notice to the Authority, the Corporation, the Financial Guaranty Insurer and the Trustee from the Registered Owners of at least 25% in aggregate principal amount of the Bonds then Outstanding or to the Authority and the Corporation from the Trustee, subject to the Indenture, provided, with respect to any such failure, no Event of Default shall be deemed to have occurred so long as a course of action adequate in the judgment of the Trustee to remedy such failure shall have been commenced within such 30-day period and shall thereafter be diligently prosecuted to completion; (d) the occurrence of any "event of default" under the Agreement; and (e) material failure regarding the statements made pursuant to the Project Fund Requisition Certificate. D-16

74 Remedies on Events of Default Under the Indenture, upon the occurrence of an Event of Default the Trustee may, with a written notice to the Authority, the Financial Guaranty Insurer and the Corporation, or at the written request of the Registered Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, shall declare all the Bonds immediately due and payable. In addition, upon the occurrence of an Event of Default the Trustee may seek the appointment of a receiver, foreclosure of the Facilities or sue to recover a judgment. The remedies specified in the Indenture are cumulative and are not intended to be exclusive. Any recovery against the Corporation is limited as provided under the caption "THE LOAN AGREEMENT Remedies on Default" in this Appendix B. The Trustee may in its discretion waive any Event of Default under the Indenture and its consequences and may rescind any declaration of acceleration of maturity of principal of and interest on the Bonds and shall do so upon the written request of the Registered Owners of a majority in aggregate principal amount of all the Bonds then Outstanding in respect of which default exists. However, the Trustee may not waive (a) any Event of Default in the payment of the principal of any Outstanding Bonds at the date of maturity or redemption thereof, or any default in the payment when due of the interest on any such Bonds, unless prior to such waiver or rescission, all arrears of interest or all arrears of payments of the principal and all amounts to be paid to the Authority and the Trustee under the Indenture and under the Agreement, in connection with such default, shall have been paid or provided for, or (b) any default in the payment of loan agreements pursuant to the Agreement. No Registered Owner of any Bond shall have the right to institute any suit, action or proceeding for the enforcement of the Indenture unless, as more specifically provided in the Indenture, the Trustee has resigned or has failed to proceed within a reasonable time after having been requested to institute such suit, action or proceeding by Registered Owners of not less than a majority in aggregate principal amount of Bonds then Outstanding and has been offered reasonable indemnity against the costs and liabilities to be incurred. The Registered Owners of a majority in aggregate principal amount of Bonds then Outstanding shall have the right, at any time and to the extent permitted by law, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture, provided such directions are in accordance with the provisions of the Indenture and provided satisfactory indemnity is furnished to the Trustee. The Indenture provides that all moneys collected by the Trustee pursuant to its provisions concerning remedies on default, after payment of the expenses of the collection proceedings, shall be deposited into the Bond Principal Fund and the Bond Interest Fund in the order and manner set forth in the Indenture. Notwithstanding any other provisions, all moneys held as described in this paragraph which relate to moneys in any of the Funds shall be applied only to payment of principal of and interest on the Bonds. All other moneys held as described in this paragraph shall be applied to the payment of all Bonds specifically secured thereby. Discharge When the Bonds become due and payable and the whole amount of the principal of and interest due and payable upon all of the Bonds has been paid, or provisions have been made for such payment, together with the payment of all other sums payable under the Indenture, including all amounts payable to the Authority and all amounts payable to the United States pursuant to Section 148 of the Code, then the Indenture and all rights granted therein shall cease, terminate and become void and be discharged and satisfied, and the right, title and interests of the Trustee under the Indenture and all obligations to the Registered Owners of the Bonds (except with respect to the moneys or securities described in the next paragraph) shall thereupon cease, terminate and become void and be discharged and satisfied. Any Outstanding Bond shall be deemed to have been paid prior to maturity or redemption when (a) in case said Bond is to be redeemed on any date prior to its maturity, the Corporation has given to the Trustee irrevocable instructions to give notice of redemption of such Bond, (b) there have been deposited with the Trustee either moneys in an amount which shall be sufficient (or Government Obligations which do not contain provisions permitting the redemption thereof at the option of the issuer, the principal of and the interest on which when due, and without any reinvestment thereof, shall provide moneys which, together with the moneys, if any, deposited with or held by the Trustee at the same time, shall be sufficient) to pay when due the principal of and interest due and to become due on said Bond on or prior to its redemption or maturity date, (c) there has been delivered to the Trustee a letter from a firm of certified public accountants certifying as to the sufficiency of the deposit made pursuant to the preceding clause (b), (d) an opinion of bond counsel satisfactory to the Trustee and the Authority that such payment does not adversely affect the exclusion from gross income of the interest on the Bonds and the defeasance is in accordance with the requirements of the Indenture, and (e) in the event said Bond is not subject to redemption within the next 45 days, the Corporation has given the Trustee irrevocable instructions to give, as soon as practicable, a notice to the Authority and the Registered Owner of such Bond that the deposit required by (b) above D-17

75 has been made with the Trustee and that said Bond is deemed to have been paid and stating such maturity or redemption date upon which moneys are to be available for the payment of the principal of and interest on said Bond and stating whether any redemption provisions relating to the Bonds will remain in effect. Trustee Under the Indenture, in connection with actions to be taken with respect to defaults, the Trustee shall be entitled to require indemnification against any liabilities which it may incur in the exercise and performance of its powers and duties under the Indenture and which are not due to its negligence or willful default. The Indenture establishes procedures and conditions for the resignation or removal of the Trustee and for the appointment of successors by the Registered Owners of a majority in aggregate principal amount of the Bonds then Outstanding. Prior to the appointment of a successor Trustee by the Registered Owners of the Bonds, the Authority may appoint an interim successor Trustee. Rights of Financial Guaranty Insurer Notwithstanding any other provision of the Indenture, the Agreement or the Lease, so long as the Bonds are Outstanding and the Financial Guaranty Insurer is not in payment default under the Financial Guaranty Insurance Policy, (i) the Financial Guaranty Insurer shall be deemed to be the Owner of all the Bonds for purposes of exercising rights with respect to remedies pursuant to the Indenture, replacing the Trustee pursuant to the Indenture and consenting to supplemental indentures and amendments to the Agreement and the Lease pursuant to the Indenture and (ii) there shall be no acceleration of the payment obligations of the Charter School or Corporation under the Agreement or the Lease or of the Authority under the Indenture without the consent of the Financial Guaranty Insurer. General THE LOAN AGREEMENT The Agreement provides for the Loan from the Authority to the Corporation. The Corporation is obligated to repay the Loan by making Loan Payments of principal and interest to the Trustee for the account of the Authority for deposit into the Bond Principal Fund and the Bond Interest Fund established by the Indenture. See the caption "THE INDENTURE Bond Interest Fund and Bond Principal Fund" in this Appendix B. The Corporation is also required to make Loan Payments equal to the redemption price of any Bonds called for prior redemption on or before the redemption date. The Corporation may receive a credit against Loan Payments to be made with respect to the sinking fund redemption requirements for Bonds to the extent it has delivered to the Trustee Bonds for cancellation or to the extent Bonds have been previously redeemed otherwise than through the operation of the sinking fund. Under the Agreement, the Corporation shall be obligated to deposit moneys into the Bond Reserve Fund to the extent necessary to cause the amount on deposit therein to equal the Bond Reserve Requirement, after any transfers from the Bond Reserve Fund to the Bond Principal Fund, the Bond Interest Fund, the Rebate Fund and the Repair and Replacement Fund. The Corporation is obligated to operate and maintain the Facilities in substantial compliance with all governmental laws, building codes, ordinances, regulations and zoning laws and keep the Facilities reasonably safe and in good operating condition and in good repair. In addition, under the Agreement the Corporation is obligated to pay all taxes and assessments relating to the Facilities, any other governmental charges and impositions which, if not paid, shall become a Lien (other than a Permitted Lien) on the Facilities and all utility and other charges related to the Facilities. The Agreement shall remain in full force and effect from the date of its delivery until all of the Bonds have been fully paid or provision for such payment has been made pursuant to the Indenture, and all reasonable and necessary fees and expenses of the Trustee and the Authority, and all other liabilities of the Corporation, accrued and to accrue through final payment of the Bonds, have been paid or provision for such payment has been made pursuant to the Indenture; provided, however, notwithstanding any provision of the Agreement, the indemnification provisions in the Agreement and the Corporation's tax covenants shall survive the termination of the Loan Agreement until expiration of statutes of limitations applicable to Registered Owners for state and federal income tax with respect to interest on the Bonds, and such tax covenants shall be enforceable by the Registered Owners directly against the Corporation. D-18

76 The Agreement provides that the obligations of the Corporation shall be absolute and unconditional; however, the payments to be made by the Corporation pursuant to the Agreement do not constitute general obligations of the Corporation, and are limited, except as otherwise provided in the Agreement, to Pledged Revenues and amounts received from the sale of the Facilities pursuant to the mortgage granted by the Agreement. See the caption "THE LOAN AGREEMENT Remedies on Default" in this Appendix B. The Agreement acknowledges the terms and provisions of the Lease and the Corporation's expectation that some or all of the requirements of the Agreement shall be complied with by action of the Charter School pursuant to the Lease. Security Provisions To secure the repayment of the Loan and payment of all other amounts payable under the Agreement, and the performance of its other covenants under the Agreement, the Corporation grants to the Authority a mortgage and security interest in the Facilities and a present security interest, within the meaning of the Colorado Uniform Commercial Code and to the extent permitted by law, in the Pledged Revenues and all proceeds thereof, subject to Permitted Encumbrances. The Corporation also pledges all its right, title and interest, if any, in the Funds and in any trust accounts referred to in the Agreement and the Indenture. Insurance Provisions Throughout the term of the Agreement, the Corporation agrees to maintain the following insurance: title insurance, casualty insurance on the Facilities, liability insurance, rental value insurance, fidelity insurance, and any other insurance required to be carried by law, such as workers' compensation insurance. However, self-insurance existing on the date of delivery of the Agreement is permitted to continue without compliance with these requirements. At least every three years from September 1, 2006, the Corporation shall employ (or cause to be employed) an Insurance Consultant to review its insurance coverage and to render to the Authority and the Trustee a report as to the adequacy of such coverage and as to its recommendations if any, for adjustments thereto. Such insurance coverage must be increased or otherwise adjusted by the Corporation if as a result of such review the Insurance Consultant finds that the existing coverage is inadequate, taking into account the availability, terms, cost of such insurance, and the effect of such terms and such cost upon the Corporation's fees, rentals and charges for the use of the Facilities. The insurance coverage required by the Agreement may be reduced or otherwise adjusted by the Corporation without the prior written consent of the Authority or the Trustee, provided that all coverages after such reduction or other adjustment are certified by the Insurance Consultant to be adequate and customary for facilities of like size and type, taking into account the aforementioned factors. The Authority and Trustee may permit the Corporation to become self-insured (beyond customary deductibles) for all or any part of the foregoing requirements, or to satisfy any or all of such requirements through the Charter School's self insurance, if the Trustee has received a written evaluation with respect to such self-insurance programs from a nationally recognized Insurance Consultant stating that such self-insurance is consistent with sound risk management policies. If the Corporation is self-insured, the Trustee and the Authority shall be included as insureds under the self-insurance trust agreement. See the caption "THE LEASE Insurance Requirements" in this Appendix B. Covenant as to Maintenance of Pledged Revenues The Corporation covenants to manage the Facilities on a revenue-producing basis and to use its best efforts to fix, revise (subject to the terms of the Lease and other permitted contractual commitments), charge and collect such reasonable charges for the use and occupancy of the Facilities, in amounts so that the Corporation shall receive Pledged Revenues in each Fiscal Year that are sufficient to pay (a) currently all of the Corporation's expenses during such Fiscal Year for the operation, maintenance and repair of the Facilities, (b) all payments under the Agreement, and (c) all other obligations imposed by the Agreement upon the Corporation payable during such Fiscal Year; provided, however, in the event that the Lease is no longer in effect, the Corporation shall not be deemed to be in default under this covenant if the Pledged Revenues in each Fiscal Year are not sufficient to make such payments so long as the Corporation provides the Authority and the Trustee with a report of a Consultant stating that the charges being fixed and collected by the Corporation for the use and occupancy of the Facilities reflect current market charges for such use and occupancy. Compliance under the Lease is deemed to be compliance with this covenant. D-19

77 Sale, Lease or other Disposition of the Facilities The Corporation shall have the right to lease all or any part of the Facilities pursuant to the Lease or, subject to the written consent of the Authority (which consent shall not be unreasonably withheld) any future leases; provided, however, that the Corporation shall provide to the Authority and the Trustee an opinion of nationally recognized bond counsel that such lease will not adversely affect the tax-exempt state of the Bonds, and that the terms and provisions of the Lease and any future leases comply with the provisions of the Agreement and contain the restrictions upon the use of the Facilities contained in the Agreement. When leasable space becomes available within the Facilities, the Corporation shall make a reasonable, good faith attempt to make such space available first, to organizations described in Section 501(c)(3) of the Code which constitute educational or cultural institutions, second, to other organizations described in Section 501(c)(3) of the Code and, third, to any other entities. Limitations on Incurrence of Additional Indebtedness The Corporation shall not, except as provided below, incur any additional Indebtedness secured in whole or in part by the Facilities or the Pledged Revenues. (a) The Corporation shall be precluded from incurring additional Indebtedness secured by Liens on the Facilities or the Pledged Revenues which are senior to the mortgage on the Facilities and the security interest in the Pledged Revenues granted by the Agreement. (b) So long as the Lease is in effect, the Corporation may, with the written consent of the Financial Guaranty Insurer (provided, however, that no such Financial Guaranty Insurer consent shall be required in connection with Additional Bonds issued to pay costs of further construction, modifications and improvements on the Leased Property) and/or the Charter School and written confirmation by the Trustee that the requirements of the Indenture have been met, incur additional Indebtedness secured in whole or in part by a mortgage on the Facilities and a security interest in the Pledged Revenues on a parity with amounts secured by the mortgage on the Facilities and the security interest in the Pledged Revenues granted by the Agreement if either: (i) the Net Revenue for the School Year for which a budget has been adopted and submitted to the State and/or the Charter Authorizer must be sufficient to pay an amount representing not less than 120% of the combined Maximum Annual Debt Service for outstanding Long-Term Indebtedness and the Long-Term Indebtedness proposed to be incurred; or (ii) the combined Maximum Annual Debt Service for outstanding Long-Term Indebtedness and the Long-Term Indebtedness proposed to be incurred must be less than 10% of the Pledged Revenues for the School Year for which a budget has been adopted and submitted to the State and/or the Charter Authorizer; (c) The Corporation may enter into interest rate swaps, caps, collars, options, floors, forward or other hedging agreements, arrangements or security, however denominated, with respect to outstanding Indebtedness as long as such agreements or arrangements qualify as a Financial Products Agreement. (d) The Corporation may incur additional indebtedness secured by liens on the Facilities or Pledged Revenues which are subordinate to the mortgage on the Facilities and the security interest in the Pledged Revenues granted by the Agreement. Limitations on Liens The Corporation covenants that except as specifically provided in the Agreement, it shall not create, assume, incur or suffer to be created, assumed or incurred any Liens (other than Permitted Encumbrances). D-20

78 Release of Land The Corporation shall, with the written consent of the Charter School and the Financial Guaranty Insurer, have the right to release a portion of the Land from the lien of the Agreement provided the requirements of the Financial Guaranty Insurer are met and that (a) no portion of the Building resides on such portion of the Land to be released, (b) such portion of the Land to be released is not necessary to the operation of the Building, (c) the Corporation pays to the Trustee for the redemption of Bonds an amount (rounded up to the next $5,000) equal to the fair market value (as determined in a written report of an independent appraiser reasonably satisfactory to the Trustee and the Financial Guaranty Insurer who is a Member of the Appraisal Institute (MAI)) of such Land to be released and provides the Trustee with irrevocable instructions to redeem Bonds in a principal amount equal to such payment, (d) after such release the fair market value of the Facilities (as determined in a written report by an Appraiser) is equal to or greater than the amount of Bonds Outstanding as of the date of such release, and (e) the Corporation provides the Trustee and the Financial Guaranty Insurer with a written opinion of nationally recognized municipal bond counsel selected by the Corporation and acceptable to the Authority to the effect that such disposition shall not adversely affect the validity of the Bonds or the exclusion from gross income for federal income tax purposes of the interest paid on the Bonds which opinion may rely on the related opinion of independent counsel as to matters set forth therein. Damage, Destruction and Condemnation In the event damage or destruction to the Facilities occurs such that claims for loss are less than $500,000 or in the event title to or the temporary use of the Facilities or any portion thereof shall be taken under the exercise of the power of eminent domain or because of a title defect and the Net Proceeds from any condemnation award or title insurance are less than $500,000, the Net Proceeds of insurance resulting from such claims or from any such condemnation award or title insurance shall be paid to the Corporation and shall be used by the Corporation for such purposes as the Corporation deems appropriate. In the event any damage or destruction is such that claims for loss are $500,000 or more or the Net Proceeds from any condemnation award or title insurance are $500,000 or more, all Net Proceeds of insurance resulting from such claims or from any such condemnation award or title insurance shall, for the period of 10 years following the date of issuance of the Bonds be held by the Trustee for the purpose of repairing, rebuilding, restoring or replacing the property, and for the period after 10 years from the date of issuance of the Bonds, at the option of the Corporation and with the consent of the Charter School, either be used to redeem the Bonds or be held by the Trustee for the purpose of repairing, rebuilding, restoring or replacing the property. If the Corporation elects the latter option, then the Net Proceeds shall be paid out by the Trustee from time to time upon evidence of the expenditures therefor, upon receipt of a certificate of a Consulting Architect. The Corporation may elect to redeem less than all of the Bonds only if (a) the property damaged, destroyed or condemned is not essential to the Corporation's use or occupancy of the Facilities; or (b) the Facilities has been restored to a condition substantially equivalent to their condition prior to such damage, destruction or condemnation; or (c) suitable improvements have been acquired for the Corporation's operations at the Facilities. Merger and Consolidation The Corporation agrees that it will maintain its corporate existence, will continue to be a nonprofit corporation duly qualified to do business in the State, will not merge or consolidate with any Person, or sell or convey its interest in the Facilities except as otherwise permitted in the Agreement. Annual Audit and Financial Statements In the event that the Lease is terminated or not renewed by the Charter School, the Corporation agrees that it shall have its books and records audited annually, commencing with the Fiscal Year in which the termination or non-renewal of the Lease occurs, by an Accountant as soon as practicable after the close of such Fiscal Year, and shall furnish within 90 days after the end of such Fiscal Year to the Authority and the Trustee, provided that neither the Authority nor the Trustee has any obligation to review such audit report, and each rating agency which has rated the Bonds, a copy of the audit report including the Accountant's statement as to the calculation of Pledged Revenues certified by such Accountant. Assignment The Corporation is not permitted to assign the Agreement. D-21

79 Options to Prepay Under the Agreement, the Corporation has the option to make at any time prepayments against all or any portion of the Loan (in integral multiples of $5,000) by paying to the Trustee an amount of money or securities sufficient to pay the principal of and interest on any portion of the Bonds then Outstanding under the Indenture. The exercise of such option shall not be cause for redemption of Bonds unless such redemption is permitted at that time under the provisions of the Indenture, and the Corporation specifies the date for such redemption. In the event the Corporation prepays all of the Loan and all reasonable and necessary fees and expenses of the Trustee accrued and to accrue through final payment of the Bonds called for redemption as a result of such prepayment and all of its liabilities accrued and to accrue under the Agreement to the Authority through final payment of the Bonds called for redemption as a result of such prepayment, the Agreement shall terminate, except as otherwise provided therein. Events of Default Under the Agreement an "event of default" is defined to include, in general terms, (a) failure by the Corporation to pay the Loan Payments required to be paid within five days after it is due and payable, (b) failure by the Corporation to make payments into the Bond Reserve Fund when and as required under the Agreement, (c) failure of the Corporation to observe and perform any other covenant, condition or agreement under the Agreement (other than as set forth in (a) or (b) above) within 30 days after receiving written notice thereof from the Authority or the Trustee unless a course of action adequate in the judgment of the Trustee to remedy such failure has been commenced within such 30-day period and is thereafter diligently prosecuted to completion, (d) the dissolution or liquidation of the Corporation or the failure by the Corporation to lift executions, garnishments or attachments which shall impair its ability to meet its obligations with respect to the Facilities or to make any payments under the Agreement, (e) entry of a decree or order for relief in an involuntary case under the federal bankruptcy laws or any other similar proceedings and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days, (f) the voluntary commencement of bankruptcy or reorganization proceedings, or the occurrence of certain similar events, (g) an "event of default" has occurred under the Lease, or (h) an "event of default" has occurred under the Tax Regulatory Agreement or the Indenture. No event of default shall be deemed to exist (except with respect to its obligations to make Loan Payments, and payments due to the Trustee and the Authority, to pay taxes and other governmental charges, to satisfy its covenant with respect to maintaining the exclusion from federal gross income of interest on the Bonds, to maintain insurance coverages and to hold the Authority and others harmless) during any period of noncompliance to the extent that the Corporation is unable to comply due to acts of God, governmental orders or the like. Remedies on Default Whenever an event of default as defined in the Agreement has occurred and is continuing, the Trustee (as assignee of the Authority) or the Authority (in the event of a failure of the Trustee to act) to the extent provided in the Indenture, may (a) declare all Loan Payments payable for the remainder of the term of the Agreement to be immediately due and payable; (b) take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due or to enforce the performance or observance of any obligation, agreements or covenants of the Corporation under the Agreement; (c) exercise all the rights and remedies of a secured party under the mortgage or the Facilities and under the Colorado Uniform Commercial Code; or, in addition, (d) the Trustee may or shall take any action permitted under the Indenture with respect to an Event of Default thereunder. No remedy specified in the Agreement is intended to be exclusive; and each and every remedy is cumulative. Events of Default may be waived pursuant to the Agreement under certain circumstances. Notwithstanding the foregoing, recovery against the Corporation for any Event of Default under the Agreement is limited to the Pledged Revenues and amounts received from the foreclosure of the mortgage on the Facilities granted by the Agreement. The obligations of the Corporation under the Agreement are not general obligations of the Corporation and none of the Trustee, the Authority nor the Registered Owners of the Bonds shall have any recourse to any Property, funds or assets of the Corporation (other than the Pledged Revenues and the Facilities) with respect to such obligations. D-22

80 Amendments to the Agreement Except as otherwise provided in the Agreement or in the Indenture, the Agreement may not be effectively amended, changed, modified, altered or terminated without the written consent of the Trustee and the Financial Guaranty Insurer. Rights of Financial Guaranty Insurer Notwithstanding any other provision of the Agreement, so long as the Bonds are Outstanding and the Financial Guaranty Insurer is not in payment default under the Financial Guaranty Insurance Policy, the Financial Guaranty Insurer shall be deemed to be the Owner of all the Bonds for purposes of exercising rights with respect to remedies pursuant to the Agreement and consenting to amendments to the Agreement pursuant to the Agreement. Lease Term, Rent, Holding Over and Renewal Option THE LEASE The Charter School, as lessee, shall lease the Facilities (referred to in the Lease as the "Leased Property") from the Corporation, as lessor, pursuant to the Lease. The Lease provides that the Leased Property is to be used by the Charter School only for its governmental purposes (except for permitted subleases and assignments). The term of the Lease (the "Lease Term") shall be comprised of the Initial Term and successive one-year Renewal Terms and shall end when the Bonds are paid and the Indenture is discharged, subject to earlier termination as described below under "Damage, Destruction or Condemnation; Use of Proceeds," "Charter School's Right to Terminate the Lease," and "Default." Termination of the Lease Term shall terminate all unaccrued obligations of the Charter School thereunder (with certain exceptions relating to holding over and remedies on default), and shall terminate the Charter School's rights of possession under the Lease, but all other provisions of the Lease, including all obligations of the Charter School accrued prior to such termination, shall survive such termination of the Lease Term to the full extent necessary to accomplish the intention and purposes of the Lease. During the Lease Term, the Charter School shall pay or cause to be paid to Trustee for the account of the Corporation monthly payments of Base Rentals (subject to certain credits for amounts available in the Funds held by the Trustee under the Indenture). In addition to the Base Rentals, the Charter School shall also pay, during the Lease Term, Additional Rentals, including, without limitation, certain administrative fees to the Corporation (which are excluded from Pledged Revenues under the Loan Agreement), payments into the Lease Funds described below under "Lease Funds," and any amounts required to be paid by or for the account of the Corporation to the Authority, the Trustee or other third parties pursuant to or in connection with the Loan Agreement or the Indenture. Additional Rent is to be paid by the Charter School to the Corporation or directly to third parties, as appropriate, within 30 days after receipt of invoices. The Lease provides that it is to be deemed and construed to be a "net lease," and that the Charter School is to pay absolutely net during the Lease Term the Base Rentals, Additional Rentals, and all other payments required under the Lease, without abatement, deduction or setoff (other than credits and contests expressly provided for in the Lease). Corporation's Ownership The Corporation covenants that during the Lease Term the Charter School will peaceably and quietly have and hold and enjoy the Leased Property without suit, trouble or hindrance from the Corporation, except as expressly required or permitted by the Lease. The Corporation will not interfere with the quiet use and enjoyment of the Leased Property by the Charter School during the Lease Term so long as no Event of Default or Event of Nonappropriation has occurred. The Corporation will, at the request of the Charter School and at the cost of the Charter School, but only to the extent amounts for Additional Rentals which have been specifically appropriated by the Charter School are available for the payment of such costs, join and cooperate fully in any legal action in which the Charter School asserts its right to such possession and enjoyment, or which involves the imposition of any taxes or other governmental charges on or in connection with the Leased Property. In addition, the Charter School may at its own expense join in any legal action affecting its possession and enjoyment of the Leased Property and shall be joined in any action affecting its liabilities thereunder. D-23

81 Maintenance and Repairs; Environmental Covenants During the Lease Term, the Charter School is to pay or cause to be paid all charges for the operation and maintenance of the Leased Property (including utilities, maintenance and janitorial services), and the Charter School is required to repair and maintain the Leased Property in good, safe and tenantable order, condition and repair. The Charter School agrees that at all times during the Lease Term the Charter School will maintain, preserve and keep the Leased Property or cause the Leased Property to be maintained, preserved and kept, with the appurtenances and every part and parcel thereof, in good repair, working order and condition, subject to normal wear and tear, and that the Charter School will from time to time make or cause to be made all necessary and proper repairs, except as otherwise provided in the Lease. None of the Authority, the Corporation, the Trustee or any of the Registered Owners will have any responsibility in any of these matters or for the making of any additions, modifications or replacements to the Leased Property. To the best knowledge of the Charter School, except as disclosed in writing to the Corporation and the Authority: (i) the Leased Property has at all times been operated in substantial compliance with all Requirements of Law; (ii) all permits required by Requirements of Law in respect of the Leased Property have been obtained and are in full force and effect and the Charter School is in substantial compliance with the material terms and conditions of such permits; (iii) there is no pending litigation, investigation, administrative or other proceeding of any kind before or by any governmental authority or other Person relating to, or alleging, any violation of any Requirements of Law in connection with the Leased Property and there are no grounds on which any such litigation, investigation or proceedings might be commenced; (iv) the Leased Property is not subject to any judgment, injunction, writ, order or agreement respecting any Requirements of Law; (v) this is no Hazardous Substance located on, in or under the Leased Property in violation of any Requirements of Law; (vi) there has been no disposal (to our actual knowledge) of any Hazardous Substance on, from, into or out of the Leased Property in violation of any Requirements of Law; and (vii) there has been (to our actual knowledge) no spillage, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leeching, dumping, disposing, depositing or dispersing of any Hazardous Substance into the indoor or outdoor environment from, into or out of the Leased Property including, but not limited to, the movement of any such items through or in the air, soil, surface water, ground water from, into or out of the Leased Property or the abandonment or discard of barrels, containers or other open or closed receptacles containing any such items from, into or out of the Leased Property in violation of any Requirements of Law. Modifications The Leased Property complies in all respects with applicable zoning, environmental and safety ordinances. The Leased Property will be operated in accordance with all Requirements of Law. The Charter School, upon giving prior notice to the Corporation, may remodel or make substitutions, additions, modifications or improvements to the Leased Property, at its own cost and expense to pay for the cost of capital improvements to the Leased Property; and the same shall be part of the Leased Property, subject to, and shall be included under the terms of the Lease; provided, however, that (i) such remodeling, substitutions, additions, modifications and improvements shall not in any way damage the Leased Property or cause it to be used for purposes other than lawful governmental functions; (ii) the Leased Property, as remodeled, improved or altered, upon completion of such remodeling, or such making of substitutions, additions, modifications and improvements, shall be of a value not less than the value of the Leased Property immediately prior to such remodeling or such making of substitutions, additions, modifications and improvements and (iii) no substitution of the Leased Property is permitted without the consent of the Financial Guaranty Insurer. The Charter School may also, from time to time in its sole discretion and at its own expense, install equipment and personal property in or on the Leased Property. All such equipment and personal property shall remain the sole property of the Charter School in which none of the Authority, the Corporation, the Trustee or the Registered Owners shall have any interest; provided, however, that any such equipment and personal property which becomes permanently affixed to the Leased Property shall become part of the Leased Property, subject to the Lease and shall be included under the terms of the Lease. D-24

82 Damage, Destruction or Condemnation; Use of Proceeds All Net Proceeds of any insurance, performance bonds or condemnation awards shall be applied to the prompt repair, restoration, modification, improvement or replacement of the Leased Property by the Charter School upon receipt of requisitions acceptable to the Trustee signed by the Charter School Representative. Any repair, restoration, modification, improvement or replacement paid for in whole or in part out of Net Proceeds will be the property of the Corporation, subject to the Agreement, the Lease and the Indenture, and shall be included as part of the Leased Property under the Lease, the Agreement and the Indenture. The balance of any such Net Proceeds remaining in the Project Fund or a separate trust fund after such repair, restoration, modification, improvement or replacement has been completed will be deposited into the Bond Principal Fund or the Bond Interest Fund, at the option of the Charter School. It the Net Proceeds received will be insufficient to pay in full the cost of any repair, restoration, modification, improvement or replacement of the Leased Property required above, the Charter School will have one of the following options: (a) it may repair or replace the Leased Property (or portion thereof) with property of a value equal to or in excess of the Leased Property, and pay as Additional Rentals any cost in excess of the amount of the Net Proceeds, as provided in the Lease, or (b) give notice to terminate the Lease, effective on the June 30 next following such notice, and an Event of Nonappropriation will be deemed to have occurred. Insurance Requirements The Lease requires the Charter School, at its expense, to obtain and maintain commercial general liability and automobile liability insurance against claims arising in, on or about the Leased Property, and requires the Charter School to obtain and maintain similar liability insurance as well as insurance against loss or damage to the Leased Property and rental value insurance, all meeting the requirements described above under "THE LOAN AGREEMENT Insurance" in this Appendix B. Charter School's Sovereignty Nothing in the Lease shall be construed as diminishing, unlawfully delegating or otherwise restricting any of the sovereign powers of the Charter School. Nothing in the Lease shall be construed to require the Charter School to operate the Leased Property other than as a lessee. Charter School's Right to Terminate the Lease The Lease provides that the Lease is dependent upon the continuing availability of funds beyond the term of the Charter School's current fiscal period ending the next June 30, as financial obligations payable after the current fiscal year are contingent upon funds for that purpose being appropriated, budgeted and otherwise made available. In the event that insufficient funds are made available (sometimes referred to in the Lease as an "Event of Nonappropriation"), the Lease terminates at the end of the then current fiscal year, with no penalty or additional cost to the Charter School. The obligation of the Charter School to pay the charges under the Lease constitutes a current expense of the Charter School payable exclusively from the Charter School's funds and is not a general obligation indebtedness within the meaning of the Colorado Constitution or any constitutional or statutory limitation or requirement applicable to the State of Colorado concerning the creation of indebtedness or multiple-fiscal year direct or indirect debts or other financial obligations. If there is an Event of Nonappropriation as described above, the Charter School is to notify the Authority, the Financial Guaranty Insurer, the Trustee, the Charter Authorizer and the Corporation by sending written notice thereto to the Corporation by June 1 of any year; and in any event June 30 would be the effective date of such a termination. The Lease contains provisions specifying how appropriations and allocations of funds by the Charter Schools for payments required under the Lease are to be documented, and requiring the Charter School to furnish certain information concerning the Charter School's budget to the Corporation upon request. D-25

83 Provision of Financial and Related Information The Charter School agrees to provide the Trustee and the Underwriters the following information commencing on the first Business Day of each Renewal Term: (a) quarterly unaudited financial information not later than 45 days following the close of each quarter of the fiscal year; (b) annual budgets and (c) audited financial information. With the exception of item (b), such financial information and operating data will be provided on or about the dates agreed by the Charter School in its Continuing Disclosure Agreement, dated September 1, 2006, executed in connection with the offer and sale of the Bonds. Events of Default Remedies Any one of the following shall constitute an "Event of Default:" (a) Lessee fails in the due and punctual payment of Base Rentals, Additional Rentals or any other amounts due under the Lease and such failure continues for five days after the date on which such payment is due from Lessee; (b) Lessee fails to vacate the Leased Property upon 45 days notice to do so following termination of the Lease by reason of an Event of Nonappropriation; (c) Failure by the Charter School to maintain its charter pursuant to the Charter Schools Act, however, if the Charter School has filed a timely appeal pursuant to the Charter Schools Act, an Event of Default shall not be deemed to occur until the earlier of the following: (i) the appeals process pursuant to the Charter Schools Act has concluded or (ii) a period of 60 days, which period may be extended with the consent of all of the holders of Outstanding Bonds; or (d) Lessee fails to perform any of the other agreements, terms, covenants or conditions of Lessee under the Lease, and such non-performance continues for a period of 30 days after written notice thereof by Lessor to Lessee, or if such performance cannot be reasonably had within such 30-day period, Lessee does not in good faith commence such performance within such 30-day period and does not diligently proceed therewith to completion. Whenever any Event of Default shall have happened and be continuing, the Trustee, acting for the Corporation, may, or at the request of the Registered Owners of a majority in aggregate principal amount of the Bonds Outstanding shall, without any further demand or notice, take one or any combination of the following remedial steps: (a) Terminate the Lease Term and give notice to the Charter School to vacate the Leased Property within 45 days from the date of such notice. (b) Property. (c) Acting for the Corporation, lease all or any portion of the real property included in the Leased Acting for the Corporation, recover from the Charter School: (i) to the extent the recovery thereof is permitted by law, the fair rental value of the use of the Leased Property during any period beyond the 45 th day following the occurrence of the Event of Default; and (ii) Base Rentals and Additional Rentals, to the extent amounts for such Additional Rentals have been specifically appropriated, which would otherwise have been payable by the Charter School hereunder during the remainder, after the Charter School vacates the Leased Property, of the Fiscal Year in which such Event of Default occurs. D-26

84 (d) Acting for the Corporation, take whatever action at law or in equity may appear necessary or desirable to enforce its rights in and to the Leased Property under the Lease, the Agreement and the Indenture, subject, however, to the limitations contained in the Lease with respect to the Charter School's obligations upon the occurrence of an Event of Nonappropriation. Assignment and Subletting The Lease may not be assigned by the Charter School for any reason. However, the Leased Property may be subleased, as a whole or in part, by the Charter School, with the prior written consent of the Authority, the Financial Guaranty Insurer, the Trustee and the Corporation, provided, that a nationally recognized bond counsel acceptable to the Authority delivers an opinion addressed to the Authority and the Trustee stating that the sublease will not cause an adverse impact on the Outstanding Bonds. Encumbrance The Charter School covenants and agrees not to encumber the Leased Property. Miscellaneous Provisions The Lease contains representations and covenants on the part of the Charter School designed to protect the federal income tax status of interest on the Bonds. The Lease requires the Charter School to obtain, renew, secure and comply with all permits, licenses and other governmental approvals necessary for operations at the Leased Property. Rights of Financial Guaranty Insurer Notwithstanding any other provision of the Lease, the Indenture, or the Agreement so long as the Bonds are Outstanding and the Financial Guaranty Insurer is not in payment default under the Financial Guaranty Insurance Policy, (i) the Financial Guaranty Insurer shall be deemed to be the Owner of all the Bonds for purposes of exercising rights with respect to remedies pursuant to the Lease and (ii) there shall be no acceleration of the payment obligations of the Trustee under the Indenture or of the Charter School under the Lease without the consent of the Financial Guaranty Insurer. Amendments Except as otherwise provided in the Lease or the Indenture, subsequent to the issuance of the Bonds and prior to the discharge of the Indenture, the Lease may not be effectively amended, changed, modified or altered without the written consent of the Trustee and the Financial Guaranty Insurer as provided in the Indenture and other than by the execution of a subsequent document in the same manner as the Lease is executed. Applicable Law and Severability The Lease provides that its interpretation, execution and enforcement are to be governed by the laws of the State of Colorado and rules and regulations pursuant thereto, and that any provision providing for extra-judicial arbitration or otherwise in conflict with such laws, rules and regulations is null and void. The Lease provides that if any article of the Lease or portion thereof is determined to be invalid, illegal, or without force by a court of law or rendered so by legislative act then the remaining portions of the Lease are to remain in full force and effect. D-27

85 EXHIBIT E FORM OF BOND COUNSEL OPINION September 27, 2006 Colorado Educational and Cultural Facilities Authority Denver, Colorado A.G. Edwards & Sons, Inc. Denver, Colorado $11,560,000 Colorado Educational and Cultural Facilities Authority Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project) Series 2006A $110,000 Colorado Educational and Cultural Facilities Authority Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project) Taxable Series 2006B Ladies and Gentlemen: We have examined the law of the State of Colorado (the "State") and of the United States of America relevant to the opinions herein, a certified copy of the record of the proceedings of the Colorado Educational and Cultural Facilities Authority (the "Authority") and other documents relevant to the issuance by the Authority of the "Colorado Educational and Cultural Facilities Authority Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project) Series 2006A" (the "2006A Bonds") in the aggregate principal amount of $11,560,000 and "Colorado Educational and Cultural Facilities Authority Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project) Taxable Series 2006B" (the "2006B Bonds" and, together with the 2006A Bonds, the "Bonds") in the aggregate principal amount of $110,000 issued pursuant to an Indenture of Trust, dated as of September 1, 2006 (the "Indenture"), by and between the Authority and American National Bank, Denver, Colorado, as trustee thereunder (the "Trustee"). The Bonds are dated, mature on the dates and bear interest at the rates provided in the Indenture. The Bonds are subject to redemption prior to maturity in the manner and upon the terms set forth therein and in the Indenture. The proceeds of the Bonds will be loaned by the Authority to Cheyenne Mountain Charter Academy Foundation, a Colorado nonprofit corporation (the "Corporation"), pursuant to a Mortgage and Loan Agreement, dated as of September 1, 2006 (the "Loan Agreement"), by and between the Authority and the Corporation. The proceeds from the sale of the Bonds will be utilized by the Corporation: (a) to finance the refunding of the principal of a bank loan (the "Bank Loan"); (ii) to make a yield reduction payment in connection with the refunding of the Bank Loan; (iii) to pay a portion of the cost of constructing and improving additional educational facilities (the "Additional Facilities"); (iv) to fund a Bond Reserve Fund; and (v) to pay the costs of issuing the Bonds (collectively, the "Project"). The Bank Loan financed a portion of the cost of constructing and improving the Additional Facilities, and financed the advance refunding of a portion of the Authority's Charter School Revenue Refunding Bonds, Series 2003C (the "Series 2003 Bonds"). The Series 2003 Bonds refinanced the acquisition, construction and equipping of the Charter School's current educational facilities (the "Existing Facilities," and, collectively with the Additional Facilities, the "Facilities"). The Corporation will lease the Facility to the Charter School pursuant to the terms of a Lease Agreement, dated as of September 1, 2006 (the "Lease"), by and between the Corporation and the Charter School. The Bonds and the interest thereon are payable solely out of the loan payments to be made by the Corporation to the Authority under the Loan Agreement, except to the extent paid from proceeds of the Bonds and the income from the temporary investment thereof. As to questions of fact material to our opinion, we have relied upon representations of the Authority, the Trustee, A.G. Edwards & Sons, Inc. and Bathgate Capital Partners, as underwriters of the Bonds (collectively, the "Underwriter"), the Corporation and the Charter School contained in the certified proceedings and certifications of other officials furnished to us, without undertaking to verify the same by independent investigation. E-1

86 Based upon such examination and, for purposes of compliance with paragraph 4 below, assuming continuous compliance with the covenants and representations contained in such proceedings and other documents, it is our opinion as Bond Counsel that: 1. The Authority has been duly created and is a public body politic and corporate constituting a public instrumentality, validly organized and duly existing under the laws and Constitution of the State. 2. The Bonds have been duly authorized by the Authority, duly executed and delivered by authorized officers of the Authority and (assuming due authentication by the Trustee) are valid and legally binding limited obligations of the Authority enforceable against the Authority in accordance with their terms, except as may be limited by insolvency, bankruptcy, reorganization, moratorium, or other laws affecting the enforcement of creditors' rights generally or against municipal corporations such as the Authority from time to time in effect and by the application of general principles of equity. 3. The Loan Agreement and the Indenture have been duly authorized by the Authority, duly executed and delivered by authorized officers of the Authority and (assuming valid execution and delivery by the other parties thereto) are in full force and effect, and are valid and legally binding instruments of the Authority enforceable against the Authority in accordance with their respective terms, except as may be limited by insolvency, bankruptcy, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or against municipal corporations such as the Authority from time to time in effect and by the application of general principles of equity. 4. Under existing laws, regulations, rulings and judicial decisions and assuming continuing compliance with certain representations and continuing compliance with certain covenants, interest on the 2006A 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. Interest on the 2006B Bonds is included in gross income for federal income tax purposes. Interest on the Bonds is exempt from all taxation and assessments in the State. 5. The Lease has been duly authorized by the Charter School, duly executed and delivered by authorized officers of the Charter School and (assuming valid execution and delivery by the Corporation) is in full force and effect, and is a valid and legally binding instrument of the Charter School enforceable against the Charter School in accordance with its terms, except as may be limited by insolvency, bankruptcy, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or against municipal corporations such as the Charter School from time to time in effect and by the application of general principles of equity. In rendering the foregoing opinions, we are not passing upon the matters of (i) the corporate status of the Corporation, (ii) the power of the Corporation to execute and deliver the Loan Agreement or the Lease or to perform its obligations thereunder, (iii) the enforceability of the Loan Agreement or the Lease against the Corporation or (iv) the accuracy, completeness or sufficiency of the Official Statement or any statements made in connection with the offer and sale of the Bonds. The scope of our engagement has not extended beyond the examinations and the rendering of the opinions expressed herein. Our engagement with respect to the transaction referred to herein terminates upon the date of this letter. We assume no obligation to review or supplement this letter subsequent to its date, whether by reason of a change in current laws, by legislative or regulatory action, by judicial decision or for any other reason. This opinion is based solely upon existing federal and State laws, regulations, rulings and judicial decisions. We express no opinion as of any subsequent date or with respect to any pending legislation. No one other than the addressees hereof shall be entitled to rely upon this opinion without our prior written approval. Very truly yours E-2

87 EXHIBIT F FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement, dated as of September 1, 2006 (the "Continuing Disclosure Agreement"), is executed and delivered by and among, Cheyenne Mountain Charter Academy, a Colorado charter school (the "Charter School"), Cheyenne Mountain Charter Academy Foundation, a Colorado nonprofit corporation (the "Corporation") and American National Bank, as trustee and dissemination agent (the "Trustee" and "Dissemination Agent"), in connection with the issuance by the Colorado Educational and Cultural Facilities Authority (the "Authority") of its Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project), Series 2006 issued in the aggregate principal amount of $11,560,000 (the "Tax-Exempt Bonds") and its Charter School Revenue Refunding and Improvement Bonds (Cheyenne Mountain Charter Academy Project), Taxable Series 2006 issued in the aggregate principal amount of $110,000 (the "Taxable Bonds") (collectively, the "Bonds"). The Bonds are being issued pursuant to an Indenture of Trust, dated as of September 1, 2006 (the "Indenture"), by and among the Authority and the Trustee. Capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Indenture. Section 1. Purpose of Agreement. This Continuing Disclosure Agreement is being executed and delivered by the Charter School and the Corporation for the benefit of the Registered Owners of the Bonds (for such purpose Beneficial Owners of the Bonds shall also be considered Registered Owners of the Bonds) and to assist A.G. Edwards & Sons, Inc. and Bathgate Capital Partners (collectively, the "Underwriter") in complying with paragraph (b)(5) of Securities and Exchange Commission ("SEC") Rule 15c2-12 (17 C.F.R c2-12) (the "Rule"). This Continuing Disclosure Agreement constitutes the written Undertaking required by the Rule. Any filing under this Continuing Disclosure Agreement may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC") as provided at unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, Section 2. Defined Terms. "District" means the Cheyenne Mountain School District 12, Colorado. "NRMSIR" means any nationally recognized municipal securities information repository as recognized from time to time by the SEC for purposes of the Rule. "Official Statement" means the Official Statement dated August 30, 2006 pertaining to the Bonds. "SID" means the state information depository, if any, located in the State of Colorado. There is no SID as of the date of this Continuing Disclosure Agreement. Section 3. Annual Financial Information and Operating Data. (a) The Charter School. As an "obligated person" for purposes of the Rule, the Charter School hereby agrees to provide or cause to be provided at least annually to each NRMSIR and SID, if any, financial and operating information which contains or includes by reference the following: i. Audited financial statements (which financial statements shall be those of the District for so long as the Charter School is audited as a component unit of the District); and ii. Additional information pertaining to the Charter School as of the end of the Charter School's fiscal year, of the type set forth in EXHIBIT B to the Official Statement dated September 13, 2006 relating to the Bonds (the "Official Statement"), in the subsections "The Charter School Enrollment," and "The Charter School Waiting List." The financial and operating information described above will be filed with the Dissemination Agent no later than 180 days after the end of the fiscal year of the Charter School, beginning with the Charter School's fiscal year ended June 30, 2006, and may be provided in one document or in multiple documents; provided, however, that if audited financial statements are not available within 180 days after the end of the preceding fiscal year, unaudited financial information will be provided with audited financial statements to follow when and if available. The Charter School may provide additional or more current information if it so desires. F-1

88 The financial and operating information described above shall be provided at least annually notwithstanding a fiscal year longer than 12 calendar months. The Charter School may change its current fiscal year, but must notify each NRMSIR and SID, if any, of each such change within 30 days after the later of the adoption of a new fiscal year and the end of the fiscal year that occurs before the former fiscal year would have ended. All or any portion of the annual financial and operating information may be provided by way of cross-reference to other documents previously provided to each NRMSIR and to the SID, if any, or filed with the SEC. If the crossreferenced document is a final official statement within the meaning of the Rule, it shall be available from the Municipal Securities Rulemaking Board (the "MSRB"). (b) The Corporation. The Corporation, as an "obligated person" for purposes of the Rule, hereby agrees to provide or cause to be provided at least annually to each NRMSIR and SID, if any, financial information and operating data as required pursuant to Sections 8.04 and 8.05 of the Mortgage and Loan Agreement, dated as of September 1, 2006, between the Corporation and the Authority (the "Loan Agreement"). The financial and operating information described above will be filed with the Dissemination Agent as provided in the Loan Agreement and may be provided in one document or in multiple documents. Such information, if required, will include audited financial statements, if any, prepared in accordance with generally accepted accounting principles and generally accepted auditing principles as in effect from time to time; provided, however, that if audited financial statements are not available within 180 days after the end of the preceding fiscal year, unaudited financial statements will be provided with audited financial statements to follow when and if available. The Corporation may provide additional or more current information if it so desires. All or any portion of the annual financial and operating information may be provided by way of cross-reference to other documents previously provided to each NRMSIR and to the SID, if any, or filed with the SEC. If the crossreferenced document is a final official statement within the meaning of the Rule, it shall be available from the MSRB. Section 4. Failure to File Annual Financial and Operating Information. The Dissemination Agent agrees to provide or cause to be provided, in a timely manner, (a) to each NRMSIR or to the MSRB and (b) to the SID, if any, notice of a failure by the Charter School or the Corporation to provide the annual financial and operating information described in Section 3 above on or prior to the date specified in Section 3. Section 5. Material Events. The Charter School and the Corporation agree to provide or cause to be provided, in a timely manner (provided that notice of (h) and (i) need not be given prior to notice to the Registered Owners as provided in the Indenture), (i) to each NRMSIR or to the MSRB and (ii) to the SID, if any, notice of the occurrence of any of the following events with respect to the Bonds, if material under applicable federal securities laws (provided that any event under subsection (h), (i) or (k) will always be deemed to be material): (a) (b) (c) (d) (e) principal and interest payment delinquencies; nonpayment related defaults; unscheduled draws on debt service reserves reflecting financial difficulties; unscheduled draws on credit enhancements reflecting financial difficulties; substitution of credit or liquidity providers, or their failure to perform; F-2

89 (f) (g) (h) (i) (j) (k) adverse tax opinions or events affecting the tax-exempt status of the Tax-Exempt Bonds; modifications to rights of the Registered Owners; Bond calls (other than mandatory sinking fund redemptions); defeasances; release, substitution, or sale of property securing repayment of the Bonds; and rating changes. Each material event notice shall be so captioned and shall prominently state the date, title and (to the extent less than all of the Bonds are affected by the related material event) CUSIP numbers of the Bonds. The Charter School or the Corporation may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, but the Charter School and the Corporation do not undertake any commitment to provide such notice of any event except those events listed above. Section 6. Dissemination Agent. The Charter School and the Corporation have engaged the Dissemination Agent to assist them in disseminating information hereunder. The Charter School and the Corporation shall send all annual financial information and operating data required by Section 3 hereof, and event notices required by Section 5 hereof, to the Dissemination Agent. Unless otherwise agreed to, the Dissemination Agent shall, as soon as practicable by not later than 30 days of receipt of such Annual Financial Information, Operating Date and Event Notices, forward the same to (i) the NRMSIRs, the SID and/or the MSRB, as appropriate and (ii) any Registered or Beneficial Owner of the Bonds who requests such information in writing to the Dissemination Agent, the Charter School or the Corporation. The Charter School agrees to pay any costs incurred as a result of disseminating information to any requesting Registered or Beneficial Owners of the Bonds. The Charter School and the Corporation may discharge the Dissemination Agent or any successor Dissemination Agent with or without appointing a successor Dissemination Agent. The Dissemination Agent shall have no duty to review the materials described in this paragraph prior to disseminating such materials. Section 7. Termination of Obligations. Pursuant to paragraph (b)(5)(iii) of the Rule, the obligation of the Charter School and the Corporation to provide annual financial and operating information and notice of material events, as set forth herein, shall terminate if and when the Charter School and the Corporation no longer remain obligated persons with respect to the Bonds, which shall occur upon either payment of the Bonds in full or the legal defeasance of the Bonds in accordance with the Indenture. Section 8. Enforceability and Remedies. This Continuing Disclosure Agreement is intended to be for the sole benefit of the Trustee, the Underwriter and the Registered Owners of the Bonds (for such purpose Beneficial Owners of the Bonds shall also be considered Registered Owners of the Bonds) and shall create no rights in any other person or entity. This Continuing Disclosure Agreement shall be enforceable by or on behalf of any such Registered Owner of the Bonds, provided that the right of any Registered Owner to challenge the timely filing, failure to file or the adequacy of the information furnished pursuant to this Continuing Disclosure Agreement shall be limited to an action by or on behalf of Registered Owners representing at least 25% of the aggregate outstanding principal amount of the Bonds. This Continuing Disclosure Agreement is also enforceable on behalf of the Registered Owners of the Bonds by the Trustee, and the Trustee may, and upon the written direction of the Registered Owners of not less than 25% of the aggregate outstanding principal amount of the Bonds or the Underwriter shall, proceed to protect and enforce the rights of the Registered Owners of the Bonds pursuant to this Continuing Disclosure Agreement; provided that in all cases the Trustee shall be entitled to the indemnification and other provisions of the Indenture with regard to any actions, and prior to proceeding at the request or direction of the Underwriter the Trustee may require the same types of indemnification and related protections from the Underwriter to which the Trustee would otherwise be entitled under the Indenture if so requested or directed by the Registered Owners. Any failure by the Charter School or the Corporation to comply with the provisions of this Continuing Disclosure Agreement shall not be an Event of Default under the Lease, the Agreement or the Indenture. F-3

90 The Registered Owners' and the Trustee's rights to enforce the provisions of this Continuing Disclosure Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel the Charter School and the Corporation to perform their obligations under this Continuing Disclosure Agreement and the Charter School and the Corporation, and their directors, officers and employees shall incur no liability under this Continuing Disclosure Agreement by reason of any act or failure to act hereunder. Without limiting the generality of the foregoing, neither the commencement nor the successful completion of an action to compel performance under this Section shall entitle the Trustee or any other person to attorneys' fees, financial damages of any sort or any other relief other than an order or injunction compelling performance; provided that the Trustee shall nevertheless be entitled to attorneys' fees and such other rights and amounts as provided in the Indenture. Section 9. Amendment. Notwithstanding any other provision of this Continuing Disclosure Agreement, the Charter School, the Corporation and the Trustee may amend this Continuing Disclosure Agreement, and any provision of this Continuing Disclosure Agreement may be waived, without the consent of the Registered Owners but with the consent of the Trustee, under the following conditions: (a) The amendment or waiver may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of the Charter School or the Corporation, or type of business conducted; (b) This Continuing Disclosure Agreement, as amended or with the provision so waived, would have complied with the requirements of the Rule at the time of the primary offering, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver does not materially impair the interest of Registered Owners of the Bonds, as determined either by parties unaffiliated with the Charter School or the Corporation (which shall include the Trustee or nationally recognized bond counsel, or any other party determined by any of them to be unaffiliated), or by approving vote of Registered Owners of the Bonds pursuant to the terms of the Indenture at the time of the amendment or waiver. The Charter School and the Corporation shall provide notice of each amendment or waiver to each then existing NRMSIR or the MSRB and the SID, if any. The initial annual financial or operating information provided by the Corporation and/or the Charter School after the amendment or waiver shall explain, in narrative form, the reasons for the amendment or waiver and the effect of the change in the type of operating data or financial information being provided. F-4

91 Section 10. Counterparts. This Continuing Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute one instrument. IN WITNESS WHEREOF, we have set our hands as of the date set forth above. CHEYENNE MOUNTAIN CHARTER ACADEMY, a Colorado charter school Attest: By President Secretary CHEYENNE MOUNTAIN CHARTER ACADEMY FOUNDATION, a Colorado nonprofit corporation Attest: By President Secretary AMERICAN NATIONAL BANK, as Trustee and Dissemination Agent By Authorized Representative F-5

92 EXHIBIT G FORM OF FINANCIAL GUARANTY INSURANCE POLICY [SEE ATTACHED] G-1

93 CIFG Assurance North America, Inc. 825 Third Avenue, Sixth Floor New York, NY For information, contact (212) Toll-free (866) FINANCIAL GUARANTY INSURANCE POLICY ISSUER: Policy No.: CIFG NA-## CUSIP: Effective Date:, 200_ OBLIGATIONS: CIFG ASSURANCE NORTH AMERICA, INC. ( CIFG NA ), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY GUARANTEES to each Policyholder, subject only to the terms and conditions of this Policy (which includes each endorsement hereto), the full and complete payment by or on behalf of the Issuer of Regular Payments of principal of and interest on the Obligations. For the further protection of each Policyholder, CIFG NA irrevocably and unconditionally guarantees: (1) payment of any amount required to be paid under this Policy by CIFG NA following CIFG NA s receipt of notice and instruments of assignment as described in Endorsement No. 1 hereto and (2) payment of the amount of any distribution of principal of and interest on the Obligations made during the Term of this Policy to such Policyholder that is subsequently avoided in whole or in part as a preference payment under applicable law, all as described in Endorsement No. 1 hereto. CIFG NA shall be subrogated to the rights of each Policyholder to receive payments under the Obligations to the extent of any payment by CIFG NA hereunder. Upon disbursement in respect of an Obligation, CIFG NA shall become the owner of the Obligation, appurtenant coupon, if any, and all rights to payment of principal thereof or interest thereon. The following terms shall have the meanings specified below, subject to and including any modifications set forth in any endorsement hereto, for all purposes of this Policy. Effective Date, Issuer and Obligations mean, respectively, the Effective Date, Issuer and Obligations referenced above. Policyholder means, if the Obligations are in book-entry form, the registered owner of any Obligation as indicated on the registration books maintained by or on behalf of the Issuer for such purpose or, if the Obligations are in bearer form, the holder of any Obligation; provided, however, that any trustee acting on behalf of and for the benefit of such registered owner or holder shall be deemed to be the Policyholder to the extent of such trustee s authority. Regular Payments means payments of interest and principal which are agreed to be made during the Term of this Policy in accordance with the original terms of the Obligations when issued and without regard to any amendment or modification of such Obligations thereafter; payments which become due on an accelerated basis as a result of (a) a default by the Issuer or any other person, (b) an election by the Issuer to pay principal or other amounts on an accelerated basis or (c) any other cause, shall not constitute Regular Payments unless CIFG NA shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration. Term of this Policy has the meaning set forth in Endorsement No. 1 hereto. This Policy sets forth in full the undertaking of CIFG NA, and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto or to the Obligations (except a contemporaneous or subsequent agreement or instrument given by CIFG NA or to which CIFG NA has given its written consent) or by the merger, consolidation or dissolution of the Issuer. The premiums paid in respect of this Policy are nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Obligations prior to maturity. This Policy may not be cancelled or revoked during the Term of this Policy, including for nonpayment of premium due to CIFG NA. Payments under this Policy may not be accelerated except at the sole option of CIFG NA. In witness whereof, CIFG ASSURANCE NORTH AMERICA, INC. has caused this Policy to be executed on its behalf by its Authorized Officer. CIFG ASSURANCE NORTH AMERICA, INC. By Authorized Officer CIFGNA Bonds-1 (8-04)