SECOND SUPPLEMENT TO LIMITED OFFERING MEMORANDUM ...

SECOND SUPPLEMENT TO LIMITED OFFERING MEMORANDUM

$27,500,000CALIFORNIA SCHOOL FINANCE AUTHORITY EDUCATIONAL FACILITIES REVENUE BONDS

(TRI-VALLEY LEARNING CORPORATION PROJECT), SERIES 2012A

This document supplements the Limited Offering Memorandum for the above referenced issue dated September 6, 2012, as supplemented by the Supplement to the Limited Offering Memorandum dated September 25, 2012 (as so supplemented, the “Limited Offering Memorandum”). All capitalized terms not defined herein shall have themeanings ascribed thereto in the Limited Offering Memorandum.

The first two paragraphs contained in the Limited Offering Memorandum under the subheading “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – Loan Repayments and Base Rental Payments; Limited Obligations” are amended and restated in its entirety, as follows:

The Borrower will pay to the Authority from the Gross Revenues as repayment of the Loan, the Loan Repayments, and as rent under the Sublease, the Base Rental Payments, no later than the last Business Day before any date upon which any amounts payable with respect to the Bonds will become due, whether upon redemption, maturity or otherwise, including any Interest Payment Date and Principal Payment Date (each a “Bond Payment Date”), until the principal of, premium, if any, and interest on, the Bonds will have been fully paid or provision for such payment will have been made as provided in the Indenture, a sum equal to the amount payable on such Bond Payment Date as principal of and premium, if any, and interest on, the Bonds as provided in the Indenture (with respect to the Loan, the “Loan Repayments” and with respect to the Sublease, the “Base Rental Payments”). Such Loan Repayments and Base Rental Payments will be made in federal funds or other funds immediately available at the Corporate Trust Office of the Trustee, as assignee of the Authority, through the Intercept (as described more fully below).

Such Loan Repayments combined with the Base Rental Payments will at all times be sufficient to pay the total amount of interest and principal (whether at maturity or upon redemption) and premium, if any, becoming due and payable on the Bonds on each Bond Payment Date; provided, any amount held by the Trustee in the Revenue Fund will be credited against the installment due on such Bond Payment Date to the extent available for such purpose under the terms of the Indenture; and provided further that if at any time the amounts held by the Trustee in the Revenue Fund are sufficient to pay all of the principal of and interest and premium, if any, on, the Bonds as such payments become due, the applicable Borrower will be relieved of any obligation to make any further payments under the Loan Agreement and the Sublease. Notwithstanding the foregoing, if on any date the amount held by the Trustee in the Revenue Fund is insufficient to make any required payments of principal of (whether at maturity or upon redemption) and interest and premium, if any, on the Bonds as such payments become due, the applicable Borrower will forewith pay such deficiency as a Loan Repayment under the Loan Agreement and/or a Base Rental Payment under the Sublease.

The entire subsection in the Limited Offering Memorandum under the subheading “CERTAIN COVENANTS OF THE BORROWER – Limitation on Incurrence of Additional Indebtedness” is amended and restated in its entirety, as follows:

Except as provided below, the Borrower will not incur any additional Indebtedness (including, without limitation, Indebtedness for borrowed money, capital leases and installment sale agreements, but excluding trade payables and operating leases in the ordinary course of business).

The Borrower may incur Indebtedness which meets the following requirements: (i) the stated term of such Indebtedness (taking into account all extension or renewals thereof which may

2

be made at the sole option of the Borrower) does not exceed five years; and (ii) the Maximum Annual Debt Service on such Indebtedness (the greatest aggregate amount of principal and interest payable in the then current or any future Fiscal Year), when added to the Maximum Annual Debt Service on any other Indebtedness of the Borrower incurred under this paragraph and then outstanding, does not exceed the greater of $200,000 or 2.0% of total unrestricted expenses of the Borrower for the then most recent Fiscal Year for which audited financial statements have been delivered.

The Borrower may incur any Indebtedness (including additional parity Indebtedness secured in whole or in part by a deed of trust on the Facility and a security interest in the Gross Revenues on a parity with amounts secured by a deed of trust on the Facility and the security interest in the Gross Revenues granted by the Loan Agreement) only upon providing to the Trustee a Certificate of the Borrower, accompanied by a confirming accountant’s certificate, to the effect that (i) based on the audited financial statements of the Borrower, the Debt Service Coverage Ratio for the most recent Fiscal Year, including the additional Indebtedness in such calculation, was at least 1.25, and (ii) the pro forma Debt Service Coverage Ratio for the then-current Fiscal Year, annualized to reflect twelve months of operations and including the additional Indebtedness in such calculation, is at least 1.30.

The Borrower may incur indebtedness for borrowed money, capital leases and installment sale agreements, but excluding trade payables and operating leases in the ordinary course of business, on a basis subordinate to the obligations of the Borrower under the Loan Agreement and liens on the Facility, Gross Revenues or other assets of the Borrower securing such subordinate indebtedness, so long as (i) such indebtedness is subordinate to the Deed of Trust and obligations under the Loan Agreement, and (ii) the pro forma Debt Service Coverage Ratio for the then-current Fiscal Year, annualized to reflect twelve months of operations and including such subordinate indebtedness in such calculation, is at least 1.0.

The Borrower may incur any Interim Indebtedness to finance or refinance existing capital needs as in its judgment is deemed expedient, provided that in no event will the Borrower incur Interim Indebtedness, together with outstanding Short-Term Indebtedness, on a combined basis, in excess of the lesser of (i) the maximum amount of advance apportionment and principal apportionment due to the Schools in any fiscal year that is deferred at any time or subject to deferral pursuant to Section 14041.6 of the California Education Code or Sections 16325.5 and 16326 of the California Government Code, or any subsequent legislation authorizing additional deferrals of such apportionments, or (ii) 38% of the Operating Expenses for the Fiscal Year prior to the date of calculation (or during the Borrower’s first Fiscal Year, its Operating Expenses during such Fiscal Year).

The Borrower may incur any Short-Term Indebtedness for working capital purposes as in its judgment is deemed expedient, provided that in no event will the Borrower incur Short-Term Indebtedness, together with outstanding Interim Indebtedness, on a combined basis, in excess of the lesser of (i) the maximum amount of advance apportionment and principal apportionment due to the Schools in any fiscal year that is deferred at any time or subject to deferral pursuant to Section 14041.6 of the California Education Code or Sections 16325.5 and 16326 of the California Government Code, or any subsequent legislation authorizing additional deferrals of such apportionments, or (ii) 38% of the Operating Expenses for the Fiscal Year prior to the date of calculation (or during the Borrower’s first Fiscal Year, its Operating Expenses during such Fiscal Year).

“Indebtedness” means all obligations for borrowed money, installment sales and capitalized lease obligations, incurred or assumed by the Borrower, including Guaranties, Long-Term Indebtedness, Interim Indebtedness, Short-Term Indebtedness or any other obligation for payments of principal and interest with respect to money borrowed, except obligations subordinate to the obligations of the Borrower under the Loan Agreement and liens on the Project, Gross

3

Revenues or other assets of the Borrower securing such subordinate obligations, so long as same are subordinate to the Deeds of Trust and obligations under the Loan Agreement.

“Guaranty” means all loan commitments and all obligations of any Borrower guaranteeing in any manner whatever, whether directly or indirectly, any obligation of any other Person (other than the applicable Borrower) that would, if such other Person were the applicable Borrower, constitute Indebtedness. “Long-Term Indebtedness” means Indebtedness having an original maturity greater than one year or renewable at the option of Tri-Valley for a period greater than one year from the date of original incurrence or issuance thereof unless, by the terms of such Indebtedness, no Indebtedness is permitted to be outstanding thereunder for a period of at least twenty (20) consecutive days during each calendar year. “Interim Indebtedness” means all Indebtedness having an original maturity less than or equal to five years and not renewable at the option of the Borrower for a term greater than five years from the date of original incurrence of issuance. “Short-Term Indebtedness” means all Indebtedness having an original maturity less than or equal to one year and not renewable at the option of the Borrower for a term greater than one year from the date of original incurrence or issuance unless, by the terms of such Indebtedness, no Indebtedness is permitted to be outstanding thereunder for a period of at least twenty (20) consecutive days during each Fiscal Year.

***

The delivery of this Second Supplement to Limited Offering Memorandum has been authorized by the Authority. This Second Supplement to Limited Offering Memorandum has been reviewed and approved by the Borrower.

Dated: October 3, 2012

LIVERMORE VALLEY CHARTER SCHOOL and LIVERMORE VALLEY CHARTER PREPARATORY HIGH SCHOOL, OPERATED AS TRI-VALLEY LEARNING CORPORATION

By: TRI-VALLEY LEARNING CORPORATION, a California nonprofit public benefit corporation

SUPPLEMENT TO LIMITED OFFERING MEMORANDUM



This document supplements the Limited Offering Memorandum for the above referenced issue dated September 6, 2012 (the “Limited Offering Memorandum”). All capitalized terms not defined herein shall have the meanings ascribed thereto in the Limited Offering Memorandum.

The information contained in the Limited Offering Memorandum under the subheading “THE BONDS –Redemption of Bonds – Optional Redemption” is amended and restated in its entirety, as follows:

Optional Redemption. The Bonds are also subject to redemption prior to their respective stated maturities, at the option of the Borrower (a copy of which request shall be delivered to the Trustee not less than thirty-five (35) days prior to the date fixed for such redemption, or such shorter period as agreed to in writing by the Trustee in its sole discretion), from any amounts in the Redemption Fund, in whole or in part on any date on or after June 1, 2020, at the following redemption prices (expressed as a percentage of the principal amount of the Bonds to be redeemed) plus accrued interest to the date fixed for redemption:

Redemption Period (Dates Inclusive) Redemption Price

June 1, 2020 through May 31, 2021 102%

June 1, 2021 through May 31, 2022 101%

June 1, 2022 and thereafter 100%

***

The delivery of this Supplement to Limited Offering Memorandum has been authorized by the Authority. This Supplement to Limited Offering Memorandum has been reviewed and approved by the Borrower.

Dated: September 24, 2012



NEW ISSUE—BOOK-ENTRY ONLY RATING: NOT RATED

In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See “TAX MATTERS” herein.

$27,500,000 CALIFORNIA SCHOOL FINANCE AUTHORITY EDUCATIONAL FACILITIES REVENUE BONDS


Dated: Date of Delivery Due: June 1, as shown on the inside cover

This cover page is not a summary of this issue; it is only a reference to the information contained in this Limited Offering Memorandum. Investors must read the entire Limited Offering Memorandum to obtain information essential to the making of an informed investment decision.

The California School Finance Authority Educational Facilities Revenue Bonds (Tri-Valley Learning Corporation Project), Series 2012A (the “Bonds”), in the above-referenced aggregate principal amount, will be issued by the California School Finance Authority (the “Authority”) pursuant to the California School Finance Authority Act (the “Act”) and an Indenture, dated as of October 1, 2012 (the “Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Authority will loan the proceeds of the Bonds to Livermore Valley Charter School and Livermore Valley Charter Preparatory High School, both operating as Tri-Valley Learning Corporation, a California nonprofit public benefit corporation (the “Borrower”) pursuant to a Loan Agreement, dated as of October 1, 2012, by and between the Authority and the Borrower (the “Loan Agreement”).

The Bonds are limited obligations of the Authority payable solely from Payments and any other amounts (excluding proceeds of the sale of the Bonds) held in any fund or account (except the Rebate Fund) established by the Indenture. Proceeds of the Bonds will be applied to fund (i) a loan to the Borrower to finance the acquisition, construction, improvement and equipping of certain public charter school facilities to be used and operated by the Borrower as a charter school; (ii) the rent payable by the Authority under the Site Lease (as defined herein); (iii) a debt service reserve fund for the Bonds; and (iv) certain costs of issuance and costs of delivery.

The Bonds shall mature on June 1 in each of the years and in the principal amounts and shall bear interest at the rates as set forth in the tables on the inside cover hereof.

The Bonds will bear interest on each June 1 and December 1, commencing December 1, 2012. Payments of principal of and interest on the Bonds will be made by the Trustee to The Depository Trust Company, New York, New York (“DTC”), for subsequent disbursement to DTC Participants, who will remit such payments to the Beneficial Owners of the Bonds. See “THE BONDS – General” herein.

The Bonds will be issued as fully registered bonds and initially be registered in the name of Cede & Co., as nominee of DTC. Purchasers will not receive certificates representing their interests in the Bonds. See “THE BONDS – Form and Registration of Bonds” and APPENDIX E: “BOOK-ENTRY SYSTEM” herein.

The Bonds are subject to optional, mandatory and extraordinary redemption prior to maturity as described herein. See “THE BONDS – Redemption of Bonds” herein.

THE PURCHASE AND HOLDING OF THE BONDS INVOLVE RISKS THAT MAY NOT BE APPROPRIATE FOR CERTAIN INVESTORS. THE BONDS ARE TO BE OFFERED AND SOLD (INCLUDING IN SECONDARY MARKET TRANSACTIONS) ONLY TO APPROVED INSTITUTIONAL BUYERS (DEFINED AS A “QUALIFIED INSTITUTIONAL BUYER” UNDER RULE 144A OF THE SECURITIES ACT OF 1933) AND ACCREDITED INVESTORS (AS DEFINED IN REGULATION D OF THE SECURITIES ACT OF 1933). THE BONDS AND BENEFICIAL INTERESTS THEREIN MAY BE TRANSFERRED, UPON SATISFACTION OF CERTAIN CONDITIONS, ONLY TO CERTAIN APPROVED INSTITUTIONAL BUYERS OR ACCREDITED INVESTORS. IN ADDITION, THE INITIAL PURCHASER OF THE BONDS WILL BE REQUIRED TO SUBMIT AN INVESTOR LETTER TO THE AUTHORITY AND THE TRUSTEE. SEE “NOTICE TO INVESTORS” AND “TRANSFER RESTRICTIONS.”

THE BONDS ARE NOT AND SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF, OTHER THAN THE AUTHORITY, AND ARE NOT AND SHALL NOT BE DEEMED TO BE A PLEDGE OF THE FAITH AND CREDIT OF THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR UNDER THE INDENTURE. NEITHER THE STATE NOR THE AUTHORITY SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF THE BONDS, OR THE REDEMPTION PREMIUM OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED THEREFOR UNDER THE INDENTURE. THE ISSUANCE OF THE BONDS SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. NOTHING IN THE INDENTURE, THE ACT OR OTHERWISE IS AN UNDERTAKING BY THE AUTHORITY OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO FUND THE TRANSFERS DESCRIBED IN THE INTERCEPT NOTICE (DEFINED HEREIN) OR TO MAKE STATE APPORTIONMENTS OR OTHER FUNDS AVAILABLE TO THE BORROWER IN ANY AMOUNT OR AT ANY TIME.

The Bonds are offered when, as and if issued by the Authority and received by the Underwriter, subject to prior sale and approval of legality by Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel to the Authority. Certain legal matters will be passed upon for the Borrower by its counsel, Derek Austin, Esq., Campbell, California, and for the Authority by the Honorable Kamala D. Harris, Attorney General of the State of California and Orrick, Herrington & Sutcliffe LLP, San Francisco, California, as Disclosure Counsel. It is expected that the Bonds in definitive form will be available for delivery through the Depository Trust Company on or about October 4, 2012.

WESTHOFF, CONE & HOLMSTEDT Dated: September 6, 2012.

MATURITY SCHEDULE



$500,000 5.500% Term Bond due June 1, 2022 – Price: 100.000 – Yield: 5.500% – CUSIP†: 130591 AE0

$650,000 6.625% Term Bond due June 1, 2032 – Price: 100.000 – Yield: 6.625% – CUSIP†: 130591 AF7

$26,350,000 7.000% Term Bond due June 1, 2047 – Price: 100.000 – Yield: 7.000% – CUSIP†: 130591 AG5

† Copyright 2012, American Bankers Association. CUSIP® is a registered trademark of the American Bankers Association. The CUSIP data

herein is provided by Standard & Poor’s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. CUSIP numbers are provided for convenience of reference only. The CUSIP numbers have been assigned by an independent company not affiliated with the Authority and are provided solely for convenience and reference. Neither the Authority, the Borrower nor the Underwriter take responsibility for the accuracy of the CUSIP numbers.

This Limited Offering Memorandum does not constitute an offer to sell the Bonds or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any state or other jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale in such state or jurisdiction. No dealer, salesperson or any other person has been authorized to give any information or to make any representation other than those contained herein in connection with the offering of the Bonds, and, if given or made, such information or representation must not be relied upon.

The information set forth herein under the captions “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION — The Authority” has been furnished by the Authority. All other information set forth herein has been obtained from the Borrower and other sources that are believed to be reliable. The adequacy, accuracy or completeness of such information is not guaranteed by, and is not to be construed as a representation of, the Authority or the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Limited Offering Memorandum, nor any sale made hereunder, shall under any circumstances create any implication that there has been no change in the affairs of the Authority, The Depository Trust Company or the Borrower since the date hereof.

The Underwriter has provided the following sentence for inclusion in this Limited Offering Memorandum. The Underwriter has reviewed the information in this Limited Offering Memorandum in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of these transactions, but the Underwriter does not guarantee the accuracy or completeness of this information.

IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKINGSTATEMENTS IN THIS LIMITED OFFERING MEMORANDUM

Certain statements included or incorporated by reference in this Limited Offering Memorandum constitute “forward-looking statements.” Such statements generally are identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words. Such forward-looking statements include but are not limited to certain statements contained in the information under the captions “RISK FACTORS” and “APPENDIX A: INFORMATION CONCERNING THE PROJECT AND THE BORROWER” in this Limited Offering Memorandum. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Borrower does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur.

NOTICE TO INVESTORS

The Bonds are to be offered and sold (including in secondary market transactions) only to Approved Institutional Buyers (defined as a “qualified institutional buyer” under Rule 144A of the Securities Act of 1933) and Accredited Investors (as defined in Regulation D of the Securities Act of 1933). The Indenture under which the Bonds will be issued contains provisions limiting transfers (except under certain limited circumstances described herein) of the Bonds to Approved Institutional Buyers and Accredited Investors. In addition, the face of each Bond contains a legend to the effect that such Bond can only be owned by Approved Institutional Buyers or Accredited Investors. In addition, the initial purchasers of the Bonds will be required to submit an investor letter in the form attached hereto as APPENDIX G to the Authority and the Trustee.

BY ITS PURCHASE OF ANY BOND, EACH APPROVED INSTITUTIONAL BUYER AND ACCREDITED INVESTOR WHO IS A PURCHASER OF ONE OR MORE BONDS WILL BE DEEMED:

1. TO HAVE EXPERIENCE IN THE BOND MARKET, HAVE KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS AND BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF THE BONDS, AND ABLE TO BEAR THE ECONOMIC RISK OF ITS INVESTMENT IN THE BONDS, INCLUDING A TOTAL LOSS OF PURCHASER’S INVESTMENT;

2. TO REPRESENT THAT IT IS PURCHASING THE BONDS FOR ITS OWN ACCOUNT OR FOR THE ACCOUNTS OF ONE OR MORE APPROVED INSTITUTIONAL BUYERS FOR WHICH IT IS ACTING AS A FIDUCIARY OR AGENT, IN EACH CASE FOR INVESTMENT, AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF IN VIOLATION OF THE SECURITIES ACT OR OTHER APPLICABLE SECURITIES LAWS, SUBJECT TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH APPROVED INSTITUTIONAL BUYER BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL AND SUBJECT TO ITS OR THEIR ABILITY TO RESELL SUCH BONDS TO PARTIES THAT THE PURCHASER DEEMS IN GOOD FAITH TO BE SUITABLE INVESTORS;

3. TO ACKNOWLEDGE THAT THE BONDS (A) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND ARE NOT REGISTERED OR OTHERWISE QUALIFIED FOR SALE UNDER THE “BLUE SKY” LAWS AND REGULATIONS OF ANY STATE, (B) WILL NOT BE LISTED ON ANY STOCK OR OTHER SECURITIES EXCHANGE, AND (C) MAY NOT BE READILY MARKETABLE; AND

4. ACKNOWLEDGE THAT THE AUTHORITY, THE BORROWER, THE TRUSTEE, THE UNDERWRITER AND OTHERS WILL RELY UPON THE TRUTH AND ACCURACY OF THE FOREGOING ACKNOWLEDGMENTS, REPRESENTATIONS AND AGREEMENTS.

TABLE OF CONTENTSPage

INTRODUCTION........................................................................................................................................................1

General...........................................................................................................................................................1

The Bonds ......................................................................................................................................................1

Security for the Bonds....................................................................................................................................1

THE PROJECT ............................................................................................................................................................2

General...........................................................................................................................................................2

Acquisition and Construction Costs of the Facilities .....................................................................................3

Construction Contract and the Contractor......................................................................................................3

Appraisal of Facilities ....................................................................................................................................4

Environmental Status and Report...................................................................................................................4

THE BONDS................................................................................................................................................................7

Authority for Issuance; Purpose.....................................................................................................................7

General...........................................................................................................................................................7

Form and Registration of Bonds ....................................................................................................................8

Transfer of Bonds...........................................................................................................................................8

Redemption of Bonds.....................................................................................................................................8

Selection of Bonds for Redemption ...............................................................................................................9

Notice of Redemption ..................................................................................................................................10

Right to Rescind Notice ...............................................................................................................................10

Defeasance ...................................................................................................................................................10

TRANSFER RESTRICTIONS ..................................................................................................................................12

PLAN OF FINANCE .................................................................................................................................................13

SCHEMATIC REPRESENTATION PLAN OF FINANCE.....................................................................................14

ESTIMATED SOURCES AND USES OF FUNDS OF BONDS .............................................................................15

DEBT SERVICE SCHEDULE ..................................................................................................................................16

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS..........................................................................17

General.........................................................................................................................................................17

The Loan and the Sublease ..........................................................................................................................17

Loan Repayments and Base Rental Payments; Limited Obligations ...........................................................18

Intercept .......................................................................................................................................................19

Reserve Fund ...............................................................................................................................................20

Capital Maintenance and Operating Fund....................................................................................................22

Liquidity Fund .............................................................................................................................................22

Additional Payments ....................................................................................................................................23

Deeds of Trust on the Facilities ...................................................................................................................24

CERTAIN COVENANTS OF THE BORROWER ...................................................................................................25

Annual Budget Covenant .............................................................................................................................25

TABLE OF CONTENTS(continued)

Page

ii

Limitation on Incurrence of Additional Indebtedness..................................................................................25

Cash on Hand...............................................................................................................................................26

Debt Service Covenant.................................................................................................................................27

Other Covenants...........................................................................................................................................27

SUBORDINATE OBLIGATIONS ............................................................................................................................27

Subordination Agreement ............................................................................................................................27

Subordinate Lease and Sublease ..................................................................................................................28

Subordinate Base Rental Payments..............................................................................................................28

Default and Remedies ..................................................................................................................................29

Intercreditor Agreement ...............................................................................................................................29

CHARTER SCHOOLS ..............................................................................................................................................29

General.........................................................................................................................................................29

Chartering Authority ....................................................................................................................................30

Elements of a Charter Petition .....................................................................................................................30

Charter Management Organizations.............................................................................................................31

Charter Revocation ......................................................................................................................................32

Amendments to the Charter School Law .....................................................................................................32

Growth in Charter Schools in California......................................................................................................33

STATE FUNDING OF EDUCATION .....................................................................................................................33

General.........................................................................................................................................................33

Allocation of State Funding to Charter Schools...........................................................................................38

CONSTITUTIONAL AND STATUTORY PROVISIONS.......................................................................................40

AFFECTING EDUCATION REVENUES AND APPROPRIATION ......................................................................40

Limitation on Revenues ...............................................................................................................................40

THE AUTHORITY....................................................................................................................................................41

RISK FACTORS........................................................................................................................................................41

General.........................................................................................................................................................41

Possible Offsets to State Apportionment .....................................................................................................42

California Budget Deficit.............................................................................................................................42

Bankruptcy...................................................................................................................................................43

Factors Associated with the Borrower’s Operations ....................................................................................44

Claims and Insurance Coverage...................................................................................................................44

Risk Relating to Philanthropy and Grants....................................................................................................44

Limitations on Value of the Facilities and to Remedies Under the Deed of Trust.......................................44

Purchases and Transfers of Bonds Restricted to Approved Institutional Buyers and Accredited Investors................................................................................................................................................45

Specific Risks of Charter Schools................................................................................................................46

Tax Related Issues .......................................................................................................................................46

TABLE OF CONTENTS(continued)

Page

iii

Other Limitations on Enforceability of Remedies .......................................................................................48

ABSENCE OF MATERIAL LITIGATION ..............................................................................................................48

The Authority...............................................................................................................................................48

The Borrower ...............................................................................................................................................48

TAX MATTERS........................................................................................................................................................48

APPROVAL OF LEGALITY ....................................................................................................................................50

NO RATING..............................................................................................................................................................50

LIMITED OFFERING OF BONDS ..........................................................................................................................51

CONTINUING DISCLOSURE .................................................................................................................................51

UNDERWRITING.....................................................................................................................................................51

MISCELLANEOUS...................................................................................................................................................52

APPENDIX A INFORMATION CONCERNING THE PROJECT AND THE BORROWER ............................. A-1

APPENDIX B AUDITED FINANCIAL STATEMENTS OF TRI-VALLEY FOR THE FISCAL YEAR ENDED JUNE 30, 2011 ..............................................................................................................B-1

APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS................................................................................C-1

APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT .......................................................... D-1

APPENDIX E BOOK-ENTRY SYSTEM ...............................................................................................................E-1

APPENDIX F FORM OF OPINION OF BOND COUNSEL.................................................................................. F-1

APPENDIX G FORM OF INVESTOR LETTER................................................................................................... G-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

LIMITED OFFERING MEMORANDUM



INTRODUCTION

General

This Limited Offering Memorandum, including the cover page and Appendices hereto (the “Limited Offering Memorandum”), is provided to furnish information with respect to the sale and delivery of $27,500,000aggregate principal amount of Educational Facilities Revenue Bonds (Tri-Valley Learning Corporation Project), Series 2012A (the “Bonds”) of the California School Finance Authority (the “Authority”). Capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture (defined below).

The Bonds

The Bonds will be issued pursuant to Chapter 18 (commencing with Section 17170) of Part 10 of Division 1 of Title 1 of the Education Code of the State of California (the “Act”) and an Indenture, dated as of October 1, 2012 (the “Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Bonds will bear interest on each June 1 and December 1, commencing December 1, 2012 (each an “Interest Payment Date”) and will be subject to redemption prior to maturity as set forth under “THE BONDS –Redemption of Bonds” herein.

Proceeds of the Bonds will be (a) loaned (the “Loan”) to the Livermore Valley Charter School and Livermore Valley Charter Preparatory High School, both operating as Tri-Valley Learning Corporation, a California nonprofit public benefit corporation (the “Borrower”) pursuant to a Loan Agreement, dated as of October 1, 2012 (the “Loan Agreement”), between the Authority and the Borrower, and applied to finance the acquisition, construction, improvement and equipping of certain public charter school facilities to be used and operated by the Borrower as a charter school (as more fully described herein, the “Facility” or “Facilities”); (b) used to fund the rent payable by the Authority under the Site Lease, dated as of October 1, 2012 (the “Site Lease”), between the Authority, as lessee and Montevina Phase I, LLC, as lessor; (c) used to fund a debt service reserve fund for the Bonds; and (d) used to pay certain costs of issuance of the Bonds and costs of delivery of the Montevina Leases (as defined herein). Simultaneously with the execution, delivery and recordation of the Site Lease, the Authority will enter into a Sublease, dated as of October 1, 2012 (the “Sublease”), between the Authority, as sublessor and the Borrower, as sublessee. See “THE PROJECT” and “APPENDIX A: INFORMATION CONCERNING THE PROJECT AND THE BORROWER” herein.

Security for the Bonds

The principal of and interest on the Bonds are payable solely from all Payments and any other amounts (excluding proceeds of the sale of Bonds) held in any fund or account (other than the Rebate Fund and the Indemnification Fund) established pursuant to the Indenture. Pursuant to the Indenture, all of the Payments (except Payments with respect to the Intercept, as described below) and other amounts (excluding proceeds of the sale of Bonds) held in any fund or account (other than the Rebate Fund and the Indemnification Fund) established pursuant to the Indenture and all of the right, title and interest of the Authority in, to and under the Loan Agreement (except for the Retained Rights, as defined under “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – The Loan and the Sublease”) are pledged to the Trustee for the benefit of the Holders from time to time of the Bonds. The Trustee will be entitled to and will receive all of the Payments, and any Payments collected or received by the Authority will be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and will forthwith be paid by the Authority to the Trustee.

2

“Payments” under the Indenture means (i) all moneys (except any money received to be used for the payment of Administrative Fees and Expenses) received by the Trustee with respect to the Intercept (as discussed below), (ii) all moneys, if any, received by the Trustee directly from, or on behalf of, the Borrower, pursuant to the Loan Agreement (excluding Additional Payments as defined herein), (iii) all moneys, if any, received by the Trustee directly from, or on behalf of, the Borrower, pursuant to the Sublease (excluding Additional Payments as defined herein) and (iv) all income derived from the investment of any money in any fund or account established pursuant to the Indenture. Payments does not include Subsidy Payments (as defined below). All Payments shall be held in trust for the benefit of the Holders from time to time of the Bonds but shall nevertheless be disbursed, allocated and applied solely for the uses and purposes set forth in the Indenture.

As further security for the Bonds, in connection with the issuance of the Bonds, the Borrower will provide instructions to the State Controller’s Office (the “Controller”) to make an apportionment to the Trustee in amounts and on dates provided in a written notice (the “Intercept Notice”) sufficient to repay the Bonds and pay necessary and incidental costs. Funds received by the Trustee pursuant to the Intercept described in clause (i) of the definition of Payments will be held in trust and will be disbursed, allocated and applied solely for the uses and purposes set forth in the Indenture, including if necessary, the payment of debt service on the Bonds. Under state law, no party, including the Borrower or any of its creditors will have any claim to the money apportioned or to be apportioned to the Trustee by the State Controller pursuant to the Intercept. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – Intercept” and “RISK FACTORS – Bankruptcy” below.

THE PROJECT

General

At present, the Borrower operates two charter schools at leased facilities from the Livermore Valley Joint Unified School District pursuant to Proposition 39.

The “Project” consists of the acquisition, leasing, construction, improvement and equipping of the Facilities (including, but not limited to, the improvement of certain of the existing buildings into classrooms and administrative spaces and the construction of hard courts and a multiple purpose field for athletic and extracurricular use), which will house the Livermore Valley Charter School (“LVCS”), grades K-8, and athletic facilities for LVCS and Livermore Valley Charter Preparatory High School (“LVCP”), grades 9-12. See “APPENDIX A: INFORMATION CONCERNING THE PROJECT AND THE BORROWER” herein for more information.

Upon completion of construction, LVCS will vacate the current facility located on Sonoma Avenue in the City of Livermore and will move to the new site described below. LVCP will remain at its present location at 2451 Portola Avenue in the City of Livermore. See the Location Map on page 5 for more information about the location of these sites.

The Borrower intends to acquire or lease or sublease 16 office buildings totaling 98,400 square feet on 9.88 acres (the “Campus Buildings”) and the adjoining vacant 12.4-acres parcel (the “Campus Lot”) located on North Canyons Parkway at its intersection with Constitution Drive in the City of Livermore (collectively, the “Montevina Campus”). The owner of 14 of the 16 Campus Buildings (the “Montevina Buildings”) and the entirety of the Campus Lot have agreed under the Site Lease and the Limited Obligation Site Lease, dated as of October 1, 2012 (the “Subordinate Site Lease”), between Montevina Phase II, LLC and the Authority, to lease such Facilities to the Authority, who will sublease such Facilities to the Borrower pursuant to the Sublease and the Subordinate Sublease, dated as of October 1, 2012 (the “Subordinate Sublease”), between the Authority and the Borrower. “Phase I” consists of the lease and sublease of 12 of the 14 Montevina Buildings (the “Phase I Montevina Buildings”). “Phase II” consists of the lease and sublease of the remaining two Montevina Buildings (the “Phase II Montevina Buildings”) and the Campus Lot. After the term of such leases, the current owner will convey fee title in the Facilities, free and clear at the end of the 23-year lease term (the term length allowed under the Qualified School Construction Bond (“QSCB”) rules). The Site Lease, the Subordinate Site Lease, the Sublease and the Subordinate Sublease are collectively referred to herein as the “Montevina Leases.” As further described below, the Borrower intends to acquire fee title to the 15th Campus Building (the “Administration Building”), with proceeds of the Bonds, and to lease the remaining 16th Campus Building (the “Rental Building”) from its owner, which lease will not be financed with proceeds of the Bonds.

3

The Campus Buildings located on the Montevina Campus comprise one and two-story office buildings ranging in size from 3,600 to 13,200 square feet, averaging 6,560 square feet per building. The Montevina Buildings to be leased and subleased pursuant to the Montevina Leases have never been sold and are in shell condition with no interior walls, finished ceilings, bathrooms, or floor coverings, but the electrical panels and roof-mounted HVAC units have been installed. Four of the Montevina Buildings are two-stories with installed elevators. The Administration Building, located at 3252 Constitution Drive, will be acquired by the Borrower through financing with proceeds of the Bonds. The Rental Building, located at 3110 Constitution Drive, will be leased by the Borrower from such building’s owner. Such lease of the Rental Building will not be financed with proceeds of the Bonds.

The Borrower acquired a conditional use permit for use as a school on the Montevina Campus on February 1, 2011. The required construction permits will be acquired by the City of Livermore upon the closing of this financing and payment to the contractors.

At the date of delivery of the Bonds, Montevina Phase I, LLC and Montevina Phase II, LLC will be owned in their entirety by Anthony Cone and Mark Holmstedt, who are principals of Westhoff, Cone & Homstedt, the underwriter of the Bonds.

Acquisition and Construction Costs of the Facilities

Structures currently on the Facilities site will be renovated for use as school buildings. The costs of the Facilities are estimated by the Borrower to be approximately as follows (including contingencies):

Acquisition of Land and Buildings Phase I Montevina Phase II Montevina Administration

$ 7,400,00015,000,000

3,140,000Improvements 13,000,000Design, Engineering, Legal and Other Consultants 1,273,000

Total $39,813,000____________________Source: The Borrower.

Construction Contract and the Contractor

The Borrower initially expected to begin construction in June 2012 and to complete construction by September 2012 in time for occupancy in the fall of 2012. Due to various reasons, the acquisition of the Montevina Campus and construction and renovation therein were delayed. The Borrower has worked with its design and construction team to accommodate such delay. As a result of the revised plan and scheduling, the Borrower expects to start the upcoming school year at the two currently leased school facilities for LVCS and LVCP, which facilities can accommodate the enrolled student population until the Borrower is able to occupy the Montevina Campus. The Borrower plans to move to the Montevina Campus in January 2013, after the winter holiday. If necessary, the Borrower is able to defer noncritical elements of construction to future breaks in the academic calendar to avoid disruptions to school operations. In the event that there are further delays and the Montevina Campus is not ready for school operations by January 2013, the Borrower can maintain its leases on both of the current facilities for LVCS and LVCP.

When construction commences, it is expected that the Facilities will be renovated by Devcon Construction Incorporated (the “Contractor”) of Stockton, California under a Standard Design-Build Agreement (the “Construction Contract”) at a maximum price of $13,000,000. The Construction Contract is only for construction and does not include furnishing the Facilities. The Borrower believes that the fiscal impact from the planned move to the Montevina Campus in January 2013 will not prevent the Borrower from meeting its fiscal covenants associated with the Bonds and the Montevina Leases.

4

The Contractor was founded in 1976 and in its thirty-six year history, the Contractor has built over 30 million square feet of office, commercial, K-12, higher education and industrial space throughout Northern California. Sales volume for the Contractor in 2011 was approximately $435 million. For more information about the Contractor see “APPENDIX A: INFORMATION CONCERNING THE PROJECT AND THE BORROWER –THE PROJECT.”

Appraisal of Facilities

Phase I and Phase II were appraised on May 18, 2011, by CB Richard Ellis. The appraisal includes the Administration Building which will be acquired in fee simple upon the delivery of the Bonds and is fully built out and functional. The total appraisal value of the property in Phase I and Phase II being acquired by the Borrower is $19,275,000. This appraisal value does not consider the improvements to the Montevina Buildings, which will be completed with proceeds from the Bonds, or the construction of athletic fields and facilities.

A summary of the appraisal report is available upon request from the Borrower, currently located at 2451 Portola Avenue, Livermore, California.

Environmental Status and Report

A “Phase I Environmental Site Assessment” was conducted by Tetra Tech EM Inc., dated March 5, 2007 (the “2007 ESA Report”), prior to the construction of the 16 buildings located on the Montevina Campus. The 2007 ESA Report concluded that the site in question had no recognized environmental concerns. At the request of the Borrower, R&M Environmental and Infrastructure Engineering, Inc. prepared an update to the 2007 ESA Report, dated November 23, 2010 (the “2010 ESA Report”), to take into account, among other things, changes in the condition of the Montevina Campus as well as changes, if any, in the neighboring land uses that may have brought about or can potentially bring about recognized environmental concerns. The 2010 ESA Report confirms the finding of the 2007 ESA Report of the absence of “recognized environmental conditions” as defined in the American Society for Testing and Materials Standard Practice E 1527-05, Standard Practice for Environmental Site Assessment Practice.

5

Tri-Valley Learning CorporationLocation Map

Montevina Campus Site

6

Tri-Valley Learning CorporationAerial View of Project Site (Montevina)

The Montevina Campus is shown in the photo above. The Campus Buildings are located immediately below the open space in the center of the picture and bounded by the court on their right. The green, vacant land to the right of the court is the Campus Lot and represents a portion of Phase II.

7

THE BONDS

The following is a summary of certain provisions of the Bonds. Reference is made to the Bonds for the complete text thereof and to the Indenture for all of the provisions relating to the Bonds. The discussion herein is qualified by such reference. For a summary of the Indenture, see “APPENDIX C: SUMMARY OF PRINCIPAL DOCUMENTS” herein.

Authority for Issuance; Purpose

The Bonds are issued pursuant to the Act, resolutions adopted by the Authority and the Borrower, and the Indenture to fund (i) a loan to the Borrower to finance the acquisition, construction, improvement and equipping of certain public charter school facilities to be used and operated by the Borrower as a charter school; (ii) the rent payable by the Authority under the Site Lease; (iii) a debt service reserve fund for the Bonds; and (iv) certain costs of issuance of the Bonds and costs of delivery of the Montevina Leases.

General

The Bonds are being issued in the aggregate principal amount set forth on the cover of this Limited Offering Memorandum. The Bonds will be initially delivered as registered Bonds in denominations of $250,000 and any integral multiple of $5,000 in excess thereof (the “Authorized Denominations”). The Authorized Denominations may be modified subject to meeting the requirements outlined in “TRANSFER RESTRICTIONS” below.

The Bonds will be dated their dated date of issuance and will bear interests at the rate set forth on the inside cover page hereof from their dated date. Interest on the Bonds will be calculated on the basis of a 360-day year of twelve 30-day months and will be payable in arrears on each Interest Payment Date. The Bonds will mature in the amounts and in each of the years as set forth in the inside cover page hereof.

The Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company (the “Depository”), and will be evidenced by one Bond for each maturity in the total aggregate principal amount of the Bonds of such maturity. Registered ownership of the Bonds, or any portion thereof, may not thereafter be transferred except as set forth in the Indenture. So long as Cede & Co. is the registered owner of the Bonds, as nominee of the Depository, references herein to the bondholders, holders or registered owners will mean Cede & Co. as aforesaid and will not mean the “beneficial owners” of the Bonds.

The principal of and interest on the Bonds will be payable in lawful money of the United States of America upon surrender at the Principal Corporate Trust Office of the Trustee. The interest on any Bond will be payable to the person whose name appears on the registration books of the Trustee as the registered owner thereof as of the close of business on the fifteenth day of the calendar month immediately preceding the Interest Payment Date (the “Record Date”), such interest to be paid by check mailed by first class mail, postage prepaid, on the Interest Payment Date, to the registered owner at his or her address as it appears on such registration books. Notwithstanding the foregoing, however, any holder of all the Bonds and any holder of $1,000,000 or more in an aggregate principal amount of the Bonds will be entitled to receive payments of interest on the Bonds held by it by wire transfer of immediately available funds to such bank or trust company located within the United States of America as such other holder will designate in writing to the Trustee by the first Record Date for such payment. So long as Cede & Co. is the registered owner of the Bonds, principal of and interest on the Bonds are payable in same day funds by the Trustee to Cede & Co., as nominee for the Depository.

Any interest not punctually paid or duly provided for will thereafter cease to be payable to the bondholder on the Record Date and will be paid to the person in whose name the Bond is registered at the close of business on a date established by the Trustee pursuant to the Indenture as a record date (the “Special Record Date”) for the payment of such defaulted interest. The Special Record Date will be fixed by the Trustee, notice thereof being given to the bondholders not less than 10 days prior to such Special Record Date.

8

Form and Registration of Bonds

Individual purchases of the Bonds will initially be made in Book-Entry form only under the Book-Entry System, in Authorized Denominations. Except in the event that use of the Book-Entry System is discontinued for the Bonds, Beneficial Owners (defined herein) will not receive physical certificates representing their ownership interests in the Bonds. Principal of and interest on the Bonds will be paid by the Trustee to DTC, which will in turn remit such principal and interest to its Participants (defined herein), for subsequent distribution to the Beneficial Owners of the Bonds, as described herein. The Bonds may be transferred or exchanged in the manner described in the Bonds and as referenced in the Indenture. See “APPENDIX E: BOOK-ENTRY SYSTEM” herein.

Transfer of Bonds

The Bonds will be issued in book-entry only form, as described in the preceding paragraph. Registered ownership of the Bonds, or any portion thereof, may not thereafter be transferred, except as provided in the Indenture: (i) to any successor of Cede & Co., as nominee of DTC, or its nominee, or to any designated substitute depository, (ii) to any substitute depository selected by the Authority upon (1) the resignation of DTC or its successor from its function as depository, or (2) because DTC or its successor is no longer able to carry out its function as depository; or (iii) to any person as provided in the Indenture upon (1) the resignation of DTC or its successor from its function as depository, or (2) a determination by the Authority to remove DTC or its successor from its function as depository. Transfer of the Bonds is restricted as described in “TRANSFER RESTRICTION” herein.

Redemption of Bonds

Extraordinary Optional Redemption From Insurance and Condemnation Proceeds. The Bonds are subject to redemption prior to their stated maturity, at the option of the Borrower as a whole or in part on any date from moneys required to be transferred from the Insurance and Condemnation Proceeds Fund to the Redemption Fund at a redemption price equal to the principal amount thereof together with interest accrued thereon to the date fixed for redemption, without premium. See “APPENDIX C: SUMMARY OF PRINCIPAL DOCUMENTS – THE LOAN AGREEMENT – Maintenance, Taxes, Insurance and Condemnation” herein.

Extraordinary Optional Construction Related Redemption. The Bonds are also subject to redemption in part prior to their stated maturity, at the option of the Borrower, from amounts transferred from the Project Fund following completion of the Project in accordance with the Indenture. See “APPENDIX C: SUMMARY OF PRINCIPAL DOCUMENTS – THE INDENTURE – Funds – Project Fund.”

Optional Redemption. The Bonds maturing on or after June 1, 2032 are also subject to redemption prior to their respective stated maturities, at the option of the Borrower (a copy of which request shall be delivered to the Trustee not less than thirty-five (35) days prior to the date fixed for such redemption, or such shorter period as agreed to in writing by the Trustee in its sole discretion), from any amounts in the Redemption Fund, in whole or in part on any date on or after June 1, 2022, at a redemption price equal to 100% of the principal amount of the Bonds called for redemption, plus accrued interest to the date fixed for redemption.

Mandatory Sinking Account Redemption. The Bonds maturing on June 1, 2022 are also subject to redemption prior to their respective stated maturities in part, by lot, from Mandatory Sinking Account Payments established pursuant to the Indenture on June 1 in each of the years and in the respective principal amounts set forth in the following schedule, at a redemption price equal to the principal amount thereof together with interest accrued thereon to the date fixed for redemption, without premium:

Mandatory Redemption Date(June 1)

PrincipalAmount

2021 $125,0002022* 375,000

____________________* Final Maturity

9

The Bonds maturing on June 1, 2047 are also subject to redemption prior to their respective stated maturities in part, by lot, from Mandatory Sinking Account Payments established pursuant to the Indenture on June 1 in each of the years and in the respective principal amounts set forth in the following schedule, at a redemption price equal to the principal amount thereof together with interest accrued thereon to the date fixed for redemption, without premium:

Mandatory Redemption Date (June 1)

PrincipalAmount

2014 $ 220,0002015 235,0002016 250,0002017 270,0002018 285,0002019 305,0002020 330,0002021 225,0002023 395,0002024 420,0002025 450,0002026 485,0002027 515,0002028 555,0002029 590,0002030 635,0002031 680,0002032 75,0002033 775,0002034 830,0002035 885,0002036 945,0002037 1,015,0002038 1,085,0002039 1,160,0002040 1,240,0002041 1,330,0002042 1,420,0002043 1,520,0002044 1,625,0002045 1,740,0002046 1,865,0002047* 1,995,000

____________________* Final Maturity

Selection of Bonds for Redemption

When any redemption is made pursuant to any of the provisions of the Indenture and less than all of the Outstanding Bonds are to be redeemed, the Trustee will select the Bonds to be redeemed from the Outstanding Bonds not previously called for redemption, by lot within a maturity and, if from more than one maturity, in inverse order of maturity or in such other order of maturity as will be specified in a Request of the Borrower and the Mandatory Sinking Account Payments will be reduced pro-rata. In no event will Bonds be redeemed in amounts other than whole multiples of Authorized Denominations. For purposes of redeeming Bonds in denominations greater than minimum Authorized Denominations, the Trustee will assign to such Bonds a distinctive number for each such principal amount and, in selecting Bonds for redemption by lot, will treat such amounts as separate Bonds. The Trustee will promptly notify the Authority in writing of the numbers of the Bonds selected for redemption

10

Notice of Redemption

Notice of extraordinary optional redemption and optional redemption will be given by the Trustee upon the written request of the Borrower. Notice of redemption of the Bonds will be mailed postage prepaid, not less than thirty (30) nor more than sixty (60) days prior to the redemption date (i) by first class mail to the respective Holders of the Bonds at the addresses appearing on the registration books of the Trustee.

Each notice of redemption will contain all of the following information: (i) the date of such notice; (ii) the name of the affected Bonds and the date of issue of the Bonds; (iii) the redemption date; (iv) the redemption price, if available; (v) the dates of maturity of the Bonds to be redeemed; (vi) if less than all of the Bonds are to be redeemed, the distinctive numbers of the Bonds of each maturity to be redeemed; (vii) in the case of Bonds to be redeemed in part only, the respective portions of the principal amount of the Bonds of each maturity to be redeemed; (viii) the CUSIP number, if any, of each maturity of Bonds to be redeemed; (ix) a statement that such Bonds must be surrendered by the Holders at the Principal Corporate Trust Office of the Trustee, or at such other place or places designated by the Trustee; (x) a statement that any such redemption notice can be rescinded as provided in the Indenture; and (xi) notice that further interest on such Bonds, if any, will not accrue from and after the designated redemption date. Each notice of redemption may provide that no representation is made as to the accuracy or correction of any CUSIP numbers provided therein or on the Bonds.

The actual receipt by the Holder of any Bond, or any other party, of notice of redemption will not be a condition precedent to redemption, and failure to receive such notice, or any defect in the notice given, will not affect the validity of the proceedings for the redemption of such Bonds or the cessation of interest on the date fixed for redemption.

When notice of redemption has been given substantially as described above, and when the redemption price of the Bonds called for redemption is set aside for such purpose, the Bonds designated for redemption will become due and payable on the specified redemption date and interest, if any, will cease to accrue thereon as of the redemption date, and upon presentation and surrender of such Bonds, at the place specified in the notice of redemption, such Bonds will be redeemed and paid at the redemption price thereof out of the money provided therefor. The Holders of such Bonds so called for redemption after such redemption date shall look for the payment of such Bonds and the redemption premium thereon, if any, only to the escrow fund established for such purpose. All Bonds redeemed shall be cancelled forthwith by the Trustee and shall not be reissued.

Right to Rescind Notice

Upon oral notice, promptly confirmed by written notice from the Borrower that the Borrower has cured the conditions that caused the Bonds to be subject to extraordinary redemption, the Borrower may rescind any extraordinary redemption and notice thereof on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the Holders of the Bonds so called for redemption, with a copy to the Trustee. Notice of rescission of redemption will be given in the same manner in which notice of redemption was originally given. The actual receipt by the Holder of any Bond of notice of such rescission will not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice will not affect the validity of the rescission.

Defeasance

Discharge of Indenture. Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable under the Indenture by the Authority: (i) by paying or causing to be paid the principal of and interest on the Bonds Outstanding as and when the same become due and payable; (ii) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as described under “– Defeasance – Deposit of Money or Securities with Trustee” herein) to pay or redeem Bonds Outstanding; or (iii) by delivering to the Trustee, for cancellation by it, all Bonds Outstanding.

If the Authority pays all Bonds then Outstanding as provided above and will also pay or cause to be paid all other sums payable under the Indenture by the Authority, then and in that case, at the election of the Authority (evidenced by a Certificate of the Authority, filed with the Trustee, signifying the intention of the Authority to

11

discharge all such indebtedness and the Indenture), and notwithstanding that any Bonds will not have been surrendered for payment, the Indenture and the pledge of Payments made under the Indenture and all covenants, agreements and other obligations of the Authority under the Indenture will cease, terminate, become void and be completely discharged and satisfied, except as provided in the Indenture. In such event, upon request of the Authority, the Trustee will cause an accounting for such period or periods as may be requested by the Authority to be prepared and filed with the Authority and will execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee will pay over, transfer, assign or deliver to the Authority all moneys or securities or other property held by it pursuant to the Indenture which are not required for the payment of Bonds not theretofore surrendered for such payment and which are not required for the payment of fees and expenses of the Trustee.

Discharge of Liability on Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount to pay any Outstanding Bond, whether upon or prior to its maturity, then all liability of the Authority in respect of such Bond shall cease, terminate and be completely discharged, except only that thereafter the Holder thereof shall be entitled to payment of the principal of and interest on such Bond by the Authority, and the Authority shall remain liable for such payment but only out of the money or securities deposited with the Trustee as aforesaid for its payment. The Authority may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the Authority may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired.

Deposit of Money or Securities with Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the amount necessary to pay any Bonds, such amount (which may include money or securities held by the Trustee in the funds established pursuant to the Indenture) will be equal (taking into account income which will accrue from the investment thereof on the date of deposit of such funds but without taking into account any income from the subsequent reinvestment thereof) to the principal amount of such Bonds and all unpaid interest thereon to maturity, and will be: (a) lawful money of the United States of America; or (b) noncallable bonds, bills and bonds issued by the Department of the Treasury (including without limitation (1) obligations issued or held in book-entry form on the books of the Department of the Treasury and (2) the interest component of Resolution Funding Corporation strips for which separation of principal and interest is made by request to the Federal Reserve Bank of New York in book-entry form), United States Treasury Obligations State and Local Government Series and Zero Coupon United States Treasury Bonds; provided, in each case, that the Trustee will have been irrevocably instructed (by the terms of the Indenture or by Request of the Authority) to apply such money to the payment of such principal of and interest on such Bonds and provided, further, that the Authority and the Trustee will have received (i) an Opinion of Bond Counsel to the effect that such deposit shall not cause interest on the Bonds to be included in the gross income of the Holder thereof for federal income tax purposes and that the Bonds to be discharged are no longer Outstanding; and (ii) a verification report of a firm of certified public accountants or other financial services firm acceptable to the Authority verifying that the money or securities so deposited or held together with earnings thereon will be sufficient to make all payments of principal of and interest on the Bonds to be discharged to and including their maturity date.

Payment of Bonds After Discharge of Indenture. Notwithstanding any provision of the Indenture, and subject to applicable escheat laws, any moneys held by the Trustee in trust for the payment of the principal of or interest on any Bonds and remaining unclaimed for one year after the principal of all the Outstanding Bonds has become due and payable (whether at maturity or by declaration as provided in the Indenture), if such moneys were so held at such date, or two years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the Borrower free from the trusts created by the Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Borrower as aforesaid, the Trustee may (at the cost of the Authority) first mail to the Holders of Bonds which have not yet been paid, at the addresses shown on the registration books maintained by the Trustee, a notice, in such form as may be deemed appropriate by the Trustee, with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Borrower of the moneys held for the payment thereof.

12

TRANSFER RESTRICTIONS

The Bonds are to be offered and sold (including in secondary market transactions) only to Approved Institutional Buyers (defined as a “qualified institutional buyer” under Rule 144A of the Securities Act of 1933) or Accredited Investors (as defined in Regulation D of the Securities Act of 1933). The Indenture contains provisions limiting transfers of the Bonds and beneficial ownership interests in the Bonds only to Approved Institutional Buyers and Accredited Investors and requiring that the Authorized Denominations of the Bonds be $250,000 and any multiple of $5,000 in excess thereof. In addition, the face of each Bond will contain a legend indicating it can only be registered in the name of, or transferred to, Approved Institutional Buyers and Accredited Investors, and that by acceptance of such Bond the Holder represents that it is an Approved Institutional Buyer or is an Accredited Investor. See “RISK FACTORS – Purchases and Transfers of Bonds Restricted to Approved Institutional Buyers and Accredited Investors” herein. In addition, the initial purchasers of the Bonds will be required to submit an investor letter in the form attached hereto as APPENDIX G to the Authority and the Trustee

The Authority may remove the restrictions described in the immediately preceding paragraph without consent of any Bondholder. At such time as the Borrower shall provide to the Authority and the Trustee written evidence to the effect that any Rating Agency has rated the Bonds “BBB-” or equivalent, or higher (without regard for gradation within a rating category and without regard for credit enhancement unless such credit enhancement extends through the final maturity date of the Bonds), the restrictions from the Indenture restricting the Bonds to be offered, sold, and transferred only to Approved Institutional Buyers or Accredited Investors will be of no further force or effect and the Authorized Denominations shall be $5,000 and any multiple in excess thereof. Upon receipt of such written evidence, the Trustee will immediately notify each Bondholder of the Bonds that such restrictions set forth in the Indenture requiring that the beneficial owners of the Bonds be Approved Institutional Buyers or Accredited Investors will be of no further force or effect.

13

PLAN OF FINANCE

The Project consists of (i) the acquisition of the Montevina Buildings and the Campus Lot by the Borrower through a lease-purchase arrangement evidenced by, with respect to the Phase I Montevina Buildings, the Site Lease and the Sublease, and with respect to the Phase II Montevina Buildings and the Campus Lot, the Subordinate Site Lease and Subordinate Sublease, (ii) the costs of the acquisition of the Administration Building and (iii) the costs of renovation, improvement and equipping of the Facilities for use as public charter schools. See “THE PROJECT” above. The total Project cost of approximately $39.8 million will be funded from two primary sources: (i) approximately $24.8 million will be funded from the proceeds of the Bonds, and (ii) $15 million will be funded through the Subordinate Sublease.

On the Closing Date, a one-time rent payment of $7.4 million will be made by the Authority for the Phase I Montevina Buildings pursuant to the Site Lease from the proceeds of the Bonds. Under the Sublease, the Authority will lease to the Borrower the Phase I Montevina Buildings in exchange for the Borrower’s agreement to complete the Project thereon using proceeds of the Bonds. In addition, the Bonds will finance the acquisition of the Administration Building, which is one of the two Campus Buildings not owned by Montevina Phase I, LLC or Montevina Phase II, LLC. Finally, the proceeds of the Bonds will be used to pay other costs of the Project, the funding of a debt service reserve fund for the Bonds, and the payment of certain costs of issuance of the Bonds and costs of delivery of the Montevina Leases.

Under the Subordinate Sublease, the Authority will lease to the Borrower the Phase II Montevina Buildings and the Campus Lot in exchange for base rental payments, which includes principal and interest components (also referred to as QSCBs). The principal components of such base rental payments, totaling $15 million, will be due in a lump sum on the date of expiration of the Subordinate Sublease. The interest components of such base rental payments under the Subordinate Sublease will be paid solely by the Subsidy Payments. The interest rate that comprises this interest component will be set at the federal subsidy rate on the date of delivery of the Bonds. The Borrower’s obligation to pay rent under the Subordinate Sublease are subordinate to the Borrower’s obligations to make Loan Repayments under the Loan Agreement and Base Rental Payments under the Sublease. See “SUBORDINATE OBLIGATIONS” herein.

The issuance of the Bonds, together with the Borrower entering into the Sublease and the Subordinate Sublease allows the Borrower, upon the expiration of the leases, to acquire all the Montevina Buildings and the Campus Lot. With the separate acquisition of the Administration Building and the lease of the Rental Building, the Borrower plans to acquire the entire Montevina Campus and complete the renovation and equipping of the site for the Schools.

“Subsidy Payments” means each of the payments of refundable tax credits in respect of the principal component of Lease Payments under the Subordinate Site Lease from the United States Department of Treasury actually received by the Trustee pursuant to Section 6431(f) of the Internal Revenue Code of 1986 (the “Code”).

United StatesDepartment ofthe Treasury

StateStateController’sController’s

OfficeOffice

Loan AgreementBond Maturity

Sublease 1 Sublease 2

$18.8(Bond( L

T V L CT V L Cthe Treasury

Rent(InterestCQSCB

Sub

OfficeOffice

$7.4Million

+(Rent

$18.8Million

+(Loan

TT P i A t

Sublease 1Term: QSCB Limit

Sublease 2Term: QSCB Limit

(extendable to 25 years)

8Million

Proceeds)Loan)

Indenture C S F AC S F A

Component)

bsidy

+Interest

t)+Interest

n)

PayingATrusteeTrustee Paying Agent

(P&I

$26.2Million

Lease 1Term: QSCB Limit

QSCB Lease 2Term: QSCB Limit

$7.4M

(BondPro

(Ren

Indenture C S F AC S F A AgentAgreement

SeniorSeniorBondholdersBondholders

I) Term: QSCB Limit Term: QSCB Limit(extendable to 25 years)

Millionoceeds)nt)

MontevinaPhase II LLC

MontevinaMontevinaPhase I LLCPhase I LLC Phase II, LLC

(Fee OwnerParcel 2)

Phase I, LLCPhase I, LLC(Fee Owner(Fee OwnerParcel 1)Parcel 1)

Senior Payments

Senior Bond Proceedsmortgage in favor of

l d ( bjmortgage in favor oft l d ( bj t t

Intercreditor AgreementParcel 2 mortgage lender cannot exerciseremedies while senior bonds outstanding; exceptmay foreclose on Parcel 2 at expiration ofSublease 2

Subordinate Payments

Senior Paymentsmortgage lender (subject toSubordination Agreement)

mortgage lender (subject toIntercreditor Agreement)

Mortgage LenderMortgage Lender

Subordination AgreementParcel 1 mortgage loan subordinate toleasehold deed of trust in favor of bondtrustee

SCHEMATIC REPRESENTATION PLAN OF FINANCE

The above is a schematic representation of the plan of finance. Such representation is incomplete and in summary form and reference is made to the Indenture, the Loan Agreement, theMontevina Leases and other related documents for a full summary of their provisions. A summary of certain of these documents is included in “APPENDIX C: SUMMARY OF PRINCIPAL DOCUMENTS” herein.

14

15

ESTIMATED SOURCES AND USES OF FUNDS OF BONDS

The following table sets forth the estimated sources and uses of funds related to the Bonds.

Total

Sources:Par Amount of Bonds $27,500,000

Total Sources $27,500,000

Uses:Costs of the Project $24,813,987Reserve Fund 2,136,013Costs of Issuance (1) 550,000

Total Uses $27,500,000____________________(1) Includes underwriting discount and other costs of issuance.

16

DEBT SERVICE SCHEDULE

The annual debt service payment requirements of the Bonds are set forth in the table below.

Year Ending June 30 Principal Interest Total

2013 $ - $ 1,260,749 $ 1,260,749 2014 220,000 1,915,063 2,135,063 2015 235,000 1,899,663 2,134,663 2016 250,000 1,883,213 2,133,213 2017 270,000 1,865,713 2,135,713 2018 285,000 1,846,813 2,131,813 2019 305,000 1,826,863 2,131,863 2020 330,000 1,805,513 2,135,513 2021 350,000 1,782,413 2,132,413 2022 375,000 1,759,788 2,134,788 2023 395,000 1,739,163 2,134,163 2024 420,000 1,711,513 2,131,513 2025 450,000 1,682,113 2,132,113 2026 485,000 1,650,613 2,135,613 2027 515,000 1,616,663 2,131,663 2028 555,000 1,580,613 2,135,613 2029 590,000 1,541,763 2,131,763 2030 635,000 1,500,463 2,135,463 2031 680,000 1,456,013 2,136,013 2032 725,000 1,408,413 2,133,413 2033 775,000 1,360,100 2,135,100 2034 830,000 1,305,850 2,135,850 2035 885,000 1,247,750 2,132,750 2036 945,000 1,185,800 2,130,800 2037 1,015,000 1,119,650 2,134,650 2038 1,085,000 1,048,600 2,133,600 2039 1,160,000 972,650 2,132,650 2040 1,240,000 891,450 2,131,450 2041 1,330,000 804,650 2,134,650 2042 1,420,000 711,550 2,131,550 2043 1,520,000 612,150 2,132,150 2044 1,625,000 505,750 2,130,750 2045 1,740,000 392,000 2,132,000 2046 1,865,000 270,200 2,135,200 2047 1,995,000 139,650 2,134,650

Total $27,500,000 $46,300,912 $73,800,912

17

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

THE BONDS ARE NOT AND SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF, OTHER THAN THE AUTHORITY, AND ARE NOT AND SHALL NOT BE DEEMED TO BE A PLEDGE OF THE FAITH AND CREDIT OF THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR UNDER THE INDENTURE. NEITHER THE STATE NOR THE AUTHORITY SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF THE BONDS, OR THE REDEMPTION PREMIUM OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED THEREFOR UNDER THE INDENTURE. THE ISSUANCE OF THE BONDS SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. NOTHING IN THE INDENTURE, THE ACT OR OTHERWISE IS AN UNDERTAKING BY THE AUTHORITY OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO FUND THE TRANSFERS DESCRIBED IN THE INTERCEPT NOTICE (DEFINED HEREIN) OR TO MAKE STATE APPORTIONMENTS OR OTHER FUNDS AVAILABLE TO THE BORROWER IN ANY AMOUNT OR AT ANY TIME.

General

The principal of and interest on the Bonds are payable solely from all Payments and any other amounts (excluding proceeds of the sale of Bonds) held in any fund or account (other than the Rebate Fund and the Indemnification Fund) established pursuant to the Indenture. Pursuant to the Indenture, all of the Payments (except Payments with respect to the Intercept) and other amounts (excluding proceeds of the sale of Bonds) held in any fund or account (other than the Rebate Fund and the Indemnification Fund) established pursuant to the Indenture and all of the right, title and interest of the Authority in, to and under the Loan Agreement (except for the Retained Rights, as defined under “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – The Loan and the Sublease”) are pledged to the Trustee for the benefit of the Holders from time to time of the Bonds. The Trustee will be entitled to and will receive all of the Payments, and any Payments collected or received by the Authority will be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and will forthwith be paid by the Authority to the Trustee.

“Payments” under the Indenture means (i) all moneys (except any money received to be used for the payment of Administrative Fees and Expenses) received by the Trustee with respect to the Intercept (as discussed below), (ii) all moneys, if any, received by the Trustee directly from, or on behalf of, the Borrower, pursuant to the Loan Agreement (excluding Additional Payments as defined herein), (iii) all moneys, if any, received by the Trustee directly from, or on behalf of, the Borrower, pursuant to the Sublease (excluding Additional Payments as defined herein) and (iv) all income derived from the investment of any money in any fund or account established pursuant to the Indenture. Payments do not include Subsidy Payments. All Payments shall be held in trust for the benefit of the Holders from time to time of the Bonds but shall nevertheless be disbursed, allocated and applied solely for the uses and purposes set forth in the Indenture.

As further security for the Bonds, the Borrower will instruct the Controller to make an apportionment to the Trustee in amounts and on dates provided in the Intercept Notice sufficient to repay the Bonds and pay necessary and incidental costs. Funds received by the Trustee pursuant to the Intercept described in clause (i) of the definition of Payments will be held in trust and will be disbursed, allocated and applied solely for the uses and purposes set forth in the Indenture, including if necessary, the payment of debt service on the Bonds. Under state law, no party, including the Borrower or any of its creditors will have any claim to the money apportioned or to be apportioned to the Trustee by the State Controller pursuant to the Intercept. See “– Intercept” and “RISK FACTORS – Bankruptcy” below.

The Loan and the Sublease

As described above, the Bonds are payable from Payments that include Loan Repayments under the Loan Agreement and Base Rental Payments under the Sublease, which are both payable from Gross Revenues of the Borrower.

18

Pursuant to the Loan Agreement, the Authority will loan to the Borrower that portion of the proceeds received by the Authority from the sale of the Bonds in the amount of $20,100,000, by causing such proceeds to be deposited with the Trustee for disposition as provided in the Loan Agreement and in the Indenture.

Pursuant to the Site Lease, the Authority leases from Montevina Phase I, LLC the land located at Phase I, including the real property and improvements now and hereafter situated thereon. The term of the Site Lease commences on the date of delivery of the Bonds and ends on October 1, 2035 (the “Lease Expiration Date”) (corresponding to the QSCB term limit), unless it is sooner terminated as provided in the Site Lease. The proceeds of the Bonds in the amount of $7,400,000 will be used by the Authority to pay the Lease Payment due under the Site Lease on the date of issuance of the Bonds. Pursuant to the Sublease, the Authority subleases to the Borrower the Phase I Montevina Buildings. The term of the Sublease commences on the date of delivery of the Bonds and ends on the Lease Expiration Date, unless it is sooner terminated as provided in the Sublease. The Authority, pursuant to the Senior Assignment Agreement, dated as of October 1, 2012 (the “Assignment Agreement”), between the Authority and the Trustee, has assigned to the Trustee for the benefit of the Bondholders all of the Authority’s right, title and interest in and to the Site Lease and the Sublease, including, without limitation, its right to receive the Base Rental Payments (as defined below) to be paid by the Borrower under and pursuant to the Sublease; provided, however, that the Authority will retain its Retained Rights.

“Retained Rights” means the Authority right to payment of the Administrative Fees and Expenses, any Additional Payments, any Additional Rent, any right to be indemnified, held harmless or defended, any right to receive information, reports, certifications or other documents and any right to notice, consent or inspection under the Indenture or under the Loan Agreement or under the Sublease.

Pursuant to the Site Lease, Montevina Phase I, LLC agrees, upon the Lease Expiration Date, to convey fee simple title to the Phase I Montevina Buildings, free of any encumbrances, to the Borrower; provided that upon (i) an Event of Default under the Sublease and (ii) the written direction of the Trustee, the Site Lease will be terminated and Montevina Phase I, LLC will convey fee simple title to the Phase I Montevina Buildings, free of any encumbrances, to the Trustee.

Loan Repayments and Base Rental Payments; Limited Obligations

The Borrower will pay to the Authority from the Gross Revenues (as defined below) as repayment of the Loan, the Loan Repayments, and as rent under the Sublease, the Base Rental Payments, on or before any date upon which any amounts payable with respect to the Bonds will become due, whether upon redemption, maturity or otherwise, including any Interest Payment Date and Principal Payment Date (each a “Bond Payment Date”), until the principal of, premium, if any, and interest on, the Bonds will have been fully paid or provision for such payment will have been made as provided in the Indenture, a sum equal to the amount payable on the next Bond Payment Date as principal of and premium, if any, and interest on, the Bonds as provided in the Indenture (with respect to the Loan, the “Loan Repayments” and with respect to the Sublease, the “Base Rental Payments”). Such Loan Repayments and Base Rental Payments will be made in federal funds or other funds immediately available at the Corporate Trust Office of the Trustee, as assignee of the Authority, through the Intercept (as described more fully below).

Such Loan Repayments combined with the Base Rental Payments will at all times be sufficient to pay the total amount of interest and principal (whether at maturity or upon redemption) and premium, if any, becoming due and payable on the Bonds on each Bond Payment Date; provided, any amount held by the Trustee in the Revenue Fund will be credited against the installment due on the next Bond Payment Date to the extent available for such purpose under the terms of the Indenture; and provided further that if at any time the amounts held by the Trustee in the Revenue Fund are sufficient to pay all of the principal of and interest and premium, if any, on, the Bonds as such payments become due, the applicable Borrower will be relieved of any obligation to make any further payments under the Loan Agreement and the Sublease. Notwithstanding the foregoing, if on any date the amount held by the Trustee in the Revenue Fund is insufficient to make any required payments of principal of (whether at maturity or upon redemption) and interest and premium, if any, on the Bonds as such payments become due, the applicable Borrower will forewith pay such deficiency as a Loan Repayment under the Loan Agreement and/or a Base Rental Payment under the Sublease.

19

The Borrower will pay, or cause to be paid, the Loan Repayments and the Base Rental Payments from the Gross Revenues, including through the Intercept (as described below), without any further notice thereof except as may otherwise be specifically required by the Loan Agreement and the Sublease, as applicable. The obligations of the Borrower to pay the Loan Repayments, the Base Rental Payments and Additional Payments (as defined below), and to perform and observe any and all of the other covenants and agreements on its part contained in the Loan Agreement and the Sublease, will be absolute and unconditional irrespective of any defense or any rights of setoff, recoupment, or counterclaim which the Borrower may otherwise have against the Authority, the Trustee or otherwise; provided, however, that such obligations are limited to the Borrower paying the Loan Repayments, Base Rental Payments and Additional Payments solely from Gross Revenues attributable to Livermore Valley Charter School and Livermore Valley Charter Preparatory High School (each a “School” and collectively, “Schools”).

The liability of the Borrower under the Loan Agreement and the Sublease to any person or entity, including, but not limited to, the Trustee or the Authority and their successors and assigns, is limited to recourse only to the Gross Revenues attributable to the Schools and the amounts held in certain funds and accounts created under the Indenture, and such persons and entities will look exclusively thereto, or to such other security as may from time to time be given for the payment of obligations arising out of the Loan Agreement, the Sublease or any other agreement securing the obligations of the Borrower with respect to the Bonds.

In the event the Borrower will fail to deposit, or fail to cause to be deposited, with the Trustee any Loan Repayments, Base Rental Payments or Additional Payments as required by the Loan Agreement and the Sublease, the Loan Repayments, Base Rental Payments, Additional Payments or other payments required under the Loan Agreement and the Sublease not paid from the Gross Revenues will continue as an obligation under the Loan Agreement or the Sublease, as applicable, until the amount in default will have been fully paid.

“Gross Revenues” means the revenues of the Borrower, limited to all revenues, income, receipts and money received by or apportioned to the Schools or with respect to any school operated or to be operated as Tri-Valley Learning Corporation (“Tri-Valley”) at the Facility, including payments from the State with respect to the school(s) operated or to be operated by the Borrower at the Facility pursuant to the Charter School Law and any regulations promulgated pursuant thereto, but excluding the Subsidy Payments.

Intercept

The Bonds are issued pursuant to the Act, which authorizes the Authority to issue bonds to finance loans for capital projects and working capital for (among others) any charter school in California. California Education Code section 17199.4(a) allows a borrower to elect to guarantee payment on the loans and any other costs necessary or incidental to the bonds issued to provide the moneys for a loan. The guarantee instructs the Controller to make an apportionment to the Trustee in amounts and on dates provided in the Intercept Notice sufficient to repay the Bonds and pay necessary and incidental costs. The Controller is required to make the apportionment only from moneys in Section A of the State School Fund designated for apportionment to the borrower pursuant to (in the case of a charter school) Section 47633 of the Education Code, from moneys available as part of the charter school categorical block grant pursuant to Section 47634.1 of the Education Code, and moneys available to charter schools for nonclassroom-based instruction, pursuant to Section 47634.2 of the Education Code. Section 17199.4(b)(3) of the Education Code provides that the borrower and its creditors do not have a claim to funds apportioned or anticipated to be apportioned to the Trustee by the Controller pursuant to the Intercept Notice. The Borrower will make such election, and will deliver the Intercept Notice to the Controller simultaneously with issuance of the Bonds. Amounts specified in the Intercept Notice for transfer to the Trustee will be limited to State Apportionments.

“State Apportionment” means the state aid portion of the Borrower’s general purpose entitlement, categorical block grant funding and any other monies apportioned to the Borrower by the State, but solely as it relates to the Gross Revenues, from Section A of the State School Fund calculated by the State Superintendent of Public Instruction pursuant to Section 47633 of the Education Code and from any other fund or account of the State lawfully available therefor.

The Borrower will, not later than the twentieth (20th) calendar day of any month in which payment is scheduled, amend, supplement or restate the Intercept Notice and deliver such to the Controller from time to time as

20

necessary or appropriate (including without limitation as a result of redemption prior to maturity) to indicate transfers to the Trustee to pay the amounts due under the Loan Agreement and the Sublease and other costs necessary or incidental to the financing pursuant to the Act relating to the Bonds, as they come due and to cure any delinquency in payment of such amounts. The Borrower will cooperate with the Trustee in any manner the Trustee may request in connection with amending, supplementing or restating the Intercept Notice. If at any time the Intercept Notice is amended, supplemented or restated for any reason, the Borrower will promptly provide the Authority, the Department of Education and the Trustee with a copy of such amended, supplemented or restated Intercept Notice. The Intercept Notice may provide additional amounts payable to the Trustee for purposes set forth in the Indenture; provided the Borrower will not grant preference or any prior right of funding access or security in respect of the State Apportionment to any other payment indicated in the Intercept Notice or any other notice delivered pursuant to Section 17199.4 of the Education Code.

All deposits of moneys derived from the Intercept under the Loan Agreement and the Sublease will be made at the corporate trust office of the Trustee set forth in the Intercept Notice. The Borrower will timely amend, supplement or restate the Intercept Notice to require transfers to such other location as will be designated in writing by the Trustee to the Borrower. The Trustee will, on each Interest Payment Date and the Principal Payment Date on which a transfer from the Controller to the Trustee is scheduled pursuant to the Intercept Notice, notify the Authority and the Borrower of any shortfall in amounts received by the Trustee from the Controller compared to the amounts set forth in the Intercept Notice for such date. If, subsequent to any shortfall for which the Trustee has sent notice pursuant to the preceding sentence, the Trustee receives payment of amounts sufficient to cure such shortfall, the Trustee will, within ten (10) business days thereof, notify the Authority and the Borrower of the receipt of such payment.

The Borrower can give no assurance to bondholders that the State Apportionment will be provided in amounts sufficient and at such times as would provide for the Loan Repayments and Base Rental Payments. The State is undertaking no obligation to provide any level of State Apportionment in respect of the Borrower. The State may delay, alter, amend or eliminate State Apportionment funding in respect of the Borrower at any time.

Reserve Fund

All amounts in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of making up any deficiency in the Interest Account or the Principal Account, or (together with any other funds available) for the payment or redemption of all Outstanding Bonds. Amounts on deposit in the Reserve Fund will be valued by the Trustee at their fair market value each July 1, and the Trustee will notify the Borrower of the results of such valuation. If the amount on deposit in the Reserve Fund on the first (1st) Business Day following such valuation is less than one hundred percent (100%) of the Reserve Fund Requirement, the Borrower has agreed in the Loan Agreement to make the deposits to the Reserve Fund required by the Indenture. If the amount on deposit in the Reserve Fund on the first (1st) Business Day following such valuation is greater than the Reserve Fund Requirement, the excess will be withdrawn from the Reserve Fund and transferred to the Revenue Fund.

“Reserve Fund Requirement” means as of any date of calculation, an amount which will be equal to the least of (a) ten percent (10%) of the proceeds of the Bonds; (b) Maximum Annual Debt Service with respect to the Bonds Outstanding, (c) one hundred twenty-five percent (125%) of average annual debt service with respect to the Bonds, or (d) for the last Bond Year only, the total debt service with respect to the Bonds Outstanding. Annual debt service and average annual debt service, for purposes of this definition, will be calculated on the basis of twelve-month periods ending on July 1 of any year in which Bonds are Outstanding.

“Maximum Annual Debt Service” means the highest Debt Service Requirement for the current or any succeeding period of measurement.

“Debt Service Requirement” means for any period of time for which such determination is made, the aggregate of the scheduled payments to be made with respect to principal (or mandatory sinking fund or installment purchase price or lease rental or similar payments) and interest on Outstanding Long-Term Indebtedness of Tri-Valley during such period, taking into account at the option of Tri-Valley:

21

(a) With respect to Indebtedness represented by a Guaranty of obligations of a Person, as long as any such Guaranty is a contingent liability under generally accepted accounting principles, the principal and interest deemed payable with respect to such Guaranty will be deemed to be the lowest percentage of debt service requirements set forth immediately following this paragraph (determined after giving effect to any other paragraph of this definition at the election of the Obligated Group Representative), if the debt service coverage ratio (determined in a manner as nearly as practicable to the determination of the Debt Service Requirement hereunder) of the Person primarily obligated on the obligations effectively guaranteed by such Guaranty for the immediately preceding Fiscal Year, or any other 12-month period ending within 180 days prior to the date of calculation, will be greater than the amount specified opposite such percentage below:

Debt Service Coverage Ratio of Accommodated Person

Percentage of DebtService Requirements

1.35 25%1.15 50%

Less than 1.15 100%

If any such Guaranty becomes a noncontingent liability but thereafter becomes a contingent liability, during the period such Guaranty is a noncontingent liability and for two years after such Guaranty becomes a contingent liability, 100% of the annual debt service on the indebtedness being guaranteed will be added to the computation of the Debt Service Requirement.

(b) With respect to Balloon Indebtedness, the amount of principal and interest deemed payable during such period will be determined as if such Balloon Indebtedness were being repaid in substantially equal annual installments of principal and interest over a term over which Tri-Valley could reasonably be expected to borrow, not to exceed twenty-five (25) years from the date of incurrence of such Balloon Indebtedness, and bearing interest at an interest rate (determined as of the date of calculation of the Debt Service Requirement) equal to the rate at which Tri-Valley could reasonably be expected to borrow for such term, not to exceed twenty-five (25) years, by issuing Indebtedness, all as set forth in a Certificate of Tri-Valley accompanied by a letter of a banking or investment banking institution knowledgeable in matters of charter school facility finance, confirming that the borrowing term and interest rate assumptions set forth in such statement comply with the requirements of this subsection.

(c) With respect to Variable Rate Indebtedness, if the actual interest rate on such Variable Rate Indebtedness cannot be determined for the period for which the Debt Service Requirement is being calculated, the amount of interest deemed payable during such period on such Variable Rate Indebtedness will be assumed to be equal to the average interest rate per annum which was in effect (or, if such Variable Rate Indebtedness was not Outstanding during such eighteen month period, which would have been in effect) for any twelve (12) consecutive calendar months specified in a Certificate of Tri-Valley during the eighteen (18) calendar months immediately preceding the date of calculation of the Debt Service Requirement.

(d) With respect to Indebtedness payable from an Irrevocable Deposit, the amount of principal or interest taken into account during such period will be assumed to equal only the principal or interest not payable from such Irrevocable Deposit and the investment income from such funds.

(e) With respect to Long-Term Indebtedness incurred to finance or refinance the construction of capital improvements, principal and interest with respect to such Long-Term Indebtedness will be excluded from the determination of the Debt Service Requirement but only in proportion to the amount of principal and interest on such Long-Term Indebtedness which is payable in the then current Fiscal Year from the proceeds of such Long-Term Indebtedness.

(f) With respect to Long-Term Indebtedness with respect to which a Financial Products Agreement has been entered into by Tri-Valley, interest on such Long-Term Indebtedness will be included in the determination of the Debt Service Requirement by including for each Fiscal Year an amount equal to

22

the amount of interest payable on such Long-Term Indebtedness in such Fiscal Year at the rate or rates stated in such Long-Term Indebtedness plus any Financial Product Payments payable in such Fiscal Year minus any Financial Products Receipts receivable in such Fiscal Year; provided that in no event will any calculation made pursuant to this clause result in a number less than zero being included in the determination of the Debt Service Requirement and provided, further, if the actual interest rate on such Long-Term Indebtedness or the actual amount of Financial Product Payments or Financial Products Receipts cannot be determined for the period for which the Debt Service Requirement is being calculated, the amount of interest deemed payable during such period on such Long-Term Indebtedness will be determined by applying the average interest rate per annum which was in effect (or, if such Long-Term Indebtedness was not Outstanding during such eighteen month period, which would have been in effect) or the average Financial Product Payments which would have been paid, or the average Financial Products Receipts which would have been received, as the case may be, for any twelve (12) consecutive calendar months specified in a Certificate of Tri-Valley during the eighteen (18) calendar months immediately preceding the date of calculation of the Debt Service Requirement.

For definitions of certain undefined capitalized terms, see “APPENDIX C: SUMMARY OF PRINCIPAL DOCUMENTS – DEFINITIONS” herein.

Capital Maintenance and Operating Fund

The Borrower, on August 25 of each year, commencing August 25, 2013, will deposit with the Trustee for deposit in the Capital Maintenance and Operating Fund the amount necessary to increase the balance in the Capital Maintenance and Operating Fund to the Capital Maintenance and Operating Fund Requirement. See “– Additional Payments” herein.

“Capital Maintenance and Operating Fund Requirement” means (i) on August 25, 2013, $25,000, (ii) on August 25, 2014, $50,000, (iii) on August 25, 2015, $75,000, and (iv) on and after August 25, 2016, $100,000, unless adjusted pursuant to the Loan Agreement and as further described in the next paragraph.

Beginning with the Fiscal Year ending June 30, 2017 and continuing once every five Fiscal Years thereafter, the Borrower will engage an Independent Consultant to determine whether the Capital Maintenance and Operating Fund Requirement should be adjusted based on physical and operation conditions at the Facility. The Borrower will follow the recommendations of the Independent Consultant by adjusting the definition, including the timing and annual payment amount, of the Capital Maintenance and Operating Fund Requirement under the Indenture.

Moneys in the Capital Maintenance and Operating Fund may be withdrawn by the Borrower to pay any repair, replacement or additional improvement related to the Project. In addition, moneys in the Capital Maintenance and Operating Fund may be used and withdrawn by the Trustee for the purposes of making up any deficiency in the Interest Account or the Principal Account, or (together with any other funds available) for the payment or redemption of all Outstanding Bonds, pursuant to a Request of the Borrower.

Liquidity Fund

The Borrower, on or before December 31 of each year, commencing December 31, 2013, will deposit with the Trustee for deposit in the Liquidity Fund an amount equal to the lesser of (i) 50% of the Gross Revenues less Operating Expenses less Senior Debt Service as reported in Tri-Valley’s audited financial statements for the previous Fiscal Year and (ii) the amount necessary to increase the balance in the Liquidity Fund to an amount equal to the Maximum Annual Debt Service, which is $2,136,013. See “– Additional Payments” herein.

Moneys in the Liquidity Fund can be withdrawn by the Borrower for any legal and valid purpose of the Borrower, except for payment of amounts due under the Subordinate Sublease.

“Senior Debt Service” means, for any period, (i) all Loan Repayments and Additional Payments payable by the Borrower pursuant to the Senior Loan Agreement, (ii) all Base Rental Payments and Additional Rent payable by

23

the Borrower pursuant to the Sublease, and (iii) all other payments or deposits (whether arising pursuant to an indemnity obligation or otherwise) payable or to be deposited under the Loan Agreement, the Sublease, the Indenture, or under any refundings, refinancing, or modifications of such documents to the extent not prohibited by the Intercreditor Agreement.

“Operating Expenses” means the expenses of the Borrower in connection with its operation of a school at the Facility before extraordinary items, determined in accordance with generally accepted accounting principles.

Additional Payments

Pursuant to the Loan Agreement, the Borrower will also pay from time to time from the Gross Revenues, including as may be set forth in the Intercept Notice (as defined below), the following costs and expenses (which collectively constitute the “Additional Loan Payments”), to the extent such costs and expenses are not paid from the proceeds of the sale of the Bonds:

(i) Ordinary Administrative Fees and Expenses of the Trustee and reasonable extraordinary fees and expenses of the Trustee, if any, payable to the Trustee for services or indemnity under the Indenture and the Borrower Documents (including services in connection with the administration and enforcement thereof and compliance therewith), and the fees and other costs, including reasonable counsel fees, incurred for services of any banking institution designated pursuant to the Indenture as an additional paying agent;

(ii) the reasonable fees and expenses of the Authority or any agent or attorney selected by the Authority to act on its behalf in connection with the Borrower Documents, the Bonds, the Indenture or the Loan, including, without limitation, any and all reasonable expenses incurred in connection with the authorization, issuance, sale and delivery of any such Bonds or in connection with any litigation, investigation, inquiry or other proceeding which may at any time be instituted involving the Borrower Documents or otherwise as a result of the transactions contemplated by the Borrower Documents or the Indenture, the Bonds or the Indenture or any of the other documents contemplated thereby, or in connection with the reasonable supervision or inspection of the Borrower, its properties, assets or operations or otherwise in connection with the administration of the Borrower Documents;

(iii) the reasonable fees and expenses incurred for services of such attorneys, independent consultants, independent accountants and other experts as are engaged by the Authority or the Trustee, with notice to the Borrower, to prepare audits, financial statements, reports, opinions or provide such other services required pursuant to the Borrower Documents, or the Indenture;

(iv) all fees and expenses of the Rating Agency and any rebate analyst, and if a deposit is required to be made to the Rebate Fund as a result of any calculation made pursuant to the Indenture, the amount of such deposit, which shall be deposited in the Rebate Fund not later than the tenth day of the calendar month immediately following the date on which such calculation was made;

(v) on or before August 25 of each year, commencing August 25, 2013, an amount deposited in the Capital Maintenance and Operating Fund equal to the amount necessary to increase the balance in the Capital Maintenance and Operating Fund to an amount equal to the Capital Maintenance and Operating Fund Requirement definition in the Indenture; provided however, if the Capital Maintenance and Operating Fund Requirement has been amended pursuant to the Loan Agreement within the five year period immediately preceding the date of such Additional Payment, then an amount deposited in the Capital Maintenance and Operating Fund equal to the amount necessary to increase the balance in the Capital Maintenance and Operating Fund to an amount equal to the previous Capital Maintenance and Operating Fund Requirement plus one-fifth of the difference between the new Capital Maintenance and Operating Fund Requirement and the previous Capital Maintenance and Operating Fund Requirement (see “– Capital Maintenance and Operating Fund” herein);

(vi) on or before December 31 of each year, commencing December 31, 2013, an amount deposited in the Liquidity Fund equal to the lesser of (a) 50% of the (Gross Revenues less Operating

24

Expenses less Senior Debt Service) reported in Tri-Valley’s audited financial statements for the previous Fiscal Year and (b) the amount necessary to increase the balance in the Liquidity Fund to an amount equal to the Maximum Annual Debt Service (see “– Liquidity Fund” herein);

(vii) amounts required by the Indenture to be deposited by the Borrower into the Indemnification Fund; and

(viii) all amounts advanced by the Authority or the Trustee or payable under provisions of the Loan Agreement or the Indenture that the Borrower is obligated to repay.

Pursuant to the Sublease, the Borrower will also pay the following amounts (herein called the “AdditionalRent” and together with the Additional Loan Payments, the “Additional Payments”) for the payment of (1) all taxes and assessments of any type or nature charged to the Authority or the Borrower or affecting the Facility or the respective interests or estates of the Authority or the Borrower therein, (2) all costs and expenses incurred by the Authority in connection with the execution, performance or enforcement of the Sublease, the Site Lease and the Indenture, in connection with its interest in the Facility and the sublease of the Facility to the Borrower, including but not limited to payment of all fees, costs and expenses and all administrative costs of the Authority related to the Facility including, without limiting the generality of the foregoing, salaries and wages of employees, all expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture, fees of auditors, accountants, attorneys or architects, and all other necessary administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Indenture, and (3) all other payments required to be paid by the Borrower under the provisions of the Sublease or the Indenture; but not including in Additional Rent amounts required to pay the principal component or interest component of the Base Rental Payments. Such Additional Rent shall be billed to the Borrower by the Authority or the Trustee from time to time, together with a statement certifying that the amount billed has been paid by such party for one or more of the items above described, or that such amount is then payable by such party for such items.

All such payments will be made by the Borrower from the Gross Revenues for payment to the Person or Persons entitled to such payments or for deposit to the appropriate fund or account held by the Trustee under the Indenture. For definitions of certain undefined capitalized terms, see “APPENDIX C: SUMMARY OF PRINCIPAL DOCUMENTS – DEFINITIONS” herein.

Deeds of Trust on the Facilities

To secure the payment of Loan Repayments, Additional Payments, Base Rental Payments and Additional Rent, (a) with respect to the Phase I Montevina Buildings, (i) Montevina Phase I, LLC will enter into the Deed of Trust with Assignment of Rent, Security Agreement and Fixture Filing, dated as of October 1, 2012 (the “Phase I Fee Deed of Trust”), executed by Montevina Phase I, LLC, as trustor, in favor of the trustee thereunder, creating a lien on Montevina Phase I, LLC’s fee interest in the Phase I Montevina Buildings, and (ii) the Borrower will enter into the Leasehold Deed of Trust with Assignment of Rent, Security Agreement and Fixture Filing, dated as of October 1, 2012 (the “Phase I Leasehold Deed of Trust”), executed by Tri-Valley, as trustor, in favor of the trustee thereunder, creating a lien on the Borrower’s subleasehold interest in the Phase I Montevina Buildings; and (b) with respect to the Administration Building, the Borrower will enter into the Deed of Trust with Assignment of Rent, Security Agreement and Fixture Filing, dated as of October 1, 2012 (the “Administration Building Fee Deed of Trust”), executed by the Tri-Valley, as trustor, in favor of the trustee thereunder, creating a lien on the Borrower’s fee interest in the Administration Building. The Phase I Fee Deed of Trust, the Phase I Leasehold Deed of Trust and the Administration Building Fee Deed of Trust are collectively referred to herein as the “Deeds of Trust.” The Borrower agrees that the Deeds of Trust will be recorded simultaneously with the acquisition of the fee interest in the Administration Building and the subleasehold interest in the Phase I Montevina Buildings. The Borrower agrees, as long as any of the Loan Repayments remain unpaid, to supplement the Phase I Leasehold Deed of Trust and the Administration Building Fee Deed of Trust or to execute and deliver such other deeds of trust in substantially the form of such Deeds of Trust as may be necessary from time to time to grant the Trustee a first priority Lien on such Facilities. In particular, upon expiration of the Sublease and conveyance of the fee simple interest in the Phase I Montevina Buildings from Montevina Phase I, LLC to the Borrower, the Borrower has covenanted to execute and deliver a deed of trust in the Phase I Montevina Buildings to the Trustee as security for the Bonds.

25

The Borrower will obtain, at its own cost and expense, one or more ALTA policies of title insurance, or an endorsement to such policy or policies at the time of and dated as of the date of acquisition or lease of the real property underlying the Phase I Facilities, in an aggregate amount not less than the aggregate principal amount of the Bonds, payable to the Trustee, insuring the title of the Borrower to the Phase I Facilities owned or leased by the Borrower, subject only to Permitted Liens, issued by a title insurance company qualified to do business in the State. The Borrower will execute and cause to be filed Uniform Commercial Code financing statements, and will execute and deliver such other documents (including, but not limited to, continuation statements) as may be necessary or reasonably requested by the Trustee in order to perfect or maintain as perfected such security interest or give public notice thereof.

Property will be released from the applicable Deed of Trust if (i) such property is sold or otherwise disposed of in compliance with the Loan Agreement or (ii) all outstanding Bonds are subject to redemption pursuant to the Indenture.

CERTAIN COVENANTS OF THE BORROWER

Annual Budget Covenant

The Borrower will set its annual budget to achieve a Debt Service Coverage Ratio of at least 1.25 for each Fiscal Year. In the annual budget, the Borrower shall also make provisions for a minimum contingency or reserve of four percent (4%) of its operational expenses, as calculated in the previous Fiscal Year’s Audited Financial Statements of Tri-Valley.

“Debt Service Coverage Ratio” means, for any period of time, the ratio determined by dividing the Income Available for Debt Service for such period by the Maximum Annual Debt Service.

“Income Available for Debt Service” means, unless the context provides otherwise, with respect to the Borrower as to any period of time, its combined excess of revenues over expenses (excluding income from all Irrevocable Deposits), before depreciation, amortization, and interest expense, as determined in accordance with generally accepted accounting principles; provided, that no determination thereof will take into account: (a) any gain or loss resulting from either the early extinguishment or refinancing of Indebtedness or the sale, exchange or other disposition of capital assets not made in the ordinary course of business; (b) gifts, grants, bequests, donations or contributions, and income therefrom, to the extent specifically permanently restricted by the donor or by law to a particular purpose inconsistent with their use for the payment of principal of, redemption premium and interest on Indebtedness or the payment of operating expenses; (c) the net proceeds of insurance (other than business interruption insurance) and condemnation awards; (d) adjustments to the value of assets or liabilities resulting from changes in generally accepted accounting principles; (e) unrealized gains or losses that do not result in the receipt or expenditure of cash; (f) nonrecurring items which involve the receipt, expenditure or transfer of assets; and (g) gifts, grants, donations or contributions to the Borrower for use at the Facilities.

Limitation on Incurrence of Additional Indebtedness

Except as provided in this paragraph, the Borrower will not incur any additional Indebtedness (including, without limitation, Indebtedness for borrowed money, capital leases and installment sale agreements, but excluding trade payables and operating leases in the ordinary course of business) with the exception of indebtedness which meets the following requirements: (i) the stated term of such Indebtedness (taking into account all extension or renewals thereof which may be made at the sole option of the Borrower) does not exceed five years; and (ii) the Maximum Annual Debt Service on such Indebtedness (the greatest aggregate amount of principal and interest payable in the then current or any future Fiscal Year), when added to the Maximum Annual Debt Service on any other Indebtedness of the Borrower incurred under this paragraph and then outstanding, does not exceed the greater of $200,000 or 2.0% of total unrestricted expenses of the Borrower for the then most recent Fiscal Year for which audited financial statements have been delivered.

The Borrower may incur any other Indebtedness (including additional parity Indebtedness secured in whole or in part by a deed of trust on the Facility and a security interest in the Gross Revenues on a parity with amounts

26

secured by a deed of trust on the Facility and the security interest in the Gross Revenues granted by the Loan Agreement) only upon providing to the Trustee a Certificate of the Borrower, accompanied by a confirming Accountant’s Certificate, to the effect that (i) based on the audited financial statements of the Borrower, the Debt Service Coverage Ratio for the most recent Fiscal Year, including the additional Indebtedness in such calculation, was at least 1.25, and (ii) the pro forma Debt Service Coverage Ratio for the then-current Fiscal Year, annualized to reflect twelve months of operations and including the additional Indebtedness in such calculation is at least 1.30.

“Indebtedness” means all obligations for borrowed money, installment sales and capitalized lease obligations, incurred or assumed by the Borrower, including Guaranties, Long-Term Indebtedness, Short-Term Indebtedness or any other obligation for payments of principal and interest with respect to money borrowed, except obligations subordinate to the obligations of the Borrower under the Loan Agreement and liens on the Project, Gross Revenues or other assets of the Borrower securing such subordinate obligations, so long as same are subordinate to the Deeds of Trust and obligations under the Loan Agreement.

“Guaranty” means all loan commitments and all obligations of any Borrower guaranteeing in any manner whatever, whether directly or indirectly, any obligation of any other Person (other than the applicable Borrower) that would, if such other Person were the applicable Borrower, constitute Indebtedness. “Long-Term Indebtedness” means Indebtedness having an original maturity greater than one year or renewable at the option of Tri-Valley for a period greater than one year from the date of original incurrence or issuance thereof unless, by the terms of such Indebtedness, no Indebtedness is permitted to be outstanding thereunder for a period of at least twenty (20) consecutive days during each calendar year. “Short-Term Indebtedness” means all Indebtedness having an original maturity less than or equal to one year and not renewable at the option of the Borrower for a term greater than one year from the date of original incurrence or issuance unless, by the terms of such Indebtedness, no Indebtedness is permitted to be outstanding thereunder for a period of at least twenty (20) consecutive days during each Fiscal Year.

Cash on Hand

Pursuant to the terms of the Loan Agreement, the Borrower covenants and agrees to comply with the following Cash on Hand requirement. “Cash on Hand” means the sum of cash, cash equivalents, liquid investments and unrestricted marketable securities (valued at the lower of cost or market) of the Borrower, including all amounts held in the Liquidity Fund. “Days Cash on Hand” means: (a) Cash on Hand of the Borrower, as shown on its month-end financial statements as of the test date (as provided below); divided by (b) the quotient of Operating Expenses, as shown on the audited financial statements for the preceding Fiscal Year, divided by 365.

The Cash on Hand requirement will be tested as of June 30 in each Fiscal Year, commencing June 30, 2013, and will be equal to or greater than, the lesser of (a) $1,000,000 and (b) 120 Days Cash on Hand, for such test date. The Cash on Hand requirement will be tested as of June 30 in each Fiscal Year, commencing June 30, 2014, and will be equal to or greater than, the lesser of (a) $2,000,000 and (b) 120 Days Cash on Hand, for such test date and every year thereafter. The Borrower will employ its auditor to provide the Trustee by no later than December 31 of each year, commencing December 31, 2013, with a certification that the Days Cash on Hand requirement has been met as of the preceding June 30 test date. The foregoing is subject to the qualification that if applicable state or federal laws or regulations, or the rules and regulations of agencies having jurisdiction, will not permit the Borrower to accumulate such level of Cash on Hand, then the Borrower will conform to the then prevailing laws, rules or regulations.

If the Borrower does not maintain Cash on Hand pursuant to the requirements of the Loan Agreement, the Borrower will promptly employ an Independent Consultant to review and analyze the operations and administration of the Borrower, inspect the Facility, and submit to the Borrower and Trustee written reports, and make such recommendations to the operation and administration of the Borrower as such Independent Consultant deems appropriate, including any recommendation as to a revision of the methods of operation thereof. The Borrower agrees to consider any recommendations by the Independent Consultant and, to the fullest extent practicable, to adopt and carry out such recommendations.

So long as the Borrower is otherwise in full compliance with the obligations under the Loan Agreement, including following, to the fullest extent practicable, the recommendations of the Independent Consultant, it will not

27

constitute an Event of Default if the Cash on Hand for any Fiscal Year ending on or after June 30, 2013, is greater than or equal to $800,000.

Debt Service Covenant

The Borrower covenants and agrees to maintain its revenues and expenditures so that the Debt Service Coverage Ratio at the end of each Fiscal Year is not less than 1.25:1. The Debt Service Coverage Ratio requirement will be tested as of June 30 in each Fiscal Year, commencing June 30, 2013. The Borrower will employ its auditor to provide the Trustee by no later than December 31 of each year, commencing December 31, 2013, with a certification that the Debt Service Coverage Ratio requirement has been met as of the preceding June 30 test date.The foregoing is subject to the qualification that if applicable state or federal laws or regulations, or the rules and regulations of agencies having jurisdiction, will not permit the Borrower to accumulate such level of Cash on Hand, then the Borrower will conform to the then prevailing laws, rules or regulations.

Commencing December 31, 2013, if the Debt Service Coverage Ratio is less than 1.15:1 as of any test date, then upon written direction of a majority of the Beneficial Owners in principal amount of the Bonds, the Borrower will promptly employ an Independent Consultant to review and analyze the operations and administration of the Borrower, inspect the Facility, and submit to the Borrower and Trustee written reports, and make such recommendations to the operation and administration of the Borrower as such Independent Consultant deems appropriate, including any recommendation as to a revision of the methods of operation thereof. The Borrower agrees to consider any recommendations by the Independent Consultant and, to the fullest extent practicable, to adopt and carry out such recommendations.

So long as the Borrower is otherwise in full compliance with the obligations under the Loan Agreement, including following, to the fullest extent practicable, the recommendations of the Independent Consultant, if one is employed, it will not constitute an Event of Default if the Debt Service Coverage Ratio for any Fiscal Year ending on or after June 30, 3013, is not less than 1:1.

Other Covenants

Under the Loan Agreement, the Borrower has also covenanted, among other things, to: (i) operate and maintain the Facilities in accordance in all material respects with governmental laws, ordinances, approvals, rules, regulations and requirements; (ii) keep (or cause to be kept) insurance (including builder’s all-risk insurance) against loss or damage to any structure constituting any part of the Facilities by fire and lightning, with extended coverage for vandalism, business interruption insurance and other insurance on the Facilities and operations thereon in amounts which are customarily carried and against such risks as are customarily insured against by other corporations in connection with the ownership and operations of facilities of similar character and size to the Facilities; (iii) to maintain books and records separate from any other person or entity, to maintain its accounts separate from any other person or account and other financial covenants; and (iv) to make all required contributions to all employee benefit plans, if any.

For more information about the covenants of the Borrower under the Loan Agreement, see “APPENDIX C: SUMMARY OF PRINCIPAL DOCUMENTS – THE LOAN AGREEMENT” herein.

SUBORDINATE OBLIGATIONS

Subordination Agreement

In connection with the original development of the Montevina Campus, Monevina Phase I, LLC and Monevina Phase II, LLC entered into certain mortgage loans (the “Original Mortgages”) with a lender (the “Mortgage Lender”) that will be outstanding as of the date of the delivery of the Bonds. Contemporaneously with the delivery of the Bonds and execution of the Montevina Leases, the Mortgage Lender will restructure the Original Mortgages, so that amounts due and payable pursuant to the Original Mortgages are equal to amounts due and payable under the Subordinate Site Lease and the Subordinate Sublease. In addition, the Mortgage Lender will enter into a subordination agreement (the “Subordination Agreement”), dated the delivery date of the Bonds, with the

28

Trustee and the Borrower, providing that the rights of the Mortgage Lender pursuant to the Original Mortgage on the Phase I parcel will be subordinate to the rights of the Trustee pursuant to the Leasehold Deed of Trust.

Upon the discharge of the rent obligations under the Subordinate Site Lease, the obligations under the Original Mortgages, as amended, will be discharged permitting Montevina Phase I, LLC and Montevina Phase II, LLC to convey fee title to the Borrower free and clear of any encumbrances as provided in the Leases.

For a summary of certain provisions of the Subordination Agreement, see “APPENDIX C: SUMMARY OF PRINCIPAL DOCUMENTS – SUBORDINATION AGREEMENT” herein.

Subordinate Lease and Sublease

Simultaneously with the issuance of the Bonds, the Authority will enter into (a) the Subordinate Site Lease with Montevina Phase II, LLC (the “Subordinate Lender”), (b) the Subordinate Sublease with the Borrower, (c) the Subordinate Assignment Agreement (the “Subordinate Assignment Agreement”) with the Subordinate Lender, and (d) the Paying Agent Agreement (the “Subordinate Paying Agent Agreement”) with the Subordinate Lender, the Borrower, and The Bank of New York Mellon Trust Company, N.A., as subordinate paying agent (the “Subordinate Paying Agent”).

Pursuant to the Subordinate Site Lease, the Authority leases from Montevina Phase II, LLC the Phase II Montevina Buildings and the Campus Lot, including the real property and improvements now and hereafter situated thereon. The term of the Subordinate Site Lease commences on the date of delivery of the Bonds and ends on October 1, 2035 (the “Subordinate Lease Expiration Date”) (corresponding to the QSCB term limit), unless it is sooner terminated or extended as provided in the Subordinate Site Lease. Pursuant to the Subordinate Sublease, the Authority subleases to the Borrower, such Phase II Facilities. The term of Subordinate Sublease commences on the date of delivery of the Bonds and ends on the Subordinate Lease Expiration Date, unless it is sooner terminated or extended as provided in the Subordinate Sublease. The Authority, pursuant to the Subordinate Assignment Agreement, has assigned to the Subordinate Lender all of the Authority’s right, title and interest in and to the Subordinate Sublease, including, without limitation, its right to receive the base rental payments under the Subordinate Sublease to be paid by the Borrower under and pursuant to the Subordinate Sublease (the “Subordinate Base Rental Payments”); provided, however, that the Authority will retain its Retained Rights.

Pursuant to the Subordinate Site Lease, Montevina Phase II, LLC agrees, upon the Subordinate Site Lease Expiration Date, provided all amounts payable under the Subordinate Site Lease have been paid in full, to convey fee simple title to the Phase II Facilities, free of any encumbrances, to the Borrower.

Subordinate Base Rental Payments

The principal component of the Subordinate Lease Payments under the Subordinate Site Lease totals $15,000,000. The lease payments under the Subordinate Site Lease are designated by the Authority as QSCBs under Section 54F of the Code. The Subsidy Payments are assigned by the Authority directly to the Subordinate Paying Agent under the Subordinate Paying Agent Agreement for the benefit of the Subordinate Lender. The interest component of the Subordinate Base Rental Payments is limited to what is received as the Subsidy Payment. The principal component of the Subordinate Base Rental Payments is payable by the Borrower in a lump sum on October 1, 2035 (the “Subordinate Principal Payment Date”) (corresponding to the QSCB term limit). Under the terms of the Subordinate Sublease, the Borrower covenants to set aside, from time to time, certain amounts in a sinking fund held by the Subordinate Paying Agent.

The principal component of, and set aside amounts with respect to, the Subordinate Base Rental Payments are payable from Net Revenues of the Borrower, which are defined as, for any period of time, the revenues of the Borrower, limited to all revenues, income, receipts and money received by or apportioned to the Schools or with respect to any school operated or to be operated as Tri-Valley at the Facility, including payments from the State with respect to the school(s) operated or to be operated by the Borrower at the Facility pursuant to the Charter School Law and any regulations promulgated pursuant thereto, but excluding (i) the Subsidy Payments, (ii) Senior Debt Service payable during such period, and (iii) the Operating Expenses payable during such period.

29

Default and Remedies

The Subordinate Sublease is structured to cause the Bonds and the Borrower’s obligations with respect to the Bonds to be and remain payable on a basis senior to the obligations of the Borrower with respect to the Subordinate Sublease, including in the event of a default under the Subordinate Sublease. Failure by the Borrower to transfer to the Subordinate Paying Agent pursuant to the Subordinate Sublease any Subordinate Sinking Fund Deposit does not constitute an event of default under the Subordinate Sublease. In addition, any delay or reduction in the Subsidy Payments does not constitute an event of default under the Subordinate Sublease. From the commencement date through the initial Subordinate Lease Expiration Date, the Borrower is not responsible for payment of the interest component of the Subordinate Base Rental Payments; provided, however, if at any time the Subsidy Payments are not paid to the Trustee, such unpaid Subordinate Base Rental Payments shall remain due and payable and the term of the Subordinate Sublease will be extended by the Subordinate Lender to July 1, 2037. During such extension period, the Borrower would be required to pay such amounts, if any, from Net Revenues, as defined above. If the Borrower defaults under the Subordinate Sublease, the Subordinate Lender can exercise its rights to foreclose upon the Phase II Montevina Buildings and the Campus Lot; however, as discussed herein, such right can only be exercised on and after July 1, 2037. Default by the Borrower under the Loan Agreement or the Sublease constitutes an event of default under the Subordinate Sublease, subject however to the terms of the Intercreditor Agreement.

Intercreditor Agreement

The Borrower, the Subordinate Lender, and the Trustee will enter into an Intercreditor and Subordination Agreement, dated as of October 1, 2012 (the “Intercreditor Agreement”), which sets forth the respective rights, remedies and interests of the Subordinate Lender and the Trustee, as representative of the Bondholders. On the terms and to the extent in the manner set forth in the Intercreditor Agreement, the payment of the Subordinate Base Rental Payments is and will be expressly subordinate and junior in right to payment and exercise of remedies to the prior indefeasible payment in full in cash of the amounts paid by the Borrower to pay the principal of and interest on the Bonds, and the Subordinate Base Rental Payments is subordinated as a claim against the Borrower or any of their assets to such extent and in such manner to their prior indefeasible payment in full in cash of the amounts paid by the Borrower to pay the principal of and interest on the Bonds. Under the Intercreditor Agreement, the Borrower agrees not to make, and the Subordinate Lender will not accept or receive, any payment or distribution on or in respect of the Subordinate Base Rental Payments of any kind or character, including by way of setoff or otherwise, except that, provided the Borrower has not defaulted in any of its obligations to pay interest or principal on the Bonds, (i) all or any portion of the amounts due to the Subordinate Lender and/or the Subordinate Lender on or after the Lease Expiration Date, to the extent of Net Revenues and deposits into the Subordinate Revenue Fund after deducting any amounts to be deposited in the Liquidity Fund in accordance with the Senior Loan Agreement, and (ii) indemnity payments, if any, owing to the Subordinate Lender by the Borrower to the extent of Net Revenues, after deducting any amounts to be deposited in the Liquidity Fund in accordance with the Senior Loan Agreement, and deposits into the Subordinate Revenue Fund, after deducting any amounts to be deposited in the Liquidity Fund in accordance with the Senior Loan Agreement.

For a summary of certain provisions of the Intercreditor Agreement, see “APPENDIX C: SUMMARY OF PRINCIPAL DOCUMENTS – INTERCREDITOR AGREEMENT” herein.

CHARTER SCHOOLS

General

Under State Law, charter schools are largely independent schools operating as part of the public school system under the exclusive control of the officers of the public schools. A charter school located in a unified school district may provide instruction in any of grades K-12, as its charter permits. A charter school is usually created or organized by a group of teachers, parents and community leaders, or a community-based organization, and is usually sponsored by an existing local public school district or county board of education. Specific goals and operating procedures for the charter school are detailed in a “charter” granted by the sponsoring board to the charter organizers.

30

A charter school is generally exempt from the laws governing school districts, except where specifically noted in the law. Charter schools in the State are created pursuant to Part 26.8 (commencing with Section 47600) of Division 4 of Title 2 of the State Education Code (the “Charter School Law”). The law also requires that a public charter school be nonsectarian in its programs, admission policies, employment practices and all other operations, and prohibits the conversion of a private school to a charter school. Public charter schools may not charge tuition and may not discriminate against any pupil on the basis of ethnicity, national origin, gender or disability. State public charter schools are required to participate in the State Testing and Reporting Program.

According to the Charter School Law, the purpose of a charter school is to: (1) improve pupil learning; (2) increase learning opportunities for all pupils, with special emphasis on expanded learning experiences for pupils identified as academically low achieving; (3) encourage the use of different and innovative teaching methods; (4) create new professional opportunities for teachers, including the opportunity to be responsible for the learning program at the school site; (5) provide parents and students with expanded choices in the types of educational opportunities that are available within the public school system; (6) hold schools accountable for meeting measurable pupil outcomes and provide schools a way to shift from a rule-based to a performance-based system of accountability; and (7) provide competition within the public school system to stimulate improvements in all public schools.

Anyone may write a charter. However, for a new charter school (not conversion of existing public schools), charter developers must present a petition to the governing board of the local school district (or other chartering authority) containing the signatures of either: (1) a number of teachers meaningfully interested in teaching at the school equal to at least 50 percent of the number of teachers the charter school estimates will be employed, or (2) a number of parents representing at least 50 percent of the number of pupils expected to enroll at the school in its first year. For conversion schools, the Charter School Law requires signatures of at least 50 percent of the teachers at the school to be converted. Pupils may not be required to attend a charter school nor may teachers be compelled to teach there. Charters are granted for a maximum term of five years, and may be renewed for new five-year terms without limitation upon satisfaction of certain criteria described below.

Generally, each charter school is funded to its statutory entitlement after the local contribution is taken into account. Local funding comes from the chartering school district or other sponsoring local education agency in lieu of property taxes (generally funded from the school district’s own property tax receipts), while the State funds the balance directly through the county office of education. The proportion coming from the State will vary from district to district depending on the amount of local property taxes collected. In addition, charter schools receive State categorical block grant funding and lottery funds based upon pupil attendance, and may be eligible for other special programmatic aid from State and federal grants. Charter schools are prohibited from charging tuition under the Charter School Law. See “RISK FACTORS – Specific Risks of Charter Schools” herein

Chartering Authority

Under the Charter School Law, the local school district governing board serves as the primary chartering authority. A petitioner may seek approval of a charter from a county board of education if the pupils to be served are pupils that would normally be provided direct education and related services by the county office of education. A petitioner may seek approval directly from the State Board of Education (the “State Board”) only if the State Board finds that the proposed state charter school will provide instructional services of statewide benefit that cannot be provided by a charter school operating in only one school district or county. Charter school petitioners may also request the county board of education or the State Board to review a charter petition if the petition has been previously denied by the local school district governing board. The State Board is the chartering authority for the Schools.

Elements of a Charter Petition

Each charter petition, at a minimum, must contain reasonably comprehensive descriptions of each of sixteen required elements. They are:

1. A description of the educational program of the charter school.

31

2. The measurable pupil outcomes identified for use by the charter school.

3. The method by which pupil progress in meeting those pupil outcomes is to be measured.

4. The charter school’s governance structure, including parental involvement.

5. The qualifications to be met by individuals employed by the charter school.

6. Procedures to ensure health and safety of pupils and staff.

7. The means by which the charter school will achieve racial and ethnic balance among pupils, reflective of the general population residing in the chartering district.

8. Admission requirements, if applicable.

9. The manner in which annual financial audits will be conducted, and the manner in which audit exceptions and deficiencies will be resolved to the satisfaction of the chartering authority.

10. The procedures by which pupils may be suspended or expelled.

11. Provisions for employee coverage under the State Teachers’ Retirement System, the Public Employees’ Retirement System, or federal social security.

12. The public school alternatives for pupils residing within the district who choose not to attend charter schools.

13. A description of the rights of any employee of the school district upon leaving the employment of the school district to work in a charter school, and of any rights of return to the school district after employment at a charter school.

14. The procedures to be followed by the charter school and the entity granting the charter to resolve disputes relating to provisions of the charter.

15. A declaration of whether or not the charter school will be deemed the exclusive public school employer of the employees of the charter school for purposes of the Educational Employment Relations Act.

16. A description of the procedures for closure of the school and disposition of assets.

Under the accountability requirements of AB 1137, signed into law in October 2003, districts or other agencies that grant charter authority must identify a contact person for charter schools, visit each charter school at least once a year, and ensure that charter schools submit all required reports (including fiscal reports that must be sent four times a year to the district and local county office of education). In addition, the district must monitor the fiscal condition of its charter schools and notify the State Department of Education whenever a charter is granted, denied, revoked, or the charter school will cease operation. AB 1137 also required that charter schools show a certain level of academic performance to have their charters renewed.

Charter Management Organizations

As the number of charter schools operating pursuant to the Charter School Law has increased over time, non-profit organizations have been established, referred to as charter management organizations (“CMOs”), to manage the operations of several charter schools for the purpose of achieving certain economic and operational efficiencies. CMOs centralize or share certain functions and resources among multiple charter schools, including but not limited to accounting, human resources, marketing, purchasing, property management and administration.

32

CMOs may operate at the regional or statewide level. The Schools are managed by Tri-Valley as their CMO. See “APPENDIX A: INFORMATION CONCERNING THE PROJECT AND THE BORROWER” herein.

Charter Revocation

A charter may be revoked if the charter granting authority finds, based on substantial evidence, that a charter school (i) has committed a material violation any of the conditions, standards or procedures set forth in its charter, or (ii) has failed to meet or to pursue any of the student outcomes identified in its charter, or (iii) has failed to meet generally accepted accounting principles, or engages in fiscal mismanagement, or (iv) has violated any provision of law. Prior to revoking a charter, the charter granting authority must notify the charter school of the violation, afford the charter school a reasonable opportunity to remedy the violation, and, upon failure to do so, give written notice of intent to revoke and hold a public hearing on the matter. An adverse decision by a school district governing board may be appealed to the county board of education, and an adverse decision by the county board directly or on appeal may be appealed to the State Board.

In addition, the State Board, whether or not it is the charter granting authority, may take action based on the recommendation of the State Superintendent of Public Instruction, including but not limited to revocation of a school’s charter, upon a finding of (i) gross financial mismanagement that jeopardizes the financial stability of the charter school, (ii) illegal or substantially improper use of charter school funds for the personal benefit of any officer, director or fiduciary of the charter school, or (iii) substantial and sustained departure from measurably successful practices such that continuing departure would jeopardize the education development of the school’s pupils. Regulations promulgated by the State Board that became effective February 13, 2011 require the California Department of Education to identify and notify the State Board of each charter school that is determined to warrant action pursuant to clause (iii) of the immediately preceding sentence by November 1 of each year. Under these regulations, charter schools so notified are required to be given an opportunity to submit written information as to why its charter should not be revoked. Any resulting action to revoke a charter is effective at the end of the fiscal year in which the action is taken, unless the State Board identifies departures at the school that are so significant as to be cause for immediate revocation and closure of the charter school. The regulations require the State Board to hold a public hearing to consider action including but not limited to charter revocation not later than March 31. See “RISK FACTORS – Specific Risks of Charter Schools – Non-Renewal or Revocation of Charters” herein. The Borrower has not received any notice from the California State Board of Education or the California Department of Education, regarding any violation or proposal to revoke the School’s charter or of any other violation requiring corrective action.

Amendments to the Charter School Law

The Legislature has amended the Charter School Law frequently since its initial adoption in 1992, and legislative and public attitudes are still evolving. The Borrower has no control over State legislative or regulatory decision making that could affect its operations or ongoing funding sources. For example, certain currently pending legislation affecting the Charter Schools Act and/or related law include: Assembly Bill 1594 (“AB 1594”) which would require charter schools to provide each needy pupil with one nutritionally adequate free or reduced-price meal during each school day, excluding those charter schools that offer only non-classroom based instruction or only online instructions; Assembly Bill 1819 (“AB 1819”) which would require charter schools to make the State Teacher’s Retirement Plan and the Public Employees’ Retirement Plan available to its employees, as specified; Senate Bill 1290 (“SB 1290”) which would require the chartering authority to consider increases in pupil academic achievement for all groups of pupils as the most important factor in determining whether to grant a charter renewal or revoke a charter; Assembly Bill 644 (“AB 644”) which would, beginning in fiscal year 2013-14, allow school districts and county offices of education to claim average daily attendance based on a pupil’s attendance in an online course in accordance with specified rules and regulations, and Senate Bill 1028 (“SB 1028”) which would amendthe provisions of the California School Finance Authority Act to remove limitations on the sources from which state apportionment funding may be transferred by the Controller through the Intercept. The Borrower makes no representation as to whether AB 1594, AB 1819, SB 1290, AB 644, SB 1028 or any other proposed amendments to Charter School Law will be enacted into law.

For legislative updates see www.calcharters.org/advocacy/statewide/current-legislation.html. The parties to this transaction take no responsibility for the continued accuracy of this internet address or for the

33

accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by such reference.

Growth in Charter Schools in California

California has the largest concentration of charters in the nation with over 350,000 students enrolled in charter schools. The California Charter Schools Association reported that the number of charter schools in California grew by 103 in the 2010-11 school year. The total in Alameda County grew to approximately 50. The following table shows the growth of charter schools in California.

Source: Legislative Analyst’s Office

STATE FUNDING OF EDUCATION

General

The Charter School Law provides that the legislature intended “each charter school be provided with operational funding that is equal to the total funding that would be available to a similar school district servicing a similar pupil population . . .” As is true for school districts in the State, charter schools’ revenue is derived primarily from two sources: a State portion funded from the State’s general fund and a locally generated portion derived from each sponsoring school district’s share of the local ad valorem property tax. Decreases in State revenues, or in the legislative appropriations made to fund education, may significantly affect charter schools’ operations.

State Budget Process. According to the State Constitution, the Governor must propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted no later than June 15. Historically, the budget required a two-thirds vote of each house of the State Legislature for passage. However, on November 2, 2010, the State’s voters approved Proposition 25, which amended the State Constitution to lower the vote requirement necessary for each house of the State Legislature to pass a budget bill and send it to the Governor. Specifically, the vote requirement was lowered from two–thirds to a simple majority (50% plus one) of each house of the State Legislature. The lower vote requirement also would apply to trailer bills that appropriate funds and are identified by the State Legislature “as related to the budget in the budget bill.” The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. Under Proposition 25, a two–thirds vote of the State Legislature is still required to override any veto by the Governor. School district budgets must generally be adopted by July 1, and revised by the school board within 45 days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget. The Governor signed the fiscal year 2012-13 State budget on June 27, 2012.

34

When the State budget is not adopted on time, basic appropriations and the categorical funding portion of each charter school’s State funding are affected differently. Under the rule of White v. Davis (also referred to as Jarvis v. Connell), a State Court of Appeal decision reached in 2002, there is no constitutional mandate for appropriations to charter schools, school districts without an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed by the State Controller until that time unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the State Constitution (such as appropriations for salaries of elected state officers), or (iii) mandated by federal law (such as payments to State workers at no more than minimum wage). The State Controller has consistently stated that basic State funding for schools is continuously appropriated by statute, but that special and categorical funds may not be appropriated without an adopted budget. Should the State Legislature fail to pass a budget or emergency appropriation before the start of any fiscal year, the Borrower might experience delays in receiving certain expected revenues.

State income tax and other receipts can fluctuate significantly from year to year, depending on economic conditions in the State and the nation. Because funding for education is closely related to overall State income, as described in this section, funding levels can also vary significantly from year to year, even in the absence of significant education policy changes. A brief description of the adopted State budget for 2012-13 is included below; however, no prediction can be made as to how State income or State education funding will vary over the entire term to maturity of the Bonds, and none of the Borrower or the Authority takes any responsibility for informing owners of the Bonds as to any such annual fluctuations. Information about the State budget and State spending for education is regularly available at various State maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance located at www.dof.ca.gov. An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various State of California official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found at the website of the State Treasurer, currently located at www.treasurer.ca.gov, and the Electronic Municipal Market Access (EMMA) website of the Municipal Securities Rulemaking Board, currently located at http://emma.msrb.org. The information referred to is prepared by the respective State agency maintaining each website and not by the Borrower or the Authority, and neither the Borrower nor the Authority can take any responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. The information referred to above should not be relied upon in making an investment decision with respect to the Bonds.

Aggregate State Education Funding. Under Proposition 98, a constitutional and statutory amendment adopted by the State’s voters in 1988 and amended by Proposition 111 in 1990 (no found at Article XVI, Sections 8 and 8.5 of the Constitution), a minimum level of funding is mandated for school districts, community college districts, and other State agencies that provide direct elementary and secondary instructional programs, including charter schools. The Proposition 98 guaranteed amount for education is based on prior-year funding, as adjusted through various formulas and tests that take into account State proceeds of taxes, local property tax proceeds, school enrollment, per-capita personal income, and other factors. The State’s share of the guaranteed amount is based on State general fund tax proceeds and is not based on the general fund in total or on the State budget. The local share of the guaranteed amount is funded from local property taxes. The total guaranteed amount varies from year to year and throughout the stages of any given fiscal year’s budget, from the Governor’s initial budget proposal to actual expenditures to post-year-end revisions, as better information regarding the various factors becomes available. Over the long run, the guaranteed amount will increase as enrollment and per capita personal income grow.

If, at year-end, the guaranteed amount is calculated to be higher than the amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as “settle-up.” If the amount appropriated is higher than the guaranteed amount in any year, that higher funding level permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount is reduced in years when general fund revenue growth lags personal income growth, and may be suspended for one year at a time by enactment of an urgency statute. In either case, in subsequent years when State general fund revenues grow faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to the guaranteed amount, the obligation to do so being referred to as “maintenance factor.”

In recent years, the State’s response to fiscal difficulties has had a significant impact on Proposition 98 funding and settle-up treatment. The State has sought to avoid or delay paying settle-up amounts when funding has

35

lagged the mandated amount. In response, teachers’ unions, the State Superintendent and others sued the State or Governor in 1995, 2005, 2009 and 2011 to force them to fund schools in the full amount required. The settlement of the 1995 and 2005 lawsuits has so far resulted in over $4 billion in accrued State settle-up obligations. However, legislation enacted to pay down the obligations through additional education funding over time, including the Quality Education Investment Act of 2006, have also become part of annual budget negotiations, resulting in repeated adjustments and deferrals of the settle-up amounts.

The State has also sought to preserve general fund cash while avoiding increases in the base guaranteed amount through various mechanisms: by treating any excess appropriations as advances against subsequent years’ Proposition 98 minimum funding levels rather than current year increases; by temporarily deferring apportionments of Proposition 98 funds from one fiscal year to the next; by permanently deferring apportionments of Proposition 98 funds from one fiscal year to the next; by suspending Proposition 98, as the State did in fiscal year 2004-05, fiscal year 2010-11, fiscal year 2011-12 and fiscal year 2012-13 (see “– 2012-13 State Budget” and “– State Cash Management Legislation” below); and by proposing to amend the Constitution’s definition of the guaranteed amount and settle-up requirement under certain circumstances.

Legal Challenge to State Funding Education. On May 20, 2010, a plaintiff class of numerous current California public school students and the Alameda Unified School District, the Alpine Union School District, the Del Norte County Unified School District, the Folsom Cordova Unified School District, the Hemet Unified School District, the Porterville Unified School District, the Riverside Unified School District, the San Francisco Unified School District and the Santa Ana Unified School District, together with the California Congress of Parents, Teachers & Students, the Association of California School Administrators and the California School Boards Association filed suit in Alameda County Superior Court challenging the system of financing for public schools in California as unconstitutional. In Robles-Wong, et al. v. State of California (“Robles-Wong”), the plaintiffs seek declaratory and injunctive relief, including a permanent injunction compelling the State to abandon the existing system of public school funding and replace it with a system that is based on what is needed to meet the State’s program requirements and the needs of individual students. After a demurrer was sustained with leave to amend on January 14, 2011, a first amended complaint was filed by the plaintiff class on March 16, 2011. A demurrer with leave to amend on the first amended complaint was sustained on July 26, 2011, however, the plaintiffs elected not to amend their complaint within the time provided by the court. Accordingly, the court dismissed all of the plaintiff’s claims and entered a judgment on November 3, 2011. The plaintiffs, on January 24, 2012, filed a notice of appeal to the Court of Appeal of the State of California, First Appellate District, from the judgment entered on November 3, 2011 dismissing the case in its entirety and all orders incorporated therein, including the order entered on July 26, 2011 sustaining the demurrer. The Borrower and the Authority cannot predict the likelihood of success of such appeal or how such appeal, if successful, could result in a change in how school funding of education is implemented in the State.

Prohibitions on Diverting Local Revenues for State Purposes. Beginning in 1992-93, the State satisfied a portion of its Proposition 98 obligations by shifting part of the property tax revenues otherwise belonging to cities, counties, special districts, and redevelopment agencies, to school and college districts through a local Educational Revenue Augmentation Fund (ERAF) in each county. Local agencies, objecting to invasions of their local revenues by the State, sponsored a statewide ballot initiative intended to eliminate the practice. In response, the State Legislature proposed an amendment to the State Constitution, which the State’s voters approved as Proposition 1A at the November 2004 election. That measure was generally superseded by the passage of a new initiative constitutional amendment at the November 2010 election, known as “Proposition 22.”

The effect of Proposition 22 is to prohibit the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services. It prevents the State from redirecting redevelopment agency property tax increment to any other local government, including school districts, or from temporarily shifting property taxes from cities, counties and special districts to schools, as in the ERAF program. This is intended to, among other things, stabilize local government revenue sources by restricting the State’s control over local property taxes. One effect of this amendment will be to deprive the State of fuel tax revenues to pay debt service on most State bonds for transportation projects, reducing the amount of State general fund resources available for other purposes, including education.

36

Prior to the passage of Proposition 22, the State invoked Proposition 1A to divert $1.935 billion in local property tax revenues in 2009-10 from cities, counties, and special districts to the State to offset State general fund spending for education and other programs, and included another diversion in the adopted 2009-10 State budget of $1.7 billion in local property tax revenues from local redevelopment agencies. Redevelopment agencies had sued the State over this latter diversion. However, the lawsuit was decided against the California Redevelopment Association on May 1, 2010. Because Proposition 22 reduces the State’s authority to use or shift certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget in some years—such as reducing State spending or increasing State taxes, and school and community college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State’s general fund.

State Cash Management Legislation. On March 1, 2010, the Governor signed a bill (and on March 4, 2010, subsequently signed a clean-up bill to clarify certain provisions of such bill) to provide additional cash management flexibility to State fiscal officials (the “Cash Management Bill”). The Cash Management Bill authorized deferral of certain payments during the 2010-11 fiscal year for school districts (not to exceed $2.5 billion in the aggregate at any one time, and a maximum of three deferrals during the fiscal year). The Cash Management Bill permitted deferrals of payments to K-12 schools in July 2010, October 2010 and March 2011, for not to exceed 60, 90 and 30 days, respectively, but, depending on actual cash flow conditions at the time, allowed the State Controller, Treasurer and Director of Finance to either accelerate or delay the deferrals up to 30 days or reduce the amounts deferred. The Cash Management Bill also permitted the State to move a deferral to the prior month or to a subsequent month upon 30 days written notice by the State Department of Finance to the Legislative Budget Committee, except that the Cash Management Bill provided that the deferral for March 2011 was required to be paid prior to April 30. The Cash Management Bill provided for exceptions to the deferrals for school districts that could demonstrate hardship. The Cash Management Bill made it necessary for many school districts (and other affected local agencies) to increase the size and/or frequency of their cash flow borrowings during fiscal year 2010-11. Similar legislation was enacted for fiscal year 2011-12. The fiscal year 2011-12 legislation, however, set forth a specific deferral plan for K-12 education payments. Pursuant to such legislation, both the July 2011 and August 2011 K-12 payments of $1.4 billion were deferred and the October 2011 payment of $2.4 billion was deferred. In September 2011, $700 million of the July deferral was paid, in January 2012, $4.5 billion from the remaining July, August and October deferrals were paid, and in March 2012, $1.4 billion was deferred and paid in April 2012.

The State Legislature enacted similar legislation for fiscal year 2012-13 that provides for $1.2 billion of K-12 payments to be deferred in July 2012, $600 million to be deferred in August 2012, $800 million to be deferred in October 2012 and $900 million to be deferred in March 2013. Of such deferred amounts, $700 million of the deferral made in July 2012 is to be paid in September 2012, the remaining $1.9 billion deferred in July, August and October of 2012 is to be paid in January 2013, and the $900 million deferred in March 2013 is to be repaid in April 2013.

2012-13 State Budget. The Governor signed the fiscal year 2012-13 State budget (the “2012-13 State Budget”) on June 27, 2012. The 2012-13 State Budget closes a $15.7 billion budget gap and builds a reserve of nearly $1 billion with (i) $8.1 billion in expenditure reductions, (ii) $6 billion in increased revenues (which assumes the approval by the voters of temporary taxes at the November 2012 election, as further described below) and (iii) $2.5 billion from certain loan and transfer measures. This $15.7 billion budget gap is less than the $26.6 billion budget gap encountered for fiscal year 2011-12. The 2012-13 State Budget purports to position the State to have a balanced budget in an ongoing manner for the first time in over a decade, with future spending expected to stay within available revenues.

The 2012-13 State Budget assumes the passage of The Schools and Local Public Safety Protection Act (the “Temporary Tax Measure”) at the November 2012 election. Such measure, if approved by the voters, would increase the personal income tax on the State’s wealthiest taxpayers by up to three percent for a period of seven years, and increase the sales tax by one-quarter percent for a period of four years. The 2012-13 State Budget projects that the Temporary Tax Measure will generate an estimated $8.5 billion in revenues in fiscal year 2012-13. Such additional revenues would increase the State’s Proposition 98 obligation by $2.9 billion and provide a net benefit of $5.6 billion to the State’s general fund.

37

The Temporary Tax Measure would create an “Education Protection Account” funded from newly imposed sales and income taxes. The 2012-13 State Budget defers a portion of the funding for schools until June, 2013, when, if the Temporary Tax Measure passes, such deferrals will be repaid from the proceeds of the newly imposed taxes. Should the Temporary Tax Measure pass, there is no guarantee that the newly imposed taxes will generate sufficient revenue to repay the entire deferral, but any shortfall is required pursuant to the 2012-13 State Budget to be paid by the State in July. Should the Temporary Tax Measure fail, there is no guarantee that schools will recuperate the amount deferred in the first half of the year.

With the assumed voter approval of the Temporary Tax Measure, the 2012-13 State Budget provides $53.6 billion in Proposition 98 funding for K-12 schools and community colleges, a $6.7 billion (or 14%) increase from fiscal year 2011-12. Of such increased amount, $6.1 billion is designated for K-12 schools. The 2012-13 State Budget maintains level Proposition 98 programmatic funding for all K-12 schools, pays off $2.2 billion in the amount of payments to K-12 schools and community colleges that are deferred each year, and funds the Quality Education Investment Act program (as described below) within the Proposition 98 guarantee. According to the 2012-13 State Budget, the Temporary Tax Measure is expected to increase Proposition 98 funding for K-12 schools and community colleges by an aggregate amount of $17.2 billion (or 37%) over the next four fiscal years when compared to fiscal year 2011-12. This projected increase reverses years of cuts in funding for K-12 schools and community colleges.

The State Budget includes a “trigger” reduction if the Temporary Tax Measure does not pass. The State Budget sets forth a trigger cut of approximately $2.74 billion, in the form of a decrease in the revenue limit applicable to school districts, county offices education and charter schools. The State estimates that this would result in a funding reduction of approximately 8.8% for charter schools in the 2012-13 fiscal year.

K-12 adjustments provided in the 2012-13 State Budget include:

• Proposition 98 Adjustments. A decrease of approximately $630 million due to (i) eliminating the hold-harmless adjustment provided to K-12 schools from the elimination of the sales tax on gasoline in fiscal year 2010-11, and (ii) using a consistent current value methodology to rebench the Proposition 98 minimum guarantee for the exclusion of child care programs, the inclusion of special education mental health services, and new property tax shifts.

• Redevelopment Agency Asset Liquidation. An increase of $1.3 billion in local property taxes for fiscal year 2012-13 to reflect the distribution of cash assets previously held by redevelopment agencies, which increase in local revenues also reduces Proposition 98 general fund by an identical amount.

• Charter Schools. An increase of $53.7 million in Proposition 98 funding for charter school categorical programs to fund growth in charter school enrollment. Additionally, the 2012-13 State Budget provides for (i) the expansion of the ability of school districts to convey surplus property to charter schools, (ii) the authorization of county treasurers to provide charter schools with short-term cash loans, and (iii) the authorization of charter schools to participate in the temporary revenue anticipation note financing mechanisms that are currently available to school districts and county offices of education.

• Quality Education Investment Act. A decrease of $450 million in funding for fiscal year 2012-13 with respect to the Quality Education Investment Act. The overappropriation in fiscal year 2011-12 will be used to prepay the $450 million required to be provided on top of the Proposition 98 minimum guarantee in fiscal year 2012-13. The program will be funded within the Proposition 98 minimum guarantee to achieve one-time savings of $450 million for fiscal year 2012-13.

• K-12 Deferrals. An increase of $2.1 billion in Proposition 98 funding to reduce K-12 inter-year budgetary deferrals from $9.5 billion to $7.4 billion.

• Mandates Block Grant. An increase of $86.2 million from fiscal year 2011-12 to provide a total of $166.6 million for K-12 mandates through a new voluntary block grant, in which participating school districts and county offices of education would receive $28 per student and participating charter

38

schools would receive $14 per student. School districts and county offices of education that choose not to participate in the block grant program would retain their right to submit claims for reimbursement, subject to audit by the State Controller.

• Child Care. Total savings of $294.3 million from (i) the inclusion of part-day center-based services for 3- and 4- year-olds within the State Preschool Program funded through Proposition 98, (ii) the reduction of child care provider contracts, and (iii) not providing the statutory cost-of-living-adjustment for non-CalWORKs programs.

As stated above, the increased Proposition 98 funding for K-12 schools, among other things, is contingent upon the approval of the Temporary Tax Measure. If the Temporary Tax Measure is not approved by the voters at the November 2012 election, the 2012-13 State Budget includes a backup plan of $6 billion in trigger cuts which would go into effect on January 1, 2013. With respect to K-12 schools, such cuts would (i) reduce funding for K-12 schools and community colleges by $5.4 billion – a funding decrease equivalent to three weeks of instruction, and (ii) eliminate the ability of the State to begin repaying funding deferrals.

The complete 2012-13 State Budget is available from the California Department of Finance website at www.dof.ca.gov. The Borrower and the Authority can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by such reference.

Future Budgets and Budgetary Actions. The Borrower and the Authority cannot predict what actions will be taken in the future by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors over which the School will have no control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State’s ability to fund schools during fiscal year 2012-13 and in future fiscal years. Continued State budget shortfalls in fiscal year 2012-13 and future fiscal years could have a material adverse financial impact on the School.

Private citizens have qualified an alternative revenue measure (“Proposition 38”) for the November, 2012 ballot. Proposition 38 would increase tax revenues with a primary goal of increasing public school funding. The State has not provided information relating to the specific changes to funding of school districts, community college districts and charter schools that would occur if Proposition 38 becomes effective and the Temporary Tax Measure does not. In that case, the State Legislature could adopt changes to the State Budget.

Allocation of State Funding to Charter Schools

Under the Charter School Law, each charter school is calculated to have a “general purpose entitlement,” which is based on the statewide average amount of State aid, local property taxes and other revenue received by school districts of similar type and serving similar pupil populations. The general purpose entitlement is calculated on a per student basis at each of four grade level ranges and is multiplied by the charter school’s Average Daily Attendance (ADA) in each grade level range.

Each charter school’s general purpose entitlement is funded from local funding in lieu of property taxes and, to the extent such funding is insufficient to fulfill the entire entitlement, from money appropriated by the State from the State’s general fund for education. The local share, which must be transferred in monthly installments to the charter school by the chartering school district in lieu of property taxes, is the average amount of property taxes per ADA received by the district, including charter school students, multiplied by the charter school’s ADA.

In addition, each charter school is entitled to a “categorical block grant.” School districts must qualify for categorical aid on the basis of the actual number of students in attendance who qualify for one or more special programs, and may only spend the aid for the restricted purposes of the program. Charter school students do not need to qualify individually for each program of certain categorical aid. Instead, a charter school “categorical block grant” is computed annually. In 2011-12, the amount available to the School was based upon $412 per ADA plus an allowance for economically impacted students based upon individual school data. Categorical block grant funding

39

may be used for any purpose determined by the charter school. In addition, charter schools may apply for and receive separate categorical funds for many programs that are not included in the block grants, if otherwise eligible, but may not receive aid for programs exclusively or almost exclusively provided by a county office of education.

The following tables describe ADA based state funding of California charter school education for Fiscal Year 2009-10 through 2011-12:

Table 1STATE FUNDING OF CALIFORNIA CHARTER SCHOOL EDUCATION

FISCAL YEAR 2009-10(Dollars per unit of ADA)

Grades

K-3 4-6 7-8 9-12

General Purpose Block Grant $5,047 $5,121 $5,271 $6,134Categorical Block Grant 453 453 453 453Lottery*** 126 126 126 126Per-ADA Reduction for 08-09** (253) (253) (253) (253)

Total* $5,373 $5,447 $5,597 $6,460



Grades

K-3 4-6 7-8 9-12

General Purpose Block Grant $5,077 $5,153 $5,306 $6,158Categorical Block Grant 396 396 396 396Lottery*** 133 133 133 133Total* $5,606 $5,682 $5,835 $6,687



Grades

K-3 4-6 7-8 9-12

General Purpose Block Grant $5,090 $5,166 $5,319 $6,163Categorical Block Grant 412 412 412 412Lottery*** 129 129 129 129Total* $5,631 $5,707 $5,860 $6,704

* Excludes special education, No Child Left Behind, class size reduction, supplemental instruction, economic impact aid, and National School Lunch Program funding and any private philanthropy, grants, or other fund-raising.** Estimated.*** A one-time per-ADA reduction was applied to 08-09 ADA and deducted from 2009-10 general purpose block grants. The deduction per 2008-09 ADA was $252.83.___________________Source: California Charter Schools Association; California Department of Education

For a description of the School’s revenue sources, see “APPENDIX A: INFORMATION CONCERNING THE PROJECT AND THE BORROWER” herein.

40

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING EDUCATION REVENUES AND APPROPRIATION

Limitation on Revenues

Article XIIIA of the California Constitution. Article XIIIA of the State Constitution, adopted and known as Proposition 13, was approved by the voters in June 1978. Section 1(a) of Article XIIIA limits the maximum ad valorem tax on real property to one percent of “full cash value,” and provides that such tax will be collected by the counties and apportioned according to State law. Section 1(b) of Article XIIIA provides that the one-percent limitation does not apply to ad valorem taxes levied to pay interest and redemption charges on: (i) indebtedness approved by the voters prior to July 1, 1978, or (ii) bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast on the proposition, or (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facility or the acquisition or lease of real property for school facility, approved by 55% of the voters of the district, but only if certain accountability measures are included in the bond proposition. Charter schools may not conduct bond elections or issue bonds payable from property taxes, but may benefit from the proceeds of bonds issued by the school district in which the charter school is located.

Section 2 of Article XIIIA defines “full cash value” to mean the county assessor’s valuation of real property as shown on the Fiscal Year 1975-76 tax bill, or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction or other factors. The Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently “recapture” such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor’s measure of the restored value of the damaged property. The California courts have upheld the constitutionality of this procedure. Legislation enacted by the State Legislature to implement Article XIIIA provides that, notwithstanding any other law, local agencies may not levy any ad valorem property tax except the 1% base tax levied by each County and taxes to pay debt service on indebtedness approved by the voters as described above.

Since its adoption, Article XIIIA has been amended a number of times. These amendments have created a number of exceptions to the requirement that property be reassessed when purchased, newly constructed or a change in ownership has occurred. These exceptions include certain transfers of real property between family members, certain purchases of replacement dwellings for persons over age 55 and by property owners whose original property has been destroyed in a declared disaster, and certain improvements to accommodate disabled persons and for seismic upgrades to property. These amendments have resulted in marginal reductions in the property tax revenues of local school districts.

Both the California State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA.

Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently “recapture” such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor’s measure of the restoration of value of the damaged property. The constitutionality of this procedure was challenged in a lawsuit brought in 2001 in the Orange County Superior Court and in similar lawsuits brought in other counties, on the basis that the decrease in assessed value creates a new “base year value” for purposes of Proposition 13 and that subsequent increases in the assessed value of a property by more than 2% in a single year violate Article XIIIA. On appeal, the California Court of Appeal upheld the recapture practice in 2004, and the State Supreme Court declined to review the ruling, leaving the recapture law in place. Charter schools are not directly dependent on local property taxes. To the extent local property taxes fund the general purpose entitlement, losses in local property tax income are required to be made up by the State.

41

Future Initiatives. Articles XIIIA and Proposition 98 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time, other initiative measures could be adopted, further affecting State and local revenues for education, and the ability or obligation of these government agencies to expend revenues for charter school purposes.

THE AUTHORITY

The Authority is a public instrumentality of the State of California created pursuant to provisions of the Act. The Authority is authorized to issue the Bonds under the Act and to make the loan contemplated by the Loan Agreement and to secure the Bonds by a pledge of the Payments and certain other funds and accounts as provided in the Indenture.

RISK FACTORS

Investment in the Bonds involves substantial risks. The following information should be considered by prospective investors in evaluating the Bonds. However, the following does not purport to be an exclusive listing of risks and other considerations which may be relevant to investing in the Bonds, and the order in which the following information is presented is not intended to reflect the relative importance of any such risks. Certain factors which could result in a reduction of revenues available to the Schools and a corresponding reduction in payments made to the Authority by the Borrower are discussed herein.

A number of factors could have an adverse impact on the ability of the Schools to generate sufficient revenues, which could, in turn, have an effect on the Borrower's ability to make the Loan Repayments and pay Base Rental Payments. The ability of the Schools to generate sufficient revenues is dependent upon a number of elements, including California State budget pressures, demand for charter schools, the ability of the Schools to provide the educational services and classes demanded by parents or to attract students generally, changes in the level of confidence in the public school system in general or public charter schools in particular, competition, faculty recruitment, demographic changes, legislation, governmental regulations, changes in immigration policy, litigation and the ability to achieve and maintain enrollment levels. This, in turn, is affected by numerous circumstances both within and outside the control of the Borrower and the Schools, including a continuation of favorable governmental policies and programs with respect to public charter schools (see “CHARTER SCHOOLS” herein); the competitive appeal and perceived quality of the Schools’ curriculum; the Schools’ ability and energy of its faculty and administration; and the benevolence of supporters of the Schools. There can be no assurance given that revenues of the Schools will not decrease. Any and all financial projections are only good faith estimates and are not intended as a representation or warranty as to the future financial condition of the Schools. In addition, certain risks related to the owner of the Montevina Buildings could affect the Borrower’s use and occupancy of the Facility.

See “APPENDIX A: INFORMATION CONCERNING THE PROJECT AND THE BORROWER” hereto for more detailed information regarding the Borrower and the Schools.

General

The Bonds are payable primarily from Loan Repayments made by the Borrower under the Loan Agreement and Base Rental Payments made by the Borrower under the Sublease. The liability of the Borrower under the Loan Agreement and Sublease to any person or entity, including, but not limited to, the Trustee or the Authority and their successors and assigns, is limited to recourse only to the Gross Revenues attributable to the Schools and the amounts held in certain funds and accounts created under the Indenture, and such persons and entities will look exclusively thereto, or to such other security as may from time to time be given for the payment of obligations arising out of the Loan Agreement, the Sublease or any other agreement securing the obligations of the Borrower with respect to the Loan Repayments, Base Rental Payments or the Bonds.

THE BONDS ARE NOT AND SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF, OTHER THAN THE AUTHORITY, AND ARE NOT AND SHALL NOT BE DEEMED TO BE A PLEDGE OF THE FAITH AND CREDIT OF THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, BUT SHALL BE PAYABLE

42

SOLELY FROM THE FUNDS PROVIDED THEREFOR. NEITHER THE STATE NOR THE AUTHORITY SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF THE BONDS, OR THE REDEMPTION PREMIUM OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED THEREFOR UNDER THE INDENTURE. THE ISSUANCE OF THE BONDS SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. NOTHING IN THE INDENTURE, THE ACT OR OTHERWISE IS AN UNDERTAKING BY THE AUTHORITY OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO FUND THE TRANSFERS DESCRIBED IN THE INTERCEPT NOTICE (DEFINED HEREIN) OR TO MAKE STATE APPORTIONMENTS OR OTHER FUNDS AVAILABLE TO THE BORROWER IN ANY AMOUNT OR AT ANY TIME.

Possible Offsets to State Apportionment

Section 41344 of the Education Code provides that if an audit or review requires the Borrower to repay prior year apportionments because of significant audit exceptions, including penalty payments (“Audit Exceptions”), the Superintendent of Public Instruction (the “Superintendent”) and the Director of the Department of Finance (the “Director”), or their designees, will jointly establish a plan for the annual repayment of Audit Exceptions (the “Audit Repayment Plan”) which under certain circumstances can extend for a period of up to eight equal annual payments. The Controller withholds from the State School Fund the amounts specified in the Audit Repayment Plan. If the Superintendent and the Director do not establish an Audit Repayment Plan, the Controller withholds the entire amount of the Audit Exceptions from the next apportionment.

Included in the principal apportionment is the general-purpose entitlement for charter schools, which are a portion of the “funds subject to intercept” pursuant to Section 17199.4 of the Education Code. Specifically, with respect to the general-purpose entitlement the funds subject to intercept is the Borrower’s total general-purpose entitlement less the estimated in-lieu property taxes. This is also known as the “state aid” portion of the general purpose entitlement.

Because the apportionment is the sum of multiple program entitlement calculations as well as prior adjustments, the monthly amount available may be more or less than the calculated amount of funds subject to intercept. The amount available for intercept is therefore the lesser of the monthly calculated funds subject to intercept and the amount of cash provided to the Borrower in the total principal apportionment payment schedule (the “Funds Available for Intercept”).

The Controller may reduce the funding available in the principal apportionment payment schedule to offset for funds owing to the State. These offsets include, but are not limited to, the following: Charter School Revolving Loan (Education Code Section 41365), Class Size Reduction (Education Code Section 52124); Audit Repayment (Education Code Sections 41341, 41344); and Accounts Receivable (Government Code Section 12419.5), in addition to other possible authorized or required offsets, or additional offsets not yet authorized by legislation.

None of the foregoing offsets are applicable to the Borrower’s State Apportionment.

California Budget Deficit

In recent years the State of California has struggled with large budget deficits, leading to cuts in a number of programs, including K-12 education. See “STATE FUNDING OF EDUCATION” herein. Reductions in State K-12 funding have been significant in the last few years and future reductions may occur, reducing State revenues of the Schools. Such reductions may be material and may adversely affect the ability of the Borrower to make Loan Repayments under the Loan Agreement and/or Base Rental Payments under the Sublease. In addition, future deferral of State Apportionment in connection with State budget legislation may adversely affect sufficiency of the Borrower’s State Apportionment for purposes of the Intercept.

43

Bankruptcy

If the Borrower were to become the subject of a voluntary or involuntary bankruptcy case, there could be adverse affects on the owners of the Bonds. These adverse effects could include, but may not be limited to, one or more of the following.

The automatic stay provisions of the Bankruptcy Code could prevent (unless approval of the bankruptcy court was obtained) any action to collect any amount owing by the Borrower or any action to enforce any obligation of the Borrower. In particular, the Trustee may be prevented from foreclosing on the Borrower’s Gross Revenues or any other collateral belonging to the Borrower. These restrictions may also prevent the Trustee from making payments to the owners of the Bonds from funds in the Trustee’s possession during the pendency of the bankruptcy case.

Notwithstanding the provisions of state law regarding the Intercept, the bankruptcy court could determine that the Intercept is invalid in bankruptcy, and thus that the funds subject to the Intercept are property of the Borrower and subject to the claims of the Borrower’s creditors. The Borrower intends to take the necessary actions so that if the funds subject to the Intercept are determined to be property of the Borrower, the Trustee will have a first priority perfected security interest in those funds. If, however, the Borrower fails to, or is unable to, take the necessary action to perfect the security interest, the owners of the Bonds may have no rights to the funds that are subject to the Intercept. Even if the Trustee does have a perfected security interest in the funds that are the subject of the Intercept, enforcement of that security interest may be subject to the automatic stay as discussed above.

With the authorization of the bankruptcy court, the Borrower may be able to repudiate some or all of its agreements relating to the Bonds and stop performing its obligations (including payment obligations) under such agreements. Such a repudiation could also excuse the other parties to such agreements from performing any of their obligations. In addition, with the authorization of the bankruptcy court, the Borrower may be able to assign its rights and obligations under the agreements to which it is a party, to another entity, despite any contractual provisions prohibiting such assignment.

The Borrower may be able to cause any of its property that is subject to the lien of Indenture or any other agreement relating to the Bonds, possibly including the funds that are subject to the Intercept, to be released to it, free and clear of such lien, as long as the bankruptcy court determines that the rights of the Trustee and the owners of the Bonds will be adequately protected. The Borrower may be able to borrow additional money that is secured by a lien on any of its property (including any collateral that is subject to the lien of Indenture or any other agreement relating to the Bonds and possibly including the funds subject to the Intercept), which lien will have priority over the lien of Indenture or any other agreement relating to the Bonds, as long as the bankruptcy court determines that the rights of the Trustee and the owners of the Bonds will be adequately protected.

The Trustee may be required to return to the Borrower, as preferential transfers, any property that became subject to the lien of the Indenture or any other agreement relating to the Bonds within the 90 days (or in some cases one year) immediately preceding the filing of the bankruptcy petition. This could include funds that were the subject of the Intercept during the 90 days (or in some cases one year) prior to the bankruptcy filing. Payments previously made to the owners of the Bonds (possibly including payments made from funds that were subject to the Intercept) during the 90 days (or in some cases one year) immediately preceding the filing of the bankruptcy petition may be avoided as preferential payments, so that the owners of the Bonds would be required to return such payments to the Borrower.

The lien of the Indenture and the other documents relating to the Bonds may not attach to any property, including any revenues and possibly including any funds that are subject to the Intercept, that the Borrower acquires after the filing of a bankruptcy petition.

The Borrower may be able, in a confirmed plan, without the consent and over the objection of the Issuer, the Trustee and the owners of the Bonds, to alter the priority, interest rate, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Indenture, the Bonds, or any other agreement relating to the Bonds to which the Borrower is a party, and may be able to invalidate or eliminate the Intercept, as long as the bankruptcy court determines that the alterations are fair and equitable.

44

There may be delays in payments on the Bonds while the court considers any of these issues.

There may be other possible effects of a bankruptcy of the Borrower that could result in delays or reductions in payments on the Bonds, or result in losses to the owners of the Bonds. Regardless of any specific adverse determinations in a Borrower bankruptcy case, the fact of a Borrower bankruptcy case could have an adverse effect on the liquidity or value of the Bonds.

Factors Associated with the Borrower’s Operations

There are a number of factors affecting schools generally that could have an adverse effect on the Borrower’s financial position and ability to make the Loan Repayments and Base Rental Payments. These factors include, but are not limited to, failure to qualify for statutory reimbursement under state programs; increasing costs of compliance with federal, state or local laws or regulations, including, but not limited to, failure to qualify for statutory reimbursement under state programs; increasing costs of compliance with federal, state or local laws or regulations, including, but not limited to, laws or regulations concerning environmental quality, work safety andaccommodation of persons with disabilities; taxes or other charges imposed by federal, state or local governments; the ability to attract a sufficient number of students; changes in existing statutes pertaining to the powers of the Borrower and disruption of the Borrower’s operations by real or perceived threats against the Borrower, its staff members or students. The Borrower and the Schools cannot assess or predict the ultimate effect of such factors on its operations or financial results of its operations or on the Borrower’s ability to make the Loan Repayments and Base Rental Payments.

Claims and Insurance Coverage

Litigation could arise from the corporate and business activities of the Borrower, including from its status as an employer. Many of these risks are covered by insurance, but some are not. For example, claims arising from wrongful termination or sexual molestation claims and business disputes may not be covered by insurance or other sources and may, in whole or in part, be a liability of the affected school if determined or settled adversely.

The Borrower covenants and agrees in the Loan Agreement that it will maintain, or caused to be maintained, property, general liability and business interruption insurance with respect to the Facilities and its operations at levels set forth in the Loan Agreement. The Borrower is not obligated by the Loan Agreement to maintain earthquake insurance and there can be no assurance that the Borrower will obtain such coverage in the future. See “APPENDIX C: SUMMARY OF PRINCIPAL DOCUMENTS – THE LOAN AGREEMENT” herein.

Risk Relating to Philanthropy and Grants

In the past, the Borrower has received income from unrestricted gifts and donations or grants to supplement operating revenues to finance its respective operations and capital needs. Gifts, grants and donations are expected to continue. However, there can be no assurance that projections of such non-operating revenue will be realized or will not decrease, adversely affecting the financial condition of the Borrower.

Limitations on Value of the Facilities and to Remedies Under the Deed of Trust

Maintenance of Value. There can be no assurance that should the Borrower default in making the payments due under the Loan Agreement and the Sublease, the Facilities could be foreclosed upon and sold for the amount owed with respect to the Bonds.

Hazardous Substances. While governmental taxes, assessments and charges are common claims against the value of property, other less common claims may be relevant. One of the most serious in terms of the potential reduction in the value that may be realized is a claim with regard to hazardous substances. In general, the Borrower may be required by law to remedy conditions of the Facilities relating to release of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws. California laws with regard to hazardous substances are stringent and similar to certain federal acts. Under many of these laws, the

45

owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) had or has anything to do with the creation or handling of the hazardous substance. The effect, therefore, should the Facilities be affected by a hazardous substance, is generally to reduce the marketability and value of the parcel by the cost of remedying the condition. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling the hazardous substance. Any of these potentialities could significantly affect the value of the Facilities that would be realized upon a default and foreclosure

Foreclosure. There are two methods of foreclosing on a deed of trust or mortgage under California law, by nonjudicial sale and by judicial sale. Foreclosure under a deed of trust may be accomplished by a nonjudicial trustee’s sale under the power of sale provision in the deed of trust. Prior to such sale, the trustee must record a notice of default and election to sell and send a copy to the trustor, to any person who has recorded a request for a copy of the notice of default and notice of sale, to any successor in interest of the trustor and to certain other parties discernable from the real property records. The trustee then must wait for the lapse of at least three months after the recording of the notice of default and election to sell before establishing the trustee’s proposed sale date and giving a notice of sale (in a form mandated by California statutes). The notice of sale must be posted in a public place and published once a week for three consecutive calendar weeks, with the first such publication preceding the trustee’s sale by at least 20 days. Such notice of sale must be posted on the property and sent, at least 20 days prior to the trustee’s sale, to the trustor, to each person who has requested a copy, to any successor in interest of the trustor, to the beneficiary of any junior deed of trust and to certain other parties discernable from the real property records. In addition, the notice of sale must be recorded with the county recorder at least 14 days prior to the date of sale. The trustor, any successor in interest of the trustor in the trust property, or any person having a junior lien or encumbrance of record may, during the statutory reinstatement period, which extends to five days prior to the sale date, cure any monetary default by paying any delinquent installments of the debt then due under the terms of the deed of trust and certain other obligations secured thereby (exclusive of principal due by virtue of acceleration upon default) plus costs and expenses actually incurred in enforcing the obligation and certain statutorily limited attorneys’ and trustees’ fees. Following a nonjudicial sale, neither the trustor nor any junior lienholder has any right of redemption, and the beneficiary may not ordinarily obtain a deficiency judgment against the trustor.

Should foreclosure under a deed of trust be sought in the form of a judicial foreclosure, it is generally subject to most of the delays and expenses of other lawsuits, and may require several years to complete. The primary advantage of a judicial foreclosure is that the beneficiary is entitled, subject to other limitations, to obtain a deficiency judgment against the trustor to the extent that the amount of the debt is in excess of the fair market value of the property. Following a judicial foreclosure sale, the trustor or its successors in interest may redeem the property for a period of one year (or a period of only three months if the proceeds of sale are sufficient to satisfy the debt, plus interest and costs). In addition, in order to assure collection of any rents assigned as additional collateral under a deed of trust, a receiver for the Facilities may be appointed by a court.

Seismic. The Facilities is located in a seismically active region of California. The occurrence of severe seismic activity could result in substantial damage to the Facilities, which could adversely affect the ability of the Borrower to operate the Facilities and/or make Loan Repayments and Base Rental Payments and could adversely affect the value of the Facilities.

Purchases and Transfers of Bonds Restricted to Approved Institutional Buyers and Accredited Investors

As described in the “NOTICE TO INVESTORS” that precedes the Table of Contents of this Limited Offering Memorandum, the Bonds are to be sold (including in secondary market transactions) only to Approved Institutional Buyers or Accredited Investors. The Indenture contains provisions limiting transfers of the Bonds (except under certain limited circumstances described herein) to Approved Institutional Buyers and Accredited Investors. The face of each Bond will contain a legend to the effect that such Bond can only be transferred to and owned by Approved Institutional Buyers or Accredited Investors. The Bonds will be issued in minimum denominations of $250,000 or any integral multiple of $5,000 in excess thereof. In light of these restrictions, purchasers should not expect that there will be an active secondary market for the Bonds.

As a result of the matters described above, there is no public market for the Bonds and none is expected to develop in the future. Therefore, investors should be aware that they might be required to bear the financial risks of

46

this investment for an indefinite period of time and/or that to the extent there is a secondary market for the Bonds, the secondary market price of the Bonds may be affected as a result of the restrictions.

If a trading market for the Bonds develops, future trading prices of such Bonds will depend on many factors, including, among other things, prevailing interest rates and the market for similar instruments. Depending upon those and other factors, the Bonds may trade at a discount from their principal amount.

Specific Risks of Charter Schools

Charter School Law. The Charter School Law is evolving. Amendments are made relatively frequently and legislative and public attitudes are still forming. It is likely that additional changes will be made in the future, some of which may be adverse to charter schools in general and to the Schools in particular. See “CHARTER SCHOOLS – Amendments to the Charter School Law” herein.

Non-Renewal or Revocation of Charters. The Charter School Law enables charter authorizers to grant five-year charters which may be renewed after evaluation and can be revoked at any time by the charter granting authority or by the State Board due to educational non-performance, fiscal mismanagement or other factors. See “CHARTER SCHOOLS” herein. Management of the Borrower believes that it has a stable relationship with the State Board, its charter authorizer for the Schools, which, under appropriate circumstances is authorized to grant charters under the Charter School Law. See “APPENDIX A: INFORMATION CONCERNING THE PROJECT AND THE BORROWER” herein.

Budgetary Constraints. Charter Schools are funded primarily from State and local tax revenues and budgetary pressures at the State or local level may jeopardize future funding levels, which may adversely affect the ability of the Borrower to make Loan Repayments. See “STATE FUNDING OF EDUCATION” above.

Enrollment Levels. The Borrower’s revenues and financial strength will depend in part upon maintaining certain enrollment levels at the Schools. A reduction in enrollment will have a direct result of reducing ADA payable with respect to the affected charter school.

Risk of Reduction in ADA Funding. Since the vast majority of funds for the Borrower’s operations come from the State on the basis of ADA, each school is subject to State funding reductions or restrictions that might affect all public school districts and charter schools. Among other such risks, over time the State may not increase ADA-based funding commensurate with increases in the cost of Borrower operations, or the State may even decrease ADA-based funding.

ADA-based funding is determined by actual attendance, and not by student enrollment data. Regardless of the statewide level of ADA-based funding, the Borrower is subject to loss of revenue if enrollment should decrease, or if average daily attendance should decrease even if enrollment remains steady, whether due to student illness, truancy or other factors. Such a loss of revenues could adversely effect the ability of the Borrower to make Loan Repayments under the Loan Agreement and Base Rental Payments under the Sublease.

In addition, the Charter School Law prohibits a charter school from imposing fees or charges for its educational services. Therefore, the Borrower is dependent upon receipt of ADA funding relating to its charter school as well as philanthropic support. There is little any school can do to increase revenues, other than to admit a larger number of students.

Tax Related Issues

Tax-Exempt Status of Interest on the Bonds. The Code imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of Bond proceeds, limitations on the investment of Bond proceeds prior to expenditure, a requirement that certain investment earnings on Bond proceeds be paid periodically to the United States and a requirement that the issuers file an information return with the Internal Revenue Service (the “IRS”). The Authority, the Borrower and the Schools have covenanted in certain of

47

the documents referred to herein that they will comply with such requirements. Failure by any of the foregoing to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the treatment of interest on the Bonds as taxable, retroactively to the date of issuance of the Bonds.

Maintenance of the Tax-Exempt Status. The tax exempt status of the Bonds depends upon the maintenance by each of Tri-Valley of their status as an organization described in section 501(c)(3) of the Code. The maintenance of such status is contingent on compliance with general rules promulgated in the Code and related regulations regarding the organization and operation of tax-exempt entities, including the operation for charitable and educational purposes and avoidance of transactions which may cause the assets of either to inure to the benefit of private individuals.

In recent years, the IRS has increased the frequency and scope of its audit and other enforcement activity regarding tax-exempt organizations and, in particular, charter schools. As a result, tax-exempt organizations are increasingly subject to a greater degree of scrutiny. The primary penalty available to the IRS under the Code with respect to a tax-exempt entity engaged in unlawful private benefit is the revocation of tax-exempt status. Although the IRS has not frequently revoked the 501(c)(3) tax-exempt status of nonprofit corporations, it could do so in the future. Loss of tax-exempt status by Tri-Valley could potentially result in loss of tax exemption of interest on the Bonds and of other existing and future tax-exempt debt of the Borrower, if any, and defaults in covenants regarding the Bonds and other existing and future tax-exempt debt, if any, would likely be triggered.

Less onerous sanctions have been enacted which focus enforcement on private persons who transact business with a tax-exempt organization rather than the tax-exempt organization, but these sanctions do not replace the other remedies available to the IRS as mentioned above.

State Income Tax Exemption. The loss by Tri-Valley of federal tax exemption might trigger a challenge to its State income tax exemption. Such event could be adverse and material.

Unrelated Business Income. In recent years, the IRS and state, county and local taxing authorities have been undertaking audits and reviews of the operations of tax-exempt organizations with respect to their exempt activities and the generation of unrelated business taxable income (“UBTI”). The Borrower and the Schools currently report no UBTI. The Borrower and the Schools, though, may participate in activities which generate UBTI in the future. If so, the Borrower and the Schools believe they would properly account for and report UBTI; nevertheless, an investigation or audit could lead to a challenge which could result in taxes, interest and penalties with respect to unreported UBTI and in some cases could ultimately affect their tax-exempt status, as well as the exclusion from gross income for federal income tax purposes of the interest on the Bonds.

Exemption from Property Taxes. In recent years, State, county and local taxing authorities have been undertaking audits and reviews of the operations of tax-exempt corporations with respect to their real property tax exemptions. The Borrower expects the Facilities will be exempt from general ad valorum property taxes. The Borrower expects to pay special taxes on the Facilities (See “APPENDIX A: INFORMATION CONCERNING THE PROJECT AND THE BORROWER – FINANCIAL PROJECTIONS”).

Potential Legislation. From time to time, there are Presidential proposals, proposals of various federal committees, and legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to herein or adversely affect the marketability or market value of the Bonds or otherwise prevent holders of the Bonds from realizing the full benefit of the tax exemption of interest on the Bonds. Further, such proposals may impact the marketability or market value of the Bonds simply by being proposed. One such proposal is the American Jobs Act of 2011 (S.1549) (the "Jobs Bill") which was introduced in the Senate on September 13, 2011 at the request of the President. If enacted in its current form, the Jobs Bill could adversely impact the marketability and market value of the Bonds and prevent certain bondholders (depending on the financial and tax circumstances of the particular bondholder) from realizing the full benefit of the tax exemption of interest on the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value, marketability or tax status of the Bonds. It cannot be predicted whether any

48

such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Bonds would be impacted thereby.

Purchasers of the Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The disclosures and opinions expressed herein are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Bonds, and no opinion is expressed as of any date subsequent thereto or with respect to any proposed or pending legislation, regulatory initiatives or litigation.

Other Limitations on Enforceability of Remedies

There exists common law authority and authority under various state statutes pursuant to which courts may terminate the existence of a nonprofit corporation or undertake supervision of its affairs on various grounds, including a finding that the Borrower has insufficient assets to carry out its stated charitable purposes or has taken some action which renders it unable to carry out such purposes. Such court action may arise on the court’s own motion or pursuant to a petition of a state attorney general or other persons who have interests different from those of the general public, pursuant to the common law and statutory power to enforce charitable trusts and to see to the application of their funds to their intended charitable uses.

In addition to the foregoing, the realization of any rights under the Loan Agreement, the Sublease, the Indenture and the Deeds of Trust upon a default depends upon the exercise of various remedies specified in the Loan Agreement, the Sublease, the Indenture and the Deeds of Trust. These remedies may require judicial action which is often subject to discretion and delay. Under existing law, certain of the remedies specified in the Loan Agreement, the Sublease, the Indenture and the Deeds of Trust may not be readily available or may be limited. For example, a court may decide not to order the specific performance of the covenants contained in the Loan Agreement, the Sublease, the Indenture and the Deeds of Trust. Accordingly, the ability of the Authority or the Trustee to exercise remedies under such documents upon an Event of Default could be impaired by the need for judicial or regulatory approval.

ABSENCE OF MATERIAL LITIGATION

The Authority

There is no litigation pending (with service of process having been accomplished) against the Authority concerning the validity of the Bonds.

The Borrower

There is no controversy or litigation of any nature now pending (with service of process having been accomplished) against the Borrower or, to the knowledge of the officers of the Borrower, threatened, which seeks to restrain or enjoin the sale or issuance of the Bonds or in any way contests or affects the validity of the Bonds, or any proceedings of the Borrower taken concerning the issuance or sale of the Bonds, or the pledge or application of any moneys or security provided for the payment of the Bonds, the use of the Bond proceeds or the existence or powers of the Borrower relating to the issuance of the Bonds.

TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate

49

alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX F hereto.

To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public.

Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority and the Borrower have made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.

In addition, Bond Counsel has relied, among other things, on the opinion of Derek Austin, Esq., Counsel to the Borrower, regarding the current qualification of the Borrower as an organization described in Section 501(c)(3) of the Code and the intended operation of the facilities to be financed by the Bonds as substantially related to the Borrower’s charitable purpose under Section 513(a) of the Code. Such opinion is subject to a number of qualifications and limitations. Furthermore, Counsel to the Borrower cannot give and has not given any opinion or assurance about the future activities of the Borrower, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or changes in enforcement thereof by the IRS. Failure of the Borrower to be organized and operated in accordance with the Internal Revenue Service’s requirements for the maintenance of its status as an organization described in Section 501(c)(3) of the Code, or to operate the facilities financed by the Bonds in a manner that is substantially related to the Borrower’s charitable purpose under Section 513(a) of the Code, may result in interest payable with respect to the Bonds being included in federal gross income, possibly from the date of the original issuance of the Bonds.

Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or

50

disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.

Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. As one example, the Obama Administration recently announced a legislative proposal which, for tax years beginning on or after January 1, 2013, generally would limit the exclusion from gross income of interest on obligations like the Bonds to some extent for taxpayers who are individuals and whose income is subject to higher marginal income tax rates. Other proposals have been made that could significantly reduce the benefit of, or otherwise affect, the exclusion from gross income of interest on obligations like the Bonds. The introduction or enactment of any such legislative proposals, clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and regarding the impact of future legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.

The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the IRS or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority or the Borrower, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Authority and the Borrower have covenanted, however, to comply with the requirements of the Code.

Bond Counsel’s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority, the Borrower or the Beneficial Owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Authority, the Borrower and their appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority or the Borrower legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the Authority, the Borrower or the Beneficial Owners to incur significant expense.

APPROVAL OF LEGALITY

Legal matters incident to the issuance or delivery of the Bonds are subject to the unqualified approving opinion of Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel to the Authority. Certain legal matters will be passed upon for the Borrower by its counsel, Derek Austin, Esq., Campbell, California, for the Authority by the Honorable Kamala D. Harris, Attorney General of the State, and Orrick, Herrington & Sutcliffe LLP, San Francisco, California, as Disclosure Counsel. Bond Counsel and the Attorney General undertake no responsibility for the accuracy, completeness or fairness of this Limited Offering Memorandum.

NO RATING

No rating for the Bonds has assigned.

Following a determination by the Borrower that an investment grade rating for the Bonds (Baa3 or higher by Moody’s or BBB- or higher by S&P or Fitch) is reasonably attainable, the Borrower may seek a rating on the Bonds from any Rating Agency selected by the Borrower (Moody’s, S&P or Fitch).

51

LIMITED OFFERING OF BONDS

The Bonds are exempt from registration under federal securities law but are being offered only to a limited number of sophisticated investors and will be sold only to purchasers who are Approved Institutional Buyers or Accredited Investors. By purchasing the Bonds, each investor is deemed to have made the acknowledgments, representations, warranties and agreements set forth under the caption “TRANSFER RESTRICTIONS” herein.

CONTINUING DISCLOSURE

The Borrower will execute and deliver a Continuing Disclosure Agreement pursuant to which it will, for the benefit of Beneficial Owners of the Bonds, annually compile and deliver to the Trustee certain financial information and operating data relating to the operations of the Borrower (an “Annual Report”), and provide notices of the occurrence of certain enumerated events, if material. An Annual Report will be provided by the Trustee to any person who requests it. A form of Continuing Disclosure Agreement is attached hereto as APPENDIX D. These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”). The Borrower has never failed to comply in all material respects with any previous undertaking with regard to the Rule to provide annual reports or notices of material events.

UNDERWRITING

The Bonds are being purchased by Westhoff, Cone & Holmstedt (the “Underwriter”). The Underwriter has agreed to purchase the Bonds at a price of $27,046,250 (being the principal amount of the Bonds less an Underwriter’s discount of $453,750). The Bond Purchase Agreement (“Bond Purchase Agreement”) pursuant to which the Bonds are being purchased by the Underwriter provides that the Underwriter will purchase all of the Bonds if any are purchased. The obligation of the Underwriter to make such purchase is subject to certain terms and conditions set forth in the Bond Purchase Agreement. The Underwriter may offer and sell the Bonds to certain dealers and others at prices different from the prices stated on the inside cover page of this Limited Offering Memorandum. The offering prices may be changed from time to time by the Underwriter.

52

MISCELLANEOUS

The foregoing and subsequent summaries and descriptions of provisions of the Bonds and the Indenture and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof and do not purport to summarize or describe all of the provisions thereof, and reference is made to said documents for full and complete statements of their provisions. The appendices attached hereto are a part of this Limited Offering Memorandum. Copies, in reasonable quantity, of the Indenture and Loan Agreement may be obtained during the offering period upon request directed to the Underwriter.

NONE OF THE INFORMATION IN THIS LIMITED OFFERING MEMORANDUM HAS BEEN SUPPLIED OR VERIFIED BY THE AUTHORITY OTHER THAN, THE INFORMATION UNDER THE CAPTIONS “THE AUTHORITY” AND “ABSENCE OF MATERIAL LITIGATION — THE AUTHORITY.” THE AUTHORITY MAKES NO REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, AS TO THE ACCURACY (OTHER THAN IN THE SECTIONS IDENTIFIED ABOVE) OR COMPLETENESS OF INFORMATION IN THIS LIMITED OFFERING MEMORANDUM.

The delivery of this Limited Offering Memorandum has been duly authorized by the Authority. This Limited Offering Memorandum has been reviewed and approved by the Borrower.



By: /s/ Bill Batchelor Authorized Officer

1

APPENDIX A

INFORMATION CONCERNING THE PROJECT AND THE BORROWER

TRI-VALLEY LEARNING CORPORATION

Appendix A

A-1

A-2

TRI-VALLEY LEARNING CORPORATION

Appendix A

Table of Contents

Section Page

I. Tri-Valley Learning Corporation .................................................................................................A-3

II. Management Team.....................................................................................................................A-16

III. The Project.................................................................................................................................A-21

IV. Financial Projections..................................................................................................................A-31

I. TRI-VALLEY LEARNING CORPORATION

A-3

History and Founding

Tri-Valley Learning Corporation ("TVLC"), is a California nonprofit public benefit corporation that is exempt from income tax as an organization described in Section 501(c)(3) of the Internal Revenue Code. TVLC provides quality, public education choices for all families in the Tri-Valley region and beyond. TVLC currently operates two charter schools: Livermore Valley Charter School ("LVCS") and Livermore Valley Charter Preparatory High School ("LVCP"), collectively "School" and/or the "Schools". TVLC has two pending charter petitions: Portola Academy, a transitional K–8 school, and Tassajara Prep, a College Prep high school. TVLC and its Management Team are described in greater detail in Sections II and III herein.

LVCS was founded in 2004 as a K-8 program by a collaborative group of parents and educators in response to the Livermore school district's decision to close two magnet schools due to budget cuts. Together, parents and educators endeavored to create a school that embraced proven and innovative teaching techniques to best prepare children for the 21st century.

LVCS is currently housed at 543 Sonoma Avenue, Livermore, CA 94550, and serves 932 K–8 students. This site was originally an elementary school within the local school district until its closure in 1983; after which it housed an alternative high school, home school center, and adult school for the local school district. Twenty-seven (27) additional portable trailers have been installed since 2005 to accommodate LVCS growth. Please see the location map on page 22.

LVCS is the product of roughly 18 months of hard work by a group of about 100 committed parents and teachers. The charter petition drew praise from California charter school advocates and has been used as a model for other charter schools statewide. The impetus for creating LVCS was choice for children, as is reflected on the school’s website (www.lvcs.org) and in the name of the school’s fundraising foundation, Choice for Children Education Foundation ("CCEF").

The founders of LVCS dreamed of an education for children that encompassed more than just the core curriculum, while focusing on the skills that would make children competent citizens and life-long learners. They dreamed of an education that included small class size, enrichment in the areas of art, music, physical education, science, and foreign language, and a curriculum driven by the most current research in education. They sought to include parents and families as an integral part of the elementary school from day one, and in fact the families literally toiled for a month's time upon occupation of the school site on August 1, 2005 until opening day, making the school a magnificent showpiece and a warm, lively, and inviting campus for students, parents, staff and visitors alike.

The extraordinary parent and staff commitment to volunteerism and financial support for the benefit of the school has continued and strengthened since opening day at LVCS. This same unwavering support for choice in education, led to LVCS' community to begin discussing the possibility of a charter high school in May 2006. They wanted to provide students attending LVCS, with an opportunity to remain in the same educational system. The State Board of Education approved the petition for LVCP in July 2009, and the School opened in August 2010.

LVCP’s philosophy of education is a natural progression from that of the LVCS. The High School provides a college preparatory education in an individualized, creative, collaborative, experiential and

I. TRI-VALLEY LEARNING CORPORATION (continued)

A-4

emotionally supportive environment that challenges every student to reach his or her potential. LVCP is currently housed at 2451 Portola Ave., Livermore, CA 94551. LVCP opened with a freshman class of just under 110 students; in year two, TVLC expanded to 220 students in ninth and tenth grade. At capacity and full built out to twelfth grade, the School will serve 648 students.

TVLC operates each School under a separate charter approved by the State Board of Education. The charter for LVCS was extended for five years by the California State Board of Education (the "SBE") in June 2008.

Charter Status

Each School (LVCS and LVCP) has applied for, and received, a charter (the "Charter") from the California State Board of Education (the "SBE"). The LVCS Charter was renewed in June 2008 for five years but no assurance can be given that any further renewals of either Charter will be approved. However, LVCS’ high student test scores and continued educational innovations indicate that another five-year renewal is eminent.

The Schools’ Charters were approved and expire as shown in Table 1:

Table 1. Charter Status

School Date of Charter Expiration Date

LVCS July 2008 June 30, 2013

LVCP July 2009 June 30, 2015

The Charters have no limit on the number of renewals that may be granted so long as certain specific criteria are met in accordance with the provisions of Chapter 2 of Part 26.8 of the California Education Code. See "Charter Schools in California" in Section VIII herein.

The Schools must file annual reports with the SBE setting forth certain formative and summative data to demonstrate that the School is meeting or making progress towards all of the performance standards described by the California State Testing and Report Program ("STAR") and other assessments. Under the Charters, disagreements with the SBE are subject to mediation.

The Charters and Federal law require teachers to meet the credential requirements defined in the California Education Code. See "Charter Schools in California" in Section VIII herein. All teachers are required to take a drug and tuberculosis test. The Charters require the Schools to conduct their financial operations in accordance with the established policies of the SBE. The Charters and State law require each School to produce an annual audit. The Charters require the Schools to pay for any services that the SBE provides beyond the level of support given by the SBE to its existing schools, in accordance with a separate memorandum of understanding and requires the School to maintain a balanced budget. Annually, each School must report to the SBE that it is self-supporting and operating at no cost to the SBE.


A-5

A Charter may be revoked if the respective School (i) commits a material violation of any of the conditions, standards or procedures set forth therein, or (ii) fails to meet or to pursue any of the outcomes identified in the respective Charter, or (iii) fails to meet generally accepted standards of fiscal management of (iv) violates any provision of law.

Fundraising and Discretionary/Dedicated Budgets

TVLC maintains consistent per-student fundraising that has grown annually along with the growth of the schools and student populations. Below is a summary of the historic fundraising efforts and the related, dedicated TVLC Support Entity associated with the annual donation. TVLC has four fundraising entities which contribute annually to LVCS and LVCP and make up the discretionary budget, as shown in Table 2. TVLC staff and administration utilize the discretionary charitable contributions from CCEF and LVCS PTO (LVCS) and the LVCP Foundation (LVCP) to fund educational and specialized programs rarely seen at the local school district programs. These programs include, remediation specialist for achieving students and students in need of extra support, art and music programs, early child development and age appropriate science programs, and extra-curricular student enrichment.

The Choice for Children Education Foundation ("CCEF") is a charitable foundation which strives to provide supplemental support for the Schools. CCEF works to provide funds through donations and grants.

Over the past 5 years, donations have grown annually to average more than $500k annually, with the 2011-12 fundraising in excess of $700k to support the Schools. TVLC utilizes a conservative cash received approach to utilizing fundraising revenue in its operating budgets. Funds raised are deferred to the following fiscal year and used on an actual basis, not projected from past fundraising levels.

While TVLC believes CCEF and LVCS PTO will continue to provide support to the Schools, there can be no assurance of any particular level of financial support.

Table 2. TVLC Historical Donations by Entity

Donor 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07

CCEF $620k $390k $385k $421k $362k $448k

LCZC $25k $20k $25k n/a n/a n/a

LVCS PTO $60k $70k $50k $45k $30k $41k

LVCP

Foundation

$50k n/a n/a n/a n/a n/a

n/a = Entity did not exist.Note: 2005 student population was 550.


A-6

LVCS

LVCS discretionary budget includes:

Remediation specialists for reading and math; Full time librarian; Counseling services; Annual technology refresh; Art and music specialists: Science specialists; and Annual supply budgets for these related areas.

These programmatic areas represent approximately $480K annually at LVCS (2010-11). Should LVCS/TVLC endure budgetary reduction in ADA revenue from state ADA or reduction in fund raising revenue, these areas could be reduced entirely and the programs will still meet state and charter petition requirements.

The LVCS charter petition maintains a 20:1 student teacher ratio in grades K-5 to take advantage of the K-3 CSR (class size reduction) funding. However, California has historically relaxed CSR guidelines to compensate for ADA reductions. As the CSR revenues are hypothetically reduced, LVCS would offset the lost revenue by increasing class size proportionally in grades K-5.

LVCP

LVCP discretionary budget includes:

Remediation specialists for reading and math; Full time counselors (4 at build-out); Annual technology refresh; Elective specialists: Science specialists; Sports & Extra-Curricular Activities, and; Annual supply budgets for these related areas.


A-7

Enrollment

LVCS presently has 932 students enrolled in the 2011-2012 school year. LVCS has completed its 2012-13 lottery process and will increase enrollment to 1,112 for the 2012-13 academic year. (See Table 3 on the following page.)

There are 198 students currently attending LVCP in the 9th and 10th grades. LVCP has also completed its lottery process and its fall 2012 enrollment will grow to 369 students with the addition of an 11th grade class. LVCP is expected to continue to grow rapidly though school year 2015-2016, when TVLC expects that the High School will have a total enrollment of approximately 648 students. (See Table 3 on the following page.)

Each school receives state funding based on Average Daily Attendance (ADA), rather than on actual enrollment. For further information see "Charter Schools in California" in Section VIII herein. The following table presents historical and projected ADA by grade.

Relationship between Enrollment and Average Daily Attendance

In Table 3, there is information about school enrollment, but State payments for students are based upon average daily attendance ("ADA") which, in most cases, is lower than enrollment. This is because the enrollment number represents the total number of pupils that are enrolled as of the previous June 30. ADA is a running average of students in attendance on a given day, and thus often is lower than actual enrollment (though not always, and there is provision in the law for ADA growth during a school year).


A-8

Table 3. Historical and Projected Enrollment – LVCS and LVCP

Historical & Projected Enrollment by Grade

Grade 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

TK/K – LVCS 100 100 100 100 100 120 120 120 120

1 – LVCS 100 100 100 100 100 120 120 120 120

2 – LVCS 100 100 100 100 100 120 120 120 120

3 – LVCS 80 100 100 100 100 120 120 120 120

4 – LVCS 80 80 100 100 100 120 120 120 120

5 – LVCS 81 82 82 108 108 128 128 128 128

6 – LVCS 108 108 108 108 108 128 128 128 128

7 – LVCS 108 108 108 108 108 128 128 128 128

8 – LVCS 101 102 97 108 108 128 128 128 128

9 – LVCP 0 0 0 79 106 162 162 212 270

10 – LVCP 0 0 0 0 92 115 162 162 212

11 – LVCP 0 0 0 0 0 92 125 162 162

12 – LVCP 0 0 0 0 0 0 92 125 162

Total Enrollment 858 880 895 1,011 1,130 1,481 1,653 1,773 1,918

Waiting List

For the last five school years, LVCS had students on its waiting list at the beginning of the school year. Table 4 presents LVCS's historical waiting list data by grade level. LVCP did not have a waiting list in its first two years of operations, because its enrollment was expanding rapidly; however, the high school is expected to have a waiting list after filling its enrollment for 2012-13.

Table 4. Waiting List

School Year

Grade

K 1 2 3 4 5 6 7 8 9 Total

08–09 161 54 58 31 32 19 44 21 6 n/a 426

09–10 158 67 63 34 18 12 27 13 12 n/a 404

10–11 167 61 56 43 23 26 31 22 11 n/a 440

11–12 241 68 46 51 49 75 60 21 18 n/a 629

12-13 223 54 58 53 49 42 81 24 15 12 611


A-9

Retention

Table 5 presents TVLC's K-8 retention rates for the last four years in terms of the percentage of students in each grade who remained enrolled and moved on to the next grade level the following school year. With few exceptions (and no exceptions recently), the number of potential students on the waiting list for each grade level (as shown in Table 4) exceeds the number of students in such grade level who left TVLC.

Table 5. Retention

Students Returning 2008-09

First Day 2007-08 First Day 2008-09 Retention Rate

Grade Students Grade Students Grade Students

K 100 K 100 K n/a

1 100 1 97 1 97%

2 100 2 94 2 94%

3 80 3 98 3 98%

4 80 4 79 4 99%

5 81 5 78 5 98%

6 108 6 80 6 99%

7 108 7 100 7 93%

8 101 8 101 8 94%




K 100 K 100 K n/a

1 100 1 97 1 97%

2 100 2 93 2 93%

3 100 3 94 3 94%

4 80 4 96 4 96%

5 82 5 78 5 98%

6 108 6 75 6 91%

7 108 7 101 7 94%

8 102 8 84 8 78%


A-10




K 100 K 100 K n/a

1 100 1 99 1 99%

2 100 2 99 2 99%

3 100 3 99 3 99%

4 100 4 99 4 99%

5 82 5 97 5 97%

6 108 6 81 6 99%

7 108 7 105 7 97%

8 97 8 107 8 99%




K 100 K 100 K n/a

1 100 1 96 1 96%

2 100 2 91 2 91%

3 100 3 90 3 90%

4 100 4 93 4 93%

5 108 5 92 5 92%

6 108 6 102 6 94%

7 108 7 96 7 89%

8 108 8 100 8 93%


A-11

Academic Performance

LVCP students earned an outstanding 820 API score based on their California STAR exams last spring. This score places LVCP among the best high schools in the state. The API score topped the local Livermore High School. This score places LVCP among the best high schools in the state and is very impressive for a first year school.

Table 6 shows certain information on student performance for the Elementary School.

Table 6. Student Performance at LVCS

Livermore Valley Charter School (Elementary)Academic Results

Student Count & API Scores

School Year Grades API AYP Met SSR

2005 - 2006 K - 6 888 Yes N/A

2006 - 2007 K - 7 864 Yes 2

2007 - 2008 K - 8 868 Yes 2

2008 - 2009 K - 8 866 Yes 5

2009 - 2010 K - 8 900 Yes 7

2010 - 2011 K – 8 902 Yes 7

Statistical information, consisting of a school’s Academic Performance Index ("API") score and rankings can be found at the California Department of Education’s website at http://www.cde.ca.gov/ta/ac/ap.

The API is an annual measure of the academic performance and progress of schools in California. API scores range from 200 to 1,000, with a statewide target of 800. Each school’s API decile ranking (with 10th being the highest and 1st the lowest) is expressed relative to all California schools and to statistically matched "similar schools".

The LVCS Elementary School (K-8) has been a top performing school since the day it opened its doors. The API score for the Elementary School increased from 865 in 2009 to 900 in 2010. The Elementary School is one of only two Livermore schools to earn a score of 900 or better in 2010. It scored 902 in 2011, and was the only K-8 in Livermore to earn a score over 811.


A-12

The Elementary School met 9 out of 9 of the Federal 2011 Adequate Yearly Progress (AYP) criteria. It met all 2011 participation rate and proficiency rate criteria. When compared to the local schools, TVLC schools are the top performers. Disaggregated 2011 data shows that LVCS grades 2-5 had an API of 932, and grades 6-8 had an API of 866. These numbers, compared to the local school districts, are shown in greater detail in Table 7:

Table 7. Academic Performance

2011 API Comparison between LVCS and LVJUSD Schools

Elementary Schools API Middle Schools API K-8 Schools API

LVCS (2-5) 932 LVCS (6-8) 866 LVCS (K-8) 902

LVJUSD Elementary Schools:

LVJUSD Middle Schools:

LVJUSD K-8 Schools:

Altamont Creek Elementary School

858 Andrew N. Christensen Middle School

795 Junction K-8 787

Arroyo Seco Elementary School

872 Joe Michell 811

Emma Smith Elementary School

911 East Avenue Middle School

803

Leo R. Croce Elementary School

876

Marylin Avenue Elementary School

765 William Mendenhall Middle School

873

Rancho Las Positas Elementary School

855

Sunset Elementary School

923

While the LVJUSD schools produce high scores relative to average California public school systems, the Livermore Valley Charter School has surpassed the performance of local schools in state administered tests.

Teachers

As of August, 2011, the Schools employed 85 full time teachers, as shown in Table 8. All teaching staff is credentialed, on emergency credential, or waiver as now required by the State. 100% of teachers at the Schools earned a bachelor’s degree and 68% have earned a master’s or doctorate degree.


A-13

Many teachers have previous teaching experience; however, many also have backgrounds in other professions. These include law, journalism, radio broadcasting, military, counseling, environmental education, fundraising, small business ownership, technology. Teachers receive bi-annual reviews, formative and summative evaluations and official counseling. Teachers are eligible to receive a yearly bonus, depending upon the availability of funds.

The Schools provide their teachers a minimum of 5 full days of professional development each year.

Table 8. Number of Educators (All instructional personnel)

School Year Total With Full Credential

2008-2009 63 54

2009-2010 67 59

2010-2011 77 69

2011-2012 85 84

Table 9 sets forth the teaching experience for teachers at the Schools for the 2011-2012 school year.

Table 9. Teacher Experience

Professional Teaching Experience Number of Teachers Percent of Teachers

Over 4 years 72 85%

2 to 4 years 9 11%

First year teachers 4 5%

Teacher Retention

72 of the 85 teachers at the Schools taught last year at the Schools.


A-14

Non-Teaching Employees

As of September 1, 2011, the number of classified employees of the Schools was 18. These non-teaching employees include a COO, Corporate Counsel, Development Director, 1 Counselor, 2 Office Managers, 1 IT Director, 1 IT Intern, an Accounting Manager, one Data administrative assistant, 1 Office assistant, and 2 custodians, 6 campus aids. Table 10 sets forth the number of non-teaching employees of the Schools.

Table 10. Number of Non-Teaching Employees

School Year Employees

2008-2009 11

2009-2010 13

2010-2011 18

2011-2012 19

Competing Schools

Table 11 shows the competing high schools within 5 miles of LVCP in terms of their address, grade levels, enrollment and proximity to LVCP.

Table 11. Area Public School Options - LVCP

Livermore High School Granada High School600 Maple St. 400 Wall St.Livermore, CA 94550 Livermore, CA 94550Grades 8–12 Grades 9–122,058 students 2,291 students1 mile from LVCP 2 miles from LVCP


A-15

Table 12. Area Public School Options - LVCS

Altamont Creek Elementary School Andrew N. Christensen Middle School6500 Garaventa Ranch Rd. 5757 Haggin Oaks Ave.Livermore, CA 94551 Livermore, CA 94551Grades K–5 Grades 5–8586 students 627 students7 miles from LVCS 7 miles from LVCS

Arroyo Seco Elementary School East Avenue Middle School5280 Irene Way 3951 East Ave.Livermore, CA 94550 Livermore, CA 94550Grades K–5 Grades 5–8710 students 692 students5 miles from LVCS 3 miles from LVCS

Emma Smith Elementary School Joe Michell School391 Ontario Dr. 1001 Elaine Ave.Livermore, CA 94550 Livermore, CA 94550Grades K–5 Grades K–7708 students 447 students1 mile from LVCS 1 mile from LVCS

Junction K–8 School Leo R. Croce School298 Junction Ave. 5650 Scenic Ave.Livermore, CA 94551 Livermore, CA 94551Grades K–8 Grades K–5351 students 610 students2 miles from LVCS 6 miles from LVCS

Marilyn Avenue Elementary School Rancho Las Positas Elementary School800 Marylin Ave. 401 East Jack London Blvd.Livermore, CA 94551 Livermore, CA 94551Grades K–5 Grades K–6461 students 519 students1 mile from LVCS 3 miles from LVCS

Sunset Elementary School William Mendenhall Middle School1671 Frankfurt Way 1701 El Padro Dr.Livermore, CA 94550 Livermore, CA 94550Grades K–5 Grades 6–8690 students 841 students2 miles from LVCS 1 mile from LVCS

II. MANAGEMENT TEAM

A-16

Contact Information

Names and addresses of key contacts at TVLC are as follows:

Mr. Bill BatchelorChief Operating Officer

2451 Portola AvenueLivermore, CA 94551

(925) 456-9000 ext. 103(925) 456-9008 (Fax)

[email protected]

Government and Management

TVLC is governed by a seven-member Board of Directors. TVLC’s Directors are appointed by the members of TVLC’s Board, or are elected by the school sites. Although the bylaws of TVLC provide that Trustees shall serve terms of three years, there is no limit on the numbers of consecutive terms that Trustees may serve. Brief biographies of the seven members of TVLC’s Board of Directors follow.

TVLC Board of Directors

Len Di Giovanni – Member (term expires 2013)

Len Di Giovanni, Co-founder / COO of Boresha International Inc., brings 30 years of success directing multi-faceted business units, with a unique blend of skills and a proven record of achieving results. As a results driven leader, Len is passionate about "creating an organization and environment that allows people to succeed and grow with the end result being revenue, bottom line and interpersonal improvement." Len’s successful approach to business stems from his experience in various executive leadership positions where he has created corporate teams, customer service support, developed sales and marketing strategic plans, and headed new business development. He has been involved in the marketing of emerging solutions within the Consumer Products, Hardware, Aerospace, Direct Marketing, Floor Covering and Import industries. Len graduated from St. Mary’s College in Kansas with a Bachelor of Arts Degree in Business Administration and English. He served in the United States Army as 1st lieutenant field artillery, and in Vietnam as a Forward Observer and appointed Battery Executive Officer, receiving two Bronze Stars for his exceptional service. Len believes in community outreach and service, voluntarily serving on several Board of Directors seats including The Floor Covering Installation Contractors Association, Just Say Y.E.S. Foundation, Shiloh Christian Fellowship, Global Education Partnership, the Advisory Board of Floor Universe, and as a teacher of Biblical Studies at the college level. Len and his wife Sue live in Pleasanton. Having raised four children they are now actively participating in and speaking into the lives of their six grandchildren.

Neil Cowles – Vice President (term expires 2012)

Neil Cowles is the Chief Executive Officer of Tolven Inc., an open source healthcare software and services provider that is changing the existing paradigm of healthcare information systems adoption in the global healthcare marketplace. Born in Norwich, England, Neil Cowles trained and practiced as a radiographer in England and Australia prior to focusing on healthcare management, information technology and business management. Between 1994 and 1999, Cowles held a number of executive positions with Shared Medical Systems (SMS) in Europe, joining Torex Plc as Technical Director in

II. MANAGEMENT TEAM (continued)

A-17

1999, a board position where he was responsible for application development, product strategy and business outsourcing. Cowles has extensive experience in business management and acquisitions and mergers. In 2002, Neil Cowles joined Oracle EMEA (Europe, Middle East and Africa) where he was responsible for developing healthcare business opportunities across EMEA. In 2004, Neil Cowles transferred to Oracle Corporation to take responsibility for the global healthcare and life sciences application strategy group, where his responsibilities included both clinical and business systems. At the beginning of 2006, Neil Cowles left Oracle Corporation to become one of the co-founders and the Chief Operating Officer of Tolven Inc., which is focused on a consumer-centric, industry standards approach to delivering healthcare information solutions. Neil Cowles and his wife Kristen have two children, the oldest of which commenced Kindergarten at LVCS in 2007. Neil Cowles joined the TVLC Board in November 2007.

Rick Swiers – President (term expires 2013)

Rick Swiers holds a B.S. in Mass Communications from the University of Tennessee and a MBA in Management from Fairleigh Dickinson University. He has an extensive background in communications technology and has held key management positions with a number of leading edge technology companies domestically and internationally. He was co-chair for the LVCS Charter Submittal Committee as well as co-chair of the Legal Committee and a Choice for Children Education Foundation board member. He has one child who graduated LVCS and is currently attending LVCP. His other child was one of the 2008 LVCS 8th grade graduating class.

Tim Hall – Member (term expires 2014)

Tim Hall holds a Degree in Hispanic Studies from the University of Barcelona, Spain, a BA in Spanish from San Francisco State University, MS Computer Science, Santa Clara University and a BS in Math from San Francisco State University. Tim has a California Multiple Subjects Teaching Credential with a Bilingual Certificate and a Math Specialist Certificate. He is a retired Software Engineer from Lockheed Martin and a Computer Programming Instructor with over 30 years of experience. He is a retired Independent Software Developer and creator of FileWave and GraceLAN, winners of MacWorld and MacWEEK Software of the Year Awards. Tim has been a volunteer elementary school music teacher and a volunteer in the Big Brother program. Tim is a founder of Tassajara Preparatory High School.

Jerry Mullins – Member (term expires 2012)

Jerry Mullins participated in the creation of the Livermore Valley Charter School and served on its board during the initial years of the school’s operation. Three of his children have attended LVCS; his daughter currently attends LVCS, and two sons promoted from LVCS and are currently attending LVCP. A graduate of the U.S. Naval Academy, Jerry served in Naval Aviation in both the Mediterranean and Western Pacific before completing a Ph.D. at the University of Michigan. He joined Lawrence Livermore National Laboratory in 1979, where his principal assignments have involved research on the proliferation of weapons of mass destruction. He has also served in Washington as Special Advisor to the Assistant Secretary of State for Political-Military Affairs, and he has been a Ford Foundation fellow at the Stanford University Center for International Security and Cooperation.

John Zukoski – Treasurer (term expires 2013)

John Zukoski has been practicing as a tax accountant and financial advisor since 1985. John concentrates in personalized financial and tax planning services for individuals and corporations. In order to more


A-18

completely service his clients and remain on top of the changing dynamics of the profession, he attends seminars and classes. John began his career in 1990, John formed A to Z, CPA’s, PC using his experience and contacts to grow a practice that concentrates in highly personalized tax and financial planning services. John’s diverse background affords him the unique opportunity of utilizing the angles of both tax and investment strategies when working with clients. John is a member of the California Society CPA, and American Institute of Certified Public Accountants. John is a Graduate of Cal State University Hayward, BS, Business Management 1979.

Dave Vopnford – Member (term expires 2013)

Dave Vopnford holds a BA in Business Administration from the University of Washington. He has an extensive background in project management, application development and financial systems design. He is currently employed at Topcon Positioning Systems here in Livermore as a Technical Analyst designing web applications, developing reporting systems, and championing technical innovation. Outside the office Dave enjoys coaching LYSL youth soccer where his teams are generally recognized for their positive attitude, ability and most importantly simply having fun.

Executive Management

All of Tri-Valley Learning Corporation’s senior officers are appointed by its Board of Directors. The principal officers of TVLC are as follows:

Bill Batchelor – Chief Operating Officer (TVLC)

Bill Batchelor holds a bachelor's degree in Finance Business Administration from the University of Colorado at Boulder. He has fourteen years’ experience in financial planning. Mr. Batchelor was a founder of Tri-Valley Learning Corporation, and now serves as its COO. He has been working actively in non-profits for ten years, the past six in charter schools. He has extensive experience in school governance, finance, facilities, and legal issues.

Tara Aderman – Principal - Livermore Valley Charter School (LVCS)

Ms. Aderman earned her Administrative Credential in 2007. She has eight years teaching experience and was recognized as the 2005 Teacher of the Year in Monterey County. Ms. Aderman spent many years as Adjunct Site Faculty member with the Cal State teach program mentoring new teachers and is a certified Tribes trainer. She earned her Master’s degree in Curriculum and Education and is looking forward to completing her Ed.D in School Administration. Mrs. Aderman has been invited to present at national, state and local conferences and has had various journal articles published.

Lauren Kelly – Principal - Livermore Valley Charter Preparatory High School (LVCP)

Ms. Kelly graduated from San Francisco State University with a Bachelor of Arts degree in Broadcasting and Communication. She received her California Clear Teaching Credential in Mathematics and Journalism, along with her Master of Education in Secondary Education from the University of California, Los Angeles (UCLA), where she was a participant in the Principal Leadership Institute (PLI). Ms. Kelly also earned a second Master of Education in Educational Administration, and her Administrative Credential at UCLA’s PLI. Ms. Kelly has taught and coached in public and private middle and high schools. She appeared in the Who’s Who Among America’s Teachers in 2002 through student nomination. She has been a Vice Principal at Amador Valley High School and at Harvest Park


A-19

Middle School for the Pleasanton Unified School District. Through her leadership, each school was named as a National School of Character. Her focus has also been on working with test data, teachers, and counselors to ensure that all students achieve equitable and successful outcomes. The Association of California School Administrators named Ms. Kelly the regional Co-Administrator of the year in 2004. In the corporate world, she developed, wrote and implemented training programs for employees and customers. She co-founded Hoop Masters in Los Angeles, a non-profit, co-ed youth basketball program designed for children who wanted to experience athletics at the local and national level, and worked with youth from more than 85 schools.

Dr. Douglas Treadway – Facilities Project/Executive Team Coaching (TVLC)

Dr. Treadway received his Ph.D. in Counseling Psychology from Northwestern University. He received two post-doctoral fellowships, one to study international environmental sustainability at Harvard University and the other with the Kellogg Foundation and the University of Minnesota to study the higher education and economic development relationship in Asia/Pacific Rim countries. Dr. Treadway currently serves as Director of the China Extension Program for the University of California Berkeley, and as Interim President of San Jose City College in San Jose, CA. He is a visiting professor in Leadership Studies at the University of San Diego. Dr. Treadway has 15 years’ experience as a professor of counseling and psychology, 24 years thereafter as a college and university president, and has been Chancellor of the North Dakota University System. He is active in the Association of Sustainability in Higher Education and the Society for College and University Planning, and was instrumental in the design and construction of the first new college campus (Ohlone Newark) in the world to achieve the Green Building Council’s highest award (Platinum LEED).

Dr. Douglas Treadway offers his expertise in creating innovative, sustainable facilities and learning environments to the TVLC facilities projects. Dr. Treadway will be also be working to formalize partnerships between our high schools and top-tier regional higher education institutions to provide students the opportunity to take university-accredited courses and receive full college credit from many of the premier colleges and universities throughout the region. He will bring the research and expertise of Stanford University as a higher education partner in the planning and construction of the Livermore Valley Charter School (LVCS) and LVCP facilities. By applying the latest research and best industry practices, Dr. Treadway will be helping LVCS and LVCP build state-of-the-art schools that maximize learning for all students in Livermore, CA, and beyond.

Dr. Treadway has been an active community, regional and national leader, serving as the president of the board for a regional hospital and the community symphony. He is the author of 20 research and scholarly publications in the fields of higher education, community, and human development.


A-20

Josefina Powe – Accounting Manager (TVLC)

Ms. Powe has an extensive background in Accounting and Management with over 20 years of experience. Before joining TVLC she was employed as a Controller in manufacturing, engineering and property management. She has worked as an accounting manager in the areas of distribution, finance, and higher education. Josefina is experienced in setting up corporate accounting and finance systems, and budgetary processes. She has expertise in setting up in-house payroll systems and human resources management.

Julie Lassig – Director of Development (TVLC)

Ms. Lassig holds a B.S. in Chemical Engineering from Rensselaer Polytechnic Institute. She worked in microelectronics, semiconductor capital equipment, and technical industries for over fifteen years with responsibilities that included managing technical and sales support activities for national and international accounts, directing development projects, and creating technical and marketing communications (including press releases, data sheets, advertisements, and product description guides). She ran her own technical writing business for over 4 years providing services to high-tech companies in California and New York. Julie’s passion is education. She has worked as a grant writer and program specialist for Ohlone College, has served on numerous school technology committees, has been a piano teacher, a substitute math and science teacher, and a mentor for pre-engineering students at the community college level.

III. THE PROJECT

A-21

The Project

At present, TVLC’s two existing schools, Livermore Valley Charter School ("LVCS"), K-8, and Livermore Valley College Preparatory High School ("LVCP"), operate from leased campuses owned by the Livermore Unified School District in accordance with Proposition 39 and a facilities use agreement.

The Project and the facilities use agreement with the District allow LVCS and LVCP students to move from their leased facilities to a new campus. (See the Location Map of Current and Proposed Facilities on page A-22)

The Project involves TVLC’s purchase of most of the Montevina office park development located on North Canyons Parkway at its intersection with Constitution Drive in the City of Livermore ("Montevina"). The real estate to be acquired includes (a) 15 of the 16 buildings totaling 98,400 square feet on 9.88 acres within Phase I, and (b) a vacant 12.4-acres parcel comprising Phase II of Montevina. Montevina comprises one and two-story office buildings ranging in size from 3,600 to 13,200 square feet, averaging 6,560 square feet per building.

Of the 16 Phase I buildings, 14 of the buildings have never been occupied and are in shell condition with no interior walls, finished ceilings, bathrooms, or floor coverings, but the electrical panels and roof-mounted HVAC units have been installed. Four of the 14 buildings are two-story with installed elevators. The 15th building is at 3252 Constitution Drive and was previously sold.

The 16th building in Phase I of Montevina is at 3110 Constitution Drive and will be leased by TVLC with an option to purchase.

TVLC will convert the 16 buildings into a state of the art K-8 facility for LVCS with athletic and extracurricular facilities to serve both LVCS and LVCP. The shell spaces of the existing buildings in the Montevina business park will be converted to high quality classroom environments, staff and administrative spaces. The buildings will include 38 classrooms, 3 Science labs and MathTech rooms, 2 Music rooms, 2 Art rooms, 2 World Language Rooms, 2 Science Specialist rooms, 6 Teacher workrooms/storage spaces, 1 Media/Student Center, 2 Teacher Lounges, 4 Flex Learning Spaces for 1:1 learning, 3 Flex learning spaces for group learning, 14 Boys' restrooms, 14 girls' restrooms, 10 unisex staff restrooms, 2 custodian rooms, 2 electrical rooms, 2 Reception/Waiting space, 10 Offices, 2 Copy rooms, 4 Conference rooms, 1Dining area, and a large multi-purpose space. (See Site Development Maps on Page A-26 and A-27)

Both Phase I and Phase II of Montevina have been approved by the City of Livermore and are fully permitted for school use.

III. THE PROJECT (continued)

A-22

Tri-Valley Learning CorporationLocation Map of Current and Proposed Facilities


A-23


A-24


A-25

Montevina Phase II


A-26

KEY NOTES:

C:::J ClASSROOMS

ADMIN.

COMMONS c::J CIRCULATION/

c=J RESTROOMS

N

CD


A-27

----------

~~

00 ·----

~~\(3~-~ . -" ·- ~\ L-J

• .,. •• ,...,. . il. ,_f "~' QA33 IC-I•M .._

-

-·_,_,_,_

-~ \ ~ _.....-1

uoo08 ~ 0

~EY NOTES:

,c=J l.WSROOMS

ADMIN.

C:=J CIRCULATION/ COMMONS

C:=J AESTROOMS

cb


A-28

DUILOING 14

OJ ,~;~ ;.WEST ELEVATION

BUILOING II

® ~;~ ;.NORTH ELEVATION

fl\ K-8- EAST ELEVATION \..~} ,..,r . t.r

F _d._r lf.... 1 --,:rt'"t11•\.

OOlOING 10

BURPING 11 BUILDING I) BUII.OING 14

~'or----

BUi lDING I\ BUILDING 1~

(i)tfJCMIIIOCI. ......

<D ltl'~.IUNW~I~~ (j)oo.oo...._. @t(l~YIJ(l" ®mllOII:-...om (i)ft l ~llt.-w

(J)=:tNCFII IJMaD

®~~NI:l!DiS.U(NDV

(!)fiiii\WNIH;NYMCIOWS"


A-29

Table 13 shows the breakdown of the Project costs totaling $39.8 million:

Table 13. Project Costs

Project Costs

Dollar

Description Amount

Acquisition of Land and Buildings - $16,400,000

Montevina Phase I

Construction of Improvements - 9,500,000

Montevina Phase I

Acquisition of Land - 6,000,000

Montevina Phase II

Site Improvements - 3,500,000

Montevina Phase II

Acquisition of Administration

Building 3,140,000

Architectural, Engineering, Environmental,

Legal and Other Consultants 1,273,000

Total Project Costs $39,813,000

When construction commences, it is expected that the Facilities will be renovated by Devcon Construction Incorporated (“Devcon”) of Stockton, California under a Standard Design-Build Agreement (the "Construction Contract") at a maximum price of $13,000,000.

Devcon's extensive list of projects has led to the growth of its employee base at every level. As of 2012, the firm has over 160 administrative/office staff employees, a field staff of over 137, and 60 field superintendents.

Founded in May 1976, the company generated sales in excess of $6 million by December of that same year. In the following years, activity climbed steadily to $775 Million in 2007, $910 Million in 2008, $382 Million in 2009, and $470 Million in 2010. Sales volume for 2011 was approximately $435 Million. In its thirty-six year history, the company has built over thirty million square feet of office, commercial, K-12, higher education and industrial space throughout Northern California.

Devcon's Officers are:Gary Filizetti, PresidentBret Sisney, Vice President/ControllerJustine Pereira, Secretary

The Devcon Project Team for TVLC’s Project is Warren Tilbury and James Woodbury. Mr. Tilbury joined Devcon Construction, Inc. in October of 1992 as a Project Manager bringing with him some twenty-four years previous experience in the construction industry.

Mr. Tilbury holds a Bachelor of Science in Construction Management from San Jose State University and an Associate of Science Degree from Modesto Junior College, Modesto. He is also a graduate of the Construction Management Certificate Program at U.C. Davis and is a LEED Accredited Professional. Warren holds a Contractor's (B) License (inactive).

Mr. Tilbury has extensive experience in all phases of projects including demolition, pre-construction, design, and construction services for university housing, university buildings, municipal buildings, airport


A-30

terminals, and hotels. He has also worked on numerous commercial projects including restaurants, offices and retail space.

Mr. Woodbury joined Devcon Construction, Inc. in January of 2001 in the capacity of Project Engineer and was promoted to Project Manager in January of 2005. As a project manager for Devcon his responsibilities include client contact; coordination between the architect, designers, and engineers; estimating; managing interiors and building shells; scheduling of projects for maximum efficiency; and cost control, materials and labor management. James holds a Bachelor of Science in Architectural Engineering with a minor in Construction Management from California Polytechnic State University -San Luis Obispo. He is also a LEED Accredited Professional.

Mr. Woodbury has worked on and/or managed numerous projects that included pre-construction, construction, build-out, renovations, and tenant improvements for Apple, Menlo College, Cisco, Calisolar Inc., Lifescan Inc., Tri-Valley Learning Corporation, and Goldman Sachs amongst other.

TVLC has also retained the services of an owner representative construction manager:

Douglas H. RothReal Estate Management Services Project Management - Colliers International Managing Director -Development Management Associates

Mr. Roth has had executive responsibility in the real estate industry for twenty-seven years, functioning as the manager or advisor in assignments where innovation is essential to success. His technical experience at all LEED levels of sustainability covering, retail, office, biotech, medical, industrial, technology, and mixed-use properties makes his leadership the hallmark among teams of engineering professionals. Doug brings the unique perspective gained from the combination of over $800 million of completed project value along with the ability to assume responsibility for results under the diverse requirements of strategic planning and project implementation. In the arena of redevelopment, he has utilized innovative tax financing tools and advanced scheduling to achieve entitlement goals considered insurmountable in the regulatory arena. When confronting environmental or brownfield challenges, Doug has managed the engineering teams through this complex path and earned the respect of his peers all levels. Through the design and construction phases, he has the ability to combine technical specialties with the complex legal issues of construction management to execute the cost and schedule goals essential to the success of the assignment.

PROFESSIONAL EXPERIENCE

Development Management Associates, Inc.: Managing Director Hewlett-Packard Company: Corporate RE Project Management Nicholas L. Sica, Inc.: Development Consultant Nova Partners, Inc.: Development Consultant Sutter Health - Palo Alto Medical Foundation: Asst. Project Director

IV. FINANCIAL PROJECTIONS

A-31

Fiscal Year Ending June 30 2012 2013 2014 2015 2016 2017

Actual Projected Projected Projected Projected Projected

Enrollment 1,130 1,481 1,653 1,773 1,918 1,918

Average Daily Attendance 1,093 1,474 1,589 1,700 1,839 1,839

REVENUES

General Purpose Block Grant 5,807,223$ 8,303,785$ 9,380,497$ 9,757,965$ 11,243,085$ 11,445,461$

Categorical Block Grant 481,545$ 680,280$ 775,980$ 809,530$ 941,530$ 941,530$

Federal Income 177,000$ 212,063$ 241,313$ 257,313$ 270,075$ 270,075$

Class Size Reduction 428,400$ 428,000$ 428,000$ 428,000$ 428,000$ 428,000$

Lottery 141,773$ 211,400$ 235,760$ 244,300$ 277,900$ 277,900$

Other State Revenues 520,521$ 627,331$ 707,495$ 747,732$ 778,064$ 778,064$

Donations 525,000$ 580,000$ 740,000$ 780,000$ 850,000$ 850,000$

Other Local Revenues 303,000$ 150,000$ 150,000$ 150,000$ 150,000$ 150,000$

Facilities Revenue -$ -$ -$ -$ -$ -$

Total Revenues 8,384,462$ 11,192,859$ 12,659,045$ 13,174,840$ 14,938,654$ 15,141,029$

EXPENSES

Personnel - Dedicated 5,556,949$ 6,525,786$ 7,578,485$ 8,062,107$ 9,600,859$ 9,744,871$

Personnel - Discretionary 831,744$ 885,027$ 861,402$ 838,715$ 1,028,819$ 1,044,252$

Books & Supplies - Dedicated 314,013$ 398,000$ 406,000$ 431,000$ 441,000$ 441,000$

Books & Supplies - Discretionary 64,500$ 29,201$ 29,566$ 29,939$ 30,322$ 30,322$

Services & Other Operating Expenses 649,118$ 570,119$ 574,847$ 579,386$ 591,408$ 591,408$

Capital Outlay -$ 118,426$ 127,540$ 143,681$ 149,850$ 149,850$

Special Tax Payments -$ 187,646$ 187,646$ 187,646$ 187,646$ 187,646$

Lease Payments 495,305$ 215,452$ 224,730$ 234,037$ 243,376$ 243,376$

Total Expenses 7,911,629$ 8,929,658$ 9,990,217$ 10,506,512$ 12,273,280$ 12,432,725$

Income Available for Debt Service 472,833$ 2,263,201$ 2,668,828$ 2,668,328$ 2,665,374$ 2,708,304$

Bond Debt Service -$ 1,260,749$ 2,135,063$ 2,134,663$ 2,133,213$ 2,135,713$

Bond Debt Service Coverage Ratio n/a 180% 125% 125% 125% 127%

Annual Issuer's Fee -$ 5,500$ 5,456$ 5,409$ 5,359$ 5,305$

Annual Rating Surveillance Fees -$ 8,000$ 8,000$ 8,000$ 8,000$ 8,000$

Annual Trustee Fees -$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$

Total Debt Service Including Fees -$ 1,281,749$ 2,156,019$ 2,155,572$ 2,154,072$ 2,156,518$

Outstanding Tax-Exempt Bonds -$ 27,500,000$ 27,280,000$ 27,045,000$ 26,795,000$ 26,525,000$

Net Revenues after Debt Service 472,833$ 981,452$ 512,810$ 512,757$ 511,302$ 551,787$

Deposit to Liquidity Fund (1) -$ 490,726$ 256,405$ 256,378$ 255,651$ 275,893$

Cumulative Balance of Liquidity Fund (1) -$ 490,726$ 747,131$ 1,003,509$ 1,259,160$ 1,535,054$

Shortfall in Liquidity Fund (2) ## 2,136,013 1,645,286 1,388,882 1,132,503 876,852 600,959

Beginning Balance of QSCB Account -$ -$ -$ -$ 256,378$ 515,875$

Deposit to QSCB Account -$ -$ -$ 256,378$ 255,651$ 275,893$

Interest Earnings @ 1.50% -$ -$ -$ -$ 3,846$ 7,738$

Ending Balance of QSCB Account -$ -$ -$ 256,378$ 515,875$ 799,507$

Unamortized QSCBs 15,000,000$ 15,000,000$ 15,000,000$ 14,743,622$ 14,484,125$ 14,200,493$

Debt Burden 5.9% 13.2% 18.6% 18.0% 15.9% 15.7%

(1) Annual deposit to Liquidity Fund equals 50% of Net Revenues until Cumulative Balance of Liquidity Fund equals

Maximum Annual Debt Service on Bonds.

(2) Liquidity Fund Requirement equals Maximum Annual Debt Service on Bonds. Not applicable in 2012; represents the Requirement at closing.

IV. FINANCIAL PROJECTIONS (continued)

A-32


Projected Projected Projected Projected Projected Projected

Enrollment 1,918 1,918 1,918 1,918 1,918 1,918


REVENUES



Federal Income 270,075$ 270,075$ 270,075$ 270,075$ 270,075$ 270,075$


Lottery 277,900$ 277,900$ 277,900$ 277,900$ 277,900$ 277,900$


Donations 850,000$ 850,000$ 850,000$ 850,000$ 850,000$ 850,000$



Total Revenues 15,347,047$ 15,556,774$ 15,770,276$ 15,987,620$ 16,208,877$ 16,434,117$

EXPENSES


Personnel - Discretionary 1,059,915$ 1,075,814$ 1,091,951$ 1,108,331$ 1,124,956$ 1,141,830$




Capital Outlay 149,850$ 149,850$ 149,850$ 149,850$ 149,850$ 149,850$

Special Tax Payments 187,646$ 187,646$ 187,646$ 187,646$ 187,646$ 187,646$

Lease Payments 243,376$ 243,376$ 243,376$ 243,376$ 243,376$ 243,376$

Total Expenses 12,594,562$ 12,758,826$ 12,925,554$ 13,094,784$ 13,266,551$ 13,440,896$

Income Available for Debt Service 2,752,486$ 2,797,948$ 2,844,721$ 2,892,837$ 2,942,326$ 2,993,221$

Bond Debt Service 2,131,813$ 2,131,863$ 2,135,513$ 2,132,413$ 2,134,788$ 2,134,163$

Bond Debt Service Coverage Ratio 128% 130% 132% 134% 137% 139%

Annual Issuer's Fee 5,248$ 5,187$ 5,121$ 5,051$ 4,976$ 4,897$

Annual Rating Surveillance Fees 8,000$ 8,000$ 8,000$ 8,000$ 8,000$ 8,000$

Annual Trustee Fees 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$

Total Debt Service Including Fees 2,152,561$ 2,152,550$ 2,156,134$ 2,152,964$ 2,155,264$ 2,154,560$

Outstanding Tax-Exempt Bonds 26,240,000$ 25,935,000$ 25,605,000$ 25,255,000$ 24,880,000$ 24,485,000$

Net Revenues after Debt Service 599,925$ 645,398$ 688,588$ 739,873$ 787,062$ 838,662$

Deposit to Liquidity Fund (1) 299,963$ 189,822$ -$ -$ -$ -$

Cumulative Balance of Liquidity Fund (1) 1,946,190$ 2,136,013$ 2,136,013$ 2,136,013$ 2,136,013$ 2,136,013$

Shortfall in Liquidity Fund (2) ## 189,822 - - - - -

Beginning Balance of QSCB Account 799,507$ 1,111,462$ 1,450,833$ 1,816,889$ 2,214,079$ 2,640,822$

Deposit to QSCB Account 299,963$ 322,699$ 344,294$ 369,937$ 393,531$ 419,331$

Interest Earnings @ 1.50% 11,993$ 16,672$ 21,762$ 27,253$ 33,211$ 39,612$

Ending Balance of QSCB Account 1,111,462$ 1,450,833$ 1,816,889$ 2,214,079$ 2,640,822$ 3,099,765$


Debt Burden 16.7% 16.5% 16.3% 16.0% 15.8% 15.6%



(2) Liquidity Fund Requirement equals Maximum Annual Debt Service on Bonds.


A-33



Enrollment 1,918 1,918 1,918 1,918 1,918 1,918


REVENUES



Federal Income 270,075$ 270,075$ 270,075$ 270,075$ 270,075$ 270,075$


Lottery 277,900$ 277,900$ 277,900$ 277,900$ 277,900$ 277,900$


Donations 850,000$ 850,000$ 850,000$ 850,000$ 850,000$ 850,000$



Total Revenues 16,663,411$ 16,896,832$ 17,134,455$ 17,376,355$ 17,622,609$ 17,873,295$

EXPENSES






Capital Outlay 149,850$ 149,850$ 149,850$ 149,850$ 149,850$ 149,850$

Special Tax Payments 187,646$ 187,646$ 187,646$ 187,646$ 187,646$ 187,646$

Lease Payments 243,376$ 243,376$ 243,376$ 243,376$ 243,376$ 243,376$

Total Expenses 13,617,855$ 13,797,469$ 13,979,777$ 14,164,820$ 14,352,638$ 14,543,273$









Net Revenues after Debt Service 893,730$ 947,028$ 998,939$ 1,059,850$ 1,114,446$ 1,178,466$

Deposit to Liquidity Fund (1) -$ -$ -$ -$ -$ -$


Shortfall in Liquidity Fund (2) ## - - - - - -

Beginning Balance of QSCB Account 3,099,765$ 3,593,126$ 4,120,537$ 4,681,815$ 5,281,967$ 5,918,420$

Deposit to QSCB Account 446,865$ 473,514$ 499,470$ 529,925$ 557,223$ 589,233$




Debt Burden 15.4% 15.2% 15.0% 14.7% 14.6% 14.3%





A-34



Enrollment 1,918 1,918 1,918 1,918 1,918 1,918


REVENUES



Federal Income 270,075$ 270,075$ 270,075$ 270,075$ 270,075$ 270,075$


Lottery 277,900$ 277,900$ 277,900$ 277,900$ 277,900$ 277,900$


Donations 850,000$ 850,000$ 850,000$ 850,000$ 850,000$ 850,000$



Total Revenues 18,128,495$ 18,388,287$ 18,652,756$ 18,921,986$ 19,196,061$ 19,475,070$

EXPENSES






Capital Outlay 149,850$ 149,850$ 149,850$ 149,850$ 149,850$ 149,850$

Special Tax Payments 187,646$ -$ -$ -$ -$ -$

Lease Payments 243,376$ 243,376$ 243,376$ 243,376$ 243,376$ 243,376$

Total Expenses 14,736,768$ 14,745,520$ 14,944,863$ 15,147,197$ 15,352,565$ 15,561,014$









Net Revenues after Debt Service 1,236,597$ 1,487,224$ 1,555,095$ 1,620,458$ 1,688,581$ 1,762,418$

Deposit to Liquidity Fund (1) -$ -$ -$ -$ -$ -$


Shortfall in Liquidity Fund (2) ## - - - - - -

Beginning Balance of QSCB Account 6,596,429$ 7,313,673$ 8,702,391$ 10,170,309$ 11,716,457$ 13,344,383$

Deposit to QSCB Account 618,298$ 1,279,013$ 1,337,381$ 1,393,594$ 1,452,180$ 1,455,451$



Unamortized QSCBs 7,686,327$ 6,297,609$ 4,829,691$ 3,283,543$ 1,655,617$ -$

Debt Burden 14.2% 12.9% 12.7% 12.6% 12.4% 12.2%




B-1

APPENDIX B

AUDITED FINANCIAL STATEMENTS OF TRI-VALLEY FOR THE FISCAL YEAR ENDED JUNE 30, 2011

011 Camino

Hosaka, Rotherham & Company

410,

TRI VALLEY LEARNING CORPORATION

INDEPENDENT AUDITORS' REPORT

FOR THE FISCAL YEAR ENDED

JUNE 30, 2011

92108 I 9.543.9702 I 61

Roy T. Hosaka, CPA

James A. Rotherham, CPA

James C. Nagel, CPA


INTRODUCTORY SECTION

JUNE 30, 2011

TRI VALLEY LEARNING CORPORATION TABLE OF CONTENTS

JUNE 30, 2011

INTRODUCTORY SECTION

Table of Contents

FINANCIAL SECTION

Independent Auditors' Report

Statement of Financial Position

Statement of Activities

Statement of Cash Flows

Notes to Financial Statements

SUPPLEMENTARY INFORMATION SECTION

Organization

Schedule of Average Daily Attendance

Schedule of Instructional Time

Statement of Functional Expenses

OTHER INDEPENDENT AUDITORS' REPORTS SECTION

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

Report on State Compliance

FINDINGS AND RECOMMENDATIONS SECTION

Schedule of Audit Findings and Questioned Costs

Summary Schedule of Prior Audit Findings

- i -

Page Number

1

2-3

4

5

6

7- 14

15

16

17

18

19

20

21-22

23-24

25

26-27

28


FINANCIAL SECTION

JUNE 30, 2011

- 1 -


INDEPENDENT AUDITORS' REPORT

Board of Directors Tri Valley Learning Corporation Livermore, California

Roy T. Hosaka, CPA

James A. Rotherham, CPA

James C. Nagel, CPA

We have audited the accompanying statement of financial position of Tri Valley Learning Corporation as of June 30, 2011, and the related statements of activities and cash flows for the fiscal year then ended. These financial statements are the responsibility of the Tri Valley Learning Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tri Valley Learning Corporation as of June 30, 2011, and the changes in its net assets and its cash flows for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated December 2, 2011, on our consideration of the Tri Valley Learning Corporation's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreement and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards, and important for assessing the results of our audit.

- 2 -

-1()1 Camino South, 410, I 61 I 9.543.01

INDEPENDENT AUDITORS' REPORT Page 2

Our audit was performed for the purpose of forming an opinion on the financial statements of Tri Valley Learning Corporation, taken as a whole. The accompanying supplementary information listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the financial statements of Tri Valley Learning Corporation. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the financial statements taken as a whole.

San Diego, California December 2, 2011

- 3 ...

TRI VALLEY LEARNING CORPORATION STATEMENT OF FINANCIAL POSITION

JUNE 30, 2011

Livermore Livermore Valley

Valley Charter Charter Preparatory School High School Total

ASSETS: Current Assets:

Cash $ 541,996 $ 26,630 $ 568,626 Accounts Receivable 1,649,713 306,349 1,956,062

Total Current Assets 2,191,709 332,979 2,524,688

Fixed Assets: Construction in progress 1,813,840 1,813,840 Buildings 1 '133,699 1 '133,699 Site Improvements 334,638 334,638 Equipment 59,098 59,098 Less: Accumulated Depreciation (1 '156,862} ( 1 '156,862)

Total Fixed Assets, Net of Accumulated Depreciation 2,184,413 2,184,413

TOTAL ASSETS $ 4,376,122 $ 332,979 $ 4,709,101

LIABILITIES AND NET ASSETS: Current Liabilities:

Accounts Payable $ 415,679 $ 285,564 $ 701,243 Accrued Expenses 274,003 33,261 307,264 Current Portion of Notes Payable 31,096 31,096

Total Current Liabilities 720,778 318,825 1,039,603

Total Liabilities 720,778 318,825 1,039,603

Net Assets: Unrestricted 3,655,344 1 154 3,669,498

Total Net Assets 3,655,344 1 154 3,669,498

TOTAL LIABILITIES AND NET ASSETS $ 4,376,122 $ 332,979 $ 4,709,101

The accompanying notes are an integral part of these financial statements.

- 4-

TRI VALLEY LEARNING CORPORATION STATEMENT OF ACTIVITIES

FOR THE FISCAL YEAR ENDED JUNE 30, 2011

Support State Aid In Lieu of Property Taxes Federal Revenue Other State Income Other Local Revenues

Total Support

Expenses Program Services

Education Support Services

Management and General

Total Expenses

Change in Net Assets

Net Assets - Beginning

Prior Period Adjustment

Net Assets - Ending

Livermore Valley

Charter School

$ 2,350,739 2,413,601

16,265 981,299

1,580,999

7,342,903

4,416,133

1,853,040

6,269,173

1,073,730

2,328,456

253,158

$ 3,655,344

Livermore Valley

Charter Preparatory High School

$ 248,511 191,931 343,346 44,753 81

910,286

719,855

191,890

911

(1 ,459)

17,002

(1 ,389)

Total

$ 2,599,250 2,605,532

359,611 1,026,052 1,662,744

8,253,189

5,135,988

2,044,930

7,180,918

1,072,271

2,345,458

251,769

$ 3,669,498

The accompanying notes are an integral part of these financial statements .

.. 5-

TRI VALLEY LEARNING CORPORATION STATEMENT OF CASH FLOWS


Livermore Livermore Valley

Valley Charter Charter Preparatory School High School Total

Cash Flows From (Used In) Operating Activities Change in Net Assets $1,073,730 $ (1 ,459) $1,072,271

Adjustments to Reconcile Increase in Net Assets to Net Cash Provided by Operating Activities:

Depreciation and Amortization 216,409 216,409 Prior Period Adjustment 253,158 (1 ,389) 251,769 (Increase) Decrease in Operating Assets:

Accounts Receivable (766,990) (306,349) ( 1 ,073,339) Increase (Decrease) in Operating Liabilities:

Accounts Payable 120,015 96,338 216,353 Accrued Expenses 77,230 33,261 110,491 Deferred Revenue (151,178) (151,178)

Net Cash From (Used In) Operating Activities 973,552 (330,776) 642,776

Cash Flows (Used In) Investing Activities

Purchase of Capital Assets (1 ,813,840) ( 1 '813' 840)

Net Cash (Used In) Investing Activities (1 ,813,840) ( 1 '813' 840)

Cash Flows (Used In) Financing Activities

Payments on Long-Term Debt (121 ,872) (121 ,872)

Net Cash (Used In) Financing Activities (121 ,872) (121 ,872)

Net Increase (Decrease) in Cash (962, 160) (330,776) (1 ,292,936)

Cash - Beginning 1,504,156 357,406 1,861,562

Cash - Ending $ 541,996 $ 26,630 $ 568,626

The accompanying notes are an integral part of these financial statements.

- 6-

TRI VALLEY LEARNING CORPORATION NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2011

NOTE 1 -ORGANIZATION AND MISSION

The Tri Valley Learning Corporation (Organization) was incorporated on March 10, 2004, under the laws of the State of California's nonprofit public benefit corporation and the Organization was granted its first charter, Livermore Valley Charter School, by the California State Board of Education on November 10, 2004. As a condition of the charter approval, the California State Board of Education requires that the Organization participate in a special education local plan area (SELPA) in order to ensure that students with disabilities who attend the charter school receive a free, appropriate public education in compliance with applicable provisions of federal and state laws. An agreement was entered into allowing the Organization to become a member of the El Dorado SELPA, a multiple agency special education local plan area. The agreement sets forth the responsibilities of each party with respect to the delivery and financing of special education instructions and related services to children enrolled in the Organization. On July 9, 2009, the Organization was granted its second charter, Livermore Valley Charter Preparatory High School, by the California State Board of Education.

The Livermore Valley Charter School is a Kindergarten through grade 8 charter school and is currently located at 543 Sonoma Avenue in Livermore, California.

The Livermore Valley Charter Preparatory High School is a grade 9 through grade 12 charter school, serving grade 9, and is currently located at 2451 Portola Avenue in Livermore, California.

NOTE 2 .. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Financial Statement Presentation

The financial statements are presented in conformity with Accounting Standards Codification (ASC) 958-205, Non-For-Profit Entities - Presentation of Financial Statements. Under ASC 958-205, the Organization reports information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. The Organization has no permanently restricted net assets. In addition, the Organization is required to present a Statement of Cash Flows.

B. Accounting Method - Basis of Accounting

The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America as applicable to not-for-profit Organizations. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported on the financial statements. Basis of accounting related to the timing of measurement made, regardless of the measurement focus applied. The Organization uses the accrual basis of accounting.

.. 7 -


JUNE 30, 2011

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenues are recognized when they are earned and expenditures are recognized in the accounting period in which the liability is incurred.

C. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

D. Income Taxes

The Organization is exempt from income taxes under Internal Revenue Code Section (IRC §) 501 (c)(3). It is, however, subject to income taxes from activities unrelated to its tax-exempt purpose.

E. Functional Allocation of Expenses

The costs of providing the program services have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the program services based on employees' time incurred and management's estimates of the usage of resources.

F. Cash

For purposes of the Statement of Cash Flows, the Organization considers all cash on hand and in banks.

G. Fixed Assets

Fixed Assets are recorded at cost and depreciated under the straight-line method over their estimated useful lives of 5 to 10 years. Repair and maintenance costs, which do not extend the useful lives of the asset, are charged to expense. The cost of assets sold or retired and related amounts of accumulated depreciation are eliminated from the accounts in the year of disposal, and any resulting gain or loss is included in the earnings. Management has elected to capitalize and depreciate all assets costing $5,000 or more; all other assets are charged to expense in the year incurred.

H. Deferred Revenue

Deferred Revenue represents federal and state contract funds received, but not expended. These funds must be expended in accordance with the provisions of the contract to which they apply or refund if not expended under the terms of the contract.

.. 8 -


JUNE 30, 2011

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

I. Compensated Absences

Liabilities related to accrued compensated absences are not recorded in the financial statements as the amounts are immaterial.

NOTE 3- CASH AND CASH EQUIVALENTS

A. Cash and cash equivalents

Cash and cash equivalents at June 30, 2011, consisted of the following:

Livermore Valley Charter School:

Cash in Bank $ 541,996

Livermore Valley Charter Preparatory High School:

Cash in Bank 26,630

Total Cash $ 568,626

B. Cash in banks

Cash balances held in banks are insured up to $250,000 by the Federal Depository Insurance Corporation (FDIC). The Organization maintains its cash in bank deposit accounts that at times may exceed federally insured limits. The Organization has not experienced any losses in such accounts. At June 30, 2011, the Organization had no amount in excess of FDIC insured limits.

NOTE 4- ACCOUNTS RECEIVABLE

Accounts receivable at June 30, 2011, consisted of the following:

- 9 ..


JUNE 30, 2011

NOTE 4- ACCOUNTS RECEIVABLE (CONTINUED)

Revenue limit sources: State apportionments

State revenues Local revenues:

Miscellaneous

Livermore Valley

Charter School

$ 981,179 470,893

197,641

Livermore Valley

Charter Preparatory High School

$ 286,340 20,009

Total

$1,267,519 490,902

197,641

Total Accounts Receivable $1,649,713 $ 306,349 $1,956,062

NOTE 5 - FIXED ASSETS

Fixed assets for Livermore Valley Charter School, as of June 30, 2011, consisted of the following:

Construction in Progress Buildings Site Improvements Equipment

Less: Accumulated Depreciation

Total fixed assets

$1,813,840 1 '133,699

334,638 59,098

(1, 156,862)

$2,184,413

During the fiscal year ended June 30, 2011, $216,409 was charged to depreciation expense.

NOTE 7- NOTES PAYABLE

Charter School Revolving Loan Fund

On May 25, 2005, the Organization took out a Five-Year Charter School Revolving Loan in the principal amount of $250,000 with interest at 2.89°/o per annum. The Loan matured on May 25, 2010 with annual principal payments of $50,000 plus annual interest. Payments will be made by the State Controller's Office by deducting principal and interest payments from the Organization's monthly apportionment revenues. The State Controller's Office did not deduct two payments from the Organization's monthly apportionment revenues. These amounts are still owed as of June 30, 2010.

- 10-


JUNE 30, 2011

NOTE 7- NOTES PAYABLE (CONTINUED)

Tri-Valley Bank Note

On June 26, 2006, the Organization took out a note in the principal amount of $250,000 with an interest rate of prime as published by The Wall Street Journal (current 3.25o/o ). Required payments included three (3) months of interest-only payments, followed by sixty (60) months of payments including principal and interest. The Note matures on September 30, 2011. This Note is secured by a 2006 Enviroplex 36x40 Science Classroom. This Note is payable upon demand.

Non Profit Finance Fund Note

On August 24, 2006, the Organization took out a sixty (60) month note in the principal amount of $250,000 with an interest rate of prime as published by The Wall Street Journal (current 3.25°/o) plus 1 °/o. The Note matures on August 11, 2011 with annual payments of $66,361 including interest. This Note is secured by granting Liens on its assets to the Non Profit Finance Fund.

Beginning Ending Current Balance Additions Subtractions Balance Portion

California Department of Education Loan $ 15,825 $ 130 $ $ 15,955 $ 15,955

Tri-Valley Bank Note 66,663 (56,692) 9,971 9,971

Non Profit Finance Fund Note 68,338 (63,168) 5,170 70

TOTAL $ 150,826 $ 130 $ (119,860) $ 31,096 $ 31,096

NOTE 8 - EMPLOYEE RETIREMENT SYSTEMS

Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers' Retirement System (STRS), and classified employees are members of the California Public Employees' Retirement System (CaiPERS).

Plan Description and Funding Policy

STRS

Plan Description

- 11 -


JUNE 30, 2011

NOTE 8- EMPLOYEE RETIREMENT SYSTEMS (CONTINUED)

The Organization contributes to STRS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement, disability, and survivor benefits to beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the State Teachers' Retirement Law. STRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the STRS annual financial report may be obtained from STRS, 7667 Folsom Boulevard, Sacramento, California 95826.

Funding Policy

Active plan members are required to contribute 8.0°/o of their salary and the Organization is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the STRS Teachers' Retirement Board. The required employer contribution rate for fiscal year 2010-2011 was 8.25o/o of annual payroll. The contribution requirements of the plan members are established by state statute. The Organization's contributions to STRS for the fiscal years ending June 30,2011,2010, and 2009, was $315,713,$239,106, and $219,691, respectively, and equals 1 00°/o of the required contributions for each fiscal year.

NOTE 9 .. OPERATING LEASE

The Organization leases copiers and printers under lease arrangements that are for more than one (1) year. The future minimum lease payments are as follows:

Year Ending Lease June 30, Payments

2012 $ 190,635 2013 192,934 2014 200,845 2015 189,852

TOTAL $ 774,266

The Organization will receive no sublease rental revenues nor pay any contingent rentals associated with this lease. For the fiscal year ended June 30, 2011, operating lease expense was $188,603.

.. 12-


JUNE 30, 2011

NOTE 10 .. JOINT POWERS AGREEMENT

The Organization entered into a Joint Powers Agreement (JPA) known as the "California Charter Schools Association Joint Powers Authority (CCSA-JPA)," a self insurance plan for workers' compensation, property/casualty, and school board liability insurance. The CCSAJPA is governed by a board consisting of a representative from each member organization. The board controls the operation of the CCSA-JPA including selection of management and approval of operating budgets, independent of any influence by the member organizations beyond their representation on the board. Each member organization pays a premium commensurate with the level of coverage requested and share surpluses and deficits proportionate to their participation in the CCSA-JPA. The CCSA-JPA is a separate entity which is audited by an independent accounting firm.

NOTE 11 .. COMMITMENTS AND CONTINGENCIES

State Allowances, Awards, and Grants

The Organization has received state funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursement will not be material.

NOTE12-SUBSEQUENTEVENT

The Organization's management has evaluated events or transactions that may occur for potential recognition or disclosure in the financial statements from the balance sheet date through December 2, 2011, which is the date the financial statements were available to be issued. Management has determined that there were no subsequent events or transactions that would have a material impact on the current year financial statements .

.. 13-


SUPPLEMENTARY INFORMATION SECTION

JUNE 30, 2011

- 14-

TRI VALLEY LEARNING CORPORATION ORGANIZATION JUNE 30, 2011

Tri Valley Learning Corporation consists of two charter schools:

Livermore Valley Charter School [#678] is a Kindergarten through grade 8 charter school and was granted its charter by the California State Board of Education in August of 2005, pursuant to the terms of the Charter School Act of 1992, as amended.

Livermore Valley Charter Preparatory High School [#1124] is a grade 9 through grade 12 charter high school, serving grade 9, and was granted its charter by the California State Board of Education in July of 2009, pursuant to the terms of the Charter School Act of 1992, as amended.

The Board of Directors for the fiscal year ended June 30, 2011, was comprised of the following members:

Name Office Term Term Expires

Len Di Giovanni President 3 Years October 31, 2013

Dave Vopnford Vice-President 3 Years October 31, 2013

John Zukowski Treasurer 4 Years October 31 , 2013

Rick Swiers Secretary 4 Years October 31, 2013

Neil Cowles Member 3 Years October 31, 2012

Tim Hall Member 3 Years October 31, 2014

Jerry Mullins Member 3 Years October 31, 2014

Administration

Name Position

William Batchelor Chief Operating Officer

Josefina Powe Accounting Manager

- 15-

Kindergarten

Grades 1 through 3

Grades 4 through 6

Grades 7 and 8

TOTAL

Grades 9 through 12

TOTAL

TRI VAllEY LEARNING CORPORATION SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE FISCAL YEAR ENDED JUNE 30, 2011

livermore Valley Charter School

Classroom Based Second Period Report Annual Report

Resident Non-Resident Resident Non-Resident

94.51 1.99 94.75 1.98

285.72 4.86 286.27 4.89

298.63 7.84 299.09 7.85

205.94 1.82 206.49 1.83

884.80 16.51 886.60 16.55

livermore Valley Charter High School

Classroom Based Second Period Report Annual Report

Resident Non-Resident Resident Non-Resident

63.05 8.59 63.14 8.83

63.05 8.59 63.14 8.83

The Organization is 1 00°/o classroom-based and generates no ADA from a full-time independent study program.

- 16-

TRI VALLEY LEARNING CORPORATION SCHEDULE OF INSTRUCTIONAL TIME


Livermore Valley Charter School

Number 1986-87 of Days Minutes 2010-11 Traditional

Grade Level Requirements* Actual Minutes Calendar Status

Kindergarten 34,971 42,680 180 In Compliance

Grade 1 48,960 60,540 180 In Compliance








*As reduced pursuant to the provisions of Education Code Section 46201.2.

Livermore Valley Charter Preparatory High School

Number 1986-87 of Days Minutes 2010-11 Traditional

Grade Level Requirements* Actual Minutes Calendar Status


*As reduced pursuant to the provisions of Education Code Section 46201.2.

- 17-

TRI VALLEY LEARNING CORPORATION STATEMENT OF FUNCTIONAL EXPENSES


livermore Valley Charter School

Program Support

Services Services Management

Education and General Total Compensation and Related Expenses

Salaries - Certificated $ 3,251,974 $ 199,000 $ 3,450,974 Salaries - Classified 441,035 261,361 702,396 Employee Benefits 282,015 594,563 876,578

Books and Supplies 248,269 248,269 Travel and Conferences 3,307 3,307 Dues and 1\.!lem bers hips 5,677 5,677 Operation and Housekeeping Services 198,528 198,528 Rental, Leases, and Repairs 246,390 246,390 Depreciation and Amortization 192,840 21,427 214,267 Communications 26,435 26,435 Professional/Consulting Services and

Operating Expenditures 189,884 189,884 Direct Support/Indirect Cost Charges 106,468 106,468

TOTAL $ 4,416,133 $ 1,853,040 $ 6,269,173

- 18-

TRI VALLEY LEARNING CORPORATION STATEMENT OF FUNCTIONAL EXPENSES


Livermore Valley Charter Preparatory High School

Program Support

Services Services Management

Education and General Total Compensation and Related Expenses

Salaries - Certificated $ 325,370 $ 97,739 $ 423,109 Salaries - Classified 48,784 40,088 88,872 Employee Benefits 59,855 46,289 106,144

Books and Supplies 163,422 163,422 Travel and Conferences 4,989 4,989 Operation and Housekeeping Services 20,470 20,470 Rental, Leases, and Repairs 2,616 2,616 Communications 38,094 38,094 Professional/Consulting Services and

Operating Expenditures 56,255 56,255 Direct Support/Indirect Cost Charges 7,774 7,774

TOTAL $ 719,855 $ 191,890 $ 911,745

- 19-


OTHER INDEPENDENT AUDITORS' REPORTS SECTION

JUNE 30, 2011

-20-

Hosaka, Rotherham & Company Roy T. Hosaka, CPA

James A Rotherham, CPA

James C. Nagel, CPA

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF

FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS


We have audited the financial statements of the Tri Valley Learning Corporation, as of and for the fiscal year ended June 30, 2011, and have issued our report thereon dated December 2, 2011. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered Tri Valley Learning Corporation's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Tri Valley Learning Corporation's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of Tri Valley Learning Corporation's internal control over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.

- 21 -

101 i Camino Del Rio South, Suite 410, 08 I 619.543.9702 I 61 16

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Page 2

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Tri Valley Learning Corporation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statements amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

This report is intended solely for the information and use of Management, the Audit/Finance Committee, the Board of Directors, and federal awarding agencies and pass-through entities, where applicable, and is not intended to be and should not be used by anyone other than these specified parties.


- 22-


REPORT ON STATE COMPLIANCE


Independent Auditors' Report

Roy T. Hosaka, CPA

James A Rotherham, CPA

James C. Nagel, CPA

We have audited Tri Valley Learning Corporation's (Organization) compliance with the types of compliance requirements described in the Standards and Procedures for Audits of California K-12 Local Education Agencies 2010-2011, published by the Education Audit Appeals Panel, that could have a direct and material effect on each of the Organization's state programs for the fiscal year ended June 30, 2011. The Organization's state programs are identified below. Compliance with the requirements of laws, regulations, contracts and grants, applicable to each of its state programs is the responsibility the Organization's management. Our responsibility is to express an opinion on the Organization's compliance based on our audit.

We conduct our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the State's Audit Guide, Standards and Procedures for Audits of California K-12 Local Educational Agencies 2010-2011, published by the Education Audit Appeals Panel. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on state program occurred. An audit includes examining, on a test basis, evidence about the Organization's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the Organization's compliance with those requirements.

The Organization's management is responsible for the Organization's compliance with laws and regulations. In connection with the audit referred to above, we selected transactions and records to determine the Organization's compliance with the state laws and regulations applicable to the following items:

Description

Class Size Reduction Program (Including In Charter Schools): General Requirements Option One Classes Option Two Classes District or Charter Schools With Only One School

Serving K-3

- 23-

Procedures In Audit Guide

7 3 4

4

Procedures Performed

Yes Yes

Not Applicable

Not Applicable

1 01 Camino F{io South, Suite 410, CA 08 I 6-19.543.9702 I 619.543.011

INDEPENDENT AUDITORS' REPORT ON STATE COMPLIANCE Page2

Description

After School Education and Safety Program General Requirements After School Before School

Contemporaneous Records of Attendance, For Charter Schools

1\.!bde of Instruction, For Charter Schools Nonclassroom-Based Instruction/Independent Study,

For Charter Schools Determination of Funding for Nonclassroom-Based

Instruction, For Charter Schools Annual Instructional Minutes- Classroom Based, For

Charter Schools

Procedures In Audit Guide

4 4 5

1

15

3

3

Procedures Performed

Not Applicable Not Applicable Not Applicable

Yes Yes

Not Applicable

Not Applicable

Yes

The term "Not Applicable" is used above to mean either that the Organization did not offer the program during the current fiscal year, or that the program applies only to a different type of local education agency.

In our opinion, the Organization complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its state programs for the fiscal year ended June 30, 2011.

This report is intended solely for the information and use of the Management, Board of Directors, Audit/Finance Committee, State Controller's Office, Department of Education, pass-through entities, where applicable, and is not intended to be and should not be used by anyone other than these specified parties.


.. 24-


FINDINGS AND RECOMMENDATIONS SECTION

JUNE 30, 2011

- 25-

TRI VALLEY LEARNING CORPORATION SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS


A Summary of Auditors' Results

1. Financial Statements

Type of auditors' report issued:

Internal control over financial reporting:

One or more material weaknesses identified?

One or more significant deficiencies identified that are not considered to be material weaknesses?

Noncompliance material to financial statements noted?

2. Federal Awards

Internal control over major programs:

One or more material weaknesses identified?

One or more significant deficiencies identified that are not considered to be material weaknesses?

Type of auditors' report issued on compliance for major programs:

Any audit findings disclosed that are required to be reported in accordance with section .510(a) or Circular A-133?

Identification of major programs:

Unqualified

Yes X No

Yes _L None Reported

Yes X No

Yes N/A No

Yes N/A None Reported

N/A

Yes N/A No

CFDA Number(s) Name of Federal Program or Cluster

The Organization did not have over $500,000 in federal expenditures.

Dollar threshold used to distinguish between type A and type B programs:

Auditee qualified as low-risk auditee?

-26 ..

N/A

Yes N/A No

TRI VALLEY LEARNING CORPORATION SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (CONTINUED)


A Summary of Auditors' Results (Continued)

3. State Awards

Internal control over state programs:

One or more material weaknesses identified? Yes X No

One or more significant deficiencies identified that are not considered to be material weaknesses? Yes __2$._ None Reported

Type of auditors' report issued on compliance for state programs: Unqualified

B. Financial Statement Findings

None

C. Federal Award Findings and Questioned Costs

None

D. State Award Findings and Questioned Costs

None

-27 ..

TRI VALLEY LEARNING CORPORATION SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS

JUNE 30, 2011

Findings/Recommendations Current Status Explanation If

Not Implemented

None N/A N/A

.. 28 ..

C-1

APPENDIX C

SUMMARY OF PRINCIPAL DOCUMENTS

The following statements are summaries of certain provisions of the Indenture, the Loan Agreement, the Site Lease, the Sublease and the Assignment Agreement not otherwise discussed in this Limited Offering Memorandum. This summary does not purport to be comprehensive and these statements are qualified in their entirety by reference to the full terms of the Indenture, the Loan Agreement, the Site Lease, the Sublease, and the Assignment Agreement.

DEFINITIONS

Unless otherwise defined or specified in this summary, the following definitions apply to the Indenture, the Loan Agreement, the Site Lease, the Sublease and the Assignment Agreement.

“Accountant” means any firm of independent certified public accountants selected by the Borrower and not objected to in writing by the Trustee.

“Act” means the California School Finance Authority Act, constituting Chapter 18 (commencing with Section 17170) of Part 10 of Division 1 of Title 1 of the Education Code of the State, as now in effect and as it may from time to time be amended or supplemented.

“Additional Payments” shall have the meaning ascribed to it in the Loan Agreement.

“Additional Rent” shall have the meaning ascribed to it in the Sublease.

“Administrative Fees and Expenses” means any application, commitment, financing or similar fee charged, or reimbursement for administrative or other expenses incurred, by the Authority or the Trustee in connection with the Bonds, including Additional Payments and Additional Rent.

“Assignment Agreement” means the Senior Assignment Agreement, dated as of October 1, 2012, between the Authority and the Trustee.

“Authority” means the California School Finance Authority, a public instrumentality of the State established by the Act.

“Authorized Borrower Representative” means any person who at the time and from time to time may be designated, by written certificate furnished to the Authority and the Trustee, as a person authorized to act on behalf of the Borrower. Such certificate shall contain the specimen signature of such person, shall be signed on behalf of the Borrower by any officer of the Borrower and may designate an alternate or alternates.

“Authorized Denominations” means initially $250,000 and any integral multiple of $5,000 in excess thereof; provided, however, if the restrictions on transfer described under the Indenture are terminated pursuant to the provisions thereof, then “Authorized Denominations” thereafter shall mean $5,000 and any integral multiple in excess thereof.

“Balloon Indebtedness” means Long-Term Indebtedness (or Short-Term Indebtedness intended to be refinanced upon or prior to its maturity so that such Short-Term Indebtedness and the Indebtedness intended to be used to refinance such Short-Term Indebtedness will be Outstanding for a total of more than 365 days as certified in a Certificate of the Borrower) 25% or more of the principal of which becomes due (either by maturity or mandatory redemption) during any period of 12 consecutive months, which portion of the principal is not required by the documents governing such Indebtedness to be amortized by redemption prior to such date.

“Base Rental Payments” has the meaning given such term in the Sublease.

C-2

“Beneficial Owner” means, (i) when used with reference to the Book Entry Only System, the person who is considered the beneficial owner of the Bonds pursuant to the arrangements for book entry determination of ownership applicable to the Depository and, (ii) for purposes of the Indenture relating to continuing disclosure, any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding such through nominees, depositories or other intermediaries) or (b) is treated as the owner of any Bonds for federal income tax purposes.

“Bondholder” or “Holder” means, with respect to any Bond, the person in whose name such Bond is registered.

“Bond Payment Date” means any date upon which any amounts payable with respect to the Bonds shall become due, whether upon redemption, maturity or otherwise, including any Interest Payment Date and the Principal Payment Date.

“Borrower” means Livermore Valley Charter School and Livermore Valley Charter Preparatory High School, both operated as Tri-Valley, and schools established under the Charter School Law.

“Borrower Documents” means the Loan Agreement, the Sublease, the Intercept Notice, the Deeds of Trust and the Borrower Resolutions.

“Borrower Resolutions” means the resolutions or other authorizing actions adopted by the board of directors of the Borrower authorizing the Loan, the Sublease and execution and delivery of the Borrower Documents.

“Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in the city in which the Principal Corporate Trust Office of the Trustee is located are authorized or obligated by law or executive order to be closed.

“Capital Maintenance and Operating Fund” means the fund by such name established pursuant to the Indenture.

“Certificate of the Authority,” “Consent of the Authority,” “Order of the Authority,” “Request of the Authority” or “Requisition of the Authority” mean, respectively, a written certificate, consent, order, request or requisition of the Authority signed by or on behalf of the Authority by its Chairman or a deputy thereto, its Executive Director or by any other person who is authorized by the Authority to execute such a document on its behalf.

“Certificate of the Borrower,” “Consent of the Borrower,” “Request of the Borrower,” “Requisition of the Borrower” or “Statement of the Borrower” mean, respectively, a written certificate, request, requisition or statement of the Borrower executed by Tri-Valley on its behalf by Tri-Valley’s Chief Financial Officer, the President of its governing board or such other person as may be designated by any of such officials to sign for Tri-Valley.

“Certificate of Tri-Valley,” “Consent of Tri-Valley,” “Request of Tri-Valley,” “Requisition of Tri-Valley” or “Statement of Tri-Valley” mean, respectively, a written certificate, request, requisition or statement of Tri-Valley executed by its Chief Financial Officer, the President of its governing board or such other person as may be designated by any of such officials to sign for Tri-Valley.

“Charter School Law” means the Charter Schools Act of 1992, constituting part 26.8, commencing with Section 47600, of Division 4 of Title 2 of the Education Code of the State, as now in effect and as it may from time to time hereafter be amended or supplemented.

“Code” means the Internal Revenue Code of 1986, or any successor code or law, and any regulations in effect or promulgated thereunder.

“Completion” means satisfaction of all of the conditions to completion of the Project.

C-3

“Completion Certificate” means Completion Certificate delivered pursuant to the Loan Agreement in a form substantially similar to that provided in the Loan Agreement.

“Continuing Disclosure Agreement” means that certain Continuing Disclosure Agreement, dated as of October 1, 2012, by and between the Borrower and the Trustee.

“Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the Authority or the Borrower and related to the original authorization, execution, sale and delivery of the Bonds and the execution and delivery of the Site Lease and the Sublease, including but not limited to costs of preparation and reproduction of documents, fees and expenses of the Authority, the State Treasurer’s Office, the Trustee, legal fees and charges of bond counsel, special counsel, disclosure counsel and Trustee’s counsel, underwriters’ discount, rating agency fees and any other costs, charges or fees in connection with the original delivery of the Bonds, the Site Lease and the Sublease.

“Costs of Issuance Fund” means the fund by that name established pursuant to the Indenture.

“Debt Service Coverage Ratio” means for any period of time the ratio determined by dividing the Income Available for Debt Service for such period by the Maximum Annual Debt Service.

“Depository” means The Depository Trust Company and its successors and assigns, or any other depository selected as set forth in the Indenture which agrees to follow the procedures required to be followed by such depository in connection with the Bonds.

“Direct Costs” means the costs of the land, the improvements, the personal property, and all labor, materials, fixtures, machinery and equipment required to acquire, construct, equip and complete the improvements to the Facilities.

“Education Code” means the Education Code of the State of California.

“Effective Date” means the effective date of the Indenture.

“Electronic Notice” means notice through telecopy, telegraph, telex, facsimile, transmission, internet, e-mail or other electronic means of communication, capable of making a written record.

“Eligible Securities” means any of the following obligations as and to the extent that such obligations are at the time legal investments under the Act for moneys held under the Indenture and then proposed to be invested therein (provided that the Trustee shall be entitled to rely upon any Request of the Borrower as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State of California) and shall be the sole investments in which amounts on deposit in any fund or account created under the Indenture or under the Loan Agreement or under the Sublease shall be invested:

(1) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America or any Federal Reserve Bank and CATS and TIGRS) or obligations the timely payment of the principal of and interest on which are unconditionally guaranteed by the United States of America;

(2) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies, provided that such obligations are backed by the full faith and credit of the United States of America (stripped securities shall constitute Eligible Securities only if they have been stripped by the agency itself); U.S. Export-Import Bank, Farmers Home Administration, Federal Financing Bank, General Services Administration, U.S. Maritime Administration, U.S. Department of Housing and Urban Development, Government National Mortgage Association, and Federal Housing Administration;

(3) Bonds, debentures, notes, or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities shall constitute

C-4

Eligible Securities only if they have been stripped by the agency itself): Federal Home Loan Bank System, Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Student Loan Marketing Association, Resolution Funding Corporation or Farm Credit System;

(4) Bonds or notes issued by any state or municipality which are rated by S&P, Fitch and Moody’s in one of the three highest rating categories assigned by such agencies;

(5) repurchase agreements with either a primary dealer on the reporting dealer list of the Federal Reserve or any bank, which, in either case, is rated “A” or better by S&P and Moody’s, provided that (a) the term of such repurchase agreement is not greater than thirty days, (b) the Trustee or third party acting solely as agent for the Trustee has possession of the collateral, (c) the collateral is valued weekly and the market value of the collateral is maintained at an amount equal to at least 104% (or, if the collateral consists of obligations of FHLMC or FNMA, 105%) of the amount of cash transferred by the Trustee to the dealer bank or securities firm under the repurchase agreement plus interest, (d) failure to maintain the requisite collateral levels will require the Trustee to liquidate the collateral immediately, (e) the repurchase securities are either obligations of, or fully guaranteed as to principal and interest by, the United States or any federal agency backed by the full faith and credit of the United States; (f) the repurchase securities are free and clear of any third-party lien or claim; and (g) there shall have been delivered to the Trustee, the Authority and the Borrower, an Opinion of Counsel to the effect that such repurchase agreement meets all guidelines under State law for legal investment of public funds;

(6) investment agreements, including guaranteed investment contracts (“GICs”) with providers in one of the two highest rating categories of Moody’s and S&P;

(7) 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 S&P of AAAm-G, AAA-m, or AA-m and if rated by Moody’s rated Aaa, Aa1 or Aa2, including such funds advised, managed or sponsored by the Trustee or any of its affiliates;

(8) certificates of deposit secured at all times by collateral described in (1) and/or (2) above, issued by commercial banks, savings and loan associations or mutual savings banks relating to collateral held by a third party, and in which collateral the Trustee on behalf of the Bondholders has a perfected first security interest;

(9) certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF;

(10) commercial paper rated, at the time of purchase, “Prime-1” by Moody’s and “A-1” or better by S&P;

(11) 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 “A-3” or better by Moody’s and “A-1” or “A” or better by S&P;

(12) shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the Government Code of the State which invests exclusively in investments permitted by Section 53635 of Title 5, Division 2, Chapter 4 of the Government Code of the State as it may be amended;

(13) the State of California’s Pooled Money Investment Account;

(14) the State of California’s Local Agency Investment Fund; and

(15) obligations of a bank or other financial institution rated at least “Aa3” by the Rating Agency.

C-5

“Event of Default” means any of the events specified in the Indenture as summarized under “– Events of Default; Remedies on Default – Events of Default; Waiver of Default.”

“Extension Period Expiration Date” means the date of termination of any period of time negotiated with the IRS, as evidenced in writing from the IRS, that extends the date by which the proceeds of the sale of the Bonds allocated to the Subsidy Project Account must be expended.

“Facility” or “Facilities” means the now or hereafter acquired or improved real and personal property of the Borrower (including the Site) located at the sites described in the definition of “Project.”

“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 of Tri-Valley as having been entered into by the Borrower with a Qualified Provider not for investment purposes but with respect to Indebtedness (which Indebtedness shall be specifically identified in the Certificate of Tri-Valley) for the purpose of (1) reducing or otherwise managing the Borrower’s risk of interest rate changes or (2) effectively converting the Borrower’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 Payments” means payments periodically required to be paid to a counterparty by the Borrower pursuant to a Financial Products Agreement.

“Financial Products Receipts” means amounts periodically required to be paid to the Borrower by a counterparty pursuant to a Financial Products Agreement.

“Fiscal Year” means, with respect to the Borrower and Tri-Valley, the twelve month period beginning July 1 and ending on June 30, or such other twelve month period as may be designated in a written Statement of the Borrower or a written Statement of Tri-Valley, as the case may be, delivered to the Authority and the Trustee.

“Fitch” means Fitch Ratings, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, and other nationally recognized securities rating agency designated by the Borrower.

“Government Obligations” means noncallable and nonprepayable direct obligations of the United States of America or obligations which as to full and timely payment of principal and interest constitute full faith and credit obligations of the United States of America (excluding therefrom unit investment trusts and money market fundscomprised of such securities).

“Indemnification Fund” means the fund by that name established pursuant to the Indenture.

“Indemnification Fund Requirement” means $200,000 less the sum of amounts paid pursuant to a requisition as determined by the Trustee.

“Indenture” means the Indenture, dated as of June 1, 2012, between the Authority and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any supplemental indenture entered into pursuant to the provisions thereof.

“Independent Consultant” means a firm (but not an individual) which (1) is in fact independent, (2) does not have any direct financial interest or any material indirect financial interest in any Borrower or any affiliate thereof and (3) is not connected with the Borrower or any affiliate thereof as an officer, employee, promoter, underwriter, trustee, partner, director or Person performing similar functions, and designated by the Borrower, qualified to pass upon questions relating to the financial affairs of facilities of the type or types operated by the Borrower and having a favorable reputation for skill and experience in the financial affairs of such facilities and who is not objected to by the holders of a majority in aggregate principal amount of the Bonds Outstanding by notice to the Borrower within thirty (30) days of the Trustee posting a notice on EMMA and Bloomberg of the proposed

C-6

engagement of such Independent Consultant, the terms of the engagement and the address to which objectionsshould be sent.

“Indirect Costs” means all title insurance premiums, survey charges, engineering fees, architectural fees, real estate taxes, appraisal costs, premiums for insurance, marketing, advertising and leasing costs, brokerage commissions, legal fees, accounting fees, overhead and administrative costs, and all other expenses as shown on the Development Budget that are expenditures relating to the Project and are not Direct Costs.

“Intercept” means the apportionment from the State Controller, pursuant to Section 17199.4(a)(4) of the Education Code and the Intercept Notice, of amounts specified in the Intercept Notice and payable directly to the Trustee.

“Intercept Notice” means any notice from the Borrower to the State Controller, pursuant to Section17199.4(a)(1) and (4) of the Education Code, specifying a transfer schedule for the payment from State Apportionments directly to the Trustee of one or more of the following: (x) principal of the Bonds, (y) interest on the Bonds and (z) other costs necessary or incidental to financing pursuant to the Act relating to the Bonds, including Additional Payments and Additional Rent, in substantially the form (without duplication) attached to the Loan Agreement and the Sublease, as the same may be amended, supplemented or restated from time to time.

“Interest Payment Dates” means, when used with respect to the Bonds, each June 1 and December 1, commencing December 1, 2012.

“Irrevocable Deposit” means the irrevocable deposit in trust of cash in an amount (or Government Obligations the principal of and interest on which will be in an amount), and under terms sufficient to pay all or a portion of the principal of and/or premium, if any, and interest on, as the same shall become due, of any Indebtedness which would otherwise be considered Outstanding. The trustee of such deposit may be any trustee or escrow agent authorized to act in such capacity.

“IRS” means the Internal Revenue Service.

“Liquidity Fund” means the fund by such name established pursuant to the Indenture.

“Loan” has the meaning given such term in the Loan Agreement.

“Loan Agreement” means that certain Loan Agreement, dated as of October 1, 2012, between the Authority and the Borrower, as originally executed or as it may from time to time be supplemented, modified or amended subject to and in accordance with the terms thereof and of the Indenture.

“Loan Repayments” has the meaning given such term in the Loan Agreement.

“Long-Term Indebtedness” means Indebtedness having an original maturity greater than one year or renewable at the option of Tri-Valley for a period greater than one year from the date of original incurrence or issuance thereof unless, by the terms of such Indebtedness, no Indebtedness is permitted to be outstanding thereunder for a period of at least 20 consecutive days during each calendar year.

“Mandatory Sinking Account Payment” means the amount so designated which is established pursuant to the Indenture with respect to the Series 2012A Bonds.

“Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Borrower.

“Mortgage Lender” means the holder of the mortgage loans with Montevina Phase I, LLC and Montevina Phase II, LLC entered into in connection with the original development of the Montevina Campus.

C-7

“Operating Expenses” means the expenses of the Borrower before extraordinary items, determined in accordance with generally accepted accounting principles, which are limited to the operations of the Schools.

“Opinion of Bond Counsel” means an Opinion of Counsel by a nationally recognized bond counsel firm experienced in matters relating to the exclusion from gross income for federal income tax purposes of interest payable on obligations of state and political subdivisions.

“Opinion of Counsel” means a written opinion of counsel (which may be counsel for the Authority) selected by the Authority.

“Original Mortgage” means that certain Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing from Lessor dated as of March 15, 2007 and recorded in the Official Records of Alameda County on March 16, 2007 as Document Number 2007108634, as amended by that certain substitution of trustee under said deed of trust recorded on April 15, 2009 as Document No. 200910939, as amended by that certain agreement to modify the terms of said deed of trust recorded on October 21, 2009 as Document No. 2009336818, as amended by that certain agreement to modify the terms of said deed of trust recorded on February 2, 2012 as Document No. 2012039904, as amended as of the Effective Date, and as affected and amended by the Subordination Agreement.

“Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the provisions of the Indenture relating to disqualified Bonds) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation and (b) Bonds for the transfer or exchange of which, or in lieu of or in substitution for which, other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture.

“Payments” means (i) all moneys (except any money received to be used for the payment of Administrative Fees and Expenses) received by the Trustee with respect to the Intercept, (ii) all moneys, if any, received by the Trustee directly from, or on behalf of, the Borrower, pursuant to the Loan Agreement (excluding Additional Payments and Additional Rent), (iii) all moneys, if any, received by the Trustee directly from, or on behalf of, the Borrower, pursuant to the Sublease (excluding Additional Payments and Additional Rent) and (iv) all income derived from the investment of any money in any fund or account established pursuant to the Indenture. Payments does not include Subsidy Payments.

“Permitted Encumbrances” means (1) liens for general ad valorem taxes and assessments, if any, not then delinquent; (2) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions and any other liens or encumbrances which exist of record as of the date of recordation of the Sublease in the office of the County Recorder of the County of Alameda; (3) the Site Lease, as it may be amended from time to time; (4) the Sublease, as it may be amended from time to time; (5) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions or other liens or encumbrances established following the date of recordation of the Sublease and to which the Trustee and the Borrower consent in writing; (6) liens relating to special assessments levied with respect to the Site, if not then delinquent; (7) liens or other encumbrances existing under any school facilities funding programs of the State of California, provided that they are subordinate to the Site Lease, the Sublease, and Deeds of Trust; (8) the Original Mortgage and related security documents and financing statements; (9) the Leasehold Deed of Trust, as affected and amended by the Subordination Agreement; and (10) the Leasehold Deed of Trust to the Mortgage Lender (as defined in the Subordination Agreement), as affected and amended by the Subordination Agreement.

“Person” means an individual, corporation, firm, association, partnership, trust or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.

“Principal Corporate Trust Office” means for the Trustee originally appointed under the Indenture, the office of The Bank of New York Mellon Trust Company, N.A., at Los Angeles, California, which at the date of execution of the Indenture is specified in the Indenture, except that with respect to presentation of Bonds forpayment or for registration of transfer and exchange such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted.

C-8

“Project” has the meaning given to such term in the Loan Agreement.

“Project Fund” means the fund by that name established pursuant to the Indenture.

“Punchlist Items” means any items necessary at the time of the issuance of a temporary use and occupancy permit to complete the Facility in accordance with the plans and specifications for the Facility, or required for the issuance of a final certificate of occupancy or its equivalent.

“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 of a national rating agency at the time of the execution and delivery of the Financial Products Agreement.

“Rating Agency” means at any time any rating agency or rating agencies including Fitch, Moody’s or S&P, then rating the Bonds at the request of the Authority or the Borrower.

“Rating Category” means (i) with respect to any long-term rating category, all ratings designated by a particular letter or combination of letters, without regard to any numerical modifier, plus or minus sign or other modifier and (ii) with respect to any short-term or commercial paper rating category, all ratings designated by a particular letter or combination of letters and taking into account any numerical modifier, but not any plus or minus sign or other modifier.

“Rebate Fund” means the fund by that name established pursuant to the Indenture.

“Rebate Requirement” shall mean the definition given such term in the Tax Certificate.

“Record Date” means, with respect to the Interest Payment Date for the Bonds, the fifteenth day of the calendar month immediately preceding such Interest Payment Date, whether or not such day is a Business Day.

“Redemption Fund” means the fund by that name established pursuant to the Indenture.

“Reserve Fund” means the fund by that name established pursuant to the Indenture.

“Responsible Officer” when used with respect to the Trustee, means any officer or employee within the Principal Corporate Trust Office of the Trustee (or any successor group of the Trustee) having direct responsibility for the administration of the Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

“Revenue Fund” means the fund by that name established pursuant to the Indenture.

“S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Authority.

“School” individually, and “Schools” collectively means, Livermore Valley Charter School and Livermore Valley Charter Preparatory High School.

“Senior Debt Service” means, for any period, all Loan Repayments, Base Rental Payments, Additional Payments and Additional Rent payable by the Borrower pursuant to the Loan Agreement and the Sublease Agreement.

C-9

“Series 2012A Bonds” or “Bonds” means the California School Finance Authority Educational Facilities Revenue Bonds (The Livermore Valley Charter School Project), Series 2012A issued under the Indenture.

“Short-Term Indebtedness” means all Indebtedness having an original maturity less than or equal to one year and not renewable at the option of the Borrower for a term greater than one year from the date of original incurrence or issuance unless, by the terms of such Indebtedness, no Indebtedness is permitted to be outstanding thereunder for a period of at least 20 consecutive days during each Fiscal Year.

“Site” has the meaning assigned to it in the Site Lease.

“Site Lease” means the Site Lease, dated as of October 1, 2012, by and between Montevina Phase I, LLC and the Authority.

“Special Record Date” means the date established by the Trustee pursuant to the Indenture as a record date for the payment of defaulted interest on Bonds.

“State” means the State of California.

“State Controller” means the Controller of the State.

“State School Fund” means the fund established and maintained in the general fund of the State pursuant to Articles 1 and 2 of Chapter 1 of Part 9 of Division 1 of Title 1 of the Education Code.

“Sublease” means that certain Sublease, dated as of October 1, 2012, between the Authority and the Borrower, as originally executed or as it may from time to time be supplemented, modified or amended subject to and in accordance with the terms thereof and of the Indenture.

“Subordinate Obligations” means the Base Rental Payments due by the Borrower under the Subordinate Sublease, dated as of October 1, 2012, by and between the Authority and the Borrower, as may be assigned.

“Subordinate Site Lease” means the Limited Obligation Site Lease, dated as specified in the Indenture, by and between Montevina Phase II, LLC and the Authority.

“Subordinate Sublease” means the Subordinate Sublease, dated as of June 1, 2012, by and between the Authority and the Borrower.

“Subordination Agreement” means that certain Subordination Agreement, dated as of October 1, 2012, by and among the Mortgage Lender, the Lessor, the Sublessee, and the Trustee.

“Subsidy Project Account” means the account by that name in the Project Fund established pursuant to the Indenture.

“Supplemental Indenture” means any indenture hereafter duly authorized and entered into between the Authority and the Trustee in accordance with the provisions of the Indenture.

“Tax Certificate” means the Tax Certificate and Agreement between the Authority and the Borrower dated the date of issuance of the Bonds, as the same may be amended or supplemented in accordance with its terms.

“Tax Exempt Project Account” means the account by that name in the Project Fund established pursuant to the Indenture.

“Tax Status” means interest on the Bonds being excluded from gross income for federal income tax purposes under Section 103 of the Code.

C-10

“Tri-Valley” means Tri-Valley Learning Corporation, a California nonprofit public benefit corporation, its successors and assigns.

“Trustee” means The Bank of New York Mellon Trust Company, N.A., or the successor as Trustee under the Indenture as provided in the Indenture.

“Variable Rate Indebtedness” means Indebtedness the interest on which is payable pursuant to a variable interest rate formula or other determination method rather than at a fixed rate of interest per annum to maturity.

C-11

THE INDENTURE

The Bonds

Temporary Bonds. The Bonds may be initially issued in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be printed, lithographed or typewritten, shall be of such denomination as may be determined by the Authority, shall be in registered form and may contain such reference to any of the provisions of the Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds, it will execute and furnish definitive Bonds without delay, and thereupon the temporary Bonds may be surrendered, for cancellation, in exchange therefor at the Principal Corporate Trust Office of the Trustee, and the Trustee shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations, of the same maturity or maturities. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under the Indenture as definitive Bonds authenticated and delivered under the Indenture.

Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Holder of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or upon the order of, the Authority. If any Bond issued under the Indenture shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to it and indemnity satisfactory to it shall be given, the Authority, at the expense of the Holder, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen. If any Bond mutilated, lost, destroyed or stolen shall have matured, instead of issuing a substitute Bond the Trustee may pay the same without surrender upon receipt of indemnity satisfactory to the Trustee. The Authority may require payment from the Holder of a sum not exceeding the actual cost of preparing each new Bond issued under the provisions summarized in this paragraph and of the expenses which may be incurred by the Authority and the Trustee. Any Bond issued under the provisions summarized in this paragraph in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of the Indenture with all other Bonds secured by the Indenture.

Validity of Bonds. The validity of the authorization and issuance of the Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the Authority or the Trustee with respect to or in connection with the Loan Agreement or the Sublease. The recital contained in the Bonds that the same are issued pursuant to the Act and the Constitution and laws of the State shall be conclusive evidence of their validity and of compliance with the provisions of law in their issuance.

Funds

Costs of Issuance Fund. The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee, to pay the Costs of Issuance upon receipt of (i) a Request of the Borrower, which shall be sequentially numbered, stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund and (ii) an invoice or invoices submitted by the Borrower. Each such Request of the Borrower shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts.

Project Fund. The moneys in the Project Fund shall be used and withdrawn by the Trustee to pay the Direct Costs and the Indirect Costs of the Project. No moneys in the Project Fund shall be used to pay Costs of Issuance. Amounts in the Tax Exempt Project Account shall be disbursed by the Trustee against Requisitions substantially in the form attached as an exhibit to the Indenture. Amounts in the Subsidy Project Account shall be disbursed by the Trustee against Requisitions substantially in the form attached as an exhibit to the Indenture. Each such Requisition of the Borrower shall be sufficient evidence to the Trustee of the facts stated therein and the

C-12

Trustee shall have no duty to confirm the accuracy of such facts. Before any payment from the Project Fund shall be made, the Borrower shall comply with the requirements of the Loan Agreement relating to construction draws.

The Trustee shall accept moneys from the Borrower for deposit in the Project Fund from time to time. The Trustee is authorized to transfer funds among the accounts in the Project Fund upon the receipt of a Request of the Borrower directing the Trustee to make such a transfer.

Upon Completion of the Project, the Borrower shall deliver a Completion Certificate to the Trustee and the Authority and make the final requisition of funds from the Project Fund. Any amounts thereafter remaining in the Tax Exempt Project Account shall be transferred by the Trustee, at the direction of the Borrower to the Redemption Fund for the redemption of Bonds pursuant to the Indenture. Upon such transfer, the Tax Exempt Project Account shall be closed.

Any amounts remaining in the Subsidy Project Account not expended by the later of (i) the third anniversary of the delivery date of the Bonds or (ii) the Extension Period Expiration Date may be requisitioned, and at the direction of the Borrower shall be requisitioned, by the Authority, to prepay part of the Authority’s rent obligations under the Subordinate Site Lease. When no funds remain in the Subsidy Project Account, the Subsidy Project Account shall be closed

Revenue Fund. Promptly upon receipt, the Trustee shall deposit the Payments to the Revenue Fund. On or before the last Business Day of December, March, June and September, the Trustee shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Revenue Fund) and then to Rebate Fund, the amounts set forth in the Indenture in the order of priority set forth in the Indenture. The requirements of each such account or fund (including the making up of any deficiencies in any such account resulting from lack of Payments sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account or fund subsequent in priority. The amounts and order of priority set forth in the Indenture is summarized as follows:

(1) To the Interest Account, one-half of the aggregate amount of interest becoming due and payable on the next succeeding Interest Payment Date on all Bonds then Outstanding, until the balance in said account is equal to said aggregate amount of interest;

(2) On and after June 1, 2013, to the Principal Account, one-fourth of the aggregate amount of principal and Mandatory Sinking Account Payments becoming due and payable on the next succeeding Principal Payment Date, until the balance in said Principal Account is equal to said aggregate amount of such principal and Mandatory Sinking Account Payments becoming due and payable on the next succeeding Principal Payment Date;

(3) To the Reserve Account, (a) the greater of (i) the amount designated for deposit in the Reserve Account in a written direction of the Borrower, and (ii) one-fourth of the aggregate amount of each prior withdrawal from the Reserve Account for the purpose of making up a deficiency in the Interest Account or Principal Account (until deposits on account of such withdrawal are sufficient to fully restore the amount withdrawn), provided that no deposit need be made into the Reserve Account if the balance in said account is at least equal to the Reserve Account Requirement, and (b) in the event the balance in said account shall be less than the Reserve Account Requirement due to valuation of the Eligible Securities deposited therein in accordance with the Indenture, the amount necessary to increase the balance in said account to an amount at least equal to the Reserve Account Requirement (until deposits on account of such valuation deficiency are sufficient to increase the balance in said account to said amount);

(4) To the Rebate Fund, such amounts as are required to be deposited therein by the Indenture (including the Tax Certificate).

Moneys remaining in the Revenue Fund after the foregoing transfers shall be transferred on each July 1, commencing July 1, 2013, by the Trustee to the Borrower free and clear of the lien of the Indenture.

C-13

Application of Interest Account. All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest of the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity pursuant to the Indenture)

Application of Principal Account. All amounts in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal on the Bonds and Mandatory Sinking Account Payments pursuant to the Indenture.

Rebate Fund. (a) The Trustee shall establish and maintain, when required, a fund separate from any other fund established and maintained under the Indenture designated as the “Rebate Fund.” Within the Rebate Fund, the Trustee shall maintain such accounts as shall be necessary to comply with instructions of The Borrower given pursuant to the terms and conditions of the Tax Certificate. Subject to the transfer provisions provided in paragraph (e) below, all money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Requirement (as defined in the Tax Certificate), for payment to the federal government of the United States of America. The Authority, The Borrower, and the Holder of any Bonds shall not have any rights in or claim to such money. All amounts deposited into or on deposit in the Rebate Fund shall be governed by the provisions of the Indenture summarized under this subcaption (“– Rebate Fund”), by the provisions of the Indenture relating to tax covenants and by the Tax Certificate (which is incorporated in the Indenture by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the directions of The Borrower including supplying all necessary information in the manner provided in the Tax Certificate, and shall have no liability or responsibility to enforce compliance by the Borrower or the Authority with the terms of the Tax Certificate or any other tax covenants contained in the Indenture. The Trustee shall not be responsible for calculating rebate amounts or for the adequacy or correctness of any rebate report or rebate calculations. The Trustee shall have no independent duty to review such calculations or enforce the compliance by the Borrower with such rebate requirements. The Trustee shall have no duty or obligation to determine the applicability of the Code and shall only be obligated to act in accordance with written instructions provided by the Borrower.

(b) Upon the Borrower’s written direction, an amount shall be deposited to the Rebate Fund by the Trustee from deposits by the Borrower, if and to the extent required, so that the balance in the Rebate Fund shall equal the Rebate Requirement. Computations of the Rebate Requirement shall be furnished by or on behalf of the Borrower in accordance with the Tax Certificate. The Trustee shall supply to the Borrower and/or the Authority all necessary information in the manner provided in the Tax Certificate to the extent such information is reasonably available to the Trustee.

(c) The Trustee shall have no obligation to rebate any amounts required to be rebated pursuant to the Indenture, other than from moneys held in the funds and accounts created under the Indenture or from other moneys provided to it by the Borrower.

(d) At the written direction of the Borrower, which direction shall comply with the requirements of the Tax Certificate, the Trustee shall invest all amounts held in the Rebate Fund in Eligible Securities. Moneys shall not be transferred from the Rebate Fund except as provided in paragraph (e) below. The Trustee shall not be liable for any consequences arising from such investment.

(e) Upon receipt of the Borrower’s written directions, the Trustee shall remit part or all of the balances in the Rebate Fund to the United States, as so directed. In addition, if the Borrower so directs, the Trustee will deposit money into or transfer money out of the Rebate Fund from or into such accounts or funds as directed by the Borrower’s written directions; provided, however, only moneys in excess of the Rebate Requirement may, at the written direction of the Borrower or the Authority, be transferred out of the Rebate Fund to such other accounts orfunds or to anyone other than the United States in satisfaction of the arbitrage rebate obligation. Any funds remaining in the Rebate Fund after each five year remission to the United States of America, redemption and payment of all of the Bonds and payment and satisfaction of any Rebate Requirement, or provision made therefor satisfactory to the Trustee, shall be withdrawn and remitted to the Borrower.

(f) Notwithstanding any other provision of the Indenture, the obligation to remit the Rebate Requirement to the United States and to comply with all other requirements summarized under this subcaption (“– Rebate Fund”),

C-14

the provisions of the Indenture relating to tax covenants and by the Tax Certificate shall survive the payment in full of the Bonds.

Indemnification Fund. (a) The Trustee shall establish, maintain and hold in trust a separate fund designated as the “Indemnification Fund,” which shall be used solely for the purposes set forth in the Indenture.

(b) The Trustee shall accept moneys from the Borrower for deposit in the Indemnification Fund. On the date of delivery of the Bonds, the Borrower shall deposit or shall cause to be deposited such amounts in the Indemnification Fund as are necessary so that the amounts in the Indemnification Fund are not less than the Indemnification Fund Requirement.

(c) Funds in the Indemnification Fund shall be held on behalf of the Authority, the State Treasurer, and each of their respective officers, governing members, directors, officials, employees, attorneys and agents (collectively, the “State Indemnified Parties”) to pay amounts payable to any such party under the Loan Agreement, the Sublease or the Subordinate Sublease. Amounts in the Indemnification Fund may be held uninvested or invested at the direction of the Borrower in Eligible Securities described in clause (7) of the definition thereof.

(d) Moneys in the Indemnification Fund to be used for the purpose described in the preceding subsection (c) shall be disbursed by the Trustee upon receipt of a requisition for payment substantially in the form attached to the Indenture, executed by the State Indemnified Party and acknowledged by the Authority (if the Authority is not the Indemnified Party submitting the requisition), and the Trustee is hereby authorized and directed to issue its checks for each such disbursement upon receipt of such a requisition. If amounts available in the Indemnification Fund are insufficient to pay amounts sought in outstanding unpaid requisitions, the Trustee shall pay on such outstanding unpaid requisitions (in whole or in part) only in accordance with the written instructions of the Authority in its sole and absolute discretion.

(e) Satisfaction of the Indemnification Fund Requirement may be satisfied at any time by the deposit with the Trustee for the credit of the Indemnification Fund or delivery to the Authority for the benefit of the State Indemnified Parties of a surety bond, insurance policy or letter of credit; provided that the Executive Director of the Authority, upon review of such surety bond, insurance policy or letter of credit, approves it in writing, but only for the period prior to expiration or other termination of such surety bond, insurance policy or letter of credit. Any extension of the term of such surety bond, insurance policy or letter of credit is also subject to the written approval of the Authority if such surety bond, insurance policy or letter of credit is to satisfy the Indemnification Fund Requirement. The Trustee or the Authority, as the case may be, may seek payment under such surety bond, insurance policy or letter of credit in accordance with its terms to satisfy any Indemnification Fund Requisition.

(f) When Bonds are no longer Outstanding and all requisitions are paid as set forth herein, any money in the Authority Indemnification Fund shall be transferred to the Borrower, free and clear of the liens of the Indenture.

Redemption Fund. The Trustee shall establish and maintain a fund separate from any other fund established and maintained under the Indenture designated as the “Redemption Fund.” The Trustee shall accept all moneys deposited for redemption by the Borrower and shall deposit such moneys into the Redemption Fund. All amounts deposited in the Redemption Fund shall be accepted and used and withdrawn by the Trustee solely for the purpose of redeeming Bonds, in the manner and upon the terms and conditions specified in the Indenture, at the next succeeding date of redemption for which notice has been given and at the redemption prices then applicable to redemptions from the Redemption Fund.

Costs of Issuance Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the “Costs of Issuance Fund.” Moneys deposited in said fund shall be used and withdrawn by the Trustee to pay the Costs of Issuance of the Bonds upon Requisition of the Borrower stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. On the 180th day following the initial issuance of each Series of the Bonds, or upon the earlier Request of the Borrower, amounts, if any, remaining in the Costs of Issuance Fund shall be transferred to the Project Fund.

C-15

Insurance and Condemnation Proceeds Fund. (a) As and when needed, the Trustee shall establish, maintain and hold in trust a separate fund designated as the “Insurance and Condemnation Proceeds Fund,” and administer said fund as set forth in the Loan Agreement.

(b) Before any payment from the Insurance and Condemnation Proceeds Fund shall be made, the Borrower shall file or cause to be filed with the Trustee a Requisition of the Borrower stating: (1) the item number of such payment; (2) the name of the Person to whom each such payment is due, which may be the Borrower in the case of reimbursement for costs of such repair or replacement theretofore paid by the Borrower; (3) the respective amounts to be paid; (4) the purpose by general classification for which each obligation to be paid was incurred; (5) that obligations in the stated amounts have been incurred by the Borrower and are presently due and payable and that each item thereof is a proper charge against the Insurance and Condemnation Proceeds Fund and has not been previously paid from the Insurance and Condemnation Proceeds Fund; and (6) that there has not been filed with or served upon the Borrower any notice of claim of lien, or attachment upon, or claim affecting the right to receive payment of, any of the amounts payable to any of the persons named in such Requisition, for which adequate security for the payment of such obligation has been posted, or which has not been released or will not be released simultaneously with the payment of such obligation, other than materialmen’s or mechanics’ liens accruing by mere operation of law. Upon receipt of a Requisition, the Trustee shall pay the amount set forth in such Requisition as directed by the terms thereof out of the Insurance and Condemnation Proceeds Fund. The Trustee may conclusively rely upon such Requisition and shall have no responsibility or duty to investigate any of the matters set forth therein. The Trustee shall not make any such payment if it has received any written notice of claim of lien, attachment upon, or claim affecting the right to receive payment of, any of the moneys to be so paid, that has not been released or will not be released simultaneously with such payment, unless adequate security for the payment of such obligation has been posted.

(c) When the repair or replacement of damaged, destroyed or taken property shall have been completed, the Borrower shall deliver to the Trustee a Certificate of the Borrower stating the fact and date of such completion and stating that all of the costs thereof have been determined and paid (or that all of such costs have been paid less specified claims that are subject to dispute and for which a retention in the Insurance and Condemnation Proceeds Fund is to be maintained in the full amount of such claims until such dispute is resolved). Subject to the provisions of the Loan Agreement relating to the disposition of insurance and condemnation proceeds, the Borrower shall direct the Trustee by said Certificate of the Borrower to transfer any remaining balance in the Insurance and Condemnation Proceeds Fund, less the amount of any such retention, to the Redemption Fund or, at the election of the Borrower, to the Revenue Fund. Upon the disbursement of all moneys in the Insurance and Condemnation Proceeds Fund, such fund shall thereafter be closed until such time as such fund is again required to be established pursuant to paragraph (b) above.

Investment of Moneys in Funds. All moneys in any of the funds and accounts established pursuant to the Indenture shall be invested by the Trustee solely in such Eligible Securities as are specified in a Request of the Borrower, provided, however, that, if the Borrower does not file such a Request with the Trustee, the Trustee shall invest to the extent practicable in investments described in clause (7) of the definition of the term “Eligible Securities” in the Indenture; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a Request of the Borrower specifying a specific money market fund and, if no such Request of the Borrower is so received, the Trustee shall hold such moneys uninvested. All interest, profits and other income received from the investment of moneys shall be deposited in the Revenue Fund.

Investments in any and all funds and accounts established pursuant to the Indenture may be commingled for purposes of making, holding and disposing of investments, notwithstanding provisions in the Indenture for transfer to or holding in a particular fund amounts received or held by the Trustee under the Indenture, provided that the Trustee shall at all times account for such investments strictly in accordance with the particular funds to which they are credited and otherwise as provided in the Indenture. The Trustee may act as principal or agent in the making or disposing of any investment. To the extent Eligible Securities are registrable, such investments shall be registered in the name of the Trustee. The Trustee may sell or present for redemption, any securities so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such securities are credited, and the Trustee shall not be liable or responsible for any loss resulting from such investment.

C-16

The Trustee is authorized by the Indenture, in making or disposing of any investment permitted by the Indenture, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Trustee or for any third person or dealing as principal for its own account. No float forward or forward purchase agreement or other arrangement, agreement or financial product may be utilized in connection with the Revenue Fund.

The Borrower acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Borrower, the right to receive brokerage confirmations of security transactions as they occur, the Borrower specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Borrower periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Indenture.

Covenants

Punctual Payment. The Authority shall punctually pay, but only out of Payments and pledged funds as provided in the Indenture, the principal and interest to become due in respect of every Bond issued under the Indenture at the times and places and in the manner provided in the Indenture and in the Bonds, according to the true intent and meaning thereof.

Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any of the claims for interest by the purchase or funding of such Bonds or claims for interest or by any other arrangement except with the written consent of the Bondholders and, if the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended without the written consent of the Bondholders, such Bonds or claims for interest shall not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. The provisions summarized in this paragraph shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of Bonds.

Encumbrance Upon Payments. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Payments and other assets pledged or assigned under the Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by the Indenture. Subject to such limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Act, and reserves the right to issue other obligations for such purposes.

Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into the Indenture and to pledge and assign the Payments and other assets purported to be pledged and assigned, respectively, under the Indenture in the manner and to the extent provided in the Indenture. The Bonds and the provisions of the Indenture are and will be the valid and binding limited obligations of the Authority, and the Authority and Trustee shall at all times, to the extent permitted by law and subject to the provisions of the Indenture, defend, preserve and protect said pledge and assignment of Payments and other assets and all the rights of the Bondholders under the Indenture against all claims and demands of all persons whomsoever.

Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with the Trustee’s accounting practices for books ofrecord and account relating to similar trust accounts and in accordance with the customary standards of the corporate trust industry for such books of record and account, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of Bonds, the Payments, the Sublease, the Loan Agreement and all funds and accounts established pursuant to the Indenture. Such books of record and account shall be available for inspection by the Authority, the Borrower and any Bondholder, or his agent or representative duly authorized in writing, at reasonable hours, upon reasonable notice and under reasonable circumstances. The Trustee shall furnish to the Authority and the Borrower, at intervals acceptable to such parties but in any event at least quarterly, a

C-17

complete financial statement (which may be in the form of its regular statements) covering receipts, disbursements, allocation and application of Payments and the proceeds of the Bonds made by the Trustee.

Other Covenants; Amendment of the Loan Agreement; Amendment of the Sublease. Subject to the provisions of the Indenture, the Trustee shall promptly collect all amounts due pursuant to the Loan Agreement and the Sublease and diligently enforce and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority under the Loan Agreement and the Sublease assigned to it.

The Authority shall not amend, modify or terminate any of the terms of the Loan Agreement, or consent to any such amendment, modification or termination, without the prior written consent of the Trustee. The Trustee shall give such written consent if but only if (i) there has been delivered to the Trustee and the Authority an Opinion of Bond Counsel to the effect that such amendment or modification, in and of itself, will not cause interest on the Bonds to be included as gross income for federal income tax purposes and that such amendment or modification is permitted by the Indenture, or (ii) the Holders of a majority in aggregate principal amount of the Bonds then Outstanding consent in writing to such amendment, modification or termination, provided that no such amendment, modification or termination shall reduce the amount of Loan Repayments, or extend the time for making such payments, without the written consent of all of the Holders of the Bonds then Outstanding.

The Authority shall not amend, modify or terminate any of the terms of the Sublease, or consent to any such amendment, modification or termination, without the prior written consent of the Trustee. The Trustee shall give such written consent if but only if (i) there has been delivered to the Trustee and the Authority an Opinion of Bond Counsel to the effect that such amendment or modification, in and of itself, will not cause the Bonds to cease to be qualified school construction bonds under the Tax Credit Program and that such amendment or modification is permitted by the Indenture, or (ii) the Holders of a majority in aggregate principal amount of the Bonds then Outstanding consent in writing to such amendment, modification or termination, provided that no such amendment, modification or termination shall reduce the amount of Base Loan Payments, or extend the time for making such payments, without the written consent of all of the Holders of the Bonds then Outstanding.

Further Assurances. The Authority will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Holders of the Bonds of the rights and benefits provided in the Indenture.

Continuing Disclosure. Pursuant to the Loan Agreement, the Borrower has undertaken all responsibility for compliance with continuing disclosure requirements pursuant to Securities and Exchange Commission Rule 15c2-12(b)(5), and the Authority shall have no liability to the Holders of the Bonds or any other person with respect to Securities and Exchange Commission Rule 15c2-12. The Trustee covenants and agrees that, subject to the provisions of the Indenture, it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement and the provisions of the Loan Agreement relating to continuing disclosure that are applicable to the Trustee. Notwithstanding any other provision of the Indenture, failure of the Borrower or the Trustee to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, the Trustee at the written request of the Underwriter (as defined in the Continuing Disclosure Agreement) or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall (but only to the extent the Trustee has been tendered funds in an amount satisfactory to it or it has been otherwise indemnified from and against any loss, liability, cost or expense, including without limitation, fees and expenses of its counsel and agents and additional fees and charges of the Trustee) or any Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Borrower to comply with its obligations under the Loan Agreement relating to continuing disclosure or, as to any Bondholder or Beneficial Owner, to cause the Trustee to comply with its obligations summarized in this paragraph. For purposes of the provisions summarized in this paragraph, “Beneficial Owner” means any person which (1) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (2) is treated as the owner of any Bonds for federal income tax purposes.

Tax Covenants. Any other provision of the Indenture to the contrary notwithstanding, the Authority covenants that it shall not take any action or inaction, or fail to take any action, or permit any action to be taken on

C-18

its behalf or cause or permit any circumstances within its control to arise or continue, if such action or inaction would cause the Bonds not being excluded from gross income for federal income tax purposes under Section 103 of the Code. This covenant shall survive the payment in full of the Bonds.

Intercept Covenants. The Trustee shall, on each Interest Payment Date and the Principal Payment Date on which a transfer from the Controller to the Trustee is scheduled pursuant to the Intercept Notice, notify the Authority and the Borrower of any shortfall in amounts received by the Trustee from the Controller compared to the amounts set forth in the Intercept Notice for such date. If, subsequent to any shortfall for which the Trustee has sent notice pursuant to the preceding sentence, the Trustee shall receive payment of amounts sufficient to cure such shortfall, the Trustee shall, within 10 business days thereof, notify the Authority and the Borrower of the receipt of such payment.

No Rejection of Lease or Site Lease. The Trustee, as assignee of the Authority under the Assignment Agreement, shall not, and shall have no right to, consent or otherwise acquiesce in the rejection of the Sublease or the Site Lease under Section 365 of the United States Bankruptcy Code, as amended or revised, or any comparable Federal or State Law. To the extent such Sublease or the Site Lease is deemed rejected or otherwise rejected under the Bankruptcy Code or otherwise, the Trustee, as assignee of the Authority under the Assignment Agreement, shall be required to (i) exercise its rights under Section 365(h)(1)(A)(ii) or such similar law; and/or (ii) cooperate with the Borrower’s rights under Section 365(h)(1)(A)(ii) or similar law to the extent such rights are held by or otherwise assigned to the Authority and in turn, assigned to the Trustee under the Assignment Agreement.

Events of Default; Remedies on Default

Events of Default; Waiver of Default. If one or more of the following events (“Events of Default”) shall happen, that is to say-

(1) if default shall be made in the due and punctual payment of the principal of any Bond as the same shall become due and payable (whether at maturity, by declaration or otherwise);

(2) if default shall be made in the due and punctual payment of interest on any Bond when and as such interest shall become due and payable;

(3) if default shall be made by the Authority in the performance or observance of any other of the covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, and such default shall have continued for a period of 30 days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee, or to the Authority, the Borrower and the Trustee by the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding; or

(4) an Event of Default shall have occurred and be continuing under any Borrower Document;

then and in each and every such case during the continuance of such Event of Default, the provisions of the Indenture summarized in the following paragraph shall apply.

Institution of Legal Proceedings by Trustee. If one or more of the Events of Default shall occur, the Trustee in its discretion may, and upon the written request of the holders of a majority in principal amount of the Bonds then Outstanding and, in the case of an Event of Default described in paragraph (c) above, upon being indemnified to its satisfaction therefor the Trustee shall proceed to protect or enforce its rights or the rights of the holders of Bonds under the Indenture, the Sublease, the Deeds of Trust and the Loan Agreement, by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained therein or in the Indenture, or in aid of the execution of any power granted therein or in the Indenture, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights or duties under the Indenture, provided that any such request from the Bondholders shall not be in conflict with any rule of law or with the Indenture, expose the Trustee to personal liability or be unduly prejudicial to Bondholders not joining therein.

C-19

Application of Moneys Collected by Trustee. Any moneys collected by the Trustee pursuant to the provisions of the Indenture summarized in the preceding paragraph and any other amounts then held by the Trustee under the Indenture, shall be applied in the following order, at the date or dates fixed by the Trustee and, in the case of distribution of such moneys on account of principal upon presentation of the Bonds, and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid:

First: To the payment of costs and expenses of collection and reasonable compensation to the Trustee for its own services and for the services of counsel, agents and employees by it properly engaged and employed, and all other expenses and liabilities incurred, and for advances, together with interest on such advances at a rate per annum equal to the Bond yield plus two percent, made pursuant to the provisions of the Indenture.

Second: To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Bondholders (including payment of Operating Expenses and costs of maintenance and repair and insurance).

Third: To the payment of the principal or Redemption Price of and interest then due on the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, as follows:

(a) Unless the principal of all of the Bonds shall have become or have been declared due and payable,

First: To the payment to the Persons entitled thereto of all installments of interest then due on Bonds in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and

Second: To the payment to the Persons entitled thereto of the unpaid principal or redemption price of any Bonds which shall have become due, whether at maturity or by call for redemption, in the order of their due dates, with interest on the overdue principal at the rate borne by the respective Bonds, and, if the amount available shall not be sufficient to pay in full all the Bonds due on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal or redemption price due on such date to the Persons entitled thereto, without any discrimination or preference.

(b) If the principal of all of the Bonds shall have become or have been declared due and payable, to the payment of the principal or redemption price and interest then due and unpaid upon the Bonds, with interest on the overdue principal at the rate borne by the respective Bonds, and, if the amount available shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest or redemption price, or of interest over principal or redemption price, or of redemption price over principal or interest, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, according to the amounts due respectively for principal, redemption price and interest, to the Persons entitled thereto without any discrimination or preference.

Whenever moneys are to be applied pursuant to the provisions summarized in this subcaption (“–Application of Moneys Collected by Trustee”), such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be the Interest Payment Date unless the Trustee shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal and past-due interest to be paid on such date shall cease to accrue. Whenever all principal of and interest on all Bonds have been paid under the provisions summarized in this subcaption (“– Application of Moneys Collected by Trustee”) and all fees, expenses and charges of the Trustee (including without limitation those of their respective attorneys) have been paid, any balance remaining in the funds and accounts under the Indenture shall be paid to the Borrower.

C-20

Effect of Delay or Omission to Pursue Remedy. No delay or omission of the Trustee or of any Holder of Bonds to exercise any right or power arising from any default shall impair any such right or power or shall be construed to be a waiver of any such default or acquiescence therein, and every power and remedy given by the provisions of the Indenture relating to Events of Default and remedies to the Trustee or to the Holders of Bonds may be exercised from time to time, and as often as shall be deemed expedient. In case the Trustee shall have proceeded to enforce any right under the Indenture, and such proceedings shall have been discontinued or abandoned because of waiver or for any other reason, or shall have been determined adversely to the Trustee, then and in every such case the Authority and the Trustee, and the Holders of the Bonds, severally and respectively, shall be restored to their former positions and rights under the Indenture in respect to the trust estate; and all remedies, rights and powers of the Authority, the Trustee, and the Holders of the Bonds shall continue as though no such proceedings had been taken.

Remedies Cumulative. No remedy in the Indenture conferred upon or reserved to the Trustee or to any Holder of the Bonds is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Indenture or now or hereafter existing at law or in equity.

Covenant to Pay Bonds in Event of Default. The Authority covenants that, upon the happening of any Event of Default, the Authority will pay, but only out of Payments, to the Trustee, upon demand, for the benefit of the Holders of the Bonds, the whole amount then due and payable thereon (by declaration or otherwise) for interest and principal as the case may be, and all other sums which may be due under the Indenture or secured by the Indenture, including reasonable compensation to the Trustee and its agents and counsel and any expenses or liabilities incurred by the Trustee under the Indenture and, its agents and counsel. In case the Authority shall fail to pay the same forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled to institute proceedings at law or in equity in any court of competent jurisdiction to recover judgment for the whole amount due and unpaid, together with costs and reasonable attorneys’ fees, subject, however, to the condition that such judgment, if any, shall be limited to, and payable solely out of, Payments as provided in the Indenture and not otherwise. The Trustee shall be entitled to recover such judgment as aforesaid, either before or after or during the pendency of any proceedings for the enforcement of the Indenture, and the right of the Trustee to recover such judgment shall not be affected by the exercise of any other right, power or remedy for the enforcement of the provisions of the Indenture.

Trustee Appointed Agent for Bondholders. The Trustee is appointed the agent and attorney-in-fact of the Holders of all Bonds Outstanding under the Indenture for the purpose of filing any claims relating to the Bonds.

Power of Trustee to Control Proceedings. Subject to the provisions summarized in the immediately following two paragraphs, in the event that the Trustee, upon the happening of an Event of Default, shall have taken some action, by judicial proceedings or otherwise, pursuant to its duties under the Indenture, whether upon its own discretion or upon the request of the Holders of a majority in aggregate principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Holders of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default under the Indenture, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Holders of at least a majority in aggregate principal amount of the Bonds Outstanding under the Indenture opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation.

Limitation on Bondholders’ Right to Sue. Notwithstanding any other provision of the Indenture, no Holder of any Bond issued under the Indenture shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture, unless (a) such Holder shall have previously given to the Trustee written notice of the occurrence of an Event of Default under the Indenture; (b) the Holders of at least a majority in aggregate principal amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted in the provisions summarized above or to institute such action, suit or proceeding in its own name; (c) said Holders shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received

C-21

by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are declared by the Indenture, in every case, to be conditions precedent to the exercise by any Holder of Bonds of any remedy under the Indenture; it being understood and intended that no one or more Holders of Bonds shall have any right in any manner whatever by his or their action to enforce any right under the Indenture, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted, had and maintained in the manner provided in the Indenture and for the equal benefit of all Holders of the Outstanding Bonds.

The right of any Holder of any Bond to receive payment of the principal of and interest on such Bond out of Payments and the funds pledged in the Indenture, as provided in the Indenture, on and after the respective due dates expressed in such Bond, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder, notwithstanding the foregoing provisions of the Indenture or any other provision of the Indenture.

Direction of Proceedings. Subject to the Indenture, the Holders of at least a majority in aggregate outstanding principal amount of Bonds shall have the right, by an instrument or concurrent instruments in writing delivered to the Trustee, to direct the method in place of conducting all remedial proceedings to be taken by the Trustee hereunder, provided that such directions shall not be otherwise than in accordance with the law or the provisions of the Indenture and that the Trustee shall have the right to decline to follow any such direction, which in the opinion of the Trustee would be unjustly prejudicial to Holders not parties to such direction. Without limitation of the foregoing, any such remedial proceeding may include forbearance or non-action on the part of the Trustee, the acceptance by the Trustee, as beneficiary under the Deed of Trust, of a deed in lieu of foreclosure, the sale of the property covered by the Deed of Trust free of the lien thereof for an amount less than the amounts due with respect to the Bonds and the cancellation of the Bonds in full on behalf of the holders thereof, and the waiver or release of claims or the granting of a covenant not to sue.

Authority Retained Rights. Nothing in the Indenture shall limit in any respect the right of the Authority to enforce or waive any of its Retained Rights under the Loan Agreement or the Sublease.

The Trustee

Duties, Immunities and Liabilities of Trustee. (a) The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in the Indenture. The Trustee shall, during the existence of any Event of Default which has not been cured, exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

(b) The Authority may remove the Trustee at any time unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so by the Borrower (unless an Event of Default shall have occurred and then be continuing) or at any time by an instrument or concurrent instruments in writing signed by the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with paragraph (e) below, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee, and thereupon shall appoint, with the written consent of the Borrower (unless an Event of Default has occurred and is continuing, at which time consent of the Borrower shall not be required) and Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing), a successor Trustee by an instrument in writing.

(c) The Trustee may at any time resign by giving written notice of such resignation to the Authority, and by giving the Bondholders notice of such resignation by mail at the addresses shown on the Bond registration books maintained by the Trustee. Upon receiving such notice of resignation, the Authority shall appoint, with the written consent of the Borrower (unless an Event of Default has occurred and is continuing, at which time consent of the

C-22

Borrower shall not be required) and Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing), a successor Trustee by an instrument in writing.

(d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within 45 days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Bondholder (on behalf of himself and all other Bondholders) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture shall signify its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Indenture; but, nevertheless at the Request of the Authority or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and conveying to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture. Upon request of the successor Trustee, the Authority shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in the Indenture, the Authority shall mail a notice of the succession of such Trustee to the trusts under the Indenture to the Bondholders at the addresses shown on the Bond registration books maintained by the Trustee. If the Authority fails to mail such notice within 30 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Authority.

(e) Any Trustee appointed under the provisions of the Indenture shall be a national banking association, a trust institution or a banking institution having trust powers, doing business and having a principal corporate trust office in California or, if it shall not have a principal corporate trust office in California, having the power under California law to perform all the duties of the Trustee under the Indenture as evidenced by an opinion of its counsel, having, or if it is a member of a bank holding company system its parent shall have, a combined capital (exclusive of borrowed capital) and surplus of at least $50,000,000 and subject to supervision or examination by State or federal authorities. In case at any time the Trustee shall cease to be eligible in accordance with the provisions summarized in this paragraph (e), the Trustee shall resign immediately in the manner and with the effect specified in the Indenture.

(f) Notwithstanding anything contained herein or in the Deeds of Trust to the contrary, upon the occurrence and continuance of an Event of Default, before taking any foreclosure action or any action which may subject the Trustee to liability under any Environmental Law, the Trustee may require that a satisfactory indemnity bond, indemnity or environmental impairment insurance be furnished for the payment or reimbursement of all expenses to which it may be put and to protect it against all liability resulting from any claims, judgments, damages, losses, penalties, fines, liabilities (including strict liability) and expenses which may result from such foreclosure or other action. The term “Environmental Laws” shall mean all federal, state and local environmental, land use, zoning, health, chemical use, safety and sanitation laws, statutes, ordinances and codes relating to the protection of the environment or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Substances and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of federal, state and local governmental agencies and authorities with respect thereto. The term “Hazardous Substances” shall mean any chemical, substance or material classified or designated as hazardous, toxic or radioactive, or other similar term, and now or hereafter regulated under any Environmental Law, including without limitation, asbestos, petroleum and hydrocarbon products. The Trustee shall not be required to take any foreclosure action if the approval of a government regulator shall be a condition precedent to taking such action.

Merger or Consolidation. Any company into which any successor Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which

C-23

it shall be a party or any company to which the successor Trustee, if any, may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under the preceding paragraph (e), shall be the successor to such successor Trustee without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding.

Rights of Trustee. The recitals of facts in the Indenture and in the Bonds shall be taken as statements of the Authority, and the Trustee does not assume any responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture, the Loan Agreement, the Sublease or the Bonds, or incur any responsibility in respect thereof, other than in connection with the duties or obligations in the Indenture or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct.

The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.

The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture. The permissive right of the Trustee to do things enumerated in the Indenture shall not be construed as a duty.

The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Bondholders pursuant to the provisions of the Indenture unless such Bondholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby.

The Trustee shall not be deemed to have knowledge of any Event of Default other than an Event of Default related to nonpayment of principal or interest unless and until a Responsible Officer at its Principal Corporate Trust Office shall have actual knowledge thereof, or shall have received written notice thereof, at its Principal Corporate Trust Office. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or of any of the documents executed in connection with the Bonds or as to the existence of an Event of Default hereunder.

No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under the Indenture, or in the exercise of its rights or powers. The Trustee has no obligation or liability to the Bondholders for the payment of interest or principal with respect to the Bonds.

The Trustee shall not be bound to ascertain or inquire as to the validity or genuineness of any collateral given to or held by it. The Trustee shall not be responsible for the recording or filing of any document relating to the Indenture or of financing statements (or continuation statements in connection therewith) or of any supplemental instruments or documents of further assurance as may be required by law in order to perfect the security interests in any collateral given to or held by it.

The Trustee shall not be concerned with or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions of the Indenture.

The Trustee may execute any of the trusts or powers of the Indenture and perform the duties required of it under the Indenture either directly or by or through attorneys or agents, shall not be liable for the acts or omissions of such attorneys or agents appointed with due care, and shall be entitled to rely on advice of counsel concerning all matters of trust and its duty under the Indenture.

The Trustee shall not be liable to the parties to the Indenture or deemed in breach or default under the Indenture if and to the extent its performance under the Indenture is prevented by reason of force majeure. The term

C-24

“force majeure” means an occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. Force majeure shall include, but not be limited to, acts of God, terrorism, war, riots, strikes, fire, floods, earthquakes, epidemics or other similar occurrences.

The Trustee shall have no responsibility or liability with respect to any information, statements or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of these Bonds.

The Trustee shall not be required to review or inspect, and shall not be deemed to have notice of, the contents of any financial statement delivered to the Trustee, it being expressly understood that the Trustee shall only receive and hold such documents as a repository for examination and copying by any Holder at such Holder’s expense during business hours on Business Days with reasonable prior notice.

Right of Trustee to Rely on Documents. The Trustee shall be protected in acting upon any notice, requisition, resolution, request, consent, order, certificate, report, opinion, Bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the Authority, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under the Indenture in good faith and in accordance therewith.

The Trustee shall not be bound to recognize any person as the Holder of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto is satisfactorily established, if disputed.

Whenever in the administration of the trusts imposed upon it by the Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Indenture, such matter (unless other evidence in respect thereof be specifically prescribed in the Indenture) may be deemed to be conclusively proved and established by a Certificate of the Authority, and such Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable.

The Trustee agrees to accept and act upon instructions or directions pursuant to the Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If Tri-Valley, the Borrower or the Authority elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Borrower agrees to assume all risks arising out of the use of such electronic methods by any person to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties.

Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of the Indenture shall be retained in its possession and shall be subject at all reasonable times to the inspection of the Authority and any Bondholder, and their agents and representatives duly authorized in writing, at reasonable hours, upon reasonable notice and under reasonable conditions.

Compensation and Indemnification of Trustee. The Authority (solely from payments received from the Borrower) shall from time to time, subject to any agreement between the Authority and the Trustee then in force, pay to the Trustee compensation for its services rendered by it in the execution of the trusts created by the Indenture and in the exercise and performance of any of the powers and duties under the Indenture of the Trustee, which compensation shall not be limited by any provision of law with respect to the compensation of a trustee of an express trust, and the Authority will reimburse the Trustee (solely from payments received from the Borrower) for

C-25

all its advances (with interest on such advances at the maximum rate allowed by law) and expenditures, including but not limited to advances to and fees and expenses of independent accountants, counsel (including in-house counsel to the extent not duplicative of other counsel’s work) and engineers or other experts employed by it, and reasonably required, in the exercise and performance of its powers and duties under the Indenture. To secure the payment or reimbursement to the Trustee provided for in this Section, the Trustee shall have a senior claim, to which the liens securing the Bonds are made subordinate, on all money or property held or collected by the Trustee, except that held the Defeasance Section at the Indenture, held in the Rebate Fund or the Indemnification Fund or otherwise held in trust to pay principal of and interest on particular Bonds.

The Authority covenants and agrees to indemnify the Trustee (solely from payments received from the Borrower) against any loss, expense and liability (other than those which are due to the Trustee’s negligence or willful misconduct) which it may incur arising out of or in the exercise and performance of its powers and duties under the Indenture, including the costs and expenses of defending against any claim of liability. The obligations of the Authority summarized in this paragraph shall survive resignation or removal of the Trustee under the Indenture and payment of the Bonds and discharge of the Indenture.

Modification of Indenture

Modification Without Consent of Bondholders or Lessor. Subject to the conditions and restrictions contained in the Indenture, the Authority and the Trustee, from time to time and at any time may enter into an indenture or indentures supplemental to the Indenture, which indenture or indentures thereafter shall form a part of the Indenture, including, without limitation, for one or more of the following purposes, provided that the Authority and the Trustee shall have received an Opinion of Bond Counsel to the effect that such amendment or modification will not cause interest on the Bonds to be included as gross income for federal income tax purposes and that such amendment or modification is permitted by the Indenture:

(a) to add to the covenants and agreements of the Authority contained in the Indenture, other covenants and agreements thereafter to be observed, or to assign or pledge additional security for the Bonds, or to surrender any right or power in the Indenture reserved to or conferred upon the Authority; provided such amendment or modification will not materially and adversely affect the interests of the Holders of the Bonds;

(b) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing, correcting or supplementing any defective provision, contained in the Indenture, or in regard to such matters or questions arising under the Indenture as the Authority may deem necessary or desirable and not inconsistent with the Indenture; provided such amendment or modification will not materially and adversely affect the interests of the Holders of the Bonds;

(c) to modify, amend or supplement the Indenture or any Supplemental Indenture in such manner as to permit the qualification thereof or of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and, if they so determine, to add to the Indenture or any Supplemental Indenture such other terms, conditions and provisions as may be permitted by said Trust Indenture Act of 1939, as amended, or similar federal statute; provided such amendment or modification will not materially and adversely affect the interests of the Holders of the Bonds;

(d) in connection with an amendment of the Loan Agreement or the Sublease permitted by the Indenture for the purpose of conforming the terms, conditions and covenants of the Indenture to the corresponding or related provisions of such amended Loan Agreement;

(e) to modify or eliminate the book-entry registration system for the Bonds;

(f) to comply with requirements of a Rating Agency in order to obtain or maintain a rating on any Bonds; or

(g) in connection with any other change which will not adversely affect the security for the Bonds or otherwise materially and adversely affect the interest of the Holders of the Bonds;

C-26

Any supplemental indenture authorized by the provisions summarized under this subcaption (“ –Modification Without Consent of Bondholders”) may be executed by the Authority and the Trustee without the consent of the Holders of any of the Bonds at the time Outstanding, notwithstanding any of the provisions summarized in the following subcaption (“– Modification With Consent of Bondholders”), but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under the Indenture or otherwise.

The Trustee shall mail an executed copy of a supplemental indenture authorized by the provisions summarized under this subcaption (“ –Modification Without Consent of Bondholders”) and any document related thereto or executed in connection therewith to the Borrower and each Rating Agency then rating the Bonds promptly after execution by the Authority and the Trustee. The Authority shall mail drafts of any such documents to such parties prior to execution thereof.

Modification With Consent of Bondholders and the Lessor. With the consent of the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding and the Lessor, the Authority and the Trustee may from time to time and at any time, with an Opinion of Bond Counsel to the effect that such amendment or modification will not, in and of itself, cause the interest on the Bonds to be included as gross income for federal income tax purposes, enter into an indenture or indentures supplemental to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture; provided, however, that no such supplemental indenture shall (1) extend the fixed maturity of any Bonds or reduce the rate of interest thereon or extend the time of payment of interest, or reduce the amount of the principal thereof or (2) reduce the aforesaid percentage of Holders of Bonds whose consent is required for the execution of such supplemental indentures or extend the time of payment or permit the creation of any lien on the Payments or the assets pledged in the Indenture prior to or on a parity with the lien of the Indenture or deprive the Holders of the Bonds of the lien created by the Indenture upon the Payments or the assets pledged in the Indenture, without the consent of the Holders of all the Bonds then Outstanding. Upon the filing with the Trustee of evidence of the consent of the Bondholders, as aforesaid, the Trustee shall join with the Authority in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee’s own rights, duties or immunities under the Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture.

It shall not be necessary for the consent of the Bondholders under the provisions summarized in this subcaption (“– Modification With Consent of Bondholders”) to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof.

Promptly after the execution by the Authority and the Trustee of any supplemental indenture pursuant to the provisions summarized in this subcaption (“– Modification With Consent of Bondholders”), the Authority shall mail a notice to the Trustee setting forth in general terms the substance of such supplemental indenture, and the Trustee, upon receipt of such notice, shall mail such notice to the Borrower and the Bondholders at the addresses shown on the Bond registration books maintained by the Trustee, and to the Lessor. Any failure of the Authority or the Trustee to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture.

The Trustee shall mail an executed copy of such supplemental indenture and any amendment of the Loan Agreement or the Sublease permitted under the Indenture to the Borrower, each Rating Agency then rating the Bonds promptly after execution by the Authority, the Trustee, the Lessor and, in the case of the Loan Agreement or the Sublease, the Borrower. The Authority shall mail drafts of any such documents to such parties prior to execution thereof.

Effect of Supplemental Indenture. Upon the execution of any supplemental indenture pursuant to the provisions of the Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the Authority, the Trustee and all Holders of Outstanding Bonds shall thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be part of the terms and conditions of the Indenture for any and all purposes.

C-27

Notation of Modification on Bonds; Preparation of New Bonds. Bonds authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of the Indenture may bear a notation, in form approved by the Authority, as to any matter provided for in such supplemental indenture, and if such supplemental indenture shall so provide, new Bonds, so modified as to conform, in the opinion of the Authority, to any modification of the Indenture contained in any such supplemental indenture, may be prepared by the Authority, authenticated by the Trustee and delivered without cost to the Holders of the Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amounts.

Miscellaneous

Liability of Authority Limited to Payments. Principal of and interest on the Bonds is payable solely from Payments. Neither the State nor the Authority shall be obligated to pay the Bonds or the interest thereon except from certain Payments set forth in the Indenture, and neither the faith and credit nor the taxing power of the State or of any political subdivision thereof shall be pledged to the payment of the principal of or the interest on the Bonds. The issuance of the Bonds shall not directly or indirectly or contingently obligate the State or any political subdivision thereof to levy or to pledge any form of taxation whatever therefor or to make any appropriation for their payment. The Authority shall not be treated or deemed as having incurred any liability under the Indenture or by reason of or in connection with the Indenture, the Loan Agreement, the Sublease or any of the transactions contemplated by any thereof except to the extent payable from certain Payments set forth in the Indenture or other amounts available therefor under and pursuant to the Indenture. Nevertheless, the Authority may, but shall not be required to, advance for any of the purposes of the Indenture any funds of the Authority which may be made available to it for such purposes.

Limitation of Rights to Parties and Bondholders. Nothing in the Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any person other than the Authority, the Trustee, the Borrower, Tri-Valley and the Holders of the Bonds any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision contained therein or in the Indenture; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Authority, the Trustee, the Borrower, Tri-Valley and the Holders of the Bonds.

Destruction of Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee and the delivery to the Authority of any Bonds, the Trustee shall, in lieu of such cancellation and delivery, destroy such Bonds (in the presence of an officer of the Authority, if the Authority shall so require) and at the request of the Authority deliver a certificate of such destruction to the Authority.

Evidence of Rights of Bondholders. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by Bondholders may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bondholders in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of Bonds transferable by delivery, shall be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee and of the Authority if made in the manner provided in the Indenture. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the Bond registration books held by the Trustee. Any request, consent, or other instrument or writing of the Holder of any Bond shall bind every future Holder of the same Bond and the Holder of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in accordance therewith or reliance thereon.

Disqualified Bonds. In determining whether the Holders of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, Bonds which are owned or held by or for the account of the Authority, the Borrower or Tri-Valley or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority, the Borrower or Tri-Valley shall be disregarded and deemed not to be Outstanding for the purpose of any such determination.

C-28

Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this paragraph if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority, the Borrower or Tri-Valley. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Authority, the Borrower and Tri-Valley shall specify in a certificate to the Trustee those Bonds disqualified pursuant to the provisions summarized in this paragraph and the Trustee may conclusively rely on such certificate.

Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal due on any date with respect to particular Bonds shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Holders of the Bonds entitled thereto.

Funds and Accounts. Any fund required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds shall at all times be maintained in accordance with customary standards of the corporate trust industry, to the extent practicable, and with due regard for the requirements of the Indenture and the Tax Certificate and for the protection of the security of the Bonds and the rights of every Holder thereof.

Waiver of Personal Liability. No member, officer, agent or employee of the Authority shall be individually or personally liable for the payment of the principal of or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing contained in the Indenture shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by the Indenture.

Governing Law; Venue. The Indenture shall be construed in accordance with and governed by the Constitution and the laws of the State applicable to contracts made and performed in the State. The Indenture shall be enforceable in the State, and any action arising out of the Indenture shall be filed and maintained in Sacramento County Superior Court, Sacramento County, California unless the Authority waives this requirement.

Action to Be Taken on Days Other Than Business Days. Except as otherwise provided in the Indenture, whenever the Indenture requires any action to be taken on a day which is not a Business Day, such action shall be taken on the next succeeding Business Day with the same force and effect as if taken on such day. If any payment is made on the next Business Day as aforesaid, No interest shall accrue for the interevening period.

Consent of Bondholders. For all purposes of the Indenture, any consent, request, direction, approval, objection or other instrument or action required or permitted by the Indenture to be executed or taken by any Bondholder (other than the transfer of a Bond) shall be fully effective if executed or taken by the Beneficial Owner thereof provided that, in the event of conflicting instruments executed by the Bondholder and the Beneficial Owner, the action of the registered Bondholder shall govern. The Trustee and the Authority may accept a certification by a Beneficial Owner of Bonds of its status as such in the instrument providing any consent, request, direction, approval, objection or other instrument or action under the Indenture and the Trustee will not be liable for reliance on such certification.

C-29

THE LOAN AGREEMENT

Costs of Issuance; Construction Draws

Costs of Issuance and Other Expenses. In addition to the payments required to be paid by the Borrower under the Loan Agreement relating to the Loan, Loan Repayments, the Intercept and Additional Payments, the Borrower agrees that it shall pay from the proceeds of the Bonds or Gross Revenues or other legally available funds of the Borrower, all Costs of Issuance of the Bonds. The Borrower agrees that they also shall pay all expenses incurred by them, including the expenses of its counsel. The Borrower shall also pay the costs of filing any financing statement(s) pursuant to the Loan Agreement.

The Borrower acknowledges that certain provisions of the Indenture set forth Administrative Fees and Expenses of the Trustee as the amount of annual compensation and reimbursement payable from funds held under the Indenture to the Trustee. In the event that the Trustee incurs fees and expenses in the course of performing its duties in excess of Administrative Fees and Expenses or in excess of the funds available for the payment thereof under the Indenture, the Borrower agrees to compensate and reimburse the Trustee from Gross Revenues for Administrative Fees and Expenses and for any extraordinary fees and expenses, which compensation to the Trustee shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust.

The Borrower shall pay and indemnify the Authority and the Trustee against all reasonable fees, costs and charges, including reasonable fees and expenses of attorneys, accountants, consultants and other experts, incurred in good faith (and with respect to the Trustee, without negligence) and arising out of or in connection with the Borrower Documents, the Bonds allocable to the Loan or the Indenture. These obligations and those relating to indemnification shall remain valid and in effect notwithstanding repayment of the Loan under the Loan Agreement or the Bonds allocable to the Loan or termination of the Loan Agreement or the Indenture.

Construction Draws. The Borrower may draw the amounts from the Project Fund for construction advances subject to the requirements of the Indenture and the Loan Agreement, upon submission to the Trustee of a Requisition of the Borrower, pursuant to the Indenture. Upon Completion of the Project, the Borrower shall file with the Trustee and the Authority the Completion Certificate with respect to the Project pursuant to the Indenture.

Maintenance, Taxes, Insurance and Condemnation

Maintenance and Operation of the Facilities. The Borrower shall use or operate the Facilities in conjunction with the Schools. The Borrower shall operate and maintain the Facilities in accordance in all material respects with all governmental laws, ordinances, approvals, rules, regulations and requirements including, without limitation, such zoning, sanitary, pollution and safety ordinances and laws and such rules and regulations thereunder as may be binding upon the Borrower and/or on the Facilities. The Borrower shall maintain and operate the Facilities and all engines, boilers, pumps, machinery, apparatus, fixtures, fittings and equipment of any kind currently on or hereafter placed in the Facilities which are material to the operation of its portion of the Facilities in good repair, working order and condition, and shall from time to time make or cause to be made all needful and proper replacements, repairs, renewals and improvements so that the efficiency and value of the Facilities shall not be adversely impaired.

Taxes, Assessments, Other Governmental Charges and Utility Charges. The Borrower shall pay and discharge all taxes, assessments, governmental charges of any kind whatsoever, water rates, meter charges and other utility charges which may be or have been assessed or which may have become liens upon the Facilities or the interest therein of the Trustee or the Holders of the Bonds, and will make such payments or cause such payments to be made, respectively, in due time to prevent any delinquency thereon or any forfeiture or sale of the Facilities or any part thereof, and, upon request, will furnish to the Trustee receipts for all such payments, or other evidences satisfactory to the Trustee; provided, however, that the Borrower shall not be required to pay any tax, assessment, rate or charge as provided in the Loan Agreement as long as it shall in good faith contest the validity thereof, provided that the Borrower shall have set aside reserves with respect thereto that, in the commercially reasonable opinion of the governing body of the Borrower, are adequate.

C-30

Insurance Required. (a) The Borrower covenants and agrees that it will keep (or cause to be kept) insurance (including builder’s all-risk insurance) against loss or damage to any structure constituting any part of the Facilities by fire and lightning, with extended coverage and vandalism and malicious mischief insurance. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. All insurance provided pursuant to the provisions of the Loan Agreement summarized in this paragraph shall be in an amount equal to the lesser of (i) 100% of the replacement cost (without deduction for depreciation) of all buildings, structures and fixtures constituting any part of the Facilities, or (ii) the principal amount of the Bonds then Outstanding, and shall be subject to a deductible not to exceed $100,000.

(b) The Borrower covenants and agrees to procure and maintain, throughout the term of the Loan Agreement, business interruption insurance to cover loss, total or partial, of the use of any structures constituting any part of the Facilities as the result of any of the hazards covered by the insurance required by the Loan Agreement as summarized in the preceding paragraph (a), in an amount sufficient to pay the maximum Loan Repayments under the Loan Agreement for a period of at least 12 months. Proceeds of such insurance in the amount of at least 12 months of maximum Loan Repayments under the Loan Agreement shall be applied to Loan Repayments, in installments as the proceeds are paid to the Borrower.

(c) Subject to the provisions of the Loan Agreement relating to the Workers’ Disability Compensation Act, the Borrower covenants and agrees to procure and maintain at all times such other insurance on the Facilities and all operations thereon (including, without limitation, liability insurance) in amounts which are customarily carried and against such risks as are customarily insured against by other corporations in connection with the operation of facilities of similar character and size to the Facilities.

(d) An Independent Consultant shall review the insurance requirements of the Borrower with respect to the Facilities from time to time (but not less frequently than once every year) commencing on the date specified in the Loan Agreement. If such review indicates that any School should increase any of the coverages required by the Loan Agreement, the Borrower shall review such recommendation with the governing body of the Borrower and shall increase such coverage; provided, however, that such coverage is available from reputable insurance companies at a reasonable cost on the open market.

(e) The Borrower covenants by the Loan Agreement that it will use its best efforts to apply for any grants, loans or other relief available from the State or federal government to obtain amounts necessary to rebuild any portion of the Facilities destroyed or damaged in connection with an uninsured or underinsured calamity causing destruction or damage; provided, however, that the Borrower shall not be required to accept such amounts if doing so would jeopardize the integrity of the Borrower’s programs.

Workers’ Disability Compensation Act. The Borrower shall at all times comply with the Workers’ Disability Compensation Act of the State, or any successor statute or statutes.

Insurers; Policy Forms and Loss Payees. The insurance policies required by the Loan Agreement shall be carried by insurance companies which are financially responsible and capable of fulfilling the requirements of such policies. All such policies (except liability policies) shall name the Borrower and the Trustee as insured parties, beneficiaries or loss payees as their interest may appear. Each policy shall be in such form and contain such provisions as are generally considered standard for the type of insurance involved and shall contain a provision to the effect that the insurer shall not cancel or substantially modify the policy provisions without first giving at least 30 days written notice thereof to the Borrower and the Trustee. In lieu of separate policies, any School may maintain blanket policies which cover any one or more risks required to be insured against so long as the minimum coverages required in the Loan Agreement are met.

Disposition of Insurance and Condemnation Proceeds. (a) All proceeds of the insurance carried pursuant to the Loan Agreement (except proceeds of the liability portion, if any, of such insurance), and proceeds of any condemnation awards with respect to any individual Facility, shall be paid immediately upon receipt by the Borrower or other named insured parties to the Trustee for deposit in a special fund which the Trustee shall establish and maintain and hold in trust pursuant to the Indenture, to be known as the “Insurance and Condemnation Proceeds Fund.” In the event the Borrower elects to repair or replace the Facilities damaged, destroyed or taken, moneys in

C-31

the Insurance and Condemnation Proceeds Fund shall be disbursed by the Trustee, after deducting therefrom the reasonable charges and expenses of the Trustee in connection with the collection and disbursement of such moneys, for the purpose of repairing or replacing the Facilities damaged, destroyed or taken in the manner and subject to the conditions set forth in the Indenture with respect to disbursements from the Insurance and Condemnation Proceeds Fund.

(b) If the Borrower shall elect not to, or cannot, repair or replace the portion or portions of the Facilities damaged, destroyed or taken, as provided in paragraph (a) above, subject to paragraph (c) below, the Trustee shall transfer all amounts in the Insurance and Condemnation Proceeds Fund on account of such damage, destruction or condemnation to the Redemption Fund established in the Indenture.

(c) If all amounts in the Insurance and Condemnation Proceeds Fund are not sufficient to retire all Bonds then outstanding, the Trustee shall not transfer said amounts to the Redemption Fund unless such Borrower shall file with the Trustee a report of an Independent Consultant showing that Gross Revenues is projected to be at least equal to Debt Service on all Bonds for each of the three full Fiscal Years immediately following such transfer after giving effect to the retirement of such Bonds. In the event such report of an Independent Consultant shows that projected Gross Revenues will not be sufficient to pay Debt Service on all Bonds for each of the three full Fiscal Years immediately following such transfer after giving effect to the retirement of such Bonds, such Borrower shall apply all amounts in the Insurance and Condemnation Proceeds Fund to the repair or replacement of the portion or portions of the Facilities damaged, destroyed or taken, as provided in paragraph (a) above.

Construction Authorization and Permits. The Borrower shall obtain all authorizations and permits relating to construction of the Project that are necessary to complete the Project from all applicable governmental authorities.

Completion and Ownership or Lease of the Project. The Borrower agrees that it will complete the Project, and will acquire, construct, rehabilitate, renovate, improve, install and equip all other facilities and real and personal property deemed necessary for the operation of the Project as the Schools, in accordance with the description of the Project set forth in the Loan Agreement. The Borrower further agrees to proceed with due diligence to complete the Project. The Borrower also agrees that it will own the Project or hold a subleasehold interest in the Project pursuant to the Sublease or the Subordinate Sublease during the term of the Loan Agreement, except that the Borrower may dispose of any component of the Project if the age of such component exceeds the useful life of such component.

Deed of Trust Upon Acquisition of Fee Simple. Upon the acquisition of fee simple title on the Facilities, the Borrower shall execute, deliver and record a Deed of Trust on such title securing the Loan for the benefit of the Trustee in accordance with the Loan Agreement.

Additional Covenants and Agreements of Borrower

Inspection of Books. The Authority and the Trustee shall have the right, but not obligation, upon reasonable notice, during business hours, to examine and audit any and all of the Borrower’s records or accounts pertaining to the Loan, the Intercept, the Gross Revenues, the Indenture and the Loan Agreement. Upon written notice to the Borrower delivered at least ten Business Days in advance of an inquiry, the Borrower shall make its management personnel available for periodic inquiries from the Authority; provided that the Borrower shall not be obligated to incur any material out of pocket costs in connection with such meetings or inquiries.

Reports and Information. At the request of the Authority or the Trustee, their agents, employees or attorneys, the Borrower shall furnish to the Authority and the Trustee, such information as may be reasonably requested in writing from time to time relative to compliance by the Borrower with the provisions of the Loan Agreement, including, without limitation, the most recently prepared consolidated financial statements.

Notice. Upon obtaining knowledge of an Event of Default under any Borrower Document, the Borrower agrees to provide to the Trustee and to the Authority notice of such Event of Default (such notice to include a description of the nature of such event and what steps are being taken to remedy such Event of Default).

C-32

Reports and Budgets. The Borrower shall, within 45 days after the end of each quarter, provide to the Trustee and each Bondholder providing a written request therefor a copy of the unaudited quarterly financial statements of Tri-Valley on a consolidated basis, together with a certificate signed by an Authorized Borrower Representative stating whether any Event of Default (or any event that with the giving of notice or passage of time would constitute an Event of Default) has occurred and is continuing under the Loan Agreement as of the date of such certificate.

Reliance. The Borrower recognizes and agrees by the Loan Agreement that the representations and covenants set forth in the Loan Agreement may be relied upon by all Persons interested in the legality and validity of the Bonds and in the exemption from federal income taxation of the interest on the Bonds including, without limitation, the Trustee for the benefit of the Owners of the Bonds. In performing their duties and obligations under the Loan Agreement, the Trustee may rely upon statements and certificates of the Borrower believed in good faith to be genuine and upon audits of the books and records of the Borrower pertaining to the Loan. The Trustee, in its name or in the name of the Authority, may, for and on behalf of the Bondholders, enforce all rights of the Authority which have been assigned to and are held by the Trustee and all obligations of the Borrower under and pursuant to the Loan Agreement, whether or not the Authority has pursued or attempted to enforce any of such rights and obligations. In addition, the Authority and the Trustee may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Authority or the Trustee under the Loan Agreement in good faith and in conformity with the opinion of such counsel. In determining whether any default or lack of compliance by the Borrower exists under the Loan Agreement, neither the Trustee nor the Authority shall be required to conduct any investigation into or review of the operations or records of the Borrower and may rely solely upon any notice or certificate delivered to the Trustee by the Borrower with respect to the occurrence or absence of a default.

Tax Covenants. It is the intention of the Borrower that interest on the Bonds shall be and remain excluded from the gross income of the owners thereof for federal income tax purposes, and to that end the covenants and agreements of the Borrower summarized under this subcaption (“– Tax Covenants”) and in the Tax Agreement are for the benefit of the Trustee on behalf of and for each and every owner of the Bonds.

The Borrower covenants and agrees that it will not use or permit the use of any of the funds provided by the Authority under the Loan Agreement or any other funds of the Borrower, directly or indirectly, or direct the Trustee to invest any funds held by it under the Loan Agreement or under the Indenture, in such manner as would, or enter into, or allow any “related person” (as defined in Section 147(a)(2) of the Code) to enter into, any arrangement, formal or informal, for the purchase of the Bonds that would, or take or omit to take any other action that would cause any Bond to be an “arbitrage bond” within the meaning of Section 148 of the Code or “federally guaranteed” within the meaning of Section 149(b) of the Code and applicable regulations promulgated from time to time thereunder.

In the event that at any time any School is of the opinion or becomes otherwise aware that for purposes of the provisions Loan Agreement and the Indenture relating to tax covenants it is necessary to restrict or to limit the yield on the investment of any moneys held by the Trustee under the Indenture, such Borrower shall determine the limitations and so instruct the Trustee in writing and cause the Trustee to comply with those limitations under the Indenture. The Borrower will take such action or actions as may be reasonably necessary in the opinion of Bond Counsel, or of which it otherwise becomes aware, to comply fully with the Code.

The Borrower shall not, pursuant to an arrangement, formal or informal, purchase Bonds in an amount related to the amount of the Loan, except as otherwise permitted under the Indenture.

In order to maintain the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income purposes and to assure compliance with the laws of the State, the Borrower agrees by the Loan Agreement that it shall, concurrently with or before the execution and delivery of the Bonds, execute and deliver the Tax Certificate, and shall comply with every term of the Tax Certificate. The Borrower covenants with the Authority, for the benefit of the Owners of the Bonds from time to time outstanding, that so long as any Bonds remain outstanding, moneys on deposit in any fund, or account in connection with the Bonds, whether or not such moneys were derived from the proceeds of the sale of the Bonds or from any other sources, and moneys pledged directly or indirectly to the payment or for the securing of the Bonds, will not be used by or for the Borrower in a

C-33

manner that will cause the Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code. The Borrower expressly recognizes that, to the extent required by Section 148 of the Code, “proceeds” of the Bonds (including investment proceeds and “replacement” proceeds) may be required to be invested at a yield not exceeding the yield on the Bonds in order to comply with the provisions of the Loan Agreement relating to tax covenants. In furtherance of such provisions, the Borrower agrees that it will not direct any investments or reinvestments that would contravene either the investment representations made by the Authority in the Tax Certificate or any investment directions provided by the Authority and deemed reasonably necessary in the opinion of Bond Counsel to preserve the exclusion from gross income of interest on the Bonds for federal income tax purposes.

Continuing Disclosure. The Borrower covenants and agrees by the Loan Agreement that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Loan Agreement or the Indenture, failure of the Borrower or the Dissemination Agent to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default under the Loan Agreement or under the Indenture; however any Bondholder or Beneficial Owner may take, and the Trustee shall, at the written request of the Holders of at least 25% aggregate principal amount in Outstanding Bonds, and upon provision of indemnification satisfactory to the Trustee, take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Borrower to comply with its obligations summarized in this paragraph.

Warranty of Truth. The Borrower covenants that no information, certificate, statement in writing or report required by the Loan Agreement, or any other Borrower Documents otherwise furnished by the Borrower to the Authority or the Trustee will contain any untrue statement of a material fact or omit a material fact necessary to make such information, certificate, statement or report not misleading as it relates to the Borrower.

Financial Covenants. The Borrower covenants, except as otherwise permitted by the Loan Agreement or by the Indenture:

(a) To maintain books and records separate from any other person or entity;

(b) To maintain its accounts separate from any other person or entity;

(c) Not to commingle assets with those of any other entity (provided, however, that this paragraph shall not prohibit the maintenance by the Borrower or any of its affiliates of a general or combined account for banking convenience purposes containing funds of the Borrower and its affiliates, so long as the funds of the Borrower and its affiliates in such account are properly accounted for by the Borrower);

(d) To conduct its own business in its own name;

(e) To maintain separate financial statements (except those clearly labeled as being consolidated with other entities);

(f) To pay its own liabilities out of its own funds (provided, however, that this paragraph shall not prohibit payments from a general or combined account for banking convenience purposes containing funds of the Borrower and its affiliates, so long as the funds of the Borrower and its affiliates in such account are properly accounted for by the Borrower);

(g) To observe all corporate formalities;

(h) To maintain an arm’s length relationship with its affiliates;

(i) To pay the salaries of its own employees and maintain a sufficient number of employees in light of its contemplated business operations;

C-34

(j) Not to guarantee or become obligated for the debts of any other entity or hold out its credit as being available to satisfy the obligations of others to the extent the Gross Revenues could be materially and adversely affected thereby;

(k) Not to acquire obligations or securities of its partners, members, or shareholders;

(l) To allocate fairly and reasonably any overhead for shared office space;

(m) To use separate stationery, invoices, and checks;

(n) Not to pledge its assets for the benefit of any other entity or make any loans or advances to any entity except for advances or loans to affiliates that are properly accounted for and documented;

(o) To hold itself out as a separate entity;

(p) To correct any known misunderstanding regarding its separate identity; and

(q) Unless encumbered and segregated for purposes of the Subordinate Obligations, not to pledge or otherwise encumber, or permit the pledge or encumbrance of, any money, investment, or investment property as security for payment of any amounts due under the Loan Agreement and shall not establish any segregated reserve or similar fund for such purpose and shall not prepay any such amounts in advance of the redemption date of an equal principal amount of the Bonds.

Employee Benefit Plan Covenant. The Borrower shall continue to make all required contributions to all employee benefit plans, if any, and the Borrower has no knowledge of any material liability which has been incurred by itself and remains unsatisfied for any taxes or penalties with respect to any employee benefit plan or any multi employer plan, and each such plan has been administered in compliance with its terms and the applicable provisions of ERISA and any other federal or state law.

Prohibited Uses. No portion of the proceeds of the Bonds shall be used to finance or refinance any facility, place or building to be used (1) primarily for sectarian instruction or study or as a place for devotional activities or religious worship or (2) by a person that is not a 501(c)(3) Organization or a Governmental Unit or by a 501(c)(3) Organization (including the Borrower) in an “unrelated trade or business” (as set forth in Section 513(a) of the Code), in such a manner or to such extent as would result in any of the Bonds being treated as an obligation not described in Section 103(a) of the Code.

Disposition of Proceeds of the Loan. Subject to the provisions of the Indenture, the Borrower shall withdraw and expend the proceeds of the Bonds from the Project Fund in accordance with the provisions of the Indenture.

Indenture. The Borrower and Tri-Valley by the Loan Agreement approve the terms and provisions of the Indenture and, to the extent applicable, agree to be bound by such terms and to perform all obligations of the Borrower and Tri-Valley, as applicable, set forth in the Indenture. The Borrower and Tri-Valley further agree that Bond proceeds shall be applied only as set forth in the Indenture. Insofar as any provisions of the Indenture imposes duties and responsibilities on any School or Tri-Valley, it is specifically incorporated in the Loan Agreement by reference.

Defaults and Remedies

Events of Default. Any one of the following which occurs and continues shall constitute an Event of Default under the Loan Agreement:

(a) failure by the Borrower to pay or cause to be paid when due the Loan Repayments, or

C-35

(b) failure by the Borrower to pay or cause to be paid when due any other amounts required to be paid under the Loan Agreement and continuation of such failure to pay for 10 Business Days following written notice thereof; or

(c) failure of the Borrower to observe and perform any covenant, condition or agreement on its part to be observed or performed under the Loan Agreement (other than failure by the Borrower to pay the amounts required to be paid under the Loan Agreement, as referred to in paragraphs (a) and (b) above, and other than as provided in paragraph (d) below, after the Borrower shall have been given 30 days’ written notice specifying such default and requesting it be remedied, unless the Trustee shall have consented to an extension of such 30-day period; provided that the Borrower shall have commenced cure and be diligently pursuing cure in good faith, which extension shall not exceed, except in the case of force majeure, 90 days; or

(d) voluntary initiation by the Borrower of any proceeding under any federal or state law relating to bankruptcy, insolvency, arrangement, reorganization, readjustment of debt or any other form of debtor relief, or the initiation against the Borrower of any such proceeding that shall remain undismissed for 120 calendar days, or failure by the Borrower to promptly have discharged any execution, garnishment or attachment of such consequence as would impair the ability of any School to carry on its operations, or assignment by the Borrower for the benefit of creditors, or the entry by the Borrower into an agreement of composition with creditors or the failure generally by the Borrower to pay its debts as they become due;

(e) occurrence and continuance of an “Event of Default” under the Indenture or any of the Borrower Documents, after the expiration of any applicable notice or cure periods, provided, however, that an Event of Default under the Indenture or any of the Borrower Documents arising solely from the actions or inactions of parties to such agreements other than the Borrower shall not be an Event of Default under the Loan Agreement; or

(f) any representation or warranty made in the Loan Agreement or any statement or representation made by the Borrower in any certificate, report, opinion, financial statement or other instrument furnished in connection with the Loan or any of the Borrower Documents proves to be false or misleading in any material respect when made.

Remedies. Upon the occurrence of an Event of Default pursuant to the Loan Agreement and at any time thereafter during the continuance of such Event of Default, the Trustee may take one or more or any combination of the following remedial steps:

(i) By written notice to the Borrower, declare the unpaid indebtedness on the Bonds and all amounts then due and payable under the Loan Agreement, whether by acceleration of maturity or otherwise, to be immediately due and payable, whereupon the same shall become immediately due and payable; and

(ii) Take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under the Loan Agreement, or to enforce performance and observance of any obligation, agreement or covenant of the Borrower under the Loan Agreement, the Bonds or any other Borrower Document.

Any amounts collected pursuant to such actions taken by the Trustee shall be applied in accordance with provisions of the Indenture. Notwithstanding anything in the Loan Agreement to the contrary, the indebtedness of the Borrower under the Loan Agreement may be separately and independently accelerated with or without an acceleration of the Bonds.

If the Trustee shall have proceeded to enforce the rights of the Authority under the Loan Agreement and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Authority, then the Borrower, the Trustee and the Authority shall be restored respectively to their several positions and rights under the Loan Agreement, and all rights, remedies and powers of the Borrower, the Authority and the Trustee shall continue as though no such proceedings had taken place.

C-36

Additional Remedies. In addition to the above remedies, if an Event of Default occurs under the Loan Agreement, the Authority and the Trustee shall have the right and remedy, without posting bond or other security, to have the provisions of the Loan Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach will cause irreparable injury to the Trustee or the Authority and that money damages will not provide an adequate remedy thereto.

No Remedy Exclusive. No remedy in the Loan Agreement conferred upon or reserved to the Authority is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Loan Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Trustee or the Authority to exercise any remedy reserved to it in the Loan Agreement, it shall not be necessary to give notice, other than such notice as may be required in the Loan Agreement. Such rights and remedies as are given the Authority under the Loan Agreement shall also extend to Trustee on behalf of the Holders of the Bonds, who shall be entitled to the benefit of all covenants and agreements contained in the Loan Agreement.

No Additional Waiver Implied by One Waiver. In the event any agreement or covenant contained in the Loan Agreement should be breached by the Borrower and thereafter waived by the Authority or the Trustee, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach under the Loan Agreement.

Agreement to Pay Fees and Expenses Upon Default. In the event the Borrower is in default under any provision of the Loan Agreement or causes an event of default under any Borrower Document, the Borrower shall be liable to, and upon demand shall pay to, the Authority and the Trustee all reasonable fees and disbursements of such Persons and their agents (including attorneys’ fees and expenses) that are reasonably connected therewith or incidental thereto, except with respect to the Trustee and the Authority, such payment obligation shall be reduced to the extent such fees and disbursements are paid to the Trustee and the Authority from money available therefor under the Indenture.

Prepayment

Prepayments of Loan. General. As further described below, the Borrower shall have the right, so long as all amounts which have become due under the Loan Agreement have been paid, at any time or from time to time to prepay all or any part of its Loan Repayments and the Authority agrees that the Trustee shall accept such prepayments when the same are tendered. Prepayments may be made by payments of cash or surrender of Bonds. All such prepayments (and the additional payment of any amount necessary to pay the applicable redemption price, if any, payable upon the redemption of Bonds) shall be deposited upon receipt in the applicable account of the Redemption Fund and, at the request of and as determined by the Borrower, credited against payments due under the Loan Agreement or used for the redemption of Outstanding Bonds in the manner and subject to the terms and conditions set forth in the Indenture. The Borrower also shall have the right to surrender Bonds acquired by it in any manner whatsoever to the Trustee for cancellation, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. Notwithstanding any such prepayment or surrender of Bonds, as long as any Bonds allocable to the Loan to such Borrower remain Outstanding or any Additional Payments required to be made under the Loan Agreement remain unpaid, the Borrower under such Bonds or owing such Additional Payments shall not be relieved of its obligations under the Loan Agreement.

Prepayment in Whole. The Loan may be prepaid in whole at any time by delivering to the Trustee amounts sufficient to defease a like principal amount of Bonds to their optional redemption date pursuant to the Indenture.

Prepayment in Whole or in Part from Amounts Transferred from Insurance and Condemnation Proceeds. The Loan may be prepaid in whole or in part at any time in a principal amount corresponding to amounts transferred from the Indemnification and Condemnation Proceeds Fund pursuant to the Indenture and used to redeem Bonds at the option of the Borrower pursuant to the Indenture.

C-37

Prepayment in Part from Amounts Transferred from Project Fund. The Loan may be prepaid in part at any time in a principal amount corresponding to amounts transferred from the Project Fund pursuant to the Indenture and used to redeem Bonds at the option of the Borrower pursuant to the Indenture.

Redemption of Bonds Upon Prepayment. Upon prepayment of the Loan as provided in the Loan Agreement, the Trustee shall do any of the following, as applicable: (1) call all or part of the Bonds for redemption, as required by the Indenture in the respective amounts set forth in the applicable paragraph of the Indenture and (2) provide for the defeasance of Bonds pursuant to the Indenture.

Amount of Prepayment. In the event of any prepayment pursuant to the Loan Agreement, the amount of the Loan deemed to be prepaid shall be equal to the principal amount of Bonds or portion of Bonds redeemed as described in the Indenture. In the case of prepayment of the Loan in full, the Borrower shall pay to the Trustee an amount sufficient, together with other funds held by the Trustee and available for such purpose, to pay all reasonable and necessary fees and expenses (including attorneys’ fees) of the Authority, the Trustee and any paying agent accrued and to accrue through final payment of the Bonds and all other liabilities of the Borrower accrued and to accrue under the Loan Agreement and shall pay to the Authority an amount required by the provisions of the Loan Agreement relating to Additional Payments. In the case of partial prepayment of the Loan, the Borrower shall pay or cause to be paid to the Trustee an amount sufficient, together with other funds held by the Trustee and available for such purpose, to pay expenses of redemption of the Bonds to be redeemed upon such prepayment.

The Borrower agrees that it will not prepay the Loan or any part thereof, except in amounts sufficient to redeem Bonds in Authorized Denominations.

Miscellaneous

Notice. All notices, certificates or other communications under the Loan Agreement shall be sufficiently given and shall be deemed given when delivered or mailed by registered or certified mail, postage prepaid, or by messenger or overnight delivery service or by Electronic Notice, to the Notice Addresses set forth in the Indenture. A duplicate copy of each notice, certificate or other communication given under the Loan Agreement by the Authority or the Borrower shall also be given to the Trustee. The Authority, the Borrower and the Trustee may, by notice given under the Loan Agreement, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent.

Governing Law; Forum and Venue. The Loan Agreement is a contract made under the laws of the State of California, and shall be governed by and construed in accordance with the Constitution and the laws applicable to contracts made and performed in said State. The Loan Agreement shall be enforceable in the State of California, and any action arising out of the Loan Agreement shall be filed and maintained in the Sacramento County Superior Court, Sacramento, California unless the Authority waives this requirement.

Amendments; Modifications in Writing. Except as otherwise provided in the Loan Agreement or the Indenture, subsequent to the initial issuance of Bonds and prior to their payment in full, or provision for such payment having been made as provided in the Indenture, the Loan Agreement may be effectively amended, changed, modified, altered or terminated only as permitted under the Indenture, by written instrument executed by the parties to the Loan Agreement. The Authority agrees that it will not consent to an amendment of the Indenture without the approval of the Borrower.

Non Liability of Authority. The Authority shall not be obligated to pay the principal (or redemption price) of or interest on the Bonds, except from Payments. Neither the faith and credit nor the taxing power of the State or any political subdivision thereof, nor the faith and credit of the Authority or any member is pledged to the payment of the principal (or redemption price) or interest on the Bonds. The Authority shall not be liable for any costs, expenses, losses, damages, claims or actions, of any conceivable kind on any conceivable theory, under or by reason of or in connection with the Loan Agreement, the Bonds or the Indenture, except only to the extent amounts are received for the payment thereof from the Borrower under the Loan Agreement.

C-38

The Borrower acknowledges that the Authority’s sole source of moneys to repay the Bonds will be provided by the payments made by the Borrower to the Trustee pursuant to the Loan Agreement, together with other amounts received by the Trustee pursuant to the Indenture and investment income on certain funds and accounts held by the Trustee under the Indenture, and by the Loan Agreement agrees that if such amounts shall ever prove insufficient to pay all principal (or redemption price) and interest on the Bonds as the same shall become due (whether by maturity, redemption, acceleration or otherwise), then upon notice from the Trustee, the Borrower shall pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal (or redemption price) or interest, including, but not limited to, any deficiency caused by acts, omissions, nonfeasance or malfeasance on the part of the Trustee, the Borrower, the Authority or any third party, subject to any right of reimbursement from the Trustee, the Authority or any such third party, as the case may be, therefor.

Waiver of Personal Liability. No member, officer, agent or employee of any School or of the Authority shall be individually or personally liable for the payment of any principal (or redemption price) or interest on the Bonds or any other sum under the Loan Agreement or be subject to any personal liability or accountability by reason of the execution and delivery of the Loan Agreement; but nothing contained in the Loan Agreement shall relieve any such member, director, officer, agent or employee from the performance of any official duty provided by law or by the Loan Agreement.

Binding Effect; Third Party Beneficiary. The Loan Agreement shall inure to the benefit of and shall be binding upon the Authority, the Trustee, the Borrower and its respective successors and assigns, subject, however, to the limitations contained in the Loan Agreement.

Consent of Bondholders. For all purposes of the Loan Agreement, any consent, request, direction, approval, objection or other instrument or action required or permitted by the Loan Agreement to be executed or taken by any Bondholder (other than the transfer of a Bond) shall be fully effective if executed or taken by the Beneficial Owner thereof provided that, in the event of conflicting instruments executed by the Bondholder and the Beneficial Owner, the action of the registered Bondholder shall govern. The Trustee and the Authority may accept a certification by a Beneficial Owner of Bonds of its status as such in the instrument providing any consent, request, direction, approval, objection or other instrument or action under the Loan Agreement and the Trustee will not be liable for reliance on such certification.

No Prevailing Party Costs. Nothing in the Loan Agreement shall be construed to provide for award of attorneys’ fees and costs to the Authority or the Borrower for the enforcement of the Loan Agreement as described in Section 1717 of the Civil Code. None of the provisions summarized in this paragraph affect the rights of the Bond Trustee provided in the Loan Agreement or in the Indenture.

C-39

THE SITE LEASE

Capitalized terms used and not defined under this caption (“THE SITE LEASE”) shall have the meanings ascribed to them under the caption “THE SUBLEASE – Definitions” and if not defined therein, then under the caption “DEFINITIONS.”

Site. Pursuant to the Site Lease, the Lessor leases to the Authority and the Authority hires from the Lessor on the terms and conditions summarized below, and subject to Permitted Encumbrances, if any, the land described in the Site Lease (the “Demised Premises”), including the real property and improvements now or hereafter situated thereon; subject, however, to any conditions, reservations, and easements of record or known to the Lessor (collectively with the Demised Premises, the “Site”).

Rent. The Authority shall pay, on the date of commencement of the Site Lease, to the Lessor as and for rental of the Site under the Site Lease, the sum set forth in the Site Lease (the “Lease Payment”). The Lease Payment shall be paid, and is payable solely, from the proceeds of the Bonds. No other amounts of rental shall be due and payable by the Authority for the use and occupancy of the Site under the Site Lease.

Purpose. The Authority shall use the Site solely for the purpose of subleasing the Site to the Sublessee pursuant to the Sublease and for such purposes as may be incidental thereto; provided, that in the event of default by the Sublessee under the Sublease the Authority may exercise the remedies provided in the Sublease. The Authority shall not be an operator of the Site and shall have no authority in making decisions or control over matters relating to construction, operation or maintenance of the Site. The Authority undertakes no obligations to the Lessor in respect of the Site, for maintenance thereof or otherwise, and the Lessor shall have no claims and waives any and all claims and rights of contribution which may now or hereafter arise against the Authority by reason of any act or omission of the Authority in respect of the Site. The Authority makes no representation or warranty to the Lessor in respect of the Sublease or the Sublessee.

Except for performance for the payment of rent under the Site Lease, the Authority may delegate any and all of its performance under the Site Lease or any obligation it may have by virtue of the Site Lease or as a tenant under the Site Lease (by operation of law or otherwise) to the Sublessee and Lessor irrevocably consent to such delegation. The Lessor acknowledges that such delegation is provided in the Sublease, and agrees that the Authority is irrevocably released from all such performance and such obligations under the Site Lease. In granting the foregoing release, Lessor expressly agrees to waive and relinquish all rights and benefits it may have under Section 1542 of the Civil Code of the State of California, as pertains to the limited releases expressed in the Site Lease, with respect to any unknown claims it may have against Lessee.

Owner in Fee; Encumbrances. The Lessor covenants that it is the owner in fee of the Demised Premises and real property and improvements thereon. The Lessor further covenants and agrees that if for any reason this covenant proves to be incorrect, the Lessor will institute a quiet title action to clarify the Lessor’s title, and will diligently pursue such action to completion. The Lessor agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements to the Site Lease and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Site leased by the Site Lease or intended so to be or for carrying out the expressed intention of the Site Lease, the Indenture and the Sublease. The Lessor further covenants and agrees that it will indemnify and hold the Authority and the Sublessee, and their respective members, directors, agents, officers and employees, harmless from any loss, cost or damages resulting from any breach by the Lessor of the covenants summarized in this paragraph.

The Lessor agrees it will not create or suffer to be created with respect to the Site Lease any recorded or unrecorded mortgage, pledge, lien, charge, easement, rights of way or other rights, reservations, covenants, conditions, restrictions or encumbrance upon the Site except Permitted Encumbrances (as defined in the Sublease). The Lessor further agrees that it will not sell, assign, transfer, convey or otherwise dispose of all or any portion of the Site or permit any sale, assignment, transfer, conveyance, or other disposition of all or any portion of the Site prior to the Lease Expiration Date.

Nonsubordination; Assignments and Subleases. The Site Lease shall be nonsubordinated and unless the Sublessor shall be in default under the Sublease, the Authority may not assign its rights under the Site Lease or

C-40

sublet the Site, except pursuant to the Sublease and the Assignment Agreement, without the written consent of the Sublessor, which consent may be withheld in the Sublessor’s sole and absolute discretion and the written consent of the Lessor, which consent may be withheld in the Lessor’s sole and absolute discretion. Upon the occurrence of a default by the Sublessor under the Sublease, the Authority may assign or sell its rights under the Site Lease or sublet the Site, without the consent of the Sublessor but with the written consent of the Lessor, which consent may be withheld in the Lessor’s sole and absolute discretion. The Lessor will not assign or otherwise convey any of its interests in the Site Lease.

Right of Entry. The Lessor reserves the right for any of its duly authorized representatives to enter upon the Site at any reasonable time to inspect the same or to make any repairs, improvements or changes necessary for the preservation thereof.

Termination. The Authority agrees, upon the termination of the Site Lease, to quit and surrender the Site as is without any warranty regarding order or condition of the Site, and the Authority further agrees that it will make no claim of title to any permanent improvements and structures existing upon the Demised Premises at the time of the termination of the Site Lease. Notwithstanding the foregoing, the Authority shall not be obligated to cause any subtenant permitted under the Site Lease or any unlawful occupant of the Facilities to quit or surrender them. The Lessor specifically acknowledges and agrees that the Authority shall surrender the Site on an “as is with all faults” basis and that such surrender will be without any representations or warranties of any kind whatsoever, express or implied, from the Authority or any other person acting or purporting to act on behalf of the Authority as to any matters concerning the Site.

The Lessor agrees, upon the Lease Expiration Date, to convey fee simple title to the Demised Premises, free of any encumbrances, to the Sublessee; provided that upon (a) Event of Default under the Sublease and (b) the written direction of the Trustee, the Site Lease shall be terminated and the Lessor shall convey fee simple title to the Demised Premises, free of any encumbrances, to the Trustee.

Default. If default shall be made in the due and punctual payment of the Lease Payment due and payable under the Site Lease (“Event of Default”), then prior to the full payment of the Lease Payment, the Lessor may proceed to protect or enforce its rights, by appropriate proceeding for the enforcement of any legal or equitable remedy as the Lessor shall deem most effectual in support of any of its rights or duties under the Site Lease; provided, however, the Lessor may not take any action to protect or enforce its rights under the Site Lease so long as any Bonds remain Outstanding. Notwithstanding anything to the contrary summarized in this paragraph, the exercise of Lessor’s remedies in connection with the continuation of an Event of Default is further limited as set forth in the Site Lease.

Quiet Enjoyment. The Authority at all times during the term of the Site Lease, shall peaceably and quietly have, hold and enjoy all of the Site then leased under the Site Lease.

Waiver of Personal Liability. All liabilities under the Site Lease on the part of the Authority shall be solely liabilities of the Authority, as a public instrumentality, and the Lessor pursuant to the Site Lease releases each and every member, director, officer, agent or employee of the Authority of and from any personal or individual liability under the Site Lease. No member, director, officer, agent or employee of the Authority shall at any time or under any circumstances be individually or personally liable under the Site Lease to the Lessor or to any other party whomsoever for anything done or omitted to be done by the Authority under the Site Lease.

The Authority and its members, directors, officers, agents, employees and assignees shall not be liable to the Lessor or to any other party whomsoever for any death, injury or damage that may result to any person or property by or from any cause whatsoever in, on or about the Site and the Project. The Lessor, to the extent permitted by law, shall indemnify and hold the Authority and its members, directors, officers, agents, employees and assignees, harmless from, and defend each of them against, any and all claims, liens and judgments arising from the construction or operation of the Site or the Project, including, without limitation, death of or injury to any person or damage to property whatsoever occurring in, on or about the Site or the Project regardless of responsibility for negligence, but excepting the active negligence of the person or entity seeking indemnity.

C-41

Taxes. The Authority covenants and agrees to pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Site.

Eminent Domain. In the event the whole or any part of the Demised Premises or the Site is taken by eminent domain proceedings, the interest of the Authority shall be recognized and is, pursuant to the Site Lease, determined to be the amount of the then unpaid or outstanding Lease Payments and all other amounts due under the Sublease attributable to such part of the Site and such amount shall be paid to the Lessor; provided any amounts held by the Paying Agent for the payment of Lease Payments attributable to such condemned portion of the Demised Premises or the Site that, when added to such condemnation award, are in excess of the unpaid Lease Payments attributable to such condemned portion of the Demised Premises or the Site, shall be returned to the Sublessor.

Representations of the Lessor. The Lessor represents and warrants to the Authority that (i) the Lessor has the full power and authority to enter into, to execute and to deliver the Site Lease, and to perform all of its duties and obligations under the Site Lease, and has duly authorized the execution of the Site Lease; (ii) except for Permitted Encumbrances, the Site is not subject to any dedication, easement, right of way, reservation in patent, covenant, condition, restriction, lien or encumbrance which would prohibit or materially interfere with the use of the Site for school purposes as contemplated by the Lessor; and (iii) all taxes, assessments or impositions of any kind with respect to the Site, except current taxes, have been paid in full.

Amendment. The Authority and the Lessor may at any time agree to the amendment of the Site Lease, with the prior written consent of the Sublessee and any fee mortgage.

No Prevailing Party Costs. Nothing in the Site Lease shall be construed to provide for award of attorneys’ fees and costs to the Lessor or the Authority for the enforcement of the Site Lease or the Sublease as described in Section 1717 of the Civil Code. Nothing summarized in this paragraph affects the rights of the Trustee provided in the Site Lease or in the Indenture.

Governing Law; Forum and Venue. The Site Lease is a contract made under the laws of the State of California, and shall be governed and construed in accordance with the Constitution and the laws applicable to contracts made and performed in said State. The Site Lease shall be enforceable in the State of California, and any action arising out of the Site Lease shall be filed and maintained in the Sacramento County Superior Court, Sacramento, California unless the Authority waives such requirement.

Intercreditor Agreement and Subordination Agreement. The Lessor pursuant to the Site Lease approves the terms and provisions of the Intercreditor Agreement and Subordination Agreement and, to the extent applicable, agrees to be bound by such terms and to perform all obligations of the Lessor set forth in the Intercreditor Agreement and the Subordination Agreement. Such terms and provisions include, among others, an agreement by the Lessor that in the event of a conflict of provisions between the Site Lease and the Intercreditor Agreement and/or the Subordination Agreement, the terms of the Intercreditor Agreement and/or Subordination Agreement, as applicable, shall control and govern. Nothing in this section is meant to limit or modify the provisions of the Site Lease.

C-42

THE SUBLEASE

Definitions

Unless the context otherwise requires, the provisions summarized under this caption (“THE SUBLEASE”) have the meanings specified below. Capitalized terms not otherwise defined below shall have the meanings assigned to such terms in the Indenture or the Site Lease as summarized under “DEFINITIONS” or “THE SITE LEASE” herein.

“Additional Rent” means all amounts payable to the Authority or the Trustee or any other person from the Sublessee as Additional Rent pursuant to the Sublease.

“Base Rental Payments” means all amounts payable to the Authority from the Sublessee as Base Rental Payments pursuant to the Sublease.

“Base Rental Payment Schedule” means the schedule of Base Rental Payments payable to the Authority by the Sublessee pursuant to the Sublease.

“Demised Premises” has the meaning given in the Sublease.

“Event of Default” shall have the meaning specified in the Sublease.

“Permitted Encumbrances” has the meaning assigned to it under the Indenture.

“Site” shall mean the Demised Premises and the improvements now or hereafter situated thereon.

“Sublessee” means the Livermore Charter School and Livermore Valley Charter Preparatory High School, both operated as Tri-Valley Learning Corporation. The Sublessee may also be referred to as the Borrower.

“Trustee” means The Bank of New York Mellon Trust Company, N.A., or the successor as Trustee under the Sublease as provided in the Indenture.

Sublease of Demised Premises and Project; Term

Sublease of Site. Pursuant to the Sublease the Authority subleases to the Sublessee and the Sublessee subleases from the Authority the Site, including the Demised Premises, on the terms and conditions set forth in the Sublease, subject, however, to Permitted Encumbrances. The Sublessee agrees and covenants during the term of the Sublease that, except as provided in the Sublease, it will use or operate the Site as a charter school under the Charter School Law and so as to permit the Authority to carry out its agreements and covenants contained in the Indenture and further agrees that it will not abandon the Site.

The Sublessee will take possession of the Site upon the issuance of the Bonds; provided, however, that Authority is under no obligation to deliver use and occupancy of any portion of the Site that is not made available to the Authority at any time under and during the term of the Site Lease. Sublessee and the Authority acknowledge and agree that the Sublease and all the rights of parties under the Sublease are subject and subordinate to the Site Lease in all respects. Accordingly, the Sublease shall terminate upon any termination of the Authority’s leasehold interest under the Site Lease (by the terms of the Site Lease or operation of law).

No Substitution. The Sublessee and the Authority shall not substitute real property in place of the Site.

Additional Rent

Additional Rent. The Sublessee shall also pay to the Authority (from time to time as such payments become due) from the Gross Revenues, including as may be set forth in the Intercept Notice, the following amounts (the “Additional Rent”) for the payment of (1) all taxes and assessments of any type or nature charged to the Authority in respect of its interest under the Site Lease or payable by the Authority pursuant to the Site Lease, or the Sublessee or affecting the Site or the respective interests or estates of the Authority, the Lessor or the Sublessee therein, (2) all costs and expenses incurred by the Authority in connection with the execution, performance or enforcement of the Sublease, the Site Lease and the Indenture, in connection with its interest in the Site and the sublease of the Site to the Sublessee, including but not limited to payment of all fees, costs and expenses and all administrative costs of the Authority related to the Site including, without limiting the generality of the foregoing,

C-43

salaries and wages of employees, all expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture, fees of auditors, accountants, attorneys or architects, and all other necessary administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Indenture and the Site Lease, and (3) all other payments required to be paid by the Sublessee under the provisions of the Sublease or the Indenture or the Authority under the Site Lease, including reimbursement to the Lessor of all taxes and assessments of any type or nature or payment obligations of any kind, including obligations to indemnify the Authority, incurred by or charged to the Lessor; but not including in Additional Rent amounts required to pay the principal component or interest component of the Base Rental Payments. Such Additional Rent shall be billed to the Sublessee by the Authority or the Trustee from time to time, together with a statement certifying that the amount billed has been paid by such party for one or more of the items above described, or that such amount is then payable by such party for such items. All such payments shall be made by the Sublessee from the Gross Revenues for payment to the Person or Persons entitled to such payments or for deposit to the appropriate fund or account held by the Trustee under the Indenture.

Maintenance; Alterations and Additions; Assumption of Site Lease Performance and Obligations

Maintenance and Utilities. During the term of the Sublease, all maintenance, repair and replacements, both ordinary and extraordinary, of the Site shall be the sole responsibility of the Sublessee, which shall at all times maintain or otherwise arrange for the maintenance of the Site in first class condition, and the Sublessee shall pay for or otherwise arrange for the payment of all utility services supplied to the Site, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, ventilation, air conditioning, water and allother utility services, and shall pay for or otherwise arrange for payment of the cost of the repair and replacement of the Site resulting from ordinary wear and tear or want of care on the part of the Sublessee or any assignee or sublessee thereof or from any other cause and shall pay for or otherwise arrange for the payment of all insurance policies required to be maintained with respect to the Site. In exchange for the rent provided in the Sublease, the Authority agrees to provide only the Site, including the Demised Premises.

Changes to the Site. Without limiting the provisions of the Sublease summarized under the subcaption “–Covenants – Liens,” the Sublessee shall, at its own expense, have the right to remodel the Site or to make additions, modifications and improvements to the Site, including the Demised Premises. All such additions, modifications and improvements shall thereafter comprise part of the Site and be subject to the provisions of the Sublease. Such additions, modifications and improvements shall not in any way damage the Site or cause it to be used for purposes other than those authorized under the provisions of state and federal law and the Sublease; and the Site, upon completion of any additions, modifications and improvements made pursuant to the provisions summarized in this paragraph, shall be of a value which is at least equal to the value of the Site immediately prior to the making of such additions, modifications and improvements.

Installation of Sublessee’s Equipment. The Sublessee may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed other items of equipment or other personal property in or upon the Site, including the Demised Premises. All such items shall remain the sole property of the Sublessee, in which neither the Authority nor the Trustee shall have any interest, and such items may be modified or removed by the Sublessee at any time provided that such party shall repair and restore any and all damage to the Site resulting from the installation, modification or removal of any such items. Nothing in the Sublease shall prevent the Sublessee from purchasing items to be installed pursuant to the provisions of the Sublease summarized in this paragraph under a conditional sale or lease purchase contract, or subject to a vendor’s lien or security agreement as security for the unpaid portion of the purchase price thereof, provided that no such lien or security interest shall attach to any part of the Site.

Assumption of Site Lease Performance and Obligations. Except for performance under the Site Lease relating to the Authority’s payment of rent, the Sublessee pursuant to the Sublease assumes all of the Authority’s performance under the Site Lease and all obligations the Authority may have by virtue of the Site Lease or as tenant thereunder (by operation of law or otherwise) for the benefit of the Authority and the lessor under the Site Lease. Sublessee acknowledges that in entering into the Site Lease and the Sublease, the Authority is relying on such assumption by Sublessee of such performance and obligations under the Site Lease and that all parties to the Site Lease and the Sublease contemplate the delegation of such performance and obligations to Sublessee and a complete release of the Authority in respect of such performance and obligations.

C-44

Maintenance of Site Lien-Free. The Sublesee shall not encumber the Site, except for Permitted Encumbrances, as long as the Sublease is in full force and effect.

Insurance

Fire and Extended Coverage Insurance. The Sublessee shall procure or cause to be procured and maintain or cause to be maintained, throughout the term of the Sublease, insurance against loss or damage to any structures constituting any part of the Site by fire and lightning, with extended coverage insurance, vandalism and malicious mischief insurance and sprinkler system leakage insurance and earthquake insurance (provided with respect to earthquake insurance, only if available on the open market from reputable insurance companies at a reasonable cost, as determined by the Sublessee in its commercially reasonable judgment). Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance shall be in an amount equal to the replacement cost (without deduction for depreciation) of all structures constituting any part of the Site, excluding the cost of excavations, of grading and filling, and of the land (except that such insurance may be subject to deductible clauses for any one loss of not to exceed $100,000 or comparable amount adjusted for inflation or more in the case of earthquake insurance), or, in the alternative, shall be in an amount and in a form sufficient (together with moneys held under the Indenture), in the event of total or partial loss, to enable all outstanding obligations under the Sublease to be paid.

In the event of any damage to or destruction of any part of the Site caused by the perils covered by such insurance, the Sublessee, except as provided in the Sublease, shall cause the proceeds of such insurance to be utilized for the repair, reconstruction or replacement of the damaged or destroyed portion of the Site, and the Trustee shall hold said proceeds separate and apart from all other funds, in a special fund to be designated the “Insurance and Condemnation Fund,” to the end that such proceeds shall be applied to the repair, reconstruction or replacement of the Site to at least the same good order, repair and condition as they were in immediately prior to the damage or destruction, insofar as the same may be accomplished by the use of said proceeds. The Trustee shall permit withdrawals of said proceeds from time to time upon receiving the written Request of the Sublessee, stating that the Sublessee has expended moneys or incurred liabilities in an amount equal to the amount therein requested to be paid over to it for the purpose of repair, reconstruction or replacement, and specifying the items for which such moneys were expended, or such liabilities were incurred. Such written Requests of the Sublessee shall be accompanied by the third party invoice or payment request related to the items for which such moneys were expended. Each written Request of the Sublessee shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. Any balance of said proceeds not required for such repair, reconstruction or replacement shall be treated by the Trustee as Base Rental Payments and applied in the manner provided by the Indenture. In that event the Base Rental Payments shall be adjusted to reflect payments on the remaining portion of the Site, and the Sublessee shall deliver a new Base Rental Payment schedule to the Trustee and the Authority, provided that the Base Rental Payments shall not be less than the amount necessary to make all necessary and appropriate payments under the Site Lease.

The Sublessee shall promptly apply for federal disaster aid or State disaster aid in the event that the Site is damaged or destroyed as a result of an earthquake occurring at any time. Any proceeds received as a result of such disaster aid shall be used to repair, reconstruct, restore or replace the damaged or destroyed portions of the Facility.

Liability Insurance. Except as provided in the Sublease, the Sublessee shall procure or cause to be procured and maintain or cause to be maintained, throughout the term of the Sublease, a standard comprehensive general liability insurance policy or policies in protection of the Authority and its members, directors, officers, agents and employees and the Trustee, indemnifying said parties against all direct or contingent loss or liability for damages for personal injury, death or property damage occasioned by reason of the operation of the Site and of the Project, with minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $200,000 for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance carried by the Sublessee.

Rental Interruption or Use and Occupancy Insurance. The Sublessee shall procure or cause to be procured and maintain or cause to be maintained, rental interruption or use and occupancy insurance to cover loss,

C-45

total or partial, of the rental income from or the use of the Site as the result of any of the hazards covered by the insurance required by the Sublease as summarized under the subcaption “– Fire and Extended Coverage Insurance” (provided with respect to earthquake insurance, only if available on the open market from reputable insurance companies at a reasonable cost, as determined by the Sublessee), in an amount sufficient to pay the part of the total rent under the Sublease attributable to the portion of the Site rendered unusable (determined by reference to the proportion which the cost of such portion bears to the cost of the Site) for a period of at least two years, except that such insurance may be subject to a deductible clause of not to exceed $250,000 or a comparable amount adjusted for inflation (or more in the case of earthquake coverage). Any proceeds of such insurance shall be used by the Trustee to reimburse to the Sublessee any rent theretofore paid by the Sublessee under the Sublease attributable to such structure for a period of time during which the payment of rent under the Sublease is abated, and any proceeds of such insurance not so used shall be applied as provided in the Sublease (to the extent required for the payment of Base Rental and to the extent required for the payment of Additional Rent) and any remainder shall be treated as Revenue under the Indenture.

Worker’s Compensation. The Sublessee shall at all times comply with the Workers’ Disability Compensation Act of the State, or any successor statute or statutes.

Title Insurance. The Sublessee shall obtain, for the benefit of the Authority, upon the execution and delivery of the Sublease, title insurance on the Site, in an amount equal to the total aggregate principal amount of the Bonds, issued by a company of recognized standing duly authorized to issue the same, subject only to Permitted Encumbrances.

Insurance Proceeds; Form of Policies. All policies of insurance required by the Sublease as summarized under the subcaptions “– Fire and Extended Coverage Insurance” and “– Rental Interruption or Use and Occupancy Insurance” shall name the Sublessee, the Authority, the Lessor, the holder of the Original Mortgage and the Trustee as additional insureds and shall contain a lender’s loss payable endorsement in favor of the Trustee substantially in accordance with the form approved by the Insurance Services Office and the California Bankers Association. The Trustee shall, to the extent practicable, collect, adjust and receive all moneys which may become due and payable under any such policies, may compromise any and all claims thereunder and shall apply the proceeds of such insurance as provided in the Sublease. All policies of insurance required by the Sublease shall provide that the Trustee, the Lessor and the holder of the Original Mortgage shall be given 30 days notice of each expiration thereof or any intended cancellation thereof or reduction of the coverage provided thereby. The Trustee shall not be responsible for the sufficiency of any insurance required in the Sublease and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the Sublessee. The Sublessee shall pay when due the premiums for all insurance policies required by the Sublease.

The Sublessee will deliver to the Authority, the Lessor, the holder of the Original Mortgage and the Trustee on or before November 1 in each year a written Certificate of an officer of the Sublessee stating whether such policies satisfy the requirements of the Sublease, setting forth the insurance policies then in force pursuant to the Sublease, the names of the insurers which have issued the policies, the amounts thereof and the property and risks covered thereby. Delivery to the Trustee of the certificate under the provisions summarized under this subcaption (“– Insurance Proceeds; Form of Policies”) shall not confer responsibility upon the Trustee as to the sufficiency of coverage or amounts of such policies. If so requested in writing by the Trustee, the Sublessee shall also deliver to the Trustee certificates or duplicate originals or certified copies of each insurance policy described in such schedule.

Any policies of insurance provided by a commercial insurer to satisfy the requirements of the Sublease summarized under the subcaptions “– Fire and Extended Coverage Insurance,” “– Liability Insurance” and “–Rental Interruption or Use and Occupancy Insurance” shall be provided by a commercial insurer rated A or better by Best or in one of the two highest rating categories by Standard & Poor’s or Moody’s.

Defaults and Remedies

Defaults and Remedies. (a) If the Sublessee shall fail to pay any rent payable under the Sublease when the same becomes due, time being expressly declared to be of the essence of the Sublease, or the Sublessee shall fail to keep, observe or perform any other term, covenant or condition contained in the Sublease to be kept or performed by the Sublessee for a period of 60 days after notice of the same has been given to the Sublessee by the Authority, to correct the same, or upon the happening of any of the events specified in paragraph (b) below (any such case above being an “Event of Default”), the Sublessee shall be deemed to be in default under the Sublease and it shall be lawful for the Authority to exercise any and all remedies available pursuant to law or granted pursuant to the

C-46

Sublease. Upon any such default, the Authority, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following:

(1) To terminate the Sublease in the manner provided in the Sublease on account of default by the Sublessee, notwithstanding any re-entry or re-letting of the Site as provided for in subparagraph (2) below, and to re-enter the Site and remove all persons in possession thereof and all personal property whatsoever situated upon the Site and place such personal property in storage in any warehouse or other suitable place located within Alameda County, California; provided, however, this Sublease shall not be terminated without the consent of the Trustee. In the event of such termination, the Sublessee agrees to surrender immediately possession of the Site, without let or hindrance, and to pay the Authority all damages recoverable at law that the Authority may incur by reason of default by the Sublessee, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon the Site and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions contained in the Sublease. Neither notice to pay rent or to deliver up possession of the Site given pursuant to law nor any entry or re-entry by the Authority nor any proceeding in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Site nor the appointment of a receiver upon initiative of the Authority to protect the Authority’s interest under the Sublease shall of itself operate to terminate the Sublease, and no termination of the Sublease on account of default by the Sublessee shall be or become effective by operation of law or acts of the parties to the Sublease, or otherwise, unless and until the Authority shall have given written notice to the Sublessee of the election on the part of the Authority to terminate the Sublease. The Sublessee covenants and agrees that no surrender of the Site or of the remainder of the term of the Sublease or any termination of the Sublease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Authority by such written notice.

(2) Without terminating the Sublease, (i) collect each installment of rent as it becomes due and enforce any other terms or provision of the Sublease to be kept or performed by the Sublessee, regardless of whether or not the Sublessee has abandoned the Site, or (ii) exercise any and all rights of entry and re-entry upon the Site. In the event the Authority does not elect to terminate the Sublease in the manner provided for in subparagraph (1) above, the Sublessee shall remain liable and agrees to keep or perform all covenants and conditions contained in the Sublease to be kept or performed by the Sublessee and, if the Site is not re-let, to pay the full amount of the rent to the end of the term of the Sublease or, in the event that the Site is re-let, to pay any deficiency in rent that results therefrom; and further agrees to pay said rent and/or rent deficiency punctually at the same time and in the same manner as provided in the Sublease for the payment of rent under the Sublease (without acceleration), notwithstanding the fact that the Authority may have received in previous years or may receive thereafter in subsequent years rent in excess of the rent specified in the Sublease, and notwithstanding any entry or re-entry by the Authority or suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such entry or re-entry or obtaining possession of the Site. Should the Authority elect to enter or re-enter as provided in the Sublease, the Sublessee pursuant to the Sublease irrevocably appoints the Authority as the agent and attorney-in-fact of the Sublessee to re-let the Site, or any part thereof, from time to time, either in the Authority’s name or otherwise, upon such terms and conditions and for such use and period as the Authority may deem advisable, and to remove all persons in possession thereof and all personal property whatsoever situated upon the Site and to place such personal property in storage in any warehouse or other suitable place located in the County of Alameda, California, for (to the extent permitted by law) the account of and at the expense of the Sublessee, and the Sublessee (to the extent permitted by law) pursuant to the Sublease exempts and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon and re-letting of the Site and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions contained in the Sublease. The Sublessee agrees that the terms of the Sublease constitute full and sufficient notice of the right of the Authority to re-let the Site and to do all other acts to maintain or preserve the Site as the Authority deems necessary or desirable in the event of such re-entry without effecting a surrender of the Sublease, and further agrees that no acts of the Authority in effecting such re-letting shall constitute a surrender or termination of the Sublease irrespective of the use or the term for which such re-letting is made or the terms and conditions of such re-letting, or otherwise, but that, on the contrary, in the event of such default by the Sublessee the right to terminate the Sublease shall vest in the Authority to be effected in the sole and exclusive manner provided for in sub-paragraph (1) above. The Sublessee further waives the right to any rent obtained by the Authority in excess of the rent specified in the Sublease and pursuant to the Sublease conveys and releases such excess to the Authority as compensation to the Authority for its services in re-letting the Site or any part thereof. The Sublessee further agrees to the extent permitted by law to pay the Authority the reasonable cost of any

C-47

alterations or additions to the Site necessary to place the Site in condition for re-letting immediately upon notice to the Sublessee of the completion and installation of such additions or alterations.

The Sublessee pursuant to the Sublease waives any and all claims for damages caused or which may be caused by the Authority in re-entering and taking possession of the Site as provided in the Sublease and all claims for damages that may result from the destruction of or injury to the Site and all claims for damages to or loss of any property belonging to the Sublessee, or any other person, that may be in or upon the Site, except for such claims resulting from the intentional or grossly negligent actions of the Authority or its agents.

(b) If (1) the Sublessee’s interest in the Sublease or any part thereof be assigned or transferred, either voluntarily or by operation of law or otherwise, without the written consent of the Trustee, as provided for in the Sublease, (2) an event of default occurs under the Loan Agreement, or (3) the Sublessee or any assignee shall file any petition or institute any proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such act or acts, either as a bankrupt or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby the Sublessee asks or seeks to be adjudicated a bankrupt, or is to be discharged from any or all of the Sublessee’s debts or obligations, or offers to the Sublessee’s creditors to effect a composition or extension of time to pay the Sublessee’s debts or asks or seeks for reorganization or to effect a plan of reorganization, or for a readjustment of the Sublessee’s debts, or for any other similar relief, or if any such petition or any such proceedings of the same or similar kind or character be filed or be instituted or taken against the Sublessee, or if a receiver of the business or of the property or assets of the Sublessee shall be appointed by any court, except a receiver appointed at the instance or request of the Authority, or if the Sublessee shall make a general or any assignment for the benefit of the Sublessee’s creditors, or if (3) the Sublessee shall abandon or vacate the Site, then the Sublessee shall be deemed to be in default under the Sublease.

(c) The Authority shall in no event be in default in the performance of any of its obligations under the Sublease or imposed by any statute or rule of law unless and until the Authority shall have failed to perform such obligations within 60 days or such additional time as is reasonably required to correct any such default after notice by the Sublessee to the Authority properly specifying wherein the Authority has failed to perform any such obligation. In no event may the Sublessee terminate this Sublease, offset or abate Base Rental Payments, or recover incidental, consequential, or punitive damages based on a claimed default by the Authority.

(d) In addition to the other remedies set forth in the Sublease, upon the occurrence of an Event of Default as described in the Sublease, the Authority shall be entitled to proceed to protect and enforce the rights vested in the Authority by the Sublease or by law. The provisions of the Sublease and the duties of the Sublessee and of its trustees, officers or employees shall be enforceable by the Authority by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Authority shall have the right to bring the following actions:

(1) Accounting. By action or suit in equity to require the Sublessee and its board members, officers and employees and its assigns to account as the trustee of an express trust.

(2) Injunction. By action or suit in equity to enjoin any acts or things which may be unlawful or in violation of the rights of the Authority.

(3) Mandamus. By mandamus or other suit, action or proceeding at law or in equity to enforce the Authority’s rights against the Sublessee (and its board members, officers and employees) and to compel the Sublessee to perform and carry out its duties and obligations under the law and its covenants and agreements with the Sublessee as provided in the Sublease.

Each and all of the remedies given to the Authority under the Sublease or by any law now or hereafter enacted are cumulative and the single or partial exercise of any right, power or privilege under the Sublease shall not impair the right of the Authority to other or further exercise thereof or the exercise of any or all other rights, powers or privileges. The term “re-let” or “re-letting” as used under this subcaption (“– Defaults and Remedies”) shall include, but not be limited to, re-letting by means of the operation by the Authority of the Site. If any statute or rule of law validly shall limit the remedies given to the Authority under the Sublease, the Authority nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law.

Any moneys received by the Trustee after an Event of Default shall be applied first to the payment of all fees and expenses of the Trustee and the fees and expenses of its counsel incurred in representing the Owners as provided in the Trust Agreement.

C-48

Waiver. Failure of the Authority to take advantage of any default on the part of the Sublessee shall not be, or be construed as, a waiver thereof, nor shall any custom or practice which may grow up between the parties in the course of administering this instrument be construed to waive or to lessen the right of the Authority to insist upon performance by the Sublessee of any term, covenant or condition of the Sublease, or to exercise any rights given the Authority on account of such default. A waiver of a particular default shall not be deemed to be a waiver of a similar or any subsequent default. The acceptance of rent under the Sublease shall not be, or be construed to be, a waiver of any term, covenant or condition of the Sublease.

Eminent Domain; Prepayment

Eminent Domain. In the event the whole or any part of the Demised Premises or the Site is taken by eminent domain proceedings, the interest of the Sublessee shall be recognized and disposition of eminent domain proceedings shall be governed by the Loan Agreement.

Prepayment. (a) Extraordinary Optional Prepayment from Insurance and Condemnation Proceeds. The Sublessee shall prepay on any date from insurance (including proceeds of title insurance) and eminent domain proceeds not applied for the replacement, repair or restoration of the damaged, destroyed, taken or affected portion of the Site, to the extent provided in the provisions of the Sublease summarized under “– Insurance – Fire and Extended Coverage Insurance” and “– Eminent Domain; Prepayment – Eminent Domain,” so much as it can of the principal component of Base Rental Payments then unpaid to the date of prepayment.

(b) Extraordinary Optional Prepayment in Part from Amounts Transferred from Project Fund. The Sublessee may prepay the Sublease prior to the Lease Expiration Date in part at any time in a principal amount corresponding to amounts transferred from the Project Fund pursuant to the Indenture and used to redeem Bonds at the option of the Borrower pursuant to the Indenture.

(c) Optional Prepayment. The Sublessee may prepay, prior to the Lease Expiration Date, the principal component of the Base Rental Payments, in whole or in part on any date on or after June 1, 2022, from any amounts in the Prepayment Fund and used to redeem Bonds at the option of the Sublessee pursuant to the Indenture, at a prepayment price equal to 100% of the principal amount of the Bonds called for redemption, plus accrued interest to the date fixed for redemption.

Covenants

Right of Entry. Both the Authority and its assignees shall have the right to enter upon and to examine and inspect the Site, including the Demised Premises, during reasonable business hours (and in emergencies at all times) (a) to inspect the same, (b) for any purpose connected with the Authority’s or the Sublessee’s rights or obligations under the Sublease, and (c) for all other lawful purposes. The Lessor shall have the right to enter upon and examine and inspect and repair the Site as set forth in the Site Lease.

Liens. In the event the Sublessee shall at any time during the term of the Sublease cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Site, the Sublessee shall pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to or for the Sublessee in, upon or about the Site and shall keep the Site free of any and all mechanics’ or materialmen’s liens or other liens against the Site or the Authority’s interest therein. In the event any such lien attaches to or is filed against the Site or the Authority’s interest therein, the Sublessee shall cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that if the Sublessee desires to contest any such lien it may do so in good faith. If any such lien shall be reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and said stay thereafter expires, the Sublessee shall forthwith pay and discharge said judgment. The Sublessee agrees to and shall, to the maximum extent permitted by law, indemnify and hold the Authority, the Lessor and the Trustee and their respective members, directors, agents, successors and assigns, harmless from and against, and defend each of them against, any claim, demand, loss, damage, liability or expense (including attorney’s fees) as a result of any such lien or claim of lien against the Site or the Authority’s interest therein.

Quiet Enjoyment. The parties to the Sublease mutually covenant that the Sublessee, by keeping and performing the covenants and agreements contained in the Sublease and not in default under the Sublease, shall at

C-49

all times during the term of the Sublease peaceably and quietly have, hold and enjoy the Site, including the Demised Premises without suit, trouble or hindrance from the Authority.

Authority and Lessor Not Liable. The Authority and its members, directors, officers, agents and employees shall not be liable to the Sublessee or to any other party whomsoever for any death, injury or damage that may result to any person or property by or from any cause whatsoever in, on or about the Site or the Project. The Sublessee, to the extent permitted by law, shall indemnify and hold the Authority and the Lessor and their respective members, directors, officers, agents and employees, harmless from, and defend each of them against, any and all claims, liens and judgments arising from the construction or operation of the Site or the Project, including, without limitation, death of or injury to any person or damage to property whatsoever occurring in, on or about the Site or the Project regardless of responsibility for negligence, but excepting the gross negligence or willful misconduct of the person or entity seeking indemnity.

Assignment and Subleasing. (a) Neither the Sublease nor any interest of the Sublessee under the Sublease shall be mortgaged, pledged, assigned, sublet or transferred by the Sublessee by voluntary act or by operation of law or otherwise; except pursuant to the Deeds of Trust. This Site may not be sublet, either in whole or in part, by voluntary act or by operation of law. No such mortgage, pledge, assignment, sublease or transfer shall in any event affect or reduce the obligation of the Sublessee to make the Base Rental Payments and Additional Rent required under the Sublease. Nothing in the Sublease restricts the ability of the Authority or the Sublessee to undertake transactions under any school facilities funding programs of the State (including without limitation the Charter School Facilities Program described at Education Code, section 17078.52 et seq.), including any liens or other encumbrances contemplated by such programs. Any purported mortgage, pledge, assignment, sublease or transfer in violation of the provisions summarized in this paragraph is void. Notwithstanding the above, any assignment or sublease made pursuant to or subsequent to a foreclosure of the Deeds of Trust shall be permitted without consent.

(b) There shall be no merger of the Sublease with the Authority’s estate in the Demised Premises by reason of the fact that the Sublessee’s interest in the Sublease or any interest in the Demised Premises may be held, directly or indirectly, by or for the account of any person or persons who shall hold the Authority’s estate in the Demised Premises, and no such merger shall occur unless and until all persons at the time having an interest in the Authority’s estate in the Demised premises, and all persons (including each holder of the Deeds of Trust) having an interest in the Sublease or in the estate of the Sublessee shall join in a written instrument effecting such merger and shall duly record the same.

Title to Site. Upon the termination or expiration of the Site Lease, the Authority shall execute such conveyances and other documents requested by the Sublessee and approved by the Trustee as may be necessary to evidence termination or expiration of the Site Lease. Upon the termination or expiration of the Sublease, the Sublessee shall execute such conveyances and other documents requested by the Lessor and approved by the Trustee as may be necessary to evidence the termination or expiration of the Sublease. Actual expiration or termination of the Site Lease or the Sublease is not contingent on delivery of such evidence. The Sublessee shall accept the fee title to the Site upon the termination or expiration of the Site Lease.

Tax Covenants of the Sublessee. (a) The Sublessee shall not take any action or inaction, or fail to take any action, or permit any action to be taken on its behalf or cause or permit any circumstances within its control to arise or continue, if such action or inaction would cause the interest on the Bonds to not be excluded from gross income for federal income tax purposes under the Code. Without limiting the generality of the forgoing, the Sublessee shall comply with the instructions and requirements of the Tax Certificate, which is incorporated in the Sublease as if fully set forth in the Sublease. This covenant shall survive payment in full or defeasance of the Bonds.

(b) In the event that at any time the Sublessee is of the opinion that for purposes of the provisions of the Sublease relating to tax covenants of the Sublessee it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee under the Indenture, the Sublessee shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions.

(c) Notwithstanding any provisions of the Sublease relating to tax covenants of the Sublessee, if the Sublessee shall provide to the Trustee an opinion of Bond Counsel that any specified action required under such provisions is no longer required or that some further or different action is required in order for the interest on the Bonds to be excluded from gross income for federal income tax purposes under the Code, the Trustee may conclusively rely on such opinion in complying with the requirements of such provisions, and the covenants under the Sublease shall be deemed to be modified to that extent.

C-50

Tax Covenants of the Authority. (a) The Authority shall not take any action or inaction, or fail to take any action, or permit any action to be taken on its behalf or cause or permit any circumstances within its control to arise or continue, if such action or inaction would cause the interest on the Bonds to not be excluded from gross income for federal income tax purposes under the Code. Without limiting the generality of the forgoing, the Authority shall comply with the instructions and requirements of the Tax Certificate, which is incorporated in the Sublease as if fully set forth in the Sublease. This covenant shall survive payment in full or defeasance of the Bonds.

(b) In the event that at any time the Authority is of the opinion that for purposes of the provisions of the Sublease relating to the tax covenants of the Authority it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee under the Sublease, the Authority shall so instruct the Trustee, in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions.

(c) Notwithstanding any provisions of the provisions of the Sublease relating to the tax covenants of the Authority, if the Sublessee shall provide to the Trustee an opinion of Bond Counsel that any specified action required under such provisions is no longer required or that some further or different action is required in order for the interest on the Bonds to be excluded from gross income for federal income tax purposes under the Code, the Trustee may conclusively rely on such opinion in complying with the requirements of such provisions, and the covenants under the Sublease shall be deemed to be modified to that extent.

Continuing Disclosure. The Sublessee pursuant to the Sublease covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Sublease or the Indenture, failure of the Borrower or the Dissemination Agent to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default under the Sublease or under the Indenture; however any Bondholder or Beneficial Owner may take, and the Trustee shall, at the written request of the Holders of at least 25% aggregate principal amount in Outstanding Bonds, and upon provision of indemnification satisfactory to the Trustee, take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Borrower to comply with its obligations summarized in this paragraph.

Taxes. The Sublessee shall pay or cause to be paid all taxes and assessments of any type or nature charged to the Sublessee, the Lessor, the Authority or the Trustee or affecting the Site or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Sublessee shall be obligated to pay only such installments as are required to be paid during the term of the Sublease as and when the same become due.

The Sublessee shall also pay directly such amounts, if any, in each year as shall be required by the Authority for the payment of all license and registration fees and all taxes (including, without limitation, income, excise, license, franchise, capital stock, recording, sales, use, value-added, property, occupational, excess profits and stamp taxes), levies, imposts, duties, charges, withholdings, assessments and governmental charges of any nature whatsoever, together with any additions to tax, penalties, fines or interest thereon, including, without limitation, penalties, fines or interest arising out of any delay or failure by the Sublessee to pay any of the foregoing or failure to file or furnish to the Authority or the Trustee for filing in a timely manner any returns, levied or imposed in the Sublease against the Authority or the Site, the rents and other payments required under the Sublease or any parts thereof or interests of the Sublessee or the Authority or the Trustee therein by any governmental authority.

The Sublessee may, at the Sublessee’s expense and in its name, in good faith contest any such taxes, assessments and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom if the Sublessee provides evidence satisfactory to the Trustee that there will be no loss (including, without limitation, no material endangerment of, or the Authority’s interest in, the Site or any part thereof or loss or forfeiture thereof) as a result from nonpayment.

Neither the Authority nor the Lessor has any obligation hereunder to pay any of the foregoing amounts.

Indenture. The Sublessee covenants to undertake every obligation set forth as its responsibility in the Indenture.

Purpose of Sublease. The Sublessee covenants that during the term of the Sublease, except as provided in the Sublease, (a) it will use, or cause the use of, the Site for public purposes and for the purposes for which the Site is customarily used and only as an “educational facility” as defined in the Act, (b) it will not vacate or abandon the

C-51

Site or any part thereof, and (c) it will not make any use of the Site which would jeopardize in any way the insurance coverage required to be maintained pursuant to the Sublease.

Disclaimer of Warranties; Vendor’s Warranties; Use of the Site

Disclaimer of Warranties. The Authority makes no agreement, warranty or representation, either express or implied, as to the value, design, condition, merchantability, fitness for particular purpose of fitness for use of the Site or the Project, or warranty with respect thereto. The Sublessee acknowledges that the Authority is not a manufacturer of the Site or the Project or a dealer therein, that the Sublessee leases the Site as-is, it being agreed that all of the aforementioned risks are to be borne by the Sublessee. In no event shall the Authority or it assigns be liable for any incidental, indirect, special or consequential damage in connection with or arising out of the Sublease or the existence, furnishing, functioning or the Sublessee’s use of any item or products or services provided for in the Sublease.

Vendor’s Warranties. The Sublessee’s sole remedy for the breach of warranties of the Site or the Project by the manufacturers, vendors and contractors of the Site or the Project, indemnification or representation thereby shall be against the manufacturer or vendor or contractor of the Site or of the Project, and not against the Authority, nor shall such matter have any effect whatsoever on the rights and obligations of the Authority with respect to the Sublease, including the right to receive full and timely payments under the Sublease. The Sublessee expressly acknowledges that the Authority makes, and has made, no representation or warranties whatsoever as to the existence or availability of such warranties of the manufacturer, vendor or contractor.

Use of the Site. The Sublessee will not install, use, operate or maintain the Site improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by the Sublease. The Sublessee shall provide all permits and licenses, if any, necessary for the installation and operation of the Facility. In addition, the Sublessee agrees to comply in all respects (including, without limitation, with respect to the use, maintenance and operation of the Site) with all laws of the jurisdictions in which its operations may extend and any legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Site; provided, however, that the Sublessee may contest in good faith the validity or application of any such law or rule in any reasonable manner which does not, in the opinion of the Authority, adversely affect the estate of the Authority in and to the Site or its interest or rights under the Sublease.

Miscellaneous

Law Governing. The Sublease shall be construed in accordance with and governed by the Constitution and laws of the State applicable to contracts made and performed in the State. The Sublease shall be enforceable in the State, and any action arising out of the Sublease shall be filed and maintained in the Sacramento County Superior Court, Sacramento, California, unless the Authority waives this requirement.

Non-Liability Of Authority. The Authority shall not be obligated to pay the principal of, or premium, if any, or interest on the Bonds, except from certain Payments. The Sublessee pursuant to the Sublease acknowledges that the Authority’s sole source of moneys to pay the Bonds will be provided by the payments made by the Sublessee pursuant to the Sublease, together with other Payments and investment income on certain funds and accounts held by the Trustee under the Indenture, and pursuant to the Sublease agrees that if the payments to be made under the Sublease shall ever prove insufficient to pay all amounts due under the Bonds as the same shall become due, then upon notice from the Trustee, the Sublessee shall pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal, premium or interest, including, but not limited to, any deficiency caused by acts, omissions, nonfeasance or malfeasance on the part of the Trustee, the Sublessee, the Authority or any third party.

Liability of Authority Limited to Payments. Notwithstanding anything in the Sublease or in the Bonds contained, the Authority shall not be required to advance any moneys derived from any source other than the Payments and other assets pledged under the Indenture for any of the purposes in the Indenture mentioned, whether for the payment of the principal of or interest on the Bonds or for any other purpose of the Indenture. Nevertheless, the Authority may, but shall not be required to, advance for any of the purposes of the Sublease any funds of the Authority which may be made available to it for such purposes. Neither the full faith and credit nor the taxing power of the State of California or any political subdivision thereof or any local agency is pledged to the payment of the principal of, premium, if any, or interest on the Bonds. The Authority shall not be liable for any costs, expenses, losses, damages, claims or actions, of any conceivable kind on any conceivable theory, under or by reason of or in

C-52

connection with the Sublease, the Site Lease, the Bonds or the Indenture, except only to the extent amounts are received for the payment thereof from the Sublessee under the Sublease.

Waiver of Personal Liability. No member, officer, agent or employee of the Authority or any director, officer, agent or employee of the Sublessee shall be individually or personally liable for the payment of any principal (redemption price) or interest on the Bonds or any sum under the Sublease or under the Indenture be subject to any personal liability or accountability by reason of the execution and delivery of the Sublease or the Site Lease; but nothing contained in the Sublease shall relieve any such member, director, officer, agent or employee from the performance of any official duty provided by law or by the Sublease or the Site Lease.

Net-Net-Net Lease. The Sublease shall be deemed and construed to be a “net-net-net lease” and the Sublessee pursuant to the Sublease agrees that the rents provided for in the Sublease shall be an absolute net return to the Authority, free and clear of any expenses, charges or set-offs whatsoever.

Amendment or Termination. The Authority and the Sublessee may at any time agree to the amendment or termination of the Sublease; provided, however, that the Authority and the Sublessee agree and recognize that payments under the Sublease have been pledged to the Trustee in accordance with the terms of the Indenture, and accordingly, that any such amendment or termination shall only be made or effected in accordance with and subject to the terms of the Indenture, and no amendment or termination shall be effected without the prior written consent of the Trustee. The obligations hereunder of the Sublessee to indemnify any party shall survive the termination of the Sublease.

No Prevailing Party Costs. Nothing in the Sublease shall be construed to provide for award of attorneys’ fees and costs to the Authority or the Sublessee for the enforcement of the Sublease or the Site Lease as described in Section 1717 of the Civil Code. Nothing in this Section affects the rights of the Trustee provided herein or in the Indenture.

Intercreditor Agreement and Subordination Agreement. The Sublessee approves the terms and provisions of the Intercreditor Agreement and the Subordination Agreement and, to the extent applicable, agree to be bound by such terms and to perform all obligations of the Sublessee set forth in the Intercreditor Agreement and the Subordination Agreement. Such terms and provisions include, among others, an agreement by the Sublessee that in the event of a conflict of provisions between the Sublease and the Intercreditor Agreement and/or the Subordination Agreement, the terms of the Intercreditor Agreement and/or Subordination Agreement, as applicable, shall control and govern. Nothing in this section is meant to limit or modify the provisions of the Sublease.

Consent of Bondholders. For all purposes of the Sublease, any consent, request, direction, approval, objection or other instrument or action required or permitted by the Sublease to be executed or taken by any Bondholder (other than the transfer of a Bond) shall be fully effective if executed or taken by the Beneficial Owner thereof provided that, in the event of conflicting instruments executed by the Bondholder and the Beneficial Owner, the action of the registered Bondholder shall govern. The Trustee and the Authority may accept a certification by a Beneficial Owner of Bonds of its status as such in the instrument providing any consent, request, direction, approval, objection or other instrument or action under the Sublease and the Trustee will not be liable for reliance on such certification.

Execution. The Sublease may be executed in any number of counterparts, each of which shall be deemed to be an original, but all together shall constitute but one and the same Sublease. It is also agreed that separate counterparts of the Sublease may separately be executed by the Authority and the Sublessee, all with the same force and effect as though the same counterpart had been executed by both the Authority and the Sublessee.

C-53

THE ASSIGNMENT AGREEMENT

Pursuant to the Assignment Agreement, the Authority, for good and valuable consideration, the receipt of which is acknowledged pursuant to the Assignment Agreement, does sell, assign and transfer to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the owners of the Bonds, all of its right, title and interest in and to the Site Lease and the Sublease, including, without limitation, its right to receive the Base Rental Payments to be paid by the Sublessee under and pursuant to the Sublease; provided, however, that the Authority shall retain the Retained Rights. The assignment is absolute and is presently effective. Upon execution of the Assignment Agreement, the Authority shall have no right, title or interest in or to the Base Rental Payments, the Sublease or the Site Lease except for Retained Rights. All rights assigned by the Authority shall be administered by the Trustee in accordance with the provisions of the Indenture.

C-54

INTERCREDITOR AGREEMENT

Definitions

Unless the context otherwise requires, the provisions summarized under this caption (“INTERCREDITOR AGREEMENT”) have the meanings specified below. Capitalized terms not otherwise defined below shall have the meanings assigned to such terms in the Indenture as summarized under “DEFINITIONS” herein.

a. “Insolvency Event” means, with respect to Borrower, (a) the filing of a decree or order for relief by a court having jurisdiction with respect to Borrower or any substantial part of its assets or property in an involuntary case under any applicable Insolvency Law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for Borrower or for any substantial part of its assets or property, or ordering the winding-up or liquidation of Borrower’s affairs, and such decree or order shall remain unstayed and in effect for a period of thirty (30) days, (b) the commencement by Borrower of a voluntary case under any applicable Insolvency Law now or hereafter in effect, (c) the consent by Borrower to the entry of an order for relief in an involuntary case under any Insolvency Law, (d) the consent by Borrower to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for Borrower or for any substantial part of its assets or property, (e) the making by Borrower of any general assignment for the benefit of creditors, (f) the admission in a legal proceeding of the inability of Borrower to pay its debts generally as they become due, (g) the failure by Borrower generally to pay its debts as they become due, or (h) the taking of action by Borrower in furtherance of any of the foregoing.

b. “Insolvency Laws” means Title 11 of the United States Code and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments and similar debtor relief laws from time to time in effect affecting the rights of creditors generally.

c. “Mortgage Lender” means the holder of the mortgage loans with Montevina Phase I, LLC and Montevina Phase II, LLC entered into in connection with the original development of the Montevina Campus.

d. “Payment or Distribution” means with respect to indebtedness or obligations of any Person, (i) deliveries of cash, securities or other property on or in respect of such indebtedness or as a result of rescission or damages in respect of such indebtedness or obligations, or (ii) deliveries of cash, securities or other property made on or in respect of the purchase, repurchase, redemption or other acquisition of such indebtedness or obligations, in each case whether received through a direct payment, setoff, foreclosure, a deed in lieu of foreclosure, judgment lien, casualty insurance proceeds or in any other manner.

e. “Senior Indebtedness” means, for any period, all Loan Repayments and Additional Payments payable by the Borrower pursuant to the Senior Loan Agreement and all Base Rental Payments and Additional Rent payable by the Borrower pursuant to the Senior Sublease Agreement, and any other sums payable from time to time by Borrower pursuant to the Senior Documents. “Senior Indebtedness” shall include any amounts owing pursuant to any amendments, deferrals, extensions, modifications, increases, renewals, replacements, consolidations, supplements, refundings or waivers of the Senior Bonds or any Senior Document permitted by Section 5 hereof.

f. “Subordinated Indebtedness” means, for any period, (i) all Base Rental Payments and Additional Rent payable by the Borrower pursuant to the Subordinate Sublease Agreement, whether payable directly or indirectly to Montevina or the Mortgage Lender, and (ii) any indebtedness or obligations of Montevina to the Mortgage Lender, including the indebtedness secured by the Mortgage Lender Documents, and (iii) all obligations of Borrower under the Subordinate Documents, as they may be amended.

g. “Subordinated Lender” or “Montevina” means Montevina Phase II, LLC.

C-55

h. “Subordinated Lender Remedies” means any action to commence, advance or consummate (a) the sale, foreclosure, realization on or liquidation of any collateral for the Subordinated Indebtedness, (b) the execution on any judgment obtained against the Borrower, (c) the filing of, or joining with any others in filing, any (i) petition or lien under any bankruptcy, insolvency or creditors’ rights laws with respect to the Borrower or (ii) application for or the appointment of any administrator under any bankruptcy, insolvency or creditors’ rights laws with respect to the Borrower, or (d) a demand for payment, exercise of any put right, or institution or exercise against the Borrower of any suit, legal action, arbitration, set-off or other enforcement remedy in respect of the Subordinated Indebtedness or otherwise available to the Subordinated Lender or the Mortgage Lender under the Subordinate Documents or the Mortgage Lender Documents, or otherwise available under applicable law or at equity or pursuant to any other instrument or document.

Subordination, Liens

On and subject to the terms and to the extent and in the manner set forth in the Intercreditor Agreement, the payment of the Subordinated Indebtedness of the Borrower is and shall be expressly subordinate and junior in right of payment and exercise of remedies to the prior indefeasible payment in full in cash of the Senior Indebtedness, and the Subordinated Indebtedness of the Borrower is hereby subordinated as a claim against the Borrower or any of their assets to such extent and in such manner to the prior indefeasible payment in full in cash of the Senior Indebtedness. Except as expressly set forth in Permitted Payment Section of the Intercreditor Agreement, unless and until all Senior Indebtedness has been indefeasibly and fully paid and satisfied in cash, the Borrower shall not pay and the Subordinate Paying Agent and Subordinated Lender and the Mortgage Lender shall not ask for, demand, accept or receive, by direct or indirect payment, by setoff or in any other manner, from the Borrower the whole or any part of any sums which may now or hereafter be owing to Subordinated Lender or the Mortgage Lender in respect of the Subordinated Indebtedness, or any of their predecessors, successors or assigns, including, without limitation, a receiver, trustee or debtor in possession under or in connection with the Subordinated Indebtedness.

Permitted Payments

The Borrower agrees not to make, and no holder of Subordinated Indebtedness shall accept or receive any Payment or Distribution from Borrower on or in respect of Subordinated Indebtedness, of any kind or character (including cash, securities or other property but excluding Costs and Expenses, as hereinafter defined), including by way of setoff or otherwise, except that, provided the Borrower has not defaulted in any of its obligations to pay interest or principal on the Senior Bonds under the Senior Documents, (i) all or any portion of the Subordinated Indebtedness may be paid to the Mortgage Lender and/or the Subordinate Lender on or after the Lease Expiration Date (as defined in the Subordinate Sublease Agreement, and as it may be extended in accordance with Section 2.02 thereof), to the extent of “Net Revenues” (as defined in the Subordinate Sublease Agreement) and deposits into the Subordinate Revenue Fund after deducting any amounts to be deposited in the Liquidity Fund in accordance with the Senior Loan Agreement, and (ii) payments owing under the Subordinate Indemnity Agreement may be made by Borrower to the Mortgage Lender to the extent of “Net Revenues” (as defined in the Subordinate Sublease Agreement), after deducting any amounts to be deposited in the Liquidity Fund in accordance with the Senior Loan Agreement, and deposits into the Subordinate Revenue Fund, after deducting any amounts to be deposited in the Liquidity Fund in accordance with the Senior Loan Agreement. Nothing in the Intercreditor Agreement or any other transaction document shall preclude (i) the Subordinate Lender or the Mortgage Lender from receiving any Subsidy Payments, or disbursements from the Subordinate Revenue Fund (as defined in the Subordinate Paying Agent Agreement) of amounts deposited therein from “Net Revenues” (as defined in the Subordinate Sublease Agreement) after deducting any amounts to be deposited in the Liquidity Fund in accordance with the Senior Loan Agreement, or (ii) the Mortgage Lender from receiving payments from Montevina, or (iii) the Mortgage Lender from receiving the benefit of any defense, payment, or other protection provided by any available insurance policy that the Mortgage Lender is a beneficiary or additional insured of, provided that any insurance proceeds from a fire, earthquake, or casualty affecting the Phase I Collateral (as defined in the Intercreditor Agreement) shall be paid or distributed in accordance with the Senior Documents and the Mortgage Lender shall have no right to receive such proceeds. Further, notwithstanding the foregoing, Borrower shall pay to Montevina and the Mortgage Lender all of their respective reasonable out of pocket costs and expenses related to the signing and negotiation of the Subordinate Documents and the Mortgage Lender Documents and ordinary administration of the Subordinate Documents and the Mortgage Lender Documents in the normal course of business (the “Costs and Expenses”) incurred not in violation of the Intercreditor Agreement, but excluding costs of exercising Subordinated Lender Remedies. No party other

C-56

than Montevina and the Mortgage Lender or their successors and assigns shall have the right to receive the Subsidy Payments.

Forbearance of Legal Remedies; Right to Cure Default.

a. (1) Subordinated Lender and the Mortgage Lender shall not have the right to exercise any Subordinated Lender Remedies as long as the Senior Bonds remain Outstanding or the Senior Indebtedness has not been fully and indefeasibly paid in cash, unless the following have occurred: (a) an Event of Default exists and is continuing under the Senior Documents, and (b) either (i) upon the Lease Expiration Date of the Subordinate Sublease Agreement (as extended pursuant to the provisions thereof) all Lease Payments then due have not been paid to the Subordinate Lender in full (including any and all deferred and accrued Lease Payments and interest thereon), or (ii) the Interest Component (as defined in the Subordinate Sublease Agreement) (including any and all deferred and accrued Lease Payments and interest thereon) of any rent under the Subordinate Sublease Agreement has not been paid when due, or (iii) an Insolvency Event has occurred with respect to the Borrower. Further, if an Event of Default exists and is continuing under the Senior Documents, the Mortgage Lender may exercise the Subordinated Lender Remedies if Montevina has sold, assigned, transferred, conveyed or otherwise disposed of (whether voluntarily, involuntarily or by operation of law) all or any portion of the Phase II Site or any ownership interest in Montevina or any ownership interest at any level of the ownership structure of Montevina, or has attempted to do any of the foregoing, in violation of the Mortgage Lender Documents and without the Mortgage Lender’s consent. Further, the Mortgage Lender may exercise the Subordinated Lender Remedies if both (x) Borrower has not made any payment which is then owing under the Subordinate Indemnity Agreement, and (y) either (i) upon the Lease Expiration Date of the Subordinate Sublease Agreement (as extended pursuant to the provisions thereof) all Lease Payments then due have not been paid to the Subordinate Lender in full (including any and all deferred and accrued Lease Payments and interest thereon), or (ii) the Interest Component (as defined in the Subordinate Sublease Agreement) (including any and all deferred and accrued Lease Payments and interest thereon) of any rent under the Subordinate Sublease Agreement has not been paid when due.

(2) However, notwithstanding anything to the contrary contained in the Intercreditor Agreement, but subject to the remainder of this section, so long as the Senior Bonds are Outstanding or any Senior Indebtedness is outstanding, Subordinated Lender and the Mortgage Lender may exercise remedies, if permitted under subsecition (1) above, solely on a non-recourse basis and solely with respect to the Phase II Site, the Subordinate Revenue Fund, and Subordinated Lender and the Mortgage Lender may not pursue any remedies against Borrower personally or any other property of Borrower. If Subordinated Lender or NorthStar are exercising remedies in accordance with this section, to the extent reasonably necessary for NorthStar to foreclose on the Phase II Site, sell or dispose of the Phase II Site, cause a sale or disposition of the Phase II Site to occur, or for Subordinated Lender to terminate the Subordinate Lease Agreement or Subordinate Sublease Agreement, or otherwise recover possession of the Phase II Site, NorthStar and Subordinated Lender may include Borrower as a defendant or party in interest in a foreclosure action, action or proceeding to sell or dispose of the Phase II Site or permit such sale or disposition to occur, an eviction action, or action to terminate the Subordinate Lease Agreement or Subordinate Sublease Agreement or otherwise recover possession of the Phase II Site, or may take any other action reasonably necessary for NorthStar to foreclose on the Phase II Site or for Subordinated Lender to terminate the Subordinate Lease Agreement or Subordinate Sublease Agreement or otherwise recover possession of the Phase II Site (any such action or recovery, a "Foreclosure Action"), provided that Borrower shall not be personally liable under any such Foreclosure Action and NorthStar’s and Subordinated Lender’s recourse shall be limited to the Phase II Site, the Subordinate Revenue Fund and the Mortgage Lender’s subordinate lien on the Site, as defined in the Senior Site Lease, subject to that certain Subordination Agreement of even date herewith between Senior Trustee, the Mortgage Lender, and Montevina Phase I, LLC the (“Phase I Subordination Agreement”) Phase I Subordination Agreement, and no other revenue, property, or other assets of Borrower. Senior Trustee agrees that it has no rights in the Phase II Site or the Subordinate Revenue Fund. If Subordinated Lender and NorthStar are exercising remedies in accordance with this Section, then notwithstanding any other provisions or limitations elsewhere in the Intercreditor Agreement (other than this Section), Senior Trustee agrees that it will have no right to enjoin or otherwise obtain a judicial or administrative order or take other legal or equitable action preventing NorthStar or Subordinated Lender from taking any Foreclosure Action.

C-57

(3) For avoidance of doubt, upon (i) a foreclosure of that certain Fee Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing of even date herewith given by Montevina Phase I, LLC in favor of Senior Trustee (the “Phase I Deed of Trust”), or delivery by Montevina Phase I, LLC of a deed in lieu of foreclosure of such deed of trust, or a sale or disposition of the property subject to such deed of trust, or (ii) Montevina Phase I, LLC’s obligation to convey to Senior Trustee title to the property subject to the Senior Site Lease in accordance with Section 10 thereof, or (iii) Subordinated Lender or the Mortgage Lender’s exercise and completion of remedies hereunder (for example, completion of foreclosure or eviction proceedings), Subordinated Lender and the Mortgage Lender shall have no further right to receive or demand payments on the Subordinated Indebtedness from Borrower from Net Revenues or otherwise from Borrower. However, unless a foreclosure, deed in lieu, sale, or conveyance in accordance with clauses (i) or (ii) has occurred, the Mortgage Lender’s subordinate lien in the Site (as defined in the Senior Site Lease) shall remain in effect, subject to the Phase I Subordination Agreement.

b. Senior Trustee shall provide a copy of any notice that Senior Trustee sends under the Senior Documents simultaneously to Subordinated Lender and Senior Trustee will furnish any correspondence Senior Trustee receives from Borrower or any other party with respect to a default under the Senior Documents to Subordinated Lender within one (1) Business Day of Senior Trustee’s receiving the same. Senior Trustee’s failure to provide notice in accordance with this Section 4 shall not modify any of the parties’ other rights or obligations under the Intercreditor Agreement nor result in any liability on the part of Senior Trustee or the holders of the Senior Bonds.

c. In the event of a default under the Senior Documents, Montevina, or the Mortgage Lender on its behalf, shall have the right to cure any default of the Borrower within the time period for Borrower to cure such default set forth under the Senior Documents, and redeem (or, at the Trustee’s option, in lieu of redemption, defease) all of the outstanding Senior Bonds in accordance with the provisions of the Senior Indenture. Montevina, or the Mortgage Lender on its behalf, must give notice of its election to redeem or defease the Senior Bonds within the time period provided for Borrower to cure the applicable default set forth under the Senior Documents, and Montevina, or the Mortgage Lender on its behalf, must complete such redemption or defeasance within sixty (60) days of its election to redeem, time being of the essence.

Modifications of Senior Documents.

Amendments, deferrals, extensions, modifications, increases, renewals, replacements, consolidations, supplements or waivers of the Senior Bonds or any Senior Document, (each, a “Modification”) shall be permitted without consent of the Subordinated Lender or the Mortgage Lender provided that no such Modification:

a. increases the principal amount of the Senior Bonds, modifies any scheduled payments of interest or principal, extends the scheduled maturity date, or recharacterizes principal payments as interest, fees or other amounts on the Senior Bonds, the Loan Agreement or the Senior Sublease Agreement, or Refinances the Senior Indebtedness (a “Restructuring Event”) (except that the Subordinate Lender and the Mortgage Lender’s consent will not be required for any such Restructuring Event if the net present value of the principal and interest payments on the indebtedness (including any Refinancing) following such event is less than the net present value of the principal and interest payments on the indebtedness prior to such event (each discounted at the “yield” on the refunding or modified indebtedness, as defined in Treas. Reg. 1.148-4) (the “Restructuring Test”). “Refinances” or a “Refinancing” means the issuance of debt to refinance indebtedness, including the issuance of debt the proceeds of which are deposited in a defeasance escrow for the Bonds, and any such indebtedness shall constitute Senior Indebtedness, provided that such issuance shall be permitted under this Section 5 only if the Restructuring Test is satisfied. Nothing in this subparagraph a. waives the requirement for Subordinated Lender consent to a Modification requiring Subordinated Lender or the Mortgage Lender consent under subparagraphs b. through x below;

b. other than an increase in principal and/or interest that satisfies the Restructuring Test, increases in any material respect an obligation for the payment of money by the Borrower under the Senior Documents; provided that the mere modification of an immaterial and nonmonetary affirmative or negative covenant will not in and of itself be a violation of this subparagraph b.;

C-58

c. shortens the scheduled maturity date of the Senior Bonds or shortens any notice, cure or grace period;

d. converts or exchanges the Senior Bonds into or for any other indebtedness or subordinates any of the Senior Bonds to any indebtedness of Borrower; provided, however, that if such conversion or exchange occurs in connection with a Restructuring Event , then so long as the conversion or exchange meets the Restructuring Test, then no consent of Subordinate Lender or the Mortgage Lender shall be required;

e. amends or modifies the provisions limiting transfers of interests in the Borrower or the Site (as defined in the Senior Site Lease) or any assignment and subletting provisions;

f. modifies or amends the terms and provisions relating to the manner, timing and method of the application of payments under the Senior Documents; provided however, if such modification or amendment constitutes a Restructuring Event that meets the Restructuring Test, then no consent of the Subordinate Lender or the Mortgage Lender shall be required for such Restructuring Event;

g. cross defaults the Senior Bonds with any other indebtedness of the Borrower other than as set forth in the original Senior Documents;

h. obtains any contingent interest, additional interest or so-called “kicker” measured on the basis of the cash flow or appreciation of the Site (as defined in the Senior Site Lease) (or other similar equity participation), unless, assuming the total maximum payment under such arrangement is made, it would satisfy the Restructuring Test;

i. extends the period during which voluntary prepayments are prohibited or during which prepayments require the payment of a prepayment fee or premium or yield maintenance charge or increases the amount of any such prepayment fee, premium or yield maintenance charge;

j. amends the terms of any of the documents concerning the application of proceeds upon the occurrence of a casualty or condemnation affecting the Site (as defined in the Senior Site Lease) in a manner less favorable to the Borrower or Montevina;

k. amends the terms of any consent provisions granted to Montevina or the Mortgage Lender, or Montevina’s or NorthStar’s right to give consents or receive notices;

l. amends the description of the Site (as defined in the Senior Site Lease);

m. amends the amount of any Lease Payments under the Senior Site Lease or modifies the scheduled payment thereof;

n. amends the term of the Senior Site Lease other than an extension constituting a Restructuring Event satisfying the Restructuring Test;

o. modifies any permitted use provision relating to the Site (as defined in the Senior Site Lease) under the Senior Site Lease or the Senior Loan Agreement;

p. modifies or amends the termination provision in the Senior Site Lease (relating to the delivery of the fee and right in favor of the Mortgage Lender to hold subordinate lien on the fee);

q. modifies any of the indemnity provisions in any Senior Document or any indemnity agreement entered into by the Subordinate Lender or Montevina Phase I, LLC;

r. modifies any of the third party beneficiary provisions in any Senior Document;

C-59

s. amends any of the provisions relating to expenses or reserves in any Senior Document;

t. provides for any additional releases or relinquishment of rights by Montevina, or imposes limitations on any existing rights of Montevina;

u. increases the obligations of Montevina or imposes new restrictions on Montevina;

v. amends the defined terms “Event of Default”, “Site”, “Gross Revenues,” “Net Revenues,” “Senior Debt Service,” “Permitted Encumbrances” and “Operating Expenses” in any Senior Document;

w. modifies the provisions related to insurance requirements in any Senior Document, other than to require increase in coverage amounts or require additional types of coverage to be obtained by Borrower; or

x. waives or amends the default/remedies provisions in any Senior Document.

Neither Senior Trustee nor Borrower shall enter into any Modification without Subordinated Lender’s and the Mortgage Lender’s written consent where such consent is required under this Section 5. In any case where a Modification requires Subordinated Lender and/or the Mortgage Lender’s consent under this Section 5, such consent must be evidenced in writing to be effective. Any Modification in breach of this Section 5 shall be null and void and of no force and effect. Subject to Senior Trustee’s and Borrower’s obligations under Section 23, Senior Trustee and Borrower’s obligations under this Section 5(a) and the Intercreditor Agreement shall terminate upon the occurrence of the events described in Section 23 hereof.

In Furtherance of Subordination.

a. Until the Senior Indebtedness is Finally Paid, the Subordinated Lender and the Mortgage Lender will not institute any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or other similar case or proceeding under any Federal or state bankruptcy or similar law or upon an assignment for the benefit of creditors (singularly or collectively, a “Proceeding”) or other marshalling of the assets and liabilities of Borrower or any guarantor of any Senior Indebtedness, against Borrower or with respect to any collateral in which the Senior Trustee has a security interest or lien (the “Phase I Collateral”) or otherwise.

b. To the extent the Senior Trustee receives payments on, or proceeds of, collateral for the Senior Indebtedness which are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under Federal or state bankruptcy law or similar law or at common law or in equity, then to the extent of such payment or proceeds received, the Senior Indebtedness or any part thereof, intended to be satisfied shall be revived and continued in full force and effect as if such payments or proceeds had not been received by the Senior Trustee.

Liquidation, Dissolution, Bankruptcy.

In the event of any Proceeding involving Borrower:

a. Borrower shall not make and Subordinated Lender and the Mortgage Lendershall not receive from Borrower any distribution, whether in cash, securities or other property, on account of any Subordinated Indebtedness prior to the Senior Indebtedness being Finally Paid.

b. Any distribution, whether in cash, securities or other property which would otherwise, but for the terms hereof, be payable or deliverable in respect of the Subordinated Indebtedness (other than payments from Montevina to the Mortgage Lender pursuant to the Mortgage Lender Documents) shall be paid or

C-60

delivered directly to the Senior Trustee (to be held and/or applied by the Senior Trustee in accordance with the terms of the Senior Documents) until the Senior Indebtedness is Finally Paid. Subordinated Lender and the Mortgage Lender irrevocably authorize, empower and direct any debtor, debtor in possession, receiver, trustee, liquidator, custodian, conservator or other person having authority, to pay or otherwise deliver all such distributions to Senior Trustee. Subordinated Lender and the Mortgage Lender also irrevocably authorize and empower Senior Trustee, in the name of Subordinated Lender or the Mortgage Lender, as applicable, to demand, sue for, collect and receive any and all such distributions and other amounts owing under the Subordinate Documents.

c. Subordinated Lender and the Mortgage Lender agree not to initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity, perfection or priority of the Senior Indebtedness or any liens and security interests securing the Senior Indebtedness.

d. Subordinated Lender and the Mortgage Lender agree that they will not object to or oppose a sale or other disposition of any property securing all of any part of the Senior Indebtedness. Subordinated Lender and the Mortgage Lender agree that they will not contest any Senior Trustee motion for relief from the bankruptcy court to allow Senior Trustee to exercise its remedies under the Senior Documents. Any sale or disposition pursuant to this paragraph shall be free and clear of security interests, liens or other claims of Subordinated Lender or the Mortgage Lender under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if the Senior Trustee has consented to such sale or disposition.

e. The Senior Indebtedness shall continue to be treated as Senior Indebtedness and the provisions of the Intercreditor Agreement shall continue to govern the relative rights and priorities of the Senior Trustee, the Mortgage Lender and Subordinated Lender even if all or part of the Senior Indebtedness or Subordinated Indebtedness or the security interests securing the Senior Indebtedness or Subordinated Indebtedness are subordinated, set aside, avoided, invalidated, or disallowed in connection with any such Proceeding, and the Intercreditor Agreement shall be reinstated if at any time any payment of any of the Senior Indebtedness is rescinded or must otherwise be returned by any holder of Senior Indebtedness or any representative of such holder.

Nothing in subsection (a) or (b) under this heading shall prohibit Subordinated Lender or the Mortgage Lender from receiving Subsidy Payments, or disbursements from funds deposited into the Subordinate Revenue Fund (as defined in the Subordinate Paying Agent Agreement) in compliance with the Intercreditor Agreement and the Subordinate Paying Agent Agreement, or Costs and Expenses, and nothing under this heading shall prohibit the Mortgage Lender from receiving any payments from Montevina.

.

Rights Related to Senior Trustee’s Actions With Respect to the Phase I Collateral.

Subordinated Lender and the Mortgage Lender hereby waive, to the extent permitted by applicable law, any rights which they may have to enjoin or otherwise obtain a judicial or administrative order preventing the Senior Trustee from taking, or refraining from taking, any action with respect to all or any part of the Phase I Collateral. The parties acknowledge that the Mortgage Lender’s rights in its capacity as holder of a subordinate lien on the Site (as defined in the Senior Site Lease) are addressed in the Phase I Subordination Agreement and not the Intercreditor Agreement. Without limitation of the foregoing, Montevina hereby agrees that it has no rights in the Phase I Collateral. Subordinated Lender and the Mortgage Lender agree that they have no right to direct or object to the manner in which the Senior Trustee apply the proceeds of the Phase I Collateral resulting from the exercise by the Senior Trustee of rights and remedies under the Senior Documents to the Senior Indebtedness.

Unconditional Subordination.

a. No action which the Senior Trustee may take or omit to take in connection with any of the Senior Documents, any of the Senior Indebtedness, or any security therefor (other than actions or omissions that are in violation of the Intercreditor Agreement), and no course of dealing of the Senior Trustee with Borrower or any other person obligated on the Senior Indebtedness (each, a “Senior Debt Obligor”), Subordinated Lender, the Mortgage Lender, or any other person, shall release or diminish any of Subordinated Lender or the Mortgage Lender’s obligations, liabilities, agreements or duties hereunder, or afford Subordinated Lender or the Mortgage Lender any recourse against the Senior Trustee, regardless of whether any such action or inaction may

C-61

increase any risks to or liabilities of the Senior Trustee, Subordinated Lender, the Mortgage Lender, or any Senior Debt Obligor or increase any risk to or diminish any safeguard of any security. Without limiting the foregoing, Subordinated Lender and the Mortgage Lender hereby expressly agree that the Senior Trustee may, from time to time in accordance with the Intercreditor Agreement and subject to the limitations on Modifications in the Intercreditor Agreement, without notice to or the consent of the Subordinated Lender or the Mortgage Lender:

i. neglect, delay, fail, or refuse to take or prosecute any action for the collection or enforcement of any of the Senior Indebtedness, to foreclose or take or prosecute any action in connection with the Senior Documents, or any security, to bring suit against the Borrower or any other person, or to take any other action concerning the Senior Indebtedness or the Senior Documents; without limiting the generality of the foregoing, the Senior Trustee and the holders of the Senior Indebtedness shall be under no obligation to marshal any Phase I Collateral;

ii. in accordance with the Senior Documents, accelerate the Senior Indebtedness;

iii. compromise or settle (but not waive) any unpaid or unperformed Senior Indebtedness or any other obligation or amount due or owing, or claimed to be due or owing, under any one or more of the Senior Documents;

iv. take, exchange, eliminate, surrender, release, or subordinate any or all security for any or all of the Senior Indebtedness, accept additional or substituted security therefor, and perfect or fail to perfect the Senior Trustee’s rights in any or all security;

v. discharge, release, substitute or add obligors with respect to the Senior Indebtedness, subject to, for the avoidance of doubt, complying with the Restructuring Test; and

vi. apply all monies received from the Borrower or others, or from any security for any of the Senior Indebtedness, as the Senior Trustee may determine to be in its best interest, without in any way being required to marshal security or assets or to apply all or any part of such monies upon any particular Senior Indebtedness.

b. No change of law or circumstances shall release or diminish Senior Trustee, Subordinated Lender and the Mortgage Lender’s rights, obligations, liabilities, agreements, or duties hereunder (including, without limitation, under Section 18 hereof). Without limiting the foregoing, no obligations, liabilities, agreements, or duties of Senior Trustee, the Subordinated Lender or the Mortgage Lender under the Intercreditor Agreement shall be released, diminished, impaired, reduced, or affected by the occurrence of any of the following from time to time, even if occurring without notice to or without the consent of Senior Trustee, Subordinated Lender and the Mortgage Lender:

i. any Proceeding or any discharge, impairment, modification, release, or limitation of the liability of, or stay of actions or lien enforcement proceedings against, the Borrower, any properties of Borrower, or the estate in bankruptcy of Borrower in the course of or resulting from any such proceedings;

ii. the failure by the Senior Trustee to file or enforce a claim in any proceeding described in the immediately preceding subsection (i) or to take any other action in any proceeding to which any Senior Debt Obligor is a party;

iii. the release by operation of law of Borrower from any of the Senior Indebtedness or any other obligations to the Trustee;

iv. the invalidity, deficiency, illegality, or unenforceability of any of the Senior Indebtedness or the Senior Documents, in whole or in part, any bar by any statute of limitations or other law of recovery on any of the Senior Indebtedness, or any defense or excuse for failure to perform on account of force majeure, act of God, casualty, impossibility, impracticability, or other defense or excuse whatsoever;

C-62

v. the failure of Borrower or any other person to sign any instrument or agreement within the contemplation of such parties or the Senior Trustee;

C-63

SUBORDINATION AGREEMENT

The Subordination Agreement (the “Subordination Agreement”) is made by and among the Mortgage Lender (the “Subordinated Creditor”), Montevina Phase I, LLC, a Delaware limited liability company (the “Fee Mortgagor”), Livermore Valley Charter School and Livermore Valley Preparatory Charter High School, both operated as Tri-Valley Learning Corporation, a California nonprofit public benefit corporation (“Leasehold Mortgagor”), and The Bank of New York Mellon Trust Company, N.A., as trustee, for the benefit of the owners of the California School Finance Authority Educational Facilities Revenue Bonds (Tri-Valley Learning Corporation), Series 2012A (the “Senior Lender”).

Agreement to Subordinate.

The Subordinated Creditor, the Fee Mortgagor and the Leasehold Mortgagor each agrees that the Subordinated Debt is and shall be subordinate, in the manner hereinafter set forth, to the prior full and indefeasible payment in cash of all Obligations (“Finally Paid”) of the Leasehold Mortgagor now or hereafter existing. For the purposes of the Subordination Agreement, the Obligations shall not be deemed to have been paid in full unless the Obligations to the Senior Lender have been Finally Paid. In addition, the Subordinated Creditor agrees that the lien of the Subordinate Deed of Trust shall be subordinate (i) to the lien of the Senior Deeds of Trust, and (ii) to the Site Lease and the Sublease. Subordinated Creditor, Leasehold Mortgagor, and Fee Mortgagor agree that the Site Lease and Sublease shall be subordinate to the Fee Deed of Trust.

“Obligations” means the obligations of the Leasehold Mortgagor under the Indenture, the Site Lease, the Sublease and the Loan Agreement.

No Payments on the Subordinated Debt; Collection Actions.

Unless otherwise expressly permitted in writing by Senior Lender and except for the payment made pursuant to the Site Lease by the Fee Mortgagor on the date hereof and Costs and Expenses (as defined below), no payment shall be made by or on behalf of the Leasehold Mortgagor for or on account of any Subordinated Debt, and the Subordinated Creditor shall not take or receive from the Leasehold Mortgagor or any guarantor of any Subordinated Debt, directly or indirectly, in cash or other property or by set-off or in any other manner, including, without limitation, from or by way of collateral (including without limitation by enforcement under the Subordinate Deed of Trust or any other Subordinate Loan Document), payment of all or any of the Subordinated Debt, unless and until the Obligations shall have been Finally Paid. Notwithstanding the foregoing, Subordinated Creditor may receive payments where permitted by the Intercreditor Agreement (the “Phase II Intercreditor Agreement”). Further, payments owing under the Subordinate Indemnity Agreement (as defined in the Phase II Intercreditor Agreement) may be made by Leasehold Mortgagor to Subordinated Creditor to the extent of “Net Revenues” (as defined in the Subordinate Sublease Agreement referenced in the Phase II Intercreditor Agreement), after deducting any amounts to be deposited in the Liquidity Fund in accordance with the Senior Loan Agreement, and deposits into the Subordinate Revenue Fund (as defined in the Subordinate Paying Agent Agreement referenced in the Phase II Intercreditor Agreement), after deducting any amounts to be deposited in the Liquidity Fund in accordance with the Senior Loan Agreement. Nothing in the Subordination Agreement prevents Subordinated Creditor from receiving the benefit of any defense, payment, or other protection provided by any available insurance policy that Subordinated Creditor is a beneficiary or additional insured of, provided that any insurance proceeds from a fire, earthquake, or casualty affecting the Collateral shall be paid or distributed in accordance with the Senior Loan Documents and Subordinated Creditor shall have no right to receive such proceeds. Further, notwithstanding the foregoing, Leasehold Mortgagor shall pay to Fee Mortgagor and Subordinated Creditor all of their respective reasonable out of pocket costs and expenses related to the signing and negotiation of the Subordinate Loan Documents, the Site Lease, and the Sublease, and ordinary administration of the Subordinate Loan Documents in the normal course of business (the “Costs and Expenses”) incurred not in violation of the Subordination Agreement, but excluding costs of exercising Subordinated Lender Remedies (as defined in the Phase II Intercreditor Agreement), or of exercising any remedies under the Subordinate Loan Documents or otherwise at law or in equity. Nothing in the Subordination Agreement prohibits any payment by Fee Mortgagor to Subordinated Creditor.

C-64

The Subordinated Creditor will not take an action to (i) demand, sue for, take or receive from or on behalf of the Fee Mortgagor or any guarantor of any Subordinated Debt, by set-off or in any other manner, the whole or any part of any moneys which may now or hereafter be owing by the Fee Mortgagor or any such guarantor with respect to such Subordinated Debt, (ii) initiate or participate with others in any suit, action or proceeding against the Fee Mortgagor, the Leasehold Mortgagor or any guarantor to (A) enforce payment or to collect the whole or any part of the Subordinated Debt or (B) commence judicial enforcement of any of the rights and remedies under the Subordinated Debt, the Subordinated Mortgage or any other Subordinate Loan Document or applicable law with respect to the Subordinated Debt (including any foreclosure action against the mortgaged property subject to the Subordinate Mortgage), (iii) take any action with respect to or upon the occurrence of a default or event of default under any Subordinate Loan Document, (iv) take any action under the provisions of any state or federal law, including, without limitation, the UCC, or under any contract or agreement, to enforce, foreclose upon, takepossession of or sell any property or assets of the Fee Mortgagor, including the Property, (v) accelerate the Subordinated Debt, or (vi) except as permitted by the Phase II Intercreditor Agreement with respect to the “Subordinated Indebtedness” as defined therein, otherwise institute any suit, legal action, arbitration, set-off or other enforcement remedy against the Collateral, Fee Mortgagor, Montevina Phase II, LLC, or Leasehold Mortgagor (each action in clauses (i)-(vi) is referred to herein as a “Collection Action”), in each case until the Obligations are Finally Paid, with any payments, distributions or proceeds resulting from the exercise of any such remedial action received prior to the Obligations being Finally Paid by Subordinated Creditor to be paid or delivered to Senior Lender. Subordinated Creditor acknowledges that Leasehold Mortgagor has no liability for payment of any of the Subordinated Indebtedness (other than pursuant to the Subordinate Leasehold Deed of Trust) and Subordinated Creditor shall have no recourse personally against Leasehold Mortgagor for the Subordinated Indebtedness until the Obligations are Finally Paid, and until the Obligations are Finally Paid Subordinated Creditor’s recourse shall be limited to Leasehold Mortgagor’s interest in the Site (as defined in the Site Lease) pursuant to the Subordinate Leasehold Deed of Trust). Subordinated Creditor may, but shall not be obligated to, make certain advances or expend certain funds or incur costs to cure a Fee Mortgagor or Leasehold Mortgagor default under the Subordinate Loan Documents. Any such advances, expenditures, or costs, together with interest thereon in accordance with the Subordinate Loan Documents, are “Protected Advances”. Any Protected Advances made by Subordinated Creditor shall be added to the Subordinated Debt, and shall be subject to the terms and provisions of the Subordination Agreement.

Fee Mortgagor’s right to payment under the indemnities set forth in the Sublease shall be subject and subordinate to the remainder of the Obligations. So long as the Obligations have not been Finally Paid, Fee Mortgagor may not institute any suit, legal action, arbitration, or other proceeding against Leasehold Mortgagor related to Leasehold Mortgagor’s obligations to indemnify Fee Mortgagor under the Sublease, and in no event may Fee Mortgagor demand or receive any payment from Leasehold Mortgagor under the indemnities set forth in the Sublease unless it arises from a third party claim, suit, action, or proceeding (which shall exclude any claim, suit, action, or proceeding by Subordinated Creditor or any of its affiliates). Nothing shall prevent Fee Mortgagor from receiving the benefit of any defense, payment, or other protection provided by any available insurance policy that Fee Mortgagor is a beneficiary or additional insured of, provided that until the Obligations are Finally Paid any insurance proceeds from a fire, earthquake, or casualty affecting the Collateral shall be paid or distributed in accordance with the Senior Loan Documents and Fee Mortgagor shall have no right to receive such proceeds.

In Furtherance of Subordination.

The Subordinated Creditor agrees as follows:

(a) Until the Obligations are Finally Paid, the Subordinated Creditor will not institute any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or other similar case or proceeding under any Federal or state bankruptcy or similar law or upon an assignment for the benefit of creditors (singularly or collectively, a “Proceeding”) or other marshalling of the assets and liabilities of the Fee Mortgagor, Leasehold Mortgagor or any guarantor of any Subordinated Debt, against Leasehold Mortgagor, the Collateral or other collateral or otherwise.

(b) To the extent the Senior Lender receives payments on, or proceeds of, collateral for the Obligations which are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under Federal or state bankruptcy law or similar law or at common

C-65

law or in equity, then to the extent of such payment or proceeds received, the Obligations or any part thereof, intended to be satisfied shall be revived and continued in full force and effect as if such payments or proceeds had not been received by the Senior Lender.

Subordination of Liens and Security Interests; Agreement Not to Contest; Agreement to Release Liens.

Until the Obligations have been Finally Paid, all liens and security interests of the Subordinated Creditor in the Collateral shall be and hereby are subordinated for all purposes and in all respects to the liens and security interests of the Senior Lender under the Senior Loan Documents, including the Senior Deeds of Trust, regardless ofthe time, manner or order of perfection of any such liens and security interests. The Subordinated Creditor agrees that it will not at any time contest the validity, priority or enforceability of the Senior Loan Documents or Obligations or of the liens and security interests of the Senior Lender in the Collateral or with respect to the Senior Loan Documents. In the event that the Senior Lender releases or agrees to release any of its liens or security interests in the Collateral in connection with the sale or other disposition thereof or any of the Collateral is sold, disposed of or retained pursuant to a foreclosure or similar action, the Subordinated Creditor shall promptly deliver (and execute as appropriate) to the Senior Lender such termination statements and releases as the Senior Lender shall reasonably request to effect the termination or release of the liens and security interests of the Subordinated Creditor in such Collateral. Further, upon an Event of Default under the Sublease, Subordinated Creditor shall promptly deliver (and execute as appropriate) to the Senior Lender such termination statements and releases as the Senior Lender shall reasonably request in connection with the conveyance of fee title to the Property to Senior Lender in accordance with Section 10 of the Site Lease to enable Senior Lender to receive fee title to the Property free of the lien of the Subordinate Deed of Trust or any other lien securing the Subordinate Debt.

Termination of Senior Lender Obligations.

The Subordination Agreement shall terminate (except for such rights as are expressly provided to survive any termination of the Subordination Agreement) when the Obligations have been Finally Paid. Subordinated Creditor acknowledges and agrees that except as provided below, Senior Lender shall have no further obligations under the Subordination Agreement, and Leasehold Mortgagor’s obligations under the Subordination Agreement shall expire, upon (i) a foreclosure of the Fee Deed of Trust, or delivery by Fee Mortgagor of a deed in lieu of foreclosure of such deed of trust, or a sale or disposition of the property subject to such deed of trust, or (ii) Fee Mortgagor’s obligation to convey to Senior Lender title to the Property in accordance with the Site Lease. However, upon a foreclosure of the Fee Deed of Trust, delivery of a deed in lieu thereof, or sale or disposition pursuant to the Subordination Agreement, Subordinated Creditor may exercise Subordinate Lender Remedies in accordance with the Phase II Intercreditor Agreement, Senior Lender’s obligations and agreements under the provisions thereof shall continue in full force and effect, and (ii) notwithstanding that Senior Trustee’s obligations may have ceased pursuant to the previous sentence hereof, Fee Mortgagor and Subordinated Creditor’s obligations hereunder shall not terminate until the Obligations have been Finally Paid.

Application of Proceeds from Sale or other Disposition of the Property.

In the event of any sale, transfer or other disposition (including a casualty loss or taking through eminent domain) of the Collateral or the leasehold interest under the Sublease, the proceeds resulting therefrom (including insurance proceeds) shall be applied in accordance with the terms of the Senior Loan Agreement and the other Senior Loan Documents until such time as the Obligations have been Finally Paid.

1

APPENDIX D

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the “Continuing Disclosure Agreement”) is executed and delivered by Livermore Valley Charter School and Livermore Valley Charter Preparatory High School, both operating as Tri-Valley Learning Corporation, a California nonprofit public benefit corporation, a California nonprofit public benefit corporation and charter school (the “Borrower”) and The Bank of New York Mellon Trust Company, N.A., in its capacity as dissemination agent hereunder (the “Dissemination Agent”), in connection with the issuance of the California School Finance Authority Educational Facilities Revenue Bonds (Tri-Valley Learning Corporation Project), Series 2012A, in the aggregate principal amount of $27,500,000 (the “Bonds”). The Bonds are being issued pursuant to an Indenture dated as of October 1, 2012 (the “Indenture”), between the California School Finance Authority (the “Authority”) and The Bank of New York Mellon Trust Company, N.A. (the “Trustee”). Certain of the proceeds of the Bonds are (i) being loaned by the Authority to the Borrower pursuant to a Loan Agreement dated as of October 1, 2012 (the “Loan Agreement”), between the Authority and the Borrower and (ii) being used to pay all the lease obligations under the Site Lease (the “Site Lease”), between the Authority and Montevina Phase I, LLC. The Borrower, the Dissemination Agent and the Trustee covenant and agree as follows:

Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Borrower and the Trustee for the benefit of the Beneficial Owners (defined below) of the Bonds and in order to assist the Participating Underwriters (defined below) in complying with the Rule (defined below). The Borrower and the Trustee acknowledge that the Authority has undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Disclosure Agreement, and has no liability to any person, including any Beneficial Owner of the Bonds, with respect to the Rule.

Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the Borrower pursuant to, and as described in, Sections 3 of this Disclosure Agreement.

“Beneficial Owner” shall mean any person who has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).

“Disclosure Representative” shall mean the Chief Financial Officer of Tri-Valley or his or her designee, or such other person as Tri-Valley shall designate in writing to the Trustee from time to time.

“Dissemination Agent” shall mean the Trustee, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Borrower and which has filed with the Trustee a written acceptance of such designation.

“Listed Events” shall mean any of the events listed in Section 4(a) and 4(b) of this Disclosure Agreement.

“MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the SEC to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the SEC, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.

“Participating Underwriter” shall mean any of the original underwriters of the Bonds.

D-1

2

“Quarterly Report” shall mean any Quarterly Report provided by the Borrower pursuant to, and as described in, Sections 3 of this Disclosure Agreement.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“SEC” shall mean the Securities and Exchange Commission or any successor agency thereto.

“State” shall mean the State of California.

“Tri-Valley” means Tri-Valley Learning Corporation, a California nonprofit public benefit corporation.

Section 3. Provision of Annual Reports, Quarterly Reports and Other Regular Disclosure.

(a) Annual Reports. The Borrower shall, or shall cause the Dissemination Agent to, not later than 180 days after the end of the Borrower’s fiscal year (which fiscal year as of the date hereof ends June 30), commencing with the report for the fiscal year ending June 30, 2012, provide to the MSRB an Annual Report.

(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the Borrower shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent) have not received a copy of the Annual Report, the Trustee and the Dissemination Agent shall contact the Borrower to determine if the Borrower is in compliance with the first sentence of this subsection (b).

(c) Except to the extent such information is included in the Borrower’s audited financial reports, the Borrower shall provide annual student enrollment figures for each school operated by the Borrower during such fiscal year.

(d) If the Trustee is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Trustee shall send a notice to the MSRB in substantially the form attached as Exhibit A.

(e) The Dissemination Agent shall file a report with the Borrower, the Authority and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement and stating the date it was provided.

(f) Quarterly Reports. In addition to the Annual Report required to be filed pursuant to subsection (a), the Borrower shall, or shall cause the Dissemination Agent to, not later than 45 days after the end of each fiscal quarter of the Borrower’s fiscal year (which fiscal year as of the date hereof ends June 30), provide to the MSRB a Quarterly Report consisting of an unaudited balance sheet, statement of income and expenses for such Fiscal Year for the Borrower), which shall include a management discussion of the Borrower discussing the current levels of State deferrals owed to the Borrower.

(g) Operations Disclosure. No later than 30 days after the beginning of each school semester of the Borrower, the Borrower shall, or cause the Dissemination Agent to, provide to the MSRB a one-page report showing the current enrollment and ADA of each School.

(h) Budget Disclosure. No later than five business days after the adoption of a budget, or revision of an adopted budget, of the Borrower, the Borrower shall, or cause the Dissemination Agent to, provide to the MSRB a copy of such adopted budget or revision of such adopted budget, as applicable.

D-2

3

(i) Interim Reports. No later than 90 days after the adoption of the first interim report and the second interim report of the Borrower, the Borrower shall, or cause the Dissemination Agent to, provide to the MSRB a copy of such adopted interim report, as applicable.

Section 4. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section, the Borrower shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not later than ten business days after the occurrence of the event:

(1) Principal and interest payment delinquencies;

(2) Unscheduled draws on debt service reserves reflecting financial difficulties;

(3) Unscheduled draws on credit enhancements reflecting financial difficultiess;

(4) Substitution of credit or liquidity providers, or their failure to perform;

(5) Adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB);

(6) Tender offers;

(7) Defeasances;

(8) Rating changes;

(9) Bankruptcy, insolvency, receivership or similar event of the obligated person;

For purposes of the event identified in paragraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person

(b) Pursuant to the provisions of this Section, the Borrower shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2011 Bonds, if material, in a timely manner not later than ten business days after the occurrence of the event:

(1) Unless described in paragraph (5) of subsection (a) of this Section, other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Series 2011 Bonds or other material events affecting the tax status of the Series 2011 Bonds;

(2) Modifications to rights of Series 2011 Bond holders;

(3) Optional, unscheduled or contingent Bond calls;

(4) Release, substitution, or sale of property securing repayment of the Bonds;

D-3

4

(5) Non-payment related defaults;

(6) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms;

(7) Appointment of a successor or additional trustee or the change of name of a trustee;

(c) The Trustee shall, within one business day of obtaining actual knowledge of the occurrence of any of the Listed Events (with no obligation to determine the materiality thereof), contact the Disclosure Representative and inform such person of the event. For the purpose of this Disclosure Agreement “actual knowledge” means knowledge at the corporate trust office of the Trustee by an officer of the Trustee with responsibility for matters related to the administration of the Indenture.

(d) Whenever the Borrower obtains knowledge of the occurrence of a Listed Event described in subsection (b) of this Section, the Borrower shall determine if such event would be material under applicable Federal securities law.

(e) Whenever the Borrower obtains knowledge of the occurrence of a Listed Event described in subsection (a) of this Section, or determines that the occurrence of a Listed Event described in subsection (b) of this Section is material under subsection (d) of this Section, the Borrower shall, or shall cause the Dissemination Agent to, file a notice of the occurrence of such Listed Event with the MSRB, within ten business days of such occurrence.

(f) Notwithstanding the foregoing, notice of Listed Events described in paragraph (3) of subsection (a) of this Section and paragraph (7) of subsection (a) of this Section need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Indenture.

Section 5. Format for Filings with MSRB. Any report or filing with the MSRB pursuant to this Disclosure Agreement must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB.

Section 6. Termination of Reporting Obligation. The Borrower’s, the Trustee’s and the Dissemination Agent’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Borrower shall give notice of such termination in a filing with the MSRB.

Section 7. Dissemination Agent. The Borrower may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Borrower pursuant to this Disclosure Agreement. The Dissemination Agent may resign by providing thirty days written notice to the Authority, the Borrower, and the Trustee. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. The initial Dissemination Agent shall be the Trustee.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Borrower and the Trustee may amend this Disclosure Agreement (and the Trustee shall agree to any amendment so requested by the Borrower; provided neither the Trustee nor the Dissemination Agent

D-4

5

shall be obligated to enter into any amendment increasing or affecting its duties or obligations) and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of subsection (a) of Section 2 hereof, Section 3 hereof or subsections (a) or (b) of Section 4 hereof, it 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 an obligated person with respect to the Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Borrower shall describe such amendment or waiver in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Borrower. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements (i) notice of such change shall be given in a filing with the MSRB, and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Borrower from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Borrower chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Disclosure Agreement, the Borrower shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 10. Default. In the event of a failure of the Borrower, the Trustee or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of any Participating Underwriter or the Holders of at least 25% in aggregate principal amount of Outstanding Bonds, shall, with indemnification satisfactory to it), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Borrower, the Trustee or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture or the Loan Agreement or the Site Lease, and the sole remedy under this Disclosure Agreement in the event of any failure of the Borrower, the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.

Section 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article X of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture. The Dissemination Agent shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Borrower agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and

D-5

6

liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the Borrower under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. The Dissemination Agent shall be paid compensation by the Borrower for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the Borrower from time to time. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the Borrower or hereunder and shall not be deemed to be acting in any fiduciary capacity for the Borrower, the Holders, Beneficial Owners or any other party.

Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Authority, the Borrower, the Trustee, the Dissemination Agent, the Participating Underwriters and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Section 13. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Date: ___________, 2012



ByAuthorized Representative

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee

ByAuthorized Officer

D-6

7

EXHIBIT A

NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: California School Finance Authority (the “Authority”)

Name of Bond Issue: California School Finance Authority Educational Facilities Revenue Bonds (Tri-Valley Learning Corporation Project), Series 2012A

Name of Borrower: Livermore Valley Charter School and Livermore Valley Charter Preparatory High School, both operating as Tri-Valley Learning Corporation (the “Borrower”)

Date of Issuance: October 4, 2012

NOTICE IS HEREBY GIVEN that the Borrower has not provided an Annual Report with respect to the above-named Bonds as required by Section 6.09 of the Indenture, dated as of October 1, 2012, between the Authority and The Bank of New York Mellon Trust Company, N.A., and by Section 5.07 of the Loan Agreement, dated as of October 1, 2012, between the Authority and the Borrower [The Borrower anticipates that the Annual Report will be filed by _________.]

Dated:

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., on behalf of the Borrower

By: [to be signed only if filed]

cc: Tri-Valley Learning Corporation

D-7

1

APPENDIX E

BOOK-ENTRY SYSTEM

The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of that maturity of Bonds, and will be deposited with DTC.

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 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The contents of such website are not incorporated into this Limited Offering Memorandum.

Purchases of 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 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 affect 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. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial

E-1

2

Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor 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-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Borrower believes to be reliable, but neither the Authority nor the Borrower take responsibility for the accuracy thereof.

E-2

F-1

APPENDIX F

FORM OF OPINION OF BOND COUNSEL

[Date of Delivery]

California School Finance AuthorityLos Angeles, California

$27,500,000California School Finance Authority

Educational Facilities Revenue Bonds(Tri-Valley Learning Corporation Project), Series 2012A

(Final Opinion)

Ladies and Gentlemen:

We have acted as bond counsel to the California School Finance Authority (the “Authority”) in connection with the issuance of $27,500,000 aggregate principal amount of California School Finance Authority Educational Facilities Revenue Bonds (Tri-Valley Learning Corporation Project), Series 2012A (the “Bonds”). The Bonds are issued under and pursuant to an indenture, dated as of October 1, 2012 (the “Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Indenture provides that the Bonds are issued for the stated purpose of making a loan of the proceeds thereof to Livermore Valley Charter School and Livermore Valley Charter Preparatory High School, both operating as Tri-Valley Learning Corporation, a California nonprofit public benefit corporation (the “Borrower”) pursuant to a loan agreement, dated as of October 1, 2012 (the “Loan Agreement”), between the Authority and the Borrower and paying rental payments pursuant to a Site Lease, dated as of October 1, 2012 (the “Site Lease”), between the Authority, as lessee, and Montevina Phase I, LLC, as lessor. Capitalized terms used but not defined herein shall have the meanings set forth in the Indenture.

In connection with such issue, we have reviewed the Indenture, the Loan Agreement, the Site Lease, the Sublease Agreement, the Intercept Notice, the Tax Certificate, opinions of counsel to the Authority, the Borrower and the Trustee, certificates of the Authority, the Borrower, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

We have relied on the opinion of Derek Austin, Esq., Campbell, California, counsel to the Borrower, regarding, among other matters, the status of the Borrower as an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986 (the “Code”), the status of Livermore Valley Charter School and Livermore Valley Charter Preparatory High School as charter schools organized under the Education Code of California (the “Education Code”), and the use of the facilities financed with the proceeds of the Bonds in activities that are not considered unrelated trade or business activities of the Borrower within the meaning of Section 513 of the Code. We note that such opinion is subject to a number of qualifications and limitations. Failure of the Borrower to be organized and operated in accordance with the Internal Revenue Service’s requirements for the maintenance of its status as an organization described in Section 501(c)(3) of the Code, or use of the bond-financed facilities in activities that are considered unrelated trade or business activities of the Borrower within the meaning of Section 513 of the Code, may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of issuance of the Bonds.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to

F-1

2

our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second and third paragraphs hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture, the Loan Agreement, the Site Lease, the Sublease Agreement, the Intercept Notice and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture, the Loan Agreement, the Site Lease, the Sublease Agreement, the Intercept Notice and the Tax Certificate, and their enforceability, may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against instrumentalities of the State of California. We express no opinion with respect to any indemnification, contribution, penalty, arbitration, judicial reference, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the documents mentioned in the preceding sentence, nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or subject to the lien of the Indenture, the Loan Agreement, the Site Lease or the Sublease Agreement, or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Limited Offering Memorandum, dated September 6, 2012, relating to the Bonds, or other offering material relating to the Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Bonds constitute the valid and binding limited obligations of the Authority.

2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority. The Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of the Payments (except Payments pursuant to the Intercept Notice) and any other amounts (excluding proceeds of the sale of the Bonds) held by the Trustee in any fund or account under the Indenture (other than the Rebate Fund and the Indemnification Fund), subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture. The Bonds are further secured by apportionments from the State Controller, pursuant to Section 17199.4(a)(4) of the Education Code and the Intercept Notice, of amounts specified in the Intercept Notice and paid directly to the Trustee, provided that no opinion is expressed herein as to any amounts set forth in the Intercept Notice that are payable from any source other than apportionments pursuant to Section 47633 of the Education Code.

3. The Loan Agreement, the Site Lease and the Sublease Agreement have been duly executed and delivered by, and constitute the valid and binding obligations of, the Authority.

F-2F-2

3

4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

per

F-3

G-1

APPENDIX G

FORM OF INVESTOR LETTER

[Transfer Date]

California School Finance AuthoritySacramento, CA

The Bank of New York Mellon Trust Company, N.A.Los Angeles, CA

Re: $__________ California School Finance Authority Educational Facilities Revenue Bonds (Tri-Valley Learning Corporation Project), Series 2012A

Ladies and Gentlemen:

The undersigned (the “Investor”) hereby acknowledges it is purchasing $___________ principal amount of California School Finance Authority (the “Authority”) Educational Facilities Revenue Bonds (Tri-Valley Learning Corporation), Series 2012A (the “Bonds”), issued pursuant to an indenture, dated as of October 1, 2012 (the “Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A. (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.

The undersigned acknowledges that the Bonds were delivered for the purpose of financing the acquisition, construction, improvement and equipping of certain charter school facilities located in Livermore, California (the “Project”) by Livermore Valley Charter School and Livermore Valley Preparatory Charter High School (the “Borrower”), both operated as Tri-Valley Learning Corporation, as more particularly described in the Indenture.

In connection with the sale of the Bonds to the Investor, the Investor hereby makes the following representations upon which you may rely:

1. The Investor has authority and is duly authorized to purchase the Bonds and to execute this letter and any other instruments and documents required to be executed by the Investor in connection with the purchase of the Bonds.

2. The Investor is an “accredited investor” under Regulation D of the Securities Act of 1933 or a “qualified institutional buyer” under Rule 144A of said Act, and therefore, has sufficient knowledge and experience in financial and business matters, including purchase and ownership of municipal and other tax-exempt obligations, to be able to evaluate the risks and merits of the investment represented by the Bonds.

3. The Bonds are being acquired by the Investor for investment and not with a view to, or for resale in connection with, any distribution of the Bonds, and the Investor intends to hold the Bonds solely for its own account for investment purposes and for an indefinite period of time, and does not intend at this time to dispose of all or any part of the Bonds. However, the investor may sell at any time the Investor deems appropriate. The Investor understands that it may need to bear the risks of this investment for an indefinite time, since any sale prior to maturity may not be possible.

4. The Investor understands that the Bonds are not registered under the 1933 Act and that such registration is not legally required as of the date hereof; and further understands that the Bonds (a) are not being registered or otherwise qualified for sale under the “Blue Sky” laws and regulations of any state, (b) will not be

G-1

2

listed in any stock or other securities exchange, (c) will not carry a rating from any rating service and (d) will be delivered in a form which may not be readily marketable.

5. The Investor acknowledges that it has either been supplied with or been given access to information, including financial statements and other financial information, to which a reasonable investor would attach significance in making investment decisions, and the Investor has had the opportunity to ask questions and receive answers from knowledgeable individuals concerning the Borrower, the Project and the Bonds and the security therefor so that, as a reasonable investor, the Investor has been able to make our decision to purchase the Bonds. The Investor has received a copy of the Limited Offering Memorandum dated September 6, 2012 relating to the Bonds. The Investor acknowledges that it has not relied upon any advice, counsel, representation or information of the Authority in connection with the Investor’s purchase of the Bonds.

6. The Investor acknowledges that the obligations of the Authority under the Indenture are special, limited obligations payable solely from amounts paid to the Authority from the Borrower pursuant to the terms of the Indenture and the Authority shall not be directly or indirectly or contingently or morally obligated to use any other moneys or assets of the Authority for amounts due under the Indenture. The Investor understands that the Bonds are not secured by any pledge of any moneys received or to be received from taxation by the Authority (which has no taxing power), the State of California or any political subdivision or taxing district thereof; that the Bonds will never represent or constitute a general obligation or a pledge of the faith and credit of the Authority, the State of California or any political subdivision thereof; that no right will exist to have taxes levied by the State of California or any political subdivision thereof for the payment of principal and interest on the Bonds; and that the liability of the Authority and the State of California with respect to the Bonds is subject to further limitations as set forth in the Bonds and the Indenture.

7. The Investor has made its own inquiry and analysis with respect to the Bonds and the security therefor, and other material factors affecting the security and payment of the Bonds. The Investor is aware that the business of the Borrower involves certain economic and regulatory variables and risks that could adversely affect the security for the Bonds.

8. The Investor agrees that it is bound by and will abide by the provisions of the Indenture, the restrictions noted on the face of the Bonds and this Investor Letter. The Investor agrees that it will provide to each person to whom it transfers such Bonds notice of the restrictions on transfer of the Bonds. The Investor will comply with all applicable federal and state securities laws, rules and regulations in connection with any resale or transfer of the Bonds by the Investor.

9. The Investor acknowledges that the sale of the Bonds to the Investor is made in reliance upon the certifications, representations and warranties herein by the addressees hereto.

10. The Investor hereby waives any and all claims, actions, or causes of action which the Investor may have from and after the date hereof against the Authority, counsel to the Authority, and their respective members, officers, agents, and employees, growing out of any action (other than willful misconduct) which the Authority took or could have taken in connection with the authorization, execution, delivery, and sale of the Bonds or the purchase of the Bonds by the undersigned or in connection with any statements or representations which induced the undersigned to purchase the Bonds.

11. The interpretation of the provisions hereof shall be governed and construed in accordance with California law without regard to principles of conflicts of laws.

G-2

3

Dated: _______________________Very truly yours,[NAME OF INVESTOR]

By: ______________________________________________Name: ___________________________________________Title: _____________________________________________

G-3

SECOND SUPPLEMENT TO LIMITED OFFERING MEMORANDUM ...

Documents

Transcript of SECOND SUPPLEMENT TO LIMITED OFFERING MEMORANDUM ...