190 S. LaSalle St., Suite 800 Chicago, Illinois 60603 NOTICE OF EVENT OF DEFAULT AND REQUEST FOR WAIVER OF EVENT OF DEFAULT Notice to Holders of: California Municipal Finance Authority Education Revenue Bonds (American Heritage Education Foundation Project) $23,140,000 Series 2006A (CUSIP Nos.* 13049AAA1, 13049AAB9 and 13049AAC7) $2,360,000 Taxable Series 2006A-T (CUSIP No.* 13049AAD5) Please forward this notice to beneficial holders. U.S. Bank National Association is the Trustee (the "Trustee") under that certain Indenture of Trust, dated as of June 1, 2006 (the "Indenture"), by and between the California Municipal Finance Authority, as the Authority (the "Authority"), and the Trustee, which governs the abovereferenced bonds (collectively, the "Bonds"). The Bonds are limited obligations of the Authority, payable solely from (i) amounts payable by American Heritage Education Foundation, a California nonprofit public benefit corporation, Escondido Charter High School District, a California nonprofit public corporation and a public charter school of the State of California, and Heritage K-8 Charter School, a California nonprofit public benefit corporation and a public charter school of the State of California (collectively, the "Borrowers"), pursuant to that certain Loan Agreement, dated as of June 1, 2006, by and between the Authority and the Borrowers (the "Loan Agreement"), and (ii) amounts held by the Trustee under the Indenture. Capitalized terms used herein that are not otherwise specifically defined shall have the meanings for such terms set forth in the Indenture and the Loan Agreement. An "Event of Default" has occurred under Sections 5.11(d) and 7.01(c) of the Loan Agreement and Section 7.01(e) of the Indenture as a result of Borrowers' failure to meet the required Debt Service Coverage Ratio ("DSCR") for the 2010-2011 Fiscal Year the required DSCR was 1.25 to 1, and according to Borrowers, the actual DSCR was.75 to 1 (the "DSCR Default"). Based * The above-referenced CUSIP numbers are provided only as a convenience to the owners of the Bonds and no representation is made as to the correctness of the CUSIP numbers as printed on the Bonds or as contained in this Notice to Bondholders, and reliance may be placed only on the description of the Bonds contained herein. -1-
upon the DSCR Default, under Section 7.03 of the Indenture, the Trustee is required to declare the principal of all Bonds Outstanding, together with accrued interest thereon, to be due and payable immediately (the Acceleration ). For the Trustee not to cause the Acceleration to occur, the DSCR Default must be waived (the Waiver ). Under Section 7.10 of the Indenture, the consent of the Holders of all Bonds then Outstanding (i.e., 100% of the aggregate principal amount of outstanding Bonds) is required for the Waiver. On June 19, 2012, Standard & Poor s issued a report on Borrowers and the Bonds in which Standard & Poor s downgraded the Bonds from BBB- to BB+, placed the ratings on CreditWatch with negative implications, and stated We would likely lower the rating, potentially by multiple notches, if the bondholders do not approve the waiver of the covenant violation as this could quickly accelerate bond repayment. The Trustee is asking Holders of the Bonds to vote on whether to consent to the Waiver and waive the DSCR Default by completing and returning to the Trustee the ballot attached hereto as Annex I. The Trustee urges holders of the Bonds to return the completed ballot to the Trustee. The ballot itself should be fully completed, and contains instructions on how to return the ballot to the Trustee. Under the Indenture, Holders of at least 25% of the aggregate principal amount of outstanding Bonds have the right to direct certain of the Trustee's actions under and subject to the conditions contained in the Indenture, which include (among other things) providing the Trustee with an indemnity against liability satisfactory to the Trustee. The Trustee intends to send further notices to holders as material developments occur. Please note that the Trustee may conclude that a specific response to particular inquiries from individual holders is not consistent with equal and full dissemination of information to all holders. Holders should not rely on the Trustee as their sole source of information. The Trustee makes no recommendations and gives no investment advice. Prior to any distribution to Holders, funds held under the Indenture are to be used first for payment of the fees and costs incurred or to be incurred by the Trustee in performing its duties, as well as for any indemnities owing or to become owing to the Trustee. This includes, but is not limited to, compensation for Trustee time spent, and the fees and costs of counsel and other agents it employs, to pursue remedies or other actions to protect the security or other interests of holders. The Trustee may invest funds held under the Indenture in a mutual fund for which either (a) the Trustee receives a service fee from the fund or fund service provider, or (b) investment or advisory services are provided by the Trustee or an affiliate of the Trustee. As such, the Trustee and its affiliates may receive compensation for the investment advisory, custodial, distribution and other services provided. A prospectus that explains the services and costs, including the rate, formula and method of calculating such compensation, is available by contacting U.S. Bank at (800) 934-6802, option #4, or at www.usbank.com/corp_trust/bondholder_contact.html. Questions concerning this notice should be sent in writing to Mr. David Jason, Vice President, U.S. Bank National Association, 190 S. LaSalle St., Suite 800, Chicago, Illinois 60603, or by -2-
email at david.jason@usbank.com. Holders with other questions may contact U.S. Bank either at (800) 934 6802, option #4; or, at www.usbank.com/corp_trust/bondholder_contact.html. U.S. Bank National Association, July 18, 2012 as Trustee -3-
ANNEX I -4-
HOLDER WAIVER, DIRECTION AND CONSENT BALLOT California Municipal Finance Authority Education Revenue Bonds (American Heritage Education Foundation Project) $23,140,000 Series 2006A (CUSIP Nos. 13049AAA1, 13049AAB9 and 13049AAC7) $2,360,000 Taxable Series 2006A-T (CUSIP No. 13049AAD5) U.S. Bank National Association, as Trustee Corporate Trust Services 190 S. LaSalle Street, Suite 800 Chicago, IL 60603 Attention: David Jason, Vice President Email: David.Jason@usbank.com Ladies and Gentlemen: The undersigned (a "Holder") certifies and declares that it is the beneficial owner, or an investment manager or advisor of an investment fund that is the beneficial owner, of some of the above-referenced Bonds (collectively, the "Bonds"), in the principal amount set forth below undersigned's signature hereto. Holder has read the Notice of Event of Default and Request for Waiver of Event of Default (the "Notice") accompanying this Holder Waiver, Direction and Consent Ballot ("Ballot"). Capitalized terms used herein that are not otherwise specifically defined shall have the meanings for such terms set forth in the Notice. Pursuant to this Ballot, Holders are asked to vote on the following matter: 1. As noted in the Notice, the consent of the Owners of all Bonds then outstanding (i.e., 100% of the aggregate principal amount of outstanding Bonds) is required for waiver of the "Event of Default" caused by Borrowers' failure to meet the required Debt Service Coverage Ratio ("DSCR") for the 2010-2011 Fiscal Year. As further set forth in the Notice, the required DSCR was 1.25 to 1, and according to Borrowers, the actual DSCR was.75 to 1. DOES HOLDER CONSENT TO BORROWERS' REQUEST FOR WAIVER OF THE "EVENT OF DEFAULT" CAUSED BY BORROWERS' FAILURE TO MEET THE REQUIRED DEBT SERVICE COVERAGE RATIO FOR THE 2010-2011 FISCAL YEAR (the "DSCR DEFAULT")? YES. HOLDER CONSENTS, WAIVES THE DSCR DEFAULT, AND DIRECTS THE TRUSTEE TO WAIVE THE DSCR DEFAULT. NO. Please check one of the boxes above, complete the information below, and return this Ballot to the Trustee on or before August 18, 2012 by one of the following means: A. Mail: U.S. Bank National Association, as Trustee, Corporate Trust Services, 190 S. LaSalle Street, Suite 800, Chicago, IL 60603, Attention: David Jason, Vice President; or B. Email: David.Jason@usbank.com. -1-
Please note that any subsequent holder of the Bonds currently held by Holder will be bound by (i) waiver of the DSCR Default if the Owners of all Bonds consent thereto, and (ii) Holder's vote above. Holder represents and warrants that this Holder Ballot and Direction has been duly authorized, executed and delivered on behalf of Holder. The Trustee is authorized to identify the undersigned as a Directing Holder. Dated:, 2012 Holder (Print Name) By: DTCC Participant Name and No.: Registered Owner: CEDE & CO. Print Name: Print Title: Holder's Contact Information: Address: Telephone: Facsimile: Email: Outstanding Principal Amount of Bonds Held: CUSIP No.*: $ CUSIP No.*: $ -2-