The Howard & Lillian Lee Scholars Charter School Proposal

The Howard & Lillian Lee Scholars Charter School Application

Parties pursuing education funds must first form non-profit corporations in order to qualify for North Carolina school charters. Once these five-year contracts are granted, charter school corporate boards can then align with for-profit entities for school management. The Howard & Lillian Lee Scholars Charter School application is a case in point.

In November 2011, Angela Lee, the lead applicant and her board of directors, submitted an application for the establishment of The Howard & Lillian Lee Scholars Charter School. As noted in its proposal the Board plans to contract with National Heritage Academies, Inc., a privately-held education management company, to provide its expertise for the start-up school. National Heritage Academies, Inc. was chosen for the following reasons:

—Its experience working with public charter schools in North Carolina.

—Its willingness to address the education needs of underserved children.

—The comprehensive nature of its school program, including academics as well as school culture and moral focus as a way to educate the whole child.

—The financial resources and experience it brings to the equation — i.e., facilities, real estate, start-up capital as a contribution and not a loan, and its willingness to accept the financial risk.

The Board has apprised the state that it expects to enroll 480 students for the 2012/2013 school year. If this enrollment figure is achieved, the Board will receive $3,925,910 in education funds. This by-formula revenue calculation is outlined on pages 109-112 of the application.

The National Heritage Academies, Inc.  Services Agreement with The Howard & Lillian Lee Scholars Charter School Board

ARTICLE VII
FINANCIAL ARRANGEMENTS

A. Revenues. Except as provided herein, all monies received by the Board shall be deposited in the School's depository account within three (3) business days with a financial institution acceptable to the Board; provided, however, that upon receipt of a notice from NHA, the School shall pay all such The Howard & Lillian Lee Scholars Charter School funds owing under this Agreement directly to the account or party specified in such notice. Interest income earned on the School's depository account shall accrue to the School. Except as specifically excluded by this Agreement, the term "Revenues" shall include all funds received by or on behalf of the School, including but not limited to:

1. Funding for public school students enrolled at the School.

2. Special education funding provided by the federal and/or state govermnent that is directly allocable to special education students enrolled at the School.

3. Gifted and talented funding provided by the federal and/or state government that is directly allocable to gifted and talented students enrolled at the School.

4. At-risk funding provided by the federal and/or state government that is directly allocable to at-risk students enrolled at the School.

5. Funding provided by the federal and/or state government that is directly allocable to students enrolled at the School with limited English proficiency.

6. All other federal and/or state grant sources, including, but not limited to, Title I and any start-up funding allocable to the School.

7. All other grants and donations received by the School to support or carry out programs at the School (except to the extent NHA is not required or involved in soliciting, administering or managing the contribution and/or donation).

8. Fees charged to students as permitted by law for extra services approved by the Board.

D. Board Spending Account. Each school year during the Term, NHA shall pay to the Board an amount equal to the lesser of: (i) 2% of state per-pupil aid reflected in the Budget for that respective school year, or: (ii) $35,000 (the "Board Spending Account"). The aforesaid amount shall be deposited by NHA into the Board Spending Account pro-rata during the course of the School's school year as Revenues are received. All funds in the Board Spending Account are the property of the School and may be used by the School at the discretion of the Board.

National Heritage Academies, Inc. North Carolina Charter School Performance Record

National Heritage Academies, Inc. has been conducting business in North Carolina since 1999. The company has five schools under contract: Forsyth Academy, Greensboro Academy, PreEminent Charter School, Queens Grant Community School and Research Triangle Academy. Only one of these privately-managed public charter schools has met adequate yearly progress [AYP] academic standards as defined by the 2001 No Child Left Behind Act.

The No Child Left Behind education measure was a guarantee to parents that public school children in all states would be proficient in core subjects by 2013/2014. 

To achieve this objective, authors of the bill established professional standards: a “highly qualified teacher” is one with full certification, a bachelor’s degree and demonstrated competence in subject knowledge and teaching.

Performance data for the listed National Heritage Academies, Inc. charter schools was obtained from the N.C. School Report Cards Web site.

Forsyth Academy Winston Salem, NC established 1999— 671 K-8 student enrollment

Forsyth Academy did not make adequate yearly progress. The number of highly qualified teachers jointly employed by National Heritage Academies, Inc. and the Board has declined to 96% from 97%.

Greensboro Academy Greensboro, NC established 1999 —720 K-8 student enrollment

Greensboro Academy made adequate yearly progress and is classified as an Honor School of Excellence. The number of highly qualified teachers jointly employed by National Heritage Academies, Inc. and the Board has declined from 100% to 94%.

PreEminent Charter School Raleigh, NC established 2000— 531 K-8 student enrollment

PreEminent Charter School did not make adequate yearly progress. The number of highly qualified teachers jointly employed by National Heritage Academies, Inc. and the Board has declined from 100% to 89%.

Queens Grant Community School Mint Hill, NC established 2002— 1233 K-12 student enrollment.

Queens Grant Community School did not make adequate yearly progress. The number of highly qualified teachers jointly employed by National Heritage Academies, Inc. and the Board  remained the same, 90%.

Research Triangle Charter Durham, NC established 2000— 685 K-8 student enrollment

Research Triangle Charter did not make adequate yearly progress. The number of highly qualified teachers jointly employed by National Heritage Academies, Inc. and the Board has declined from 94% to 86%.

Credentials for North Carolina Charter School Educators as stipulated by NCGS Chapter 115C-238.29:

1. Compliance Requirement - The charter school’s board of directors shall employ and contract with necessary teachers to perform the particular service for which they are employed in the school. At least seventy-five percent (75%) of these teachers in grades kindergarten through five, at least fifty percent (50%) of these teachers in grades six through eight, and at least fifty percent (50%) of these teachers in grades nine through twelve shall hold teacher certificates.

News reports re The Howard & Lillian Lee Scholars Charter School application:

"Chapel Hill-Carrboro school board to discuss Howard and Lillian Lee charter school tonight"
News & Observer— December 15, 2011

"Eleven charter schools make the cut" The Locker Room — December 15, 2011

"Charter schools and Howard Lee: A complicated relationship" The Locker Room — December 13, 2011

The Howard & Lillian Lee Scholars Charter School Proposal to Contract with National Heritage Academies, Inc.

The Howard & Lillian Lee Scholars Charter School Application

Parties pursuing education funds must first form non-profit corporations in order to qualify for North Carolina school charters. Once these five-year contracts are granted, charter school corporate boards can then align with for-profit entities for school management. The Howard & Lillian Lee Scholars Charter School application is a case in point.

In November 2011, Angela Lee, the lead applicant and her board of directors, submitted an application for the establishment of The Howard & Lillian Lee Scholars Charter School. As noted in its proposal the Board plans to contract with National Heritage Academies, Inc., a privately-held education management company, to provide its expertise for the start-up school.  A copy of the contact follows:

SERVICES AGREEMENT

This SERVICES AGREEMENT (this "Agreement"), by and between National Heritage Academies, Inc., a Michigan corporation ("NHA"), and The Howard and Lillian Lee Scholars Charter School, a North Carolina non-profit corporation (the "School"), is effective the day of , 2011 (the "Effective Date"). For purposes of this Agreement, NHA and the School shall be referred to collectively as the "Parties."

RECITALS

WHEREAS, the School was issued a Charter Contract by the North Carolina State Board of Education (the "Authorizer") to operate a public charter school pursuant to N.C. Gen. Stat. § 1150-238.29 et seq. (the "Authorizing Law"); and

WHEREAS, the Parties desire to create an enduring educational alliance in which they will work together to promote educational excellence and innovation based on NIIA's school design, comprehensive educational program and management principles; and

WHEREAS, the Parties desire to set forth the terms and conditions of such alliance in this Agreement;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I

CONTRACTING RELATIONSHIP

A. Services. Subject to the terms and conditions of this Agreement, and as permitted by applicable law, the School hereby contracts with NHA for the provision of certain educational, business administration and management services, including without limitation, all labor, equipment, and materials necessary for the provision of the same, as set forth herein (collectively, the "Services").

B. Charter. This Agreement shall: (i) be subject to and comply with the terms and conditions of the Charter Contract and the School's Charter Application (collectively, the "Charter"); and (ii) not be construed to interfere with the constitutional, statutory, or fiduciary duties of the School's Board of Directors (the `Board"). In the event of a conflict between any term or condition of this Agreement and any term or condition of the Charter, the term or condition of the Charter shall govern.

C. Independent Contractor. NHA shall provide the Services as an independent contractor, and not as an employee, partner, or associate of the School. This independent contractor relationship shall extend to the officers, directors, employees, and representatives of NHA.

D. Designation of Agents. NHA, its directors, officers, employees, agents, and representatives shall not be deemed agents of the School solely on account of this Agreement, except as follows:

1. NHA, including its directors, officers, employees and designated agents, are hereby authorized to serve as agents of the School for purposes of the Family Educational Right and Privacy Act, 20 U.S.C. § 1232g et seq. (FERPA), and are designated as "other School Officials having a legitimate educational interest in education records," such that they are entitled to access the education records of the School.

2. NHA, its directors, officers, employees, and agents may be designated as agents of the School by a written resolution of the Board or by a properly authorized officer of the School.

ARTICLE II

TERM & TERMINATION

A. Term. This Agreement shall commence on the Effective Date, and unless terminated as set forth herein, shall continue until the termination or expiration of the Charter, including any reauthorizations or renewals thereof (the "Term"). The first school year of this Agreement shall commence on July 1, , and end on June 30, , and each school year thereafter shall commence on July 1 and end on June 30 of the following year.

B. Termination.

1. NHA may terminate this Agreement prior to the end of the Tern if the Board fails to remedy a material breach of this Agreement within thirty (30) days after receiving a notice from NHA of such breach. For purposes of this Subsection, a material breach includes, but is not limited to: (i) NHA's failure to timely receive any compensation or reimbursement required by this Agreement; or (ii) a suspension, revocation, or non-renewal of the Charter.

2. The School may terminate this Agreement prior to the end of the Term if NHA fails to remedy a material breach of this Agreement within (30) days after receiving a notice from the School of such breach. For purposes of this Subsection, a material breach includes, but is not limited to: (i) NHA's failure to account for expenditures or pay operating costs pursuant to the Budget (as defined below); (ii) NHA's failure to follow policies, procedures, rules, regulations or curriculum adopted by the Board, provided they do not violate the Charter, applicable law, or this Agreement; (iii) a receipt by the Board of an unsatisfactory report from NHA or an independent education consultant retained by the Board regarding the Services or the School's performance, provided such report cannot be adequately corrected or explained; (iv) a determination that this Agreement or its implementation would serve as grounds for suspension, revocation, or non-renewal of the Charter; or (v) a determination that this Agreement or its implementation would jeopardize material tax exemptions of the School or its non-profit status.

3. Either party may terminate this Agreement prior to the end of the Term, with or without cause, by providing the other party with ninety (90) days prior written notice.

4. If this Agreement is terminated prior to the end of the Term, and unless otherwise agreed by the Parties, such termination will not become effective until the end of the then-current school year.

C. Effect of Termination. Upon the effective date of termination or expiration of this Agreement:

1. NHA shall have the right to remove any equipment or other assets owned or
leased by NHA from the School;

2. the School shall pay or reimburse NHA through the fee (as defined below) for the prepaid portion of any expenses or liabilities incurred by NHA pursuant to the Budget as of the date of such termination or expiration, provided NHA supplies the School with documentation of all such expenses and liabilities;

3. NHA may, in its sole discretion, assist the School for a reasonable amount of time, not to exceed ninety (90) days, and for a reasonable fee, with the School's transition to another administrative or managerial arrangement;

4. NHA shall reasonably assist the School in the execution of a closure plan and cooperate in the closure process, including without limitation, in any audits and court or other proceedings related thereto; and

5. the party to whom Confidential Information (as defined below) has been disclosed shall, upon request and at the direction of the disclosing party: (i) return such Confidential Information within thirty (30) days, including any copies thereof, and cease its use; or (ii) destroy such Confidential Information and certify such destruction to the disclosing party, except for a single copy thereof which may be retained for the sole purpose of determining the scope of any obligations incurred under this Agreement.

ARTICLE III

OBLIGATIONS OF NHA

A. Manager at Risk. NHA shall be responsible and accountable to the Board for providing the Services. During the Term, NHA shall provide the Services regardless of whether actual revenue meets the level projected in the Budget, and NHA hereby assumes the risk of funding shortfalls during the Term. Notwithstanding the foregoing, NHA shall not be required to expend funds on Services in excess of the amount set forth in the Budget.

B. Comprehensive Educational Program. The School has determined to adopt NHA's proprietary educational and academic programs and goals, as set forth in the Charter (the "Educational Program"). Subject to the oversight of the Board, NHA shall implement and administer the Educational Program. In the event that NHA reasonably determines that it is necessary or advisable to make material changes to the Educational Program, NHA shall inform the Board of the proposed changes and obtain the Board's approval before making such changes, as well as the Authorizer's approval if required by the Charter or applicable law. The Parties acknowledge and agree that an essential principle of the Educational Program is its flexibility, adaptability and capacity to change in the interest of continuous improvement and efficiency. Not less than annually or as requested by the Board, NHA shall provide the Board with a report detailing progress made on each of the educational goals set forth in the Educational Program.

C. All Children Welcome. NHA places a high value on diversity, and the School shall welcome students of all races, ethnicity, religion, gender and economic backgrounds.

D. Services to Students with Disabilities. NHA welcomes students with disabilities at the School. NHA shall provide special education and related services, in conformity with the requirements of applicable law, to students who attend the School.

E. Educational and Administrative Services. Subject to the oversight of the Board, NHA shall implement operational practices that are consistent with Board policy, the Charter and applicable law. Such practices shall include, but are not limited to:

1. Student recruitment and admissions.

2. Student assessments, including testing and promotion.

3. The acquisition of instructional materials, equipment and supplies, and the administration of any and all extra-curricular and co-curricular activities and programs included in the Budget.

4. Employment of personnel working at the School and management of all personnel functions, as set forth herein.

5. All aspects of the School's business administration.

6. All aspects of the School's accounting operation, including general ledger management, financial reporting, payroll, employee benefits and payroll tax compliance.

7. Food services and facilities maintenance.

F. Location of Services. Other than instruction, and unless prohibited by the Charter or applicable law, NHA may provide the Services, including but not limited to, purchasing, professional development and administrative services, off-site.

G. Subcontracts. NHA reserves the right to subcontract any and all aspects of the Services.

H. Pupil Performance Standards and Evaluation. NHA shall implement pupil performance evaluations that permit evaluation of the academic progress of each School student. NHA shall utilize assessment strategies required by the Charter and applicable law. The Board and NHA shall cooperate in good faith to identify academic goals and methods to assess such academic performance.

I. Unusual Events. NHA shall timely notify the Board and the Administrator (as defined below) of any anticipated or known material: (i) health or safety issues; (ii) labor, employee or funding issues; or (iii) other issues that may reasonably and adversely impact the School's ability to comply with the Charter, applicable law or this Agreement.

J. School Records. The financial and education records pertaining to the School (collectively, the "School Records"), are property of the School. Except as may be prohibited or limited by the Charter or applicable law, the School Records shall be available to the Board and the Authorizer for their review, and are subject to inspection and copying to the same extent that records of public schools are subject to inspection and copying pursuant to applicable law. All School Records shall be physically or electronically available upon request at the School's physical facility.

K. Facility. NHA shall use reasonable efforts to secure a facility to be leased or otherwise provided to the School on terms mutually agreeable to NHA and the Board. The facility shall comply with the requirements of the Charter. NHA shall also use reasonable efforts to cause the facility to be furnished with equipment and technology as is reasonably necessary to implement the Educational Program.

L. Legal Compliance. NHA will implement and enforce rules, regulations and procedures applicable to the School that are consistent with adopted Board policy, and the Educational Program in accordance with the Charter and applicable law, including without limitation, rules, regulations,and policies regarding discipline, special education, confidentiality and access to records.

M. Rules and Procedures. NHA will recommend to the Board reasonable rules, regulations, policies and procedures applicable to the School. The Board hereby authorizes and directs NHA to enforce such rules, regulations and procedures adopted by the Board.

ARTICLE IV

OBLIGATIONS OF THE BOARD

A. Good Faith. The Board shall be responsible for the fiscal and academic policies of the School. The Board shall exercise good faith in considering the recommendations of NHA, including but not limited to, NHA's recommendations regarding policies, rules, regulations and the Budget.

B. Assistance to NHA. The Board shall cooperate with NHA and, to the extent consistent with applicable law, timely furnish NHA all documents and information necessary for NHA to properly perform its responsibilities under this Agreement.

C. Unusual Events. The Board shall timely notify NHA of any anticipated or known material: (i)health or safety issues; (ii) labor, employee or funding issues; or (iii) other issues that may reasonably and adversely impact NHA's ability to comply with the Charter, applicable law, or this Agreement.

D. Office Space. Upon request by NHA, the Board shall provide NHA with suitable office space at the School, provided the requested space is: (i) available and can be provided without materially prejudicing the Educational Program; and (ii) used only for activities related to the School. The space shall be provided at no cost to NHA.

E. Board Authority. Consistent with applicable law, the Board shall have final authority to adopt reasonable rules, regulations, and policies regarding the establishment, maintenance, management, and operation of the School.

ARTICLE V
INTELLECTUAL PROPERTY

A. Definitions.

1. "Educational Materials" means all curriculum, print and electronic textbooks, instructional materials, lesson plans, teacher guides, workbooks, tests, and other curriculum-related materials licensed, developed or otherwise owned by the School or NHA.

2. "Confidential Information" means any confidential and non-public trade, technical or business knowledge, information and materials regarding the School or NHA (or their respective affiliates), which is given by one party to the other, or any of their respective representatives, in any form, whether printed, written, oral, visual, electronic or in any other media or manner. Confidential Information includes, but is not limited to, research, operations and procedures, financial projections, pricing, sales, expansion plans and strategies, services data, trade secrets and other intellectual property, or the results of any mediation or private adjudication, as well as information with respect to each party's or its affiliates' plans for market expansion, except for information which a party can show by contemporaneous written records was developed or formulated independently of work or services performed for, or in connection with performance of, this Agreement. Notwithstanding the foregoing, the disclosure of the other party's Confidential Information as required to be disclosed by law, rule or regulation or by reason of subpoena, court order or government action shall not constitute a breach of this Agreement; however, in such event the party required to disclose such information will reasonably cooperate with the party whose information is required to be disclosed in order to obtain a protective order applicable to such disclosure. All Confidential Information will remain the sole property of the party disclosing such information or data.

B. School Materials. The School shall own all right, title and interest in and to Educational Materials that are: (i) licensed or owned by the School as of the Effective Date; or (ii) licensed, developed, characterized, conceived, derived, generated, identified, or otherwise made by the School during the Term, provided such materials do not reference the NHA Materials (as defined below), or incorporate any Confidential Information of NHA (collectively, the "School Materials"). The School Materials shall include all intellectual property rights associated therewith.

C. NHA Materials. NHA shall own all right, title and interest in and to Educational Materials that are: (i) licensed or owned by NHA as of the Effective Date; (ii) licensed, developed, characterized, conceived, derived, generated, identified, or otherwise made by NHA during the Term, provided such materials do not reference School Materials or incorporate any Confidential Information of the School; and (iii) any and all Educational Materials and non-curriculum materials provided to the School by NHA relating to the Educational Program, including all changes and derivatives thereof (collectively, the "NHA Materials").

D. Derivative Works. The Parties acknowledge that to the extent any Educational Materials created by the School are derivative of the NIIA Materials, use of such derivative materials during the Term is subject to the license granted herein, and the license to use such derivative materials shall cease as of the date of expiration or termination of this Agreement.

E. No Transfer or Sale. The School acknowledges and agrees that NIIA is not transferring or selling, and the School is not receiving, purchasing or acquiring, any intellectual property or proprietary rights in or to the NHA Materials.

F. Licenses. NHA hereby grants the School a non-exclusive, non-transferable license (without the right to sublicense) to use the NHA Materials, and any Educational Materials created by the School which are derivative of the NHA Materials, solely in furtherance of the Educational Program during the Term, including without limitation, the right to reproduce, publicly display, distribute and create derivative works of the same, in hard copy format or electronically, within the United States. The School represents and warrants that during the Term, and following the expiration or termination of this Agreement, the School will not exploit or assist any third party exploit any of the NHA Materials for commercial purposes. Subject to applicable law, the School grants NHA a nonexclusive,
irrevocable, worldwide, assignable right to use, distribute, modify and display the School Materials, solely for educational purposes in any and all media now know or hereafter developed.

G. NHA Marks. During the Tenn, NHA grants the School a non-exclusive, revocable, nontransferable license (without the right to sublicense) to use NHA's trade name(s) and NHA's trademark(s) (the "NHA Marks") solely for the purposes of promoting and advertising the School. NHA shall have the opportunity to review and approve all artwork, copy or other materials utilizing the NHA Marks prior to any production or distribution thereof. All uses of the NHA Marks require NHA's prior written permission. The School shall acquire no rights in or to the NHA Marks, and all goodwill associated with the NHA Marks shall inure to the benefit of and remain with NHA. Upon expiration or termination of this Agreement, the School shall immediately discontinue use of the NHA Marks and shall remove the NHA Marks from its locations, vehicles, websites, telephone directory listings and all other written or electronic promotional materials.

H. Assignment. Each party shall, and hereby does assign to the other, with full title guarantee and without additional compensation, such right, title and interest in and to any intellectual property as is necessary to fully affect the ownership provisions set out herein, and any accrued rights of action in respect thereof Each party shall, if so requested by the other, execute all such documents and do all such other acts and things as may be reasonably required to comply with this Agreement to vest in the appropriate party all rights in the relevant intellectual property and shall procure execution by any named inventor of all such documents as may reasonably be required by the other party in connection with any related patent application.

ARTICLE VI
SOLICITATION AND USE OF PRIVATE FUNDS

NHA shall seek the Board's approval prior to soliciting any non-governmental grants, donations or contributions on behalf of the School. Any such funds received shall be used solely in accordance with the purpose for which they were solicited, applicable donor restrictions, or as otherwise approved by the Board. Subject to applicable donor restrictions, the Board shall determine the allocation of any such funds subject to this Article that remain unexpended following completion of the project or purpose for which they were originally designated.

ARTICLE VII
FINANCIAL ARRANGEMENTS

A. Revenues. Except as provided herein, all monies received by the Board shall be deposited in the School's depository account within three (3) business days with a financial institution acceptable to the Board; provided, however, that upon receipt of a notice from NHA, the School shall pay all such funds owing under this Agreement directly to the account or party specified in such notice. Interest income earned on the School's depository account shall accrue to the School. Except as specifically excluded by this Agreement, the teen "Revenues" shall include all funds received by or on behalf of the School, including but not limited to:

1. Funding for public school students enrolled at the School.

2. Special education funding provided by the federal and/or state govermnent that is directly allocable to special education students enrolled at the School.

3. Gifted and talented funding provided by the federal and/or state government that is directly allocable to gifted and talented students enrolled at the School.

4. At-risk funding provided by the federal and/or state government that is directly allocable to at-risk students enrolled at the School.

5. Funding provided by the federal and/or state government that is directly allocable to students enrolled at the School with limited English proficiency.

6. All other federal and/or state grant sources, including, but not limited to, Title I and any start-up funding allocable to the School.

7. All other grants and donations received by the School to support or carry out programs at the School (except to the extent NHA is not required or involved in soliciting, administering or managing the contribution and/or donation).

8. Fees charged to students as permitted by law for extra services approved by the Board.

The expenditure of any Revenues received from governmental entities shall be consistent with all applicable regulations and policies. The expenditure of any Revenues received from nongovernmental grants, contributions and donations shall be made consistent with the provisions of Article VI.

B. Budget. NHA shall provide the Board with an annual proposed Budget prepared and maintained in accordance with the Charter and applicable law (the "Budget"). For the School's first school year, the Budget shall be submitted prior to the beginning of the school year. Thereafter, the proposed Budget shall be submitted to the Board prior to June 1 for the next school year.

C. Review and Approval of Budget. The Board shall be responsible for reviewing and approving the Budget in accordance with the Charter and applicable law. At the direction of either NHA or the Board, with the approval of the Board, the Budget shall be amended from time to time as necessary.

D. Board Spending Account. Each school year during the Term, NHA shall pay to the Board an amount equal to the lesser of: (i) 2% of state per-pupil aid reflected in the Budget for that respective school year, or: (ii) $35,000 (the "Board Spending Account"). The aforesaid amount shall be deposited by NHA into the Board Spending Account pro-rata during the course of the School's school year as Revenues are received. All funds in the Board Spending Account are the property of the School and may be used by the School at the discretion of the Board. Funds in the Board Spending Account that are not spent by the School during the school year shall carryover to the School's next school year. Items purchased by NHA for the School and paid for by the School with funds from the Board Spending Account, such as non-proprietary instructional and/or curriculum materials, books, supplies and equipment, shall be the property of the School. The property of the School excludes items leased, financed or purchased by NHA with the Fee (as defined below). NHA agrees not to add any fees or charges to the cost of equipment, materials or supplies purchased by NHA on behalf of the School with funds from the Board Spending Account. NHA, in making such purchases for the School pursuant to this subsection, shall comply with applicable law, as if the School were making such purchases itself from a third party, and shall provide the Board, upon request, available documentation evidencing the costs associated with such purchases.

E. Fee. NHA shall receive all Revenues as its services fee (the "Fee"), from which it shall pay all operating costs of the School, as detailed in the Budget. Payment of the Fee shall be made on the same frequency that the School receives its Revenues. NHA shall be entitled to retain as compensation for the Services the difference, if any, between the Fee and the amount actually expended by NHA in operation and/or management of the School during the School's fiscal year.

F. No Loans. NHA shall not make or extend loans to the Board.

G. Other Schools. The School acknowledges that NHA has entered into similar services agreements with other schools. NHA shall maintain separate accounts for expenses incurred in the operation of the School and other schools assisted by NHA, and shall reflect in the School's financial records only those expenses incurred in the operation of the School. If NHA incurs expenses that are for both the benefit of the School and other schools managed by NHA, then NHA shall allocate, to the extent permitted by law, such expenses among all such affected schools, including the School, on a prorated basis based upon the number of enrolled students, the number of classrooms, or the number of teachers at the affected schools, or on such other equitable basis as is reasonably determined by NHA. In no event shall marketing costs incurred solely for the benefit of NHA (and not the School) be allocated to the School.

H. Financial Reporting. NHA shall provide the Board with:

1. Annually, the Budget as required by this Agreement.

2. Quarterly, or as reasonably requested by the Board, a Statement of Revenues, Expenditures and Changes in Fund Balance, which: (i) details year-to-date Revenues received and expenses incurred; (ii) compares such Revenues and expenses to the Budget; and (iii) provides an explanation of any resulting variances.

3. Quarterly, or as reasonably requested by the Board, a report on School operations and student performance.

4. As reasonably requested, other information to enable the Board to: (i) evaluate the quality of the Services; and (ii) timely provide all reports and information that are required by the Charter and applicable law.

I. Access to Financial Records. NHA shall keep accurate financial records pertaining to its operation of the School, together with all School financial records prepared by or in possession of NHA, and shall retain all of the aforereferenced records according to the Charter and applicable law to which such books, accounts, and records relate. NHA and the Board shall maintain the proper confidentiality of personnel, students, and other records as required by law.

J. Accounting Standards; Annual Audit.

1. The School shall at all times comply with generally accepted public sector accounting principles and accounting system requirements that comply with applicable law.

2. An independent auditor will conduct an annual audit of the School's financial matters in accordance with the Charter and applicable law.

3. Subject to applicable law, all records in the possession or control of NHA that relate to the School, including but not limited to, financial records, shall be made available to the School and the School's independent auditor. The expense of the annual audit shall be included in the Budget.

K. Start-up Funds; Contributions. NHA shall provide start-up funds for: (i) the development of curriculum, a technology system and a school operations plan; (ii) recruiting, selecting and training of staff members; and (iii) to the extent necessary as reasonably determined by NHA, cleaning, renovating and equipping of the School facility (the "Start-Up Funds"). In addition, in its sole discretion, NHA may, but need not, make contributions to the School in the event School expenses exceed Revenues (the "Contributions"). The Contributions, if any, shall be in amounts acceptable to NHA and the Board and, once made, shall be included in the Budget. Unless otherwise agreed, the School shall not be legally obligated to repay NHA for the Start-Up Funds or the Contributions. NHA's agreement to make such Contributions shall not be deemed to negate or mitigate the need for the School to apply for or solicit state or federal start-up funds, grants or sub-grants which the School, as a public school, may be eligible to receive.

ARTICLE VIII
PERSONNEL & TRAINING

A. Qualified Personnel. NHA shall select, hire, evaluate, assign, discipline, transfer, and terminate School personnel pursuant to the Budget, the Charter and applicable law. With the exception of teachers, as set forth below, and unless otherwise agreed by the written consent of the Parties, all School personnel shall be employees of NHA. NHA and the Board shall each be responsible for their respective employees. However, compensation of all employees working at the School shall be included in the Budget. At the request of the Board, NHA shall disclose to the Board the level of compensation and fringe benefits provided by NHA to NHA employees working at the School.

B. School Administrator. The School administrator (the "Administrator") shall be an employee of NHA and not the Board. The duties and terms of the Administrator's employment shall be determined by NHA. The Administrator shall work with NHA in the operation and management of the School. The accountability of NHA to the School is an essential foundation of this Agreement. Since the Administrator is critical to the School's success, NHA shall have the authority, consistent with this Article, to select, hire, evaluate, assign, discipline, transfer and terminate the Administrator,
and to hold the Administrator accountable for the performance of the School. Without limiting the foregoing, NHA agrees that it shall consult with the Board prior to the hiring or termination of the Administrator.

C. Teachers. The Administrator shall recommend to the Board for its consideration and approval, teachers who are qualified in the grade level and subjects required by the School to operate in
accordance with the terms of the Charter. All teachers shall be jointly employed by the School and
NHA for such purposes as inclusion in the compensation and employee benefit plans of NHA, payroll administration and other employment policies and practices; provided however, in all circumstances, the Board shall ultimately control the hiring and discharge decisions with respect to jointly employed teachers at the School in accordance with N.C. Gen. Stat. § 115C-238.29(F)(e)(1). Teachers assigned to and retained by the School shall hold a valid teaching certificate issued by the State Board of Education to the extent required by N.C. Gen. Stat. § 115C-238.29F(e)(1). Subject to the approval of the Board, such teachers may, in the discretion of NHA, work at the School on a full or part-time basis. If assigned to the School on a part-time basis, such teachers may also work at other schools for which NHA
provides services under a similar agreement.

D. Support Staff.  NHA shall, consistent with this Article, provide the School with qualified support staff as needed to operate the School in an efficient manner. The support staff may, at the discretion of NHA, work at the School on a full or part-time basis. If assigned to the School on a part-time basis, the support staff may also work at other schools managed or operated by NHA. The cost for such support staff shall be shared proportionately among the schools at which the support staff is working. An
individual who provides a service to students in the School that is not teaching, and for which a license is required under applicable law, will have the appropriate license to provide such services.

E. Training. NHA shall provide or procure training in its methods, curriculum, program, and technology to all teaching personnel on a regular basis. Instructional personnel shall be required to obtain at least the minimum hours of professional development as required by applicable law. Noninstructional personnel shall receive training as NHA determines reasonable and necessary under the circumstances.

F. Background Checks and Qualifications. NHA shall comply with applicable law regarding background checks, unprofessional conduct searches and certification/licensure, as applicable, for all persons working in the School.

G. Terms of Employment. No member of the staff at the School shall be subject to any covenant not to compete or other employment restriction as part of the terns of his or her employment with NHA for the Services.

H. Limitations on Discretion. All decisions made by NHA, and any discretion exercised by NHA, in its selection, hiring, evaluation, assigmnent, discipline, transfer, and termination of personnel, shall be consistent with the Budget, the Charter, the parameters adopted and included in the Educational Program, and applicable law.

ARTICLE IX
INDEMNIFICATION AND LIMITATION OF LIABILITY

A. Indemnification. To the extent not prohibited by the Charter or applicable law, the Parties hereby agree to indemnify, defend, and hold the other (the "Indemnified Party"), harmless from and against any and all third-party claims, actions, damages, expenses, losses or awards which arise out of the gross negligence or intentional misconduct of the indemnifying party. As used herein, Indemnified Party shall include the party's trustees, directors, officers, employees, agents,representatives and attorneys. The Parties may purchase general liability, property or other insurance policies. Notwithstanding anything in this Agreement to the contrary, the Board shall not be precluded by the terms of this Agreement from asserting or declining to assert a claim of governmental immunity.

B. Limitation of Liability. Neither party shall be liable for special, punitive, exemplary, incidental or consequential damages due to any breach of this Agreement or any action or omission by such Party.

ARTICLE X
INSURANCE

A. Insurance Coverage. NHA shall maintain such policies of insurance as required by the Charter and applicable law. In addition, NHA shall maintain an umbrella liability policy of not less than Two Million Dollars ($2,000,000.00), or such greater amount if required by the Charter or applicable law. Each party shall maintain general liability insurance in the amount of One Million Dollars ($1,000,000.00) per occurrence, or such greater amount if required by the Charter or applicable law, with the other party listed as an additional insured. The School shall maintain insurance on its facility and related capital items leased by the School, all as required by the terms of the School's lease(s). Each party shall, upon request, present evidence to the other that it maintains the requisite insurance in compliance with the provisions of this Article. Each party shall comply with any information or reporting requirements required by the other party's insurer(s), to the extent reasonably practicable.

B. Workers' Compensation Insurance. Each party shall maintain workers' compensation insurance as required by law, covering their respective employees.

ARTICLE XI

REPRESENTATIONS & WARRANTIES

A. Board and School. The Board represents and warrants, for itself and on behalf of the School, that: (i) it is legally vested with all power and authority necessary to operate a charter school under the Authorizing Law; (ii) it is legally vested with all power and authority necessary to execute, deliver and perform this Agreement, including without limitation, the power and authority to contract with a private entity for the provision of educational, business administration and management services; (iii) its actions have been duly and validly authorized, and it has adopted any and all resolutions or expenditure approvals required for the execution of this Agreement; and (iv) there are no pending actions, claims, suits or proceedings, or, to its knowledge, threatened or reasonably anticipated against or affecting either the Board or the School, which if adversely determined, would have a material adverse effect on its ability to perform under this Agreement.

B. NHA. NHA represents and warrants that: (i) it is a corporation in good standing and is authorized to conduct business in the State of North Carolina; (ii) there are no pending actions, claims, suits or proceedings, or, to its knowledge, threatened or reasonably anticipated against or affecting NHA, which if adversely determined, would have a material adverse effect on its ability to perform its obligations under this Agreement; and (iii) it will comply with all registration and licensing requirements relating to conducting business under this Agreement, which the Board agrees to assist NHA in applying for such licenses and permits and in obtaining such approvals and consents.

ARTICLE XII
MISCELLANEOUS

A. Entire Agreement. This Agreement and any attachments hereto shall constitute the entire agreement of the Parties on the subject matter set forth herein. This Agreement supersedes and replaces any and all prior agreements and understandings regarding the subject matter set forth herein between the School and NHA.

B. Force Majeure. Except for payment obligations, and notwithstanding any other provisions of this Agreement, neither party shall be liable for any delay in performance or inability to perform due to acts of God, war, riot, embargo, fire, explosion, sabotage, flood, accident, labor strike, or other acts beyond its reasonable control; provided either party may terminate this Agreement in accordance with provisions contained herein if sufficient grounds exist as provided in the Article governing termination.

C. State Governing Law; Waiver of Jury Trial. This Agreement shall be construed, interpreted, governed and enforced pursuant to the laws of the State of North Carolina, without regard to its conflicts-of-laws principles. The Parties hereby waive the right to a jury trial in any action, proceeding or counterclaim brought by either NHA or the School against the other.

D. Notices. All notices and other communications required by this Agreement shall be in writing and sent to the Parties at the facsimile number or address set forth below. Notice may be given by:(i) facsimile, with written evidence of confined receipt by the receiving party of the entire notice; (ii) certified or registered mail, postage prepaid, return receipt requested; or (iii) personal delivery. Notice shall be deemed to have been given on the date of transmittal if given by facsimile, upon the date of postmark if sent by certified or registered mail, or upon the date of delivery if given by personal
delivery. For purposes of the foregoing, "personal delivery" shall include delivery by nationally recognized overnight courier (such as FedEx), if signed for by the recipient or a delegate thereof. Notices to the School shall be sent to the current address of the then-current Board Chair, with a copy to the then-current Board attorney. The addresses of the Parties for the purposes aforesaid, including the address of the initial Board Chair, are as follows:

The School:
Attn: Chair, Board of Directors
Telephone:
Facsimile:

WITH A COPY TO:
Telephone:
Facsimile:

NHA: National Heritage Academies, Inc.
Attn: Chief Financial Officer
3850 Broadmoor, S.E. Ste. 201
Grand Rapids, Michigan 49512

Telephone: (616) 222-1700
Facsimile: (616) 222-1701

WITH A COPY TO:
Telephone:
Facsimile:

E. Assignment. NHA may assign this Agreement with the prior written approval of the Board, which written approval shall not be unreasonably withheld or delayed.

F. Amendment. This Agreement shall not be altered, amended, modified or supplemented except by memorandum approved by the Board and signed by both an authorized officer of the School and NHA.

G. Waiver. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision. Nor shall such waiver constitute a continuing waiver unless otherwise expressly stated.

H. Severability. If any tern or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terns and provisions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the Parties shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term or provision.

I. Delegation of Authority. Nothing in this Agreement shall be construed as delegating to NHA powers or authority of the Board which are not subject to delegation by the Board under the Charter or applicable law.

J. Compliance with Law. Each party will comply with the Charter and laws applicable to the performance of such party's obligations hereunder.