Early Learning Social Impact Bond Contract Standardization Working Group Governance Issues and Expanded Agreements Listing

Needed Contractual Agreements June 28, 2019

Agreement between the SIB organizers and SIB issuer with an investment banker to assist in conducting feasibility studies, organizing the SIB issuer, structuring assets, finding investors, and provide other transaction advisory, deal construction, and post-closing intermediary services. Agreement between SIB organizers with a third party to provide initial feasibility research focused on specific children and institutions. Bylaws or Operating Agreement of the SIB-issuing organization to specify governance, organizer roles and responsibilities, capital calls, distributions of net income or losses, and other corporate and partnership operating provisions. June 28, 2019

Agreements among investor and creditor groups among each other and the SIB issuer specifying seniority of claims and liquidation rights. Agreements between the SIB-issuer and early childhood service providers to specify service details including maintenance of standards. Agreements between service providers and parents or caregivers to clarify family responsibilities. Agreement between the SIB-Issuer and the government early health or early learning agency to specify data access, confidentiality, cost savings determination and distribution. June 28, 2019

Treat SIB programs as private enterprises Agreement between the SIB-issuer and SIB investors to specify maturities, interest rates, terms of any performance-based payments, and capital repayment. Agreement between SIB-issuer and others with a third-party to provide performance evaluation and performance certification. Acknowledgement of SIB programs in law or regulation by state and federal governments to -- Treat SIB programs as private enterprises Encourage early childhood health and education agencies to consider participating in SIB programs Facilitate agency participation by providing waivers to remove administrative obstacles Exempt SIB programs from state and federal agency contracting and procurement restrictions Facilitate payment of performance-linked savings to SIB issuers Provide subsidies or tax exemption June 28, 2019

Basic framework with flow of funds (arrows) Government Acknowledgement in Law or Regulation Basic framework with flow of funds (arrows) and probable needed contractual agreements (ovals) SIB Organizers and Investment Banker Stakeholders agree to organize an early childhood social impact bond program Business and Philanthropic Leaders and SIB Investors Third Party Program Evaluation and Certification Third Party Feasibility Study SIB Asset Term Agreements 5. SIB Issuer repays investors 1. Investors provide Working Capital SIB Issuer and Research Group Agreement Investor and Creditor Seniority Agreements Organizers and Research Group Agreement SIB Issuer and Government Agency Agreement SIB Issuer and Service Provider Agreement Government Health or Education Agency 4. Part of Government savings paid SIB Issuer SIB-Issuing Organization 2. Operating funds paid to to Service Providers Early Health or Education Service Providers Bylaws or Operating Agreement of SIB Issuer Service Provider and Parent Agreement 3. Cost savings generated

Observations on Governance June 28, 2019

Governance Directing and controlling organizations using structures and processes to assure productive and sustainable working relationships among stakeholders and managers. The structures and processes include -- Organization mission and goals Management responsibility and accountability Audit and performance evaluation Financial transparency and information disclosure Ownership or authority structure and exercise of control rights Board and management structure and process Corporate responsibility and compliance June 28, 2019

Governance Provide for transparency and accountability, and appropriate authority and control for various stakeholders, and not distort the provision of services or create new market imperfections as we attempt to open the flow of capital to high return early childhood investments and eliminate old longstanding market failures. Balance the rights and interests of stakeholders and management to minimize conflicts of interest, and enable stakeholders to put responsibility for success or failure on the shoulders of one component of management, give that component adequate authority, and hold that component accountable. In corporations this component is the board of directors. June 28, 2019

Board of directors in a Leibman-type SIB arrangement – Business and philanthropic leaders initiate formation of a SIB program by creating an organization to issue bonds and repay them from government agency savings resulting from service provider activity. The SIB-issuing organization is responsible for success or failure of the SIB program The SIB board of directors is responsible for managing the SIB- issuer and accountable to SIB issuer owners and to SIB program stakeholders Stakeholders include children, families, early health and education service providers, government health and education agencies, bond investors, regional citizen taxpayers, business and philanthropic sponsors, elected officials, researchers, auditors and performance evaluators. June 28, 2019

Telluride Principles* applied to SIB governance decisions and selection of “investible” interventions -- Children – Child health or school readiness is the highest priority. Parent Involvement – Parents and families are directly involved in service provision. Evidence-based – Resources are allocated to service providers on the basis of sound evidence of what leads to positive child outcomes. Evaluation – The overall SIB program and Service Providers and are rigorously and regularly evaluated. Scalability – In general resources are allocated to interventions that are scalable. * See http://readynation.org/principles-standards/ June 28, 2019